rights issue memorandum - ethex · 2017-06-15 · 25 farringdon street, london, ec4a 4ab receiving...

1

R I G H T S I S S U EM E M O R A N D U M

J U N E 2 0 1 7

2

This invitation is issued by Cafédirect plc solelyto its shareholders.

If you are in any doubt about its contents or the action you should take, you should immediately consult a person authorised for the purposes of the Financial Services and Markets Act 2000 (as amended) who specialises in advising on the acquisition of shares and other securities.

This document does not constitute an approved prospectus as required by section 85 Financial Services and Markets Act 2000 because the amount of the Rights Issue is within an exemption when an approved prospectus is not required. This invitation has not been approved by a person authorised under the Financial Services and Markets Act 2000 because it is an offer limited to the shareholders of Cafédirect plc. The content is therefore not that required for an approved prospectus.

To the best of the knowledge and belief of the Directors of Cafédirect plc (who have taken all reasonable care to ensure that such is the case), the information contained in the document is in accordance with the facts and does not omit anything likely to affect the import of such information. The Directors, whose names appear on page 5, accept responsibility accordingly.

C A F É D I R E C T P L C

Cafédirect plc is registered in Scotland, registered office:4th Floor,115 George Street,Edinburgh, EH2 4JN,registered number SC141496,business address:21 Whiston Street,London, E2 8EX

Rights Issue of up to 3,000,000 New Ordinary Shares of 25p each at 30p for each New Ordinary Share payable in full on application and available only to Existing Shareholders in Cafédirect where the minimum subscription per Existing Shareholder is £30 (100 New Ordinary Shares).

The distribution of this document in jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any of those restrictions. Any failure to comply with any of these restrictions may constitute a violation of the securities laws of any such jurisdiction.

The subscription list for the Rights Issue will open at 10.00 am on Wednesday 14th June 2017 and will close on the earlier of full subscription or 12.00 noon on Friday 14th July 2017 unless extended by the Directors.

The terms and conditions of the Rights Issue are set out in Appendix 4 of this document, which should be read in conjunction with the Application Form accompanying this document and the Online Application.

I M P O R T A N T N O T I C E

3

*Subject to the Directors, entirely at their own discretion, deciding to accept additional applications or late subscriptions.

Subscription list opens

Subscription list closes*

R I G H T S I S S U E S TA T I S T I C S

Rights Issue share price

Number of New Ordinary Shares available under the Rights Issue

Number of Shares in issue following the Rights Issue (assuming full subscription)

Percentage of issued share capital represented by New Ordinary Shares following the Rights Issue and assuming full subscription

Proceeds of the Rights Issue to be received by the Company (assuming full subscription, before expenses)

M I N I M U M I N V E S T M E N T

Minimum investment for an Existing Shareholder through the Rights Issue

Minimum overall investment required through the Rights Issue (before expenses)

10 a.m. Wednesday 14th June 2017

12 noon Friday 14th July 2017

30p per share

3,000,000

11,393,558

26.3%

£900,000

£30 (100 Shares)

£900,000

R I G H T S I S S U E T I M E T A B L E A N D S T A T I S T I C S

4

C O N T E N T S

DIRECTORS, OFFICERS AND ADVISERS

1. OVERVIEW

2. OUR JOURNEY, MISSION AND IMPACT 3. GOVERNANCE AND MANAGEMENT 4. MARKET TRENDS AND BRAND POSITIONING 5. FINANCIALS 6. RISK FACTORS 7. FREQUENTLY ASKED QUESTIONS

APPENDIX 1: Terms and Definitions APPENDIX 2: Details of the Rights IssueAPPENDIX 3: General Information on Cafédirect plcAPPENDIX 4: Procedure and terms and conditions of applicationAPPENDIX 5: Guide to the application form

APPLICATION FORM

5

7

17

24

27

33

37

41

4749505357

59

5

DIRECTORS

Jeff Halliwell (Chair)Bart Van EykBelinda GoodingLebi HudsonLenin Tocto MingaJohn ShawJohn Steel (Chief Executive)

SECRETARY

John Dunlop

REGISTERED OFFICE

4th Floor, 115 George StreetEdinburgh, EH2 4JN

BUSINESS ADDRESS

21 Whiston Road, London E2 8EX

AUDITOR

RSM UK Audit LLP, Chartered Accountants,25 Farringdon Street, London, EC4A 4AB

RECEIVING AGENT

Ethex, The Old Music Hall, 106 – 108 Cowley Road, Oxford, OX4 1JE

REGISTRAR

Capita Registrars Ltd, The Registry,34 Beckenham Road, Beckenham, Kent, BR3 4TU

SOLICITORS TO THE RIGHTS ISSUE

Wrigleys Solicitors LLP, 19 Cookridge Street, Leeds, LS2 3AG

BANKERS

Triodos Bank NV, Deanery Road, Bristol BS1 5AS

D I R E C T O R S , O F F I C E R S A N D A D V I S E R S

O V E R V I E W1.0

6

7

1 . 0 O V E R V I E W

B R I E F B A C K G R O U N D

Cafédirect was originally established in 1991 as a Fairtrade pioneer to support small scale growers in developing countries – offering them a fair price for their coffee and tea and a direct route to the UK market. The Company also had an ambition to inspire consumers and influence competitors by showing that an ethical approach to business can be commercially successful and deliver positive social and environmental impact.

Although the business has faced many challenges along the way, there can be no doubt that Cafédirect has achieved considerable success in meeting these objectives over the last 25 years. Independent market research reveals that the majority of UK consumers now routinely expect their tea and coffee to be ethically sourced - and many are interested in the supply chain and point of origin back story. In response to this, the majority of hot beverage suppliers in the market, including all of the major supermarkets, now offer a range of Fairtrade or ethically sourced teas and coffees.

During this time, Cafédirect has developed valuable and mutually beneficial longstanding relationships with around 40 producer organisations in ten countries (mainly in Central and South America and Africa) and market research indicates that Cafédirect remains one of the most well-known ethical brands in the coffee market.

In 2009 Cafédirect established a standalone charity called the Cafédirect Producers Foundation, which is run by the coffee and tea producers. Cafédirect makes an annual contribution to the Foundation (£188,400 in 2016) which can then be match funded by the Foundation. Since 2010, the Foundation has successfully raised over £4m for investment in agricultural training and inclusion programmes with grower co-operatives and communities in Latin America and Africa. This is a rapidly growing success story and in 2016 the Foundation generated over £1 million, raising over £5 from other donors per £1 of Cafédirect contribution.

Our Machu Picchu coffee, sourced fromco-operatives in Peru, is the fifth best-selling Roast & Ground coffee brand in the UK.

M A C H U P I C C H U

8

1 . 0 O V E R V I E W

The Company has made good progress with many of these initiatives including:

• The acquisition of our own roastery facility near to our HQ in Hackney, London.

• Development of our “Handpicked” premium coffee subscription service.

• Development of a comprehensive food service business including provision of machinery, servicing and supplies.

• Relocation and streamlining of our head office function in November 2016 - this has led to a 25% reduction in company overhead costs since 2015.

• The acquisition of the London Tea Company business and brand from Finlay’s in May 2017 – which provides us with an exciting new product and brand in the growing fruit and herbal tea market.

The company’s trading performance has improved significantly this year and the directors are confident that there is a real momentum and an opportunity to rebuild the Cafédirect business in a more sustainable and focused way without compromising the core ethical trading principles behind our brand.

O U R T R A D I N G P E R F O R M A N C E

As our shareholders will know from recent company communications, despite our proud record of social and environmental achievements, Cafédirect has suffered a number of years of trading losses as Fairtrade coffee and tea have become mainstream and the market increasingly crowded and price competitive. Cafédirect’s sales have reduced from a peak of over £22 million in 2007 to around £12 million today - mainly as a result of strategic de-listings by some of our major supermarket and wholesale customers in favour of their own label Fairtrade products.

In response to these competitive pressures the Cafédirect business model needed to adapt and evolve. In recent years the management team has been working hard to diversify the Company’s product range and customer base in order to secure growth in more profitable, and faster growing elements of the market. The Company is also building more resilient relationships with clients who share Cafédirect’s brand values – and this approach allows us to operate with a much reduced overhead and marketing cost base.

R O A S T E R Y

H A N D P I C K E D

9

1 . 0 O V E R V I E W

• We have secured an agreement with Triodos Bank to convert our £1.4 million bank overdraft to an 8 year term loan plus seasonal stock facility(achieved subject to a successful Rights Issue).

We are now aiming to raise £900,000 of new equity share capital from our Existing Shareholders through a Rights Issue. This is vitally important for Cafédirect as it will provide new funds for targeted investment in the business and sufficient working capital headroom to cope with seasonal trading fluctuations over the next couple of years. A successful Rights Issue will also ensure we secure a clean audit report, which will improve our credit rating and ability to negotiate better terms with suppliers.

Following the Rights Issue, we aim to: • Recruit experienced new staff in our food service and international sales teams to drive sales growth in these areas. • Launch new brand messaging and packaging across the entire product range in Q4 2017. • Complete the implementation of a new IT system (SAP ERP) to improve business intelligence and operational efficiency across sales, financial and operational areas.

Alongside these new initiatives, the Cafédirect board and management team recognise the importance of ensuring that we are excellent at our “business as usual” in order to drive growth in sales and control costs. Although this will be challenging with a significantly lower cost base, we already feel a much leaner organization and are trading in line with our 2017 business plan.

The Cafédirect board of Directors have prepared a detailed five year 2017 – 2021 business plan which aims to restore the Company to sustainable growth and profitability based on realistic market assumptions. The first year of the plan, 2017, is a crucial one for the business as we are implementing a very significant reduction in our trading losses, a return to organic growth in the core business, a strategic acquisition and a restructuring of our finances including £900,000 of new equity share capital.

By June 2017 the Company has already achieved some very important milestones towards the 2017 plan:

• We have agreed an increase in product prices with all of our customers to protect our gross margins following the sterling devaluation against the US$ post Brexit vote. This is important because coffee is traded in US$. (achieved by April 2017) • We have secured the acquisition of the London Tea Company business and brand from Finlay Beverages Ltd. (achieved in May 2017)

O U R B U S I N E S S P L A N A N D T H E I M P O R TA N C E O F T H E R I G H T S I S S U E

10

1 . 0 O V E R V I E W

The London Tea Company acquisition

In May 2017, we reached agreement with Finlay’s, a subsidiary of the Swire Group, to acquire the London Tea Company business and brand. The purchase consideration is commercially confidential but the transaction represents an excellent acquisition for Cafédirect. The London Tea Company business is 100% Fairtrade certified, has annual sales of just over £1 million, healthy gross profit margins and provides access to a number of major new retail and leisure industry customers which will provide cross selling opportunities.

The London Tea Company branding is contemporary and the business offers a wide range of high quality tea products primarily operating in fruit and herbs. There is potential for Cafédirect’s sales and marketing expertise to grow the brand. Until now Cafédirect has been solely represented in the black tea category, which is in long term decline, however this acquisition moves Cafédirect into the higher growth, higher value speciality fruit and herbal tea category and provides an opportunity for us to reinvigorate our entire tea business.

The General Manager of London Tea Company has joined Cafédirect and is now working on heading up and integrating the business for us.

T H EL O N D O N

T E A C O M P A N Y

11

1 . 0 O V E R V I E W

CAFÉDIRECT - PROFIT AND LOSS ACCOUNT SUMMARY

YEAR TO 31 DEC

Net sales

Gross profitGross margin %

Administration costsInterest

Net profit/(loss) for year

2015Audited

£’000

10,949

2,64324.1%

(3,708)(5)

(1,070)

2016Actual£’000

10,135

2,04420.2%

(2,917)(67)

(940)

2017Forecast

£’000

12,063

2,60321.6%

(2,780)(59)

(236)

2018Forecast

£’000

13,589

2,95221.7%

(2,909)(58)

(15)

2019Forecast

£’000

14,576

3,20222.0%

(3,007)(53)

142

2020Forecast

£’000

15,619

3,46322.2%

(3,101)(48)

314

2021Forecast

£’000

16,953

3,82022.5%

(3,206)(42)

572

Important notes: Past performance is not an indicator of future performance. Forward looking statements are merely unaudited forecasts and projections and should not be relied upon as indicators of future performance.

F I N A N C I A L S U M M A R Y

A summary of our recent trading performance and five year financial forecast is as follows:

Recovery drivers

The Directors anticipate that it will take two years to return Cafédirect to profitability and that this will be achieved through prudent sales growth of 7 – 8% p.a. in our core business, plus the addition of London Tea Company sales from mid-2017, by protecting our margins and operating with a lean overhead. Our investment plans are modest but very focused given financial constraints, and assume only five new members of staff over the five year period, four of whom are to be recruited in 2017.

The financial forecasts shown above include a continued annual contribution of £150,000 per annum to the Cafédirect Producers Foundation.

12

1 . 0 O V E R V I E W

Our five year sales forecast is as follows:

We are forecasting a steadily reduced reliance on sales to multiples (large supermarket chains) from 55% of total sales currently to around 40% by 2021 despite a forecast increase of 4% per annum in total value terms.

This change in sales mix is partly as a result of additional sales from the London Tea Company acquisition together with higher growth in sales into food service, international and handpicked segments, all of which will receive targeted investment in sales resource following the Rights Issue.

FORECAST SALES (NET) BY CHANNEL 2015-2021

MULTIPLESUK FOUNDERS

18,000,00016,000,00014,000,00012,000,00010,000,0008,000,0006,000,0004,000,0002,000,000

2015 2016 2017 2018 2019 2020 2021

PEROSFOODSERVICE

INTERNATIONALHANDPICKED

INDEPENDENTSIRELAND LONDON TEA

13

1 . 0 O V E R V I E W

The valuation of Cafédirect’s shares at 30p is significantly lower than the implied valuation of the business when compared to other comparable branded food and drink transactions in the market. However, the directors recognize that potential investors will wish to see potential for capital value growth in this investment and the fact that this is a Rights Issue does not disadvantage any existing shareholders who wish to take up their rights.

Institutional shareholder commitment

The company’s major institutional shareholder, Oikocredit (19.9% shareholder), has reviewed the company’s business plan and have committed to support the Rights Issue at the recommended 30p per share. In addition, Oikocredit have gone further and agreed to underwrite up to 50% (£450,000) of the entire Rights Issue to help ensure its success in the event that other shareholders do not take up their share of the Rights Issue.

Directors and management team commitment

Most of the company’s Directors and senior management team have also committed to support the Rights Issue and have agreed to collectively invest £6,650 should there be sufficient shares available after all Existing Shareholders’ pre-emption rights.

Employees

Cafédirect now has 24 employees (reduced from 31 one year ago) and the Directors believe it is important to keep them positive and incentivised following a difficult period of change and restructuring in the business.

The Company has an employee share ownership scheme, set up in 2004, which holds 35,400 shares in the Company. The Company is proposing to award 26,400 shares at the Rights Issue share price to 22 existing employees, representing 0.31% of the issued share capital, following a successful Rights Issue, to encourage their long term engagement with the Company. A further 9,000 shares will be available to future employees in due course.

D E TA I L S O F T H E R I G H T S I S S U E

In order to ensure our recovery and deliver the growth set out in our five year business plan, Cafédirect is seeking to raise £900,000 of new equity from Existing Shareholders through this Rights Issue. This means that all of Cafédirect’s Existing Shareholders have the option to invest an amount proportionate to their existing % shareholding in the Company to prevent dilution. Each shareholder will have received a personalised letter from the company confirming their individual shareholding and pre-emption rights.

All Existing Shareholders may apply to invest a higher proportion of shares than they currently hold (i.e. over above their pre-emption rights), but in the event of an over subscription of the Rights Issue, this will be scaled back on a pro rata basis.

For the purposes of the Rights Issue, the Directors have decided to price the shares at 30p per share. This price is lower than the £1 per share used in the 2005 share issue and the 80p per share used in the 2011 share issue. The current Net Asset Value of the company, is 31p per share.

14

1 . 0 O V E R V I E W

The intention of this Rights Issue is therefore threefold:

• Firstly to secure the future existence of Cafédirect as a sustainable business,

• Secondly to continue our support for the Cafédirect Producers Foundation and its valuable programme work with grower communities, and

• Thirdly to price the shares such that those Existing Shareholders who decide to invest have a realistic expectation of achieving a capital gain if the Company can deliver on its five year business plan.

With the third objective firmly in mind, the Directors are committed to developing an opportunity for shareholders to sell their investment over the next five years should they wish. This exit opportunity is likely to take the form of either an institutional replacement capital fundraising or a stock market (AIM) listing – either of which could in principle be achieved whilst preserving the company’s mission and ethical objectives.

R I S K F A C T O R S

The Directors consider the key investment risk factors to be as follows:• An investment in an unquoted security of this nature is inevitably speculative, and involves a degree of risk. It may not be possible to realise the value of your shares or to obtain reliable information about the risks to which they are exposed. The value of your shares is largely dependent on the success of the company’s business model, which is not guaranteed.

• It is vital that you should note that the Financial Services Compensation Scheme does not apply to an investment in the company’s shares through this Rights Issue, and in the event of a failure of the company you will not be entitled to make a claim against the scheme.

• Although the company’s shares are transferable, they will not be listed on a recognised stock exchange and it may therefore be difficult to sell them. The company’s shares are listed on a secondary market (the Matched Bargain Market) by Ethex, which aims to match willing buyers with willing sellers, however there is no certainty that there will be a buyer for your shares should you wish to sell them, nor what price they will pay.

A summary of the principal macro-economic, operational and financial risks faced by the business are set out in section 6.

S H A R E H O L D E R R E T U R N S A N D E X I T O P T I O N S

Although Cafédirect shareholders can take great pride in supporting a business which has generated significant social and environmental impact and changed the way consumers expect their tea, coffee and cocoa to be sourced, the Directors are very aware that financial returns from an investment in Cafédirect have not been forthcoming for shareholders to date.

15

1 . 0 O V E R V I E W

With these objectives in mind, the Company is offering the following incentive:

• Any investment in the Rights Issue in excess of £150 will qualify for a 6 month Cafédirect Handpicked subscription for £2 a month in 2018 –a saving of over £30.

• An investment in the Rights Issue in excess of £300 will qualify for a 12 month Cafédirect Handpicked subscription for £1 a month in 2018 –a saving of over £70.

All investors will be contacted directly by the Cafédirect team following the Rights Issue in order to organise individual 2018 Handpicked subscription details.

C L O S I N G D A T E

The Rights Issue will close on the earlier of full subscription or 12 noon on 14th July 2017, unless extended by the Directors at their full discretion.

A S S I S TA N C E

Enquiries about the application process should be referred to Ethex at [email protected] or 01865 403 304. To access this Rights Issue Memorandum, apply for shares or check on the progress of the Rights Issue please go to www.ethex.org.uk/cafedirectshareoffer.

It should be noted that neither Ethex nor Cafédirect are able to provide advice to prospective investors on investments or the merits or otherwise of investing in the Company through the Rights Issue.

H O W T O A P P L Y

Ethex will be acting as receiving agent for the Rights Issue. Applications for New Ordinary Shares can be made online through the Ethex website at www.ethex.org.uk/cafedirectshareoffer, (the preferred route) or by completing the Application Form at the back of this document. Payment must be made by bank transfer or by cheque.

All applications must be made in accordance with the terms and conditions of the application which are set out in both Appendix 4 of this document and the online application.

C A F É D I R E C T H A N D P I C K E D – D I S C O U N T E D S U B S C R I P T I O N

Cafédirect has just over 4,300 Existing Shareholders and the Company’s Directors are keen to encourage all shareholders to both make an investment in the Rights Issue and (if not already subscribers) try a subscription to Cafédirect Handpicked – which offers a range of premium single origin coffees from around the world, all hand roasted and packaged at our micro-roaster facility in Hackney.

16

O U R J O U R N E Y ,M I S S I O N & I M P A C T

2.0

17

T H E J O U R N E Y S O F A R

Cafédirect was born following the coffee crisis in 1989 when an international coffee agreement collapsed. Middlemen swooped in to buy the coffee and the lives of millions of smallholder farmers around the world was in jeopardy as they were left with no choice but to sell their harvests at rock bottom prices.

In response, three coffee growing communities from Peru, Costa Rica and Mexico each shipped a single container of coffee, loaned on trust, to the UK. Four charities, Oxfam, Traidcraft, Twin and Equal Exchange bought the containers and the beans were roasted and sold through church halls, charity shops and at local events. And so Cafédirect was created.

The business grew in popularity and availability, revered as a pioneer of a new way of doing business. In 1992 the Co-op became the first mainstream grocer to stock Cafédirect and distribution built rapidly from there. Two years later, the Fairtrade mark was launched and Cafédirect was the first coffee brand in the UK to carry it.

In the late 1990’s and early 2000’s Cafédirect expanded rapidly - moving into the food service sector, entering international markets and being stocked by all of the major UK supermarkets. The business also expanded product categories into tea and hot chocolate.

In 2004 Cafédirect became a plc and raised £5 million through a successful EIS share offer to over 4,300 individual shareholders. At the same time, the company became part owned by the growers through a shareholding held by Cafédirect Producers Limited and also established the Cafédirect Gold Standard (see section 3) -a unique set of rules designed to preserve the company’s values and social and environmental objectives.

Over the last 10 years, the coffee and tea market in the UK has grown rapidly and become extremely competitive with most of the major UK supermarkets establishing their own brand products. Fairtrade now accounts for around 7.5% of the total UK coffee and tea market and we can be proud of our pioneering role in this development.

2 . 0 O U R J O U R N E Y , M I S S I O N & I M P A C T

T H E G R O W E R S

18

O U R M I S S I O N

Cafédirect’s mission is:

“We champion the work and passion of smallholder growers, delivering great tasting hot drinks to improve livelihoods, whilst pioneering new and better ways to do business”.

Cafédirect is a pioneering enterprise and we believe that business can be a positive influence on society and the environment.


19

O U R I M P A C T

We work hard to achieve our mission and positive impact in a number of ways:

• We are activists - and have supported the growth of Fairtrade since its inception in the UK in 1994 and have consistently played an active role in Fairtrade influencing strategy and policy and holding the movement to account.

• We deliver the Fairtrade model - and have developed valuable longstanding relationships with around 40 producer organisations in 10 countries providing them with a Fairtrade price and route to market through our direct procurement model. We have paid nearly £11 million in Fairtrade Premiums since 2004.

• We show how business can be done differently - and actively encourage the involvement of our producer partners in our governance and strategic direction. Two of our board members – Lenin Tocto (Peru) and Lebi Hudson (Tanzania) are representatives of our producer community.

• We go “beyond Fairtrade” – through our annual donation (over and above Fairtrade purchasing) to Cafédirect Producers’ Foundation which directly helps our producers, to invest in capacity building infrastructure. Over the last 4 years, we have paid £745,000 in donations to Cafédirect Producers’ Foundation or directly to producer projects.

• We remain pioneering in order to grow our impact - in 2009 we established the standalone, grower owned charity – The Cafédirect Producers’ Foundation (CPF).


20


Cafédirect has pioneered, multi-stakeholder collaborations with growers since its inception and continues to do so via the Cafédirect Producers’ Foundation – examples of Cafédirect’s work which have been emulated by others include:

C E P I C A F E

An incredible 75% of the world’s coffee is grown by smallholder farmers with tiny plots of land, and at Cafédirect we are seeing first hand that these farmers are at risk from the effects of climate change. Their livelihoods and the quality coffee supply is increasingly under threat.

Our Coffee Climate Crisis report details our pioneering work in Peru.

(http://cafedirect.co.uk/wp-content/uploads/downloads/2012/05/Coffee-Climate-Crisis.pdf)

Cepicafe is a co-operative in Peru, whose livelihoods were under threat due to climate change in the region. In this groundbreaking project, Cafédirect engaged directly with subsistence farmers unrelated to Cafédirect’s supply chain whose activities were destroying the environment and having a negative impact on coffee growing in the region. This innovative, landscapes approach, led to subsistence farmers changing their methods and trading carbon credits internationally in exchange for reforestation – a global first and powerful example in the fight against climate change.

http://youtu.be/CRi7bfTBeSE

S A O T O M E

Cafédirect, in partnership with the IFAD and DFID, enabled 11 villages to increase their capacity to process raw cocoa, resulting in better prices for farmers and a luxury hot chocolate for Cafédirect & others!

Cafédirect supported the growers by forming a co-operative, Cecaq - 11, enabling the 11 villages to trade directly on the international market.

CECAQ-11 members are now able to dry and ferment cocoa beans resulting in better payments than for raw cocoa. Cafédirect has also supported the co-op in becoming Fairtrade certified.

http://www.cafedirect.co.uk/downloads/Sao-Tome-The-Journey-to-Direct-Trade.pdf

21


T H E C A F É D I R E C T P R O D U C E R S ’ F O U N DAT I O N ( C P F )

In 2009 Cafédirect established CPF as a standalone charity run by the coffee and tea producers (i.e. “by farmers for farmers”) ensuring it is empowering, collaborative and pioneering. The charity was initially financed through the core annual donations made by Cafédirect but has been increasingly successful in match funding and leveraging these donations as shown in the table below.

CPF - LEVERAGING CAFÉDIRECT DONATIONS

1,000,000

800,000

600,000

400,000

200,000

0

2010 2011 2012 2013 2014 2015 2016

CAFÉDIRECT OTHER DONORS

22


Since 2010 CPF has raised over £4m for investment in various agricultural training, inclusion and climate change programmes in Latin America and East Africa. Further details of CPF’s activities can be found on the charity’s website at http://producersfoundation.org

CPF is steadily becoming a real success story and demonstrates the importance of Cafédirect’s pioneering approach to business and impact. In 2016 CPF generated over £1 million of funding by raising £5 from other donors for every £1 donated by Cafédirect.

23

3.0

G O V E R N A N C E& M A N A G E M E N T

24

G O V E R N A N C E A N D T H E C A F É D I R E C T G O L D S TA N D A R D

In 2004, Cafédirect designed its own triple bottom line “Gold Standard” which commits the company to:

• Be grower focused in all we do

• Take integrated environmental action, and

• Become an inspirational and accountable business

Protection of the Gold Standard and the Company’s mission is achieved through a single Guardian Share in Cafédirect which is owned by The Guardian Share Company. The Guardian Share Company have a right of veto over any changes to the Gold Standard key principles and a right to appoint a single Director to the board of Cafédirect.

The Guardian Share Company shareholders consist of Oxfam (one of the original founders of Cafédirect) Oikocredit, (the largest institutional shareholder in Cafédirect) and Cafédirect Producers Limited (CPL) - which represents the interests of the shareholder growers.

The Gold Standard is being redeveloped to ensure that it remains relevant for the next 20 years and to take into account the Sustainable Development Goals ratified by the United Nations in September 2015. In 2017 The Guardian Share Company will be engaged to approve these developments, prior to adoption.

The key principles underpinning the Gold Standard are included in the Company’s Articles of Association and these are applied in carrying out the objects of the company:

• A requirement to support and be influenced by smallholder growers, including giving the growers the right to appoint one quarter of the directors (up to 2).

• A financial policy structured to provide social and financial return, with at least one third of the profits of the company specifically allocated to strengthening smallholder growers. This is normally done through the Cafédirect Producers’ Foundation.

• Measurement of the social, environmental and financial impacts of its business, setting targets for sustained improvement and annually reporting progress in a transparent manner. This is achieved through key performance indicators linked to the Gold Standard, which have been integrated into employees’ objectives and form a key component of the executive team’s bonus scheme.

3 . 0 G O V E R N A N C E & M A N A G E M E N T

25

E M P L O Y E E S

Cafédirect currently has 24 employees with an average length of service of around 3 years. The Rights Issue will enable the Company to recruit 4 key new positions over the next 12 months to help drive and support its growth plans.

B O A R D O F D I R E C T O R S

Chairman – Jeff HalliwellJeff enjoyed a highly progressive commercial and leadership career with organisations such as Mars, Fox’s Biscuits/Northern Foods and First Milk. In addition to chairing Cafédirect since 2012 Jeff holds a number of other non-executive posts within public and private sector organisations including in education, travel and food and drink.

Chief Executive Officer – John SteelJohn joined Cafédirect in 2012 and has a blend of FMCG leadership experience from large companies such as Nestle to early stage businesses such as ethical premium food business Cornish Sea Salt.

S E N I O R E X E C U T I V E M A N A G E M E N T T E A M

Chief Executive Officer – John SteelJohn joined the business in July 2012 and has a blend of FMCG leadership experience spanning large organisations such as Nestle and start up/early stage businesses including ethical premium food business, Cornish Sea Salt. John is determined to make business a force for good and is extremely dedicated to Cafédirect’s vision and purpose.

Head of Sales – Julian BurnhamJulian joined Cafédirect in 2009 and has enjoyed a progressive career with the business in a number of key sales roles. With a background in large corporates and ethical smaller enterprises. Julian is very passionate about Cafédirect’s way of doing business.

Head of Operations – Katrina PantelliKatrina joined Cafédirect in 2000 and has been a key driver of change in the organisation driving culture, systems and most recently operations. A great believer in Cafédirect’s way of doing business Kat is a tireless advocate for the business.

Head of Finance – John DunlopJohn has worked at Cafédirect since mid 2016 and brings a wealth of experience from KPMG, large corporates such as Bacardi-Martini and from ethical pioneer Neal’s Yard Remedies.

Non-Executive Director – Belinda GoodingBelinda was appointed as a director in 2011 and has an outstanding pedigree from Mars, led Duchy Originals as CEO and most recently runs her own organic foods business, Roots & Wings.

Non-Executive Director – John ShawJohn has been a director for 8 years. Prior to joining Cafédirect he was Finance Director at leading organisations such as Oxfam and the Royal Mail. In addition to his role at Cafédirect John works tirelessly for a number of good causes including Farm Africa.

Non-Executive Director – Bart Van EykBart is a key member of Oikocredit’s leadership team and has represented this key investor on the board of Cafédirect since 2015.

Non-Executive Director – Lenin ToctoLenin is a highly progressive business leader at Aprocassi (Asociacion Provincial de Cafetaleros Solidarios San Ignacio) a coffee co-operative with 436 smallholder coffee growers. Located in San Ignacio in northern Peru, Aprocassi have been partners with Cafédirect since 2001.

Non-Executive Director – Lebi HudsonLebi is a General Manager at RSTGA (Rungwe Smallholders Tea Growing Association) with 15,699 smallholder tea growers. Located 950km from Dar-es-Salaam in Tanzania, RSTGA have been partners with Cafédirect since 2003.

3 . 0 G O V E R N A N C E & M A N A G E M E N T

J E F F J O H N

26

4.0

M A R K E T T R E N D S &B R A N D P O S I T I O N I N G

27

C O F F E E

While the total market size has contracted slightly over the last year with a 2% decline, coffee has increased its share of the hot beverage market and accounts for around 59% of this total, up from 52% in 2010.

Coffee is sold in two categories: Roast & Ground (‘R&G’) and Instant (Freeze Dried, Granules and Powder). Roast & Ground continues to grow as a category with 7.3% annual value growth in 2016, although this has been driven primarily by Pods. Instant coffee continues its gradual decline with a 2.5% value reduction in 2016.

The R&G category is Cafédirect’s strongest sector because we retain a 2.5% UK market share and this therefore provides the best opportunity for us to demonstrate to consumers our points of difference. Cafédirect’s Machu Picchu R&G brand has current annual sales of £3.4 million per annum making it one of the best selling products in this growing market.

T E A

Tea has experienced a marked decline over the last five years. In 2010 tea accounted for 39% of the hot beverages market but now only accounts for less than 33% of this market.

This overall decline masks a trend however which is the rapid growth in the green and fruit & herbal tea sectors, growing at 19% and 7% respectively last year. Sales of green tea bags, fruit and herbal tea bags and other speciality teas now account for a combined value of 29% of the tea market (up from 24% in 2013) though this still isn’t enough to prevent the decline in overall tea sales.

Cafédirect’s recent acquisition of the London Tea Company positions the Company well in the fastest growing segment of the tea market.

The total UK retail hot beverage market in 2016 is worth around £1.7 billion split as follows:

4 . 0 M A R K E T T R E N D S & B R A N D P O S I T I O N I N G

TOTAL UK HOT BEVERAGE MARKET - 2016

Total market value (£m)

Market Share (%)

Value Growth (%)

Volume Growth (%)

Cafedirect market share (%)

Source: Nielsen ScanTrak Total Coverage for the 52 weeks ended 10 September 2016.

326

19.1%

7.3%

3.7%

2.5%

684

40.1%

(2.5%)

(2.3%)

0.2%

557

32.7%

(4.8%)

(7.1%)

0.1%

138

8.1%

(3.5%)

(5.0%)

0.1%

1,705

(1.7%)

(5.2%)

0.6%

Roast &Ground Coffee

InstantCoffee Tea Hot chocolate

& malted drinks Total

28

M A R K E T T R E N D S

Market research amongst both consumers and industry leaders has identified some clear market trends which will inform Cafédirect’s future strategy.

• Coffee shops are by far the fastest growing segment of the UK market and are forecast to continue growing by 6% per annum to exceed 27,000 outlets by December 2020.

• Out-of-home locations such as transport hubs, offices and other places of work, department stores, supermarket coffee shops and leisure venues are also experiencing strong growth. There are over 280,000 out of home food and beverage outlets in the UK and the majority of these buy their hot beverages from food service wholesalers.

• Consumers are becoming more sophisticated and expect to receive more for their money, although this does not mean they expect to pay less. Skilfully adding value is the key to attracting and retaining loyalty and maintaining margins.

• Quality and choice are becoming ever more important as the UK continues to become a nation of coffee connoisseurs. Greater availability of quality coffee (and speciality teas) provides consumers with better choice wherever they are.

• Ethical considerations remain important, however many consumers expect ethical sourcing to be the norm rather than a differentiated advantage. Market research shows that many consumers are more interested in quality, taste and value for money than ethical credentials when making purchasing decisions. • Roastery operations - Micro-roaster competition remains the key trend in 2016 and 2017 as growing numbers of artisan roasters continue to enter the UK market.

• Subscription services – UK consumers are increasingly purchasing goods and services through a recurring fee or subscription and the coffee market is no stranger to this latest development with a range of coffee brands offering a subscription model.


29

T H E F A I R T R A D E S E G M E N T

The Fairtrade part of the UK retail coffee and tea beverage market is worth £118 million (7.5% of the total coffee and tea market). Sainsbury’s is the supermarket with the largest share (28%) followed by Tesco and Waitrose with 26% and 23% shares respectively

At 16% Fairtrade is much stronger in the R&G coffee category than in the other product categories, though Fairtrade as a percentage of the R&G category is down from its peak of 33% in 2010 – a significant trend.

There is a small, but growing understanding among consumers of the advantages of direct trade and many of the micro roasters and coffee shop chains are becoming skilled in explaining and marketing their ethical supply chain to customers.

Market figures indicate that Cafédirect currently has approximately 8.5% of the UK Fairtrade coffee market and so it remains a crucial market for the Company, although we do need to be aware of changing consumer perceptions and demand.


30

C A F É D I R E C T M A R K E T P O S I T I O N I N G

Although Cafédirect remains in a fast moving and highly competitive market, the Directors believe that the company is well positioned to return the business to growth and profitability for a number of reasons:

Product range, customers and capability

• In coffee, the focus of Cafédirect’s product range is in the R&G category – which is growing at 7.3% per annum in value terms. Cafédirect already has a 2.5% share of this market and an 8.5% share of the Fairtrade coffee market – both of which give the Company a significant foothold on which to build.

• In tea, Cafédirect’s acquisition of LTC means that we now have a meaningful presence in the growing speciality and fruit and herbal tea market. The LTC deal also provides Cafédirect with an opportunity to access new customers and a younger demographic consumer group.

• We are purposefully prioritising and growing our sales with those customers who share an affinity with our brand values and want to develop deeper long term and mutually beneficial relationships. This approach should reduce the risk of de-listing that has affected the company negatively in the past.

• We have hugely improved our capability in food service over the last couple of years and have shown that we can provide a roll out programme direct to new clients such as Greenwich Leisure Limited and Royal Albert Hall, including installation of machinery and training.

• We have established our own roasting facility and online subscription service – both of which position us well in the latest growth segment of the market. To support this business, we have upskilled staff - including two employees becoming qualified coffee Q graders (qualified coffee graders).


ROYALALBERT HALL

31

B R A N D P O S I T I O N I N G

This is perhaps Cafédirect’s biggest challenge in a market where ethical sourcing and Fairtrade remain important to consumers but (according to market research) where other considerations such as quality, breadth of product range, packaging and service capability are increasingly vital for success.

In the last 5 years Cafédirect has aimed to position itself to balance its well differentiated brand (the original ethical grower focussed business) with provision of high quality hot drinks. By building our product range, customer base and capability as described above, Cafédirect has a great opportunity to return to sustainable growth in some higher growth coffee and tea markets without compromising its Gold Standard objectives.


As part of our future plans Cafédirect will express the following brand positioning in all that we do:

We are a force for good – improving smallholder farmer’s livelihoods and driving the sustainability agenda globally. We inspire people through our unique way of doing business and our great tasting, high quality hot drinks. Cafédirect fearlessly seeks out the best by championing the work of smallholder growers.

We believe in ridiculously good coffee and ridiculously good business, using fairness to make people’s lives better and a taste experience that’s second to none. The brand is daring, driven and radiant. Ridiculously good is about going above and beyond plain old ‘good’. It’s when an experience, a place or event just delivers big time; giving us moments that turn into memories. When we get to taste the best in life, food and drink that gives us real joy and fills us with positivity.

32

F I N A N C I A L S5.0

33

P R O F I T A N D L O S S A C C O U N T

A summary of Cafédirect’s historical and projected profit and loss account over the five year forecast period is as follows:


The five year forecast shows a steady return to growth and profitability driven by the following key assumptions:

• Core sales growth (excluding London Tea Company) of between 6% and 9% per annum underpinned by growth in food service and international sales following investment in the respective sales teams.

• Growth in tea sales following the acquisition of the London Tea Company business in May 2017. London Tea Company sales are forecast to grow and contribute £2.3m to total sales by 2021.

5 . 0 F I N A N C I A L S

CAFÉDIRECT - PROFIT AND LOSS ACCOUNT SUMMARY

YEAR TO 31 DEC

Net sales


Overheads:Marketing and communicationsAdministration costsCafédirect Producers’ FoundationBank interest

Net profit/(loss) for year

2015Audited

£’000

10,949

2,64324.1%

(942)(2,578)

(188)(5)

(3,713)

(1,070)

2016Actual£’000

10,135

2,04420.2%

(292)(2,437)

(188)(67)

(2,984)

(940)

2017Forecast

£’000

12,063

2,60321.6%

(457)(2,173)

(150)(59)

(2,839)

(236)

2018Forecast

£’000

13,589

2,95221.7%

(469)(2,286)

(154)(58)

(2,967)

(15)

2019Forecast

£’000

14,576

3,20222.0%

(510)(2,339)

(158)(53)

(3,060)

142

2020Forecast

£’000

15,619

3,46322.2%

(547)(2,392)

(162)(48)

(3,149)

314

2021Forecast

£’000

16,953

3,82022.5%

(593)(2,447)

(166)(42)

(3,248)

572

34


• Primarily as a function of the acquisition of the London Tea Company and the increased rate of growth in food service and international sales over the forecast period, there is a projected reduction in the proportion of total annual sales to multiples - from 55% in 2016 to 40.5% by 2021. This is a strategic decision to reduce exposure to key multiple accounts and to invest in higher margin revenue streams.

• Gross margins for core business sales channels are based on 2016 actual margins and remain unchanged throughout the five year period – the increase in projected gross margin over the forecast period shown above is therefore entirely due to changing sales mix.

• Four new staff members are recruited in 2017 - a London Tea Company general manager (June 2017) and a Food Service Controller, International Business Development Manager and Sustainability Projects Manager (Q4 2017), plus a new machinery engineer in January 2018. No further recruitment is anticipated during the five year period;

• Administration costs in 2017 include non-recurring transaction costs of £57,000 relating to legal and professional costs in relation to the acquisition of the London Tea Company and the refinancing of the bank overdraft;

• Assuming a successful Rights Issue, the existing £1.4 million bank overdraft facility will be replaced by a new 8 year term loan of £1.3 million and seasonal stock facility with Triodos Bank in July 2017.

• The marketing and communications budget is limited to 3.5% of sales between 2018 and 2021 (3.8% in 2017); and

• The annual donation to the Cafédirect Producers’ Foundation increases in line with annual sales using a planned £150,000 donation in 2017 as a benchmark.

Current year performance

The Directors are pleased to report that the Company is trading ahead of business plan this year to date and significantly ahead of the same period last year as shown in the table below:

CAFÉDIRECT - PROFIT AND LOSS ACCOUNT FOR 5 MONTHS TO 31 MAY

Net sales


Overheads:Marketing and communicationsAdministration costsCafédirect Producers’ FoundationBank interest

Net profit/(loss) for the 5 month period

2017Actual£’000

4,183

97523.3%

(227)(861)(63)(37)

(1,188)

(213)

2017Budget

£’000

4,191

93022.2%

(221)(864)

(63)(28)

(1,176)

(246)

2016Last year

£’000

4,079

78419.2%

(255)(945)

(79)16

(1,263)

(479)

35


B A L A N C E S H E E T

A summary of the most recent and forecastbalance sheets is as follows:

The balance sheet summary assumes that the Rights Issue achieves the Target Subscription of £900,000 and that the bank overdraft is refinanced through an 8 year term loan of £1.3 million in July 2017.


CAFÉDIRECT - RECENT BALANCE SHEET AND BALANCE SHEET FORECASTS

As at 31 Dec

Non-current AssetsFixed assets

Current AssetsStockDebtorsBank and cash

Total Assets

EquityCalled Up Share CapitalShare PremiumProfit and Loss Account

Non-Current LiabilitiesBank term loan

Current LiabilitiesBank overdraftTrade Creditors and accruals

Total Equity and Liabilities

2016Actual£’000

297

2,7732,302

905,165

5,462

2,0984,110

(3,441)2,767

-

1,1411,5542,695

5,462

2017Forecast

£’000

185

2,7971,928

8785,603

5,788

2,8484,260

(3,642)3,467

1,205

-1,116

2,322

5,788

2018Forecast

£’000

101

3,0372,019

5475,603

5,703

2,8484,260

(3,657)3,451

1,043

-1,2092,252

5,703

2019Forecast

£’000

123

3,2392,187

3635,789

5,912

2,8484,260

(3,515)3,593

880

-1,4392,319

5,912

2020Forecast

£’000

142

3,4582,351

2076,015

6,157

2,8484,260

(3,201)3,907

718

-1,532

2,250

6,157

2021Forecast

£’000

141

3,7282,530

2856,544

6,684

2,8484,260

(2,629)4,479

555

-1,6502,205

6,684

36

R I S K F A C T O R S6.0

37

The Company maintains a risk register which is regularly reviewed by the Directors, updated and scored on a RAG type basis. A summary of the principal commercial and operating risks facing Cafédirect and any mitigating measures is as follows:

M A C R O A N D E C O N O M I C R I S K S

CURRENCY RISKS AND BREXIT

Risk: Purchases of all raw materials are denominated in US dollars and coffee and cocoa are both processed in the Euro zone exposing the company to currency fluctuations (sales are in £ sterling). Brexit has resulted in a significant weakening in sterling making the company’s raw material and processing inputs more expensive. There is a risk that the company may not be able to pass on increased costs to customers resulting in lower margins and financial losses.

Mitigation: Company policy is to enter into forward contracts to buy US dollars and Euros 6 months ahead in order to assist with price and margin planning and protect budgeted rates. In the first quarter of 2017, the company agreed price increases with customers of between 7% and 14% across its range in order to help offset the effects of the currency fluctuations post the Brexit result.

Mitigation: The company is developing a brand positioning to focus on the distinctive elements of our brand and will continue to closely monitor Fairtrade developments from both grower and consumer perspectives.

M A R K E T , C U S T O M E R A N D C O M P E T I T I V E R I S K S

KEY CUSTOMER RELIANCE

Risk: At the moment 55% of company sales are to supermarket multiples and there is particular reliance on Sainsbury which is currently the Company’s largest customer. A de-listing from Sainsbury (or Tesco or Waitrose to a lesser extent) could leave the company vulnerable to material loss of sales at short notice.

Mitigation: The Company works hard to ensure its offer to supermarkets is competitive – justifying the recommended retail price point and improving their margins and rate of sale, but also deepening the relationship wherever possible to ensure brand alignment. This is particularly the case with Sainsbury. Alongside this, the Company is continuing to grow other (higher margin) sales channels such as food service, international and handpicked in order to reduce reliance on the multiples.

COMMODITY PRICES

Risk: Raw material commodity prices fluctuate significantly. This means that costs may increase significantly either due to a sustained price rally or producers fixing prices when market prices spike leading to higher input costs and lower gross margins for Cafédirect.

Mitigation: Since 2013 Cafédirect has worked with a specialist coffee logistics partner that is able to offer both buyers (Cafédirect) and sellers (producer organisations) the ability to fix the price of their contracts at a time of their choosing up to a predetermined time (prior to receipt/delivery of coffee). This helps Cafédirect to manage the impact of fluctuating costs whilst allowing the producer to take advantage of any increases. Furthermore Cafédirect hedges against rising coffee price by taking up positions in the coffee futures market.

REPUTATION OF FAIRTRADE

Risk: The reputation of the Fairtrade mark is vulnerable to adverse publicity or lack of support from the growers. This could lead to producers moving away from Fairtrade and a loss of consumer confidence and consumer confusion leading to slower growth and loss of market share.

6 . 0 R I S K F A C T O R S

38

O P E R A T I O N A L A N D O R G A N I S A T I O N A L R I S K S

LOSS OF KEY STAFF

Risk: Due to the relatively small size of the Company, the loss, or long-term absence of a key individual could adversely affect the business resulting in loss of key customer relationships or an inability to operate key business functions smoothly. Recruitment costs are typically 20% of salary for replacement staff.

Mitigation: Cafédirect aims to pay competitive salaries and bonuses where appropriate and at the same time ensure staff feel valued, part of the team and contributing to the Company’s mission. This is demonstrated through monthly recognition awards, company team building events and the recent distribution of Cafédirect shares to employees.

PROCESSING PARTNER RELIANCE

Risk: The Company uses sole processors for retail Roast & Ground, Freeze-Dried and tea products. A major incident such as a fire or partner bankruptcy could seriously affect supply resulting in a loss of gross profit during the period of disruption or de-listings due to non-supply.

Mitigation: The Company receives and reviews contingency plans from its key processor partners. Alternative suppliers have been identified and contacts made in case of an emergency. Business interruption insurance is in place.

DISTRIBUTION PARTNER RELIANCE

Risk: The Company’s finished goods stocks are all held by a single logistics partner and distributed to most customers on our behalf. A major incident, such as a fire, partner bankruptcy or operational failure could affect sales, profitability and damage customer relationships leading to financial loss.

Mitigation: Stock is insured and business interruption insurance is in place. In general coffee and tea stock can be replaced quite quickly with the exception of Freeze-Dried where buffer stocks are held with a third party processor. For the majority of finished goods a maximum of four weeks cover is held at the distribution hub.

COMPETITION

Risk: Increasing competition and aggressive pricing from other ethical labels and own-label and multinational competitors can make it more difficult to get our point of difference across resulting in loss of market share and falling sales volumes.

Mitigation: The Company aims to counter competitive risk by maintaining a distinctive brand positioning versus competitor brands and own label, by building loyalty through targeted communications and continually reviewing overall competitiveness in the marketplace.

S U P P L Y C H A I N R I S K S

PRODUCER RELIANCE

Risk: Areas where raw materials are sourced are vulnerable to climatic disasters and disruption of supply could result in lost sales or a de-listing.

Mitigation: The Company aims to source from a wide range of locations and holds buffer stocks to counter short term supply fluctuations. Through the Cafédirect Producer’s Foundation, Cafédirect seeks to work with cooperatives to educate and mitigate against climate change.


39

FAILURE OF THE RIGHTS ISSUE

Risk: A failure to achieve the Target Subscription required through the Rights Issue would result in the Company returning all money raised to investors. This situation would immediately give rise to two specific risks. Firstly, the Company will not have any new funds to invest in the business and may not be able to continue trading within its banking facilities nor deliver its business plan. Secondly, Cafédirect will be unable to convert the current bank overdraft with Triodos Bank to an 8 year term loan and seasonal stock facility because this is conditional on the Target Subscription being achieved. The current £1.4 million bank overdraft facility expires on 31 July 2017 and may not be renewed which means that the Company may no longer be able to trade as a going concern.

Mitigation: The Directors hope to be able to convince the Company’s Existing Shareholders to support the Rights Issue and will extend the Rights Issue if necessary in order to achieve the Target Subscription. If it becomes apparent that the Rights Issue will fail, then the Directors will need to seek continued support of the bank (which is not guaranteed) and consider alternative methods of survival – including the possibility of a forced sale of the Cafédirect business or brands to a trade buyer.

F I N A N C I A L R I S K S

CONTINUED TRADING LOSSES

Risk: Continued losses could negatively impact on the Company’s ability to invest in marketing and its brand resulting in a loss of market share and a weakening of confidence from suppliers.

Mitigation: Raising new capital, controlling overheads and returning the Company to growth and profit are the key objectives of the board. The Company will ensure that marketing spend is highly targeted to ensure the best financial return and will continue to build its business through direct customer relationships and social media.

IT SYSTEMS FAILURE

Risk: A breakdown in financial controls or IT systems could result in a disruption to trading or financial loss. In these circumstances, the Company may face an inability to operate key business functions and its trading performance and reputation could be adversely affected.

Mitigation: Finance department controls and procedures are reviewed and updated regularly. All production servers are located in an ISO9001, ISO27001 and PCI accredited data-centre in Canary Wharf, London that features a 100Mbit symmetrical uplink. This ensures a resilient infrastructure and faster disaster recovery, including the ability of all staff to work in any location with a wifi connection. Daily backups are taken and stored in the data-centre. Monthly backups are retained.


40

F R E Q U E N T L YA S K E D Q U E S T I O N S

7.0

41

S H A R E I S S U E I N F O R M A T I O N

How much is Cafédirect aiming to raise under the Rights Issue?

The aim is to issue 3,000,000 New Ordinary Shares at 30p each, raising £900,000 via the Rights Issue.

How have the New Ordinary Shares been valued?

The share price is recommended by the Directors of Cafédirect following advice from Triodos Corporate Finance and discussions with the Company’s largest shareholder, Oikocredit. The value of 30p per share has been calculated with reference to the Net Asset Valuation of the Company as well as with reference to valuations of recent, comparable branded food and drink transactions. The share valuation is based on Cafédirect continuing as an independent going concern for the foreseeable future and assumes no other capital raisings.

Does the Rights Issue qualify for EIS relief?

No, the Rights Issue does not qualify for EIS relief as the Company has been trading for more than seven years.

What is the nominal value of the New Ordinary Shares? Why are the New Ordinary Shares being issued at 30p when the nominal value on the share certificate is 25p?

The nominal value of shares is purely an accounting term and has no relation to the value of a share on the open market. All Cafédirect shares are issued with a nominal value of 25 pence but are traded at a price determined by buyers and sellers in the market. The nominal value of a share will not change, regardless of the price at which the share trades.

7 . 0 F R E Q U E N T L Y A S K E D Q U E S T I O N S

Are New Ordinary Shares being offered under the Rights Issue in proportion to the number of Shares currently held by Existing Shareholders?

Yes, this is the way that a Rights Issue works. The welcome letter issued to all Existing Shareholders will confirm the number of shares and amount that each Existing Shareholder needs to subscribe in order to maintain their current percentage shareholding (their pre-emption rights) in Cafédirect. In any event, the Aggregate Maximum Subscription applies so, if the Share Offer is over-subscribed, any investment in excess of pre-emption right levels may be scaled-back.

What happens if an Existing Shareholder does not exercise his or her rights to buy New Ordinary Shares under the Rights Issue?

If an Existing Shareholder does not exercise his or her right to buy New Ordinary Shares under the Rights Issue, or does not take up their full pre-emption right levels, then they will see their existing shareholding in Cafédirect diluted.

What will the new capital raised by the Company be used for?

New capital raised by the Company through the Rights Issue will be used to make certain investments required to deliver the Company’s business plan as set out on page 9.

The Company also plans to retain a significant element of the new capital raised to provide working capital headroom in future.

42

Is there a Minimum Subscription per investor?

Yes - the minimum number of New Ordinary Shares than can be acquired under the Rights Issue is 100 shares - equating to an investment of £30.

However, the Directors would like to encourage shareholders to purchase shares equal to or in excess of their pre-emption rights. As an incentive, any investment in the Rights Issue in excess of £150 will qualify for a heavily discounted 6 month Cafédirect Handpicked subscription and any investment in excess of £300 will qualify for a heavily discounted 12 month subscription.

What happens if the Company doesn’t raise the full £900,000 required?

The Rights Issue is contingent on reaching the Target Subscription of £900,000. Failure to raise the Target Subscription will mean that the Rights Issue will be terminated and all monies raised from investors at the point of termination will be returned to investors without interest. The Company itself will then face significant risks as a going concern which could lead to a forced sale of the business as set out under the Risks section on page 39.

Is the Rights Issue being underwritten?

Oikocredit have agreed to take up their pre-emption rights and acquire 595,696 New Ordinary Shares (£178,708.80) through the Rights Issue in order to preserve their existing 19.9% shareholding in the Company. In addition, Oikocredit have committed to acquire a further 904,304 Shares (£271,291.20) in the event that the Rights Issue is under-subscribed by Existing Shareholders. This is effectively a form of underwriting and were this to be required, Oikocredit would potentially acquire 1,500,000 or 50% of the 3,000,000 Shares available under the Rights Issue. This would increase their shareholding of the Company from 19.9% to 27.8%.

Is my investment protected?

Your investment is not protected by the Financial Services Compensation Scheme and the value of the Shares may go up or down. Because of this you may not get back the full amount you invest.

What effect will this Rights Issue have on my existing Shares? Will they be diluted?

The issue of New Ordinary Shares will dilute your existing shareholding if you do not exercise your pre-emption rights available to you under the Rights Issue.

Can I invest more or less than the amount specified in my welcome letter?

Yes – subject to the Minimum Subscription amount of 100 shares or £30 per investor, all Existing Shareholders can make an application to invest at whatever level they choose. The welcome letters issued to Existing Shareholders simply confirm the amount that an Existing Shareholder would need to invest in order to maintain their current proportionate shareholding in Cafédirect. The Directors would like to encourage shareholders to purchase shares equal to or in excess of their pre-emption rights. As an incentive, any investment in the Rights Issue in excess of £150 will qualify for a heavily discounted 6 month Cafédirect Handpicked subscription and any investment in excess of £300 will qualify for a heavily discounted 12 month subscription.


43

What happens if the Rights Issue is over-subscribed?

The Target Subscription of £900,000 will apply in any event and all Existing Shareholders will have the right to invest at their pre-emption rights levels (i.e. in order to maintain their current percentage shareholding). In the event of an over-subscription, all investments by Existing Shareholders in excess of pre-emption right levels will be scaled-back on a pro rata basis and appropriate funds will be returned to investors.

Will the New Ordinary Shares be the same as the Ordinary Shares currently in circulation?

Yes. The New Ordinary Shares to be issued under the Rights Issue will rank pari passu or ‘equal in all respects’ with the existing issued Ordinary Shares, including the right to receive dividends or other distributions declared, paid or made after the issue date.

How can I sell my Shares?

Cafédirect has an arrangement for the provision of a secondary trading platform (the Matched Bargain Market) through Ethex where shares may be able to be traded on a matched bargain basis provided the existence of a willing buyer and willing seller, though there is no guarantee there will be a buyer nor what price they will pay.

An investment in the Company should be seen as a long term investment. Aside from the Matched Bargain Market, an exit for shareholders is likely to be via a replacement capital transaction, stock market (AIM) listing or trade sale. The Directors intend to procure an opportunity for shareholders to sell their shares should they wish within the next five years.

Will any of the Management Team or Directors be buying shares in the Rights Issue?

The Rights Issue is only available to Existing Shareholders. One director (Jeff Halliwell) and one member of the management team (Katrina Pantelli) are already Existing Shareholders and both have confirmed they will invest in the Rights Issue - see Appendix 3.

Other Directors and members of the Management Team have confirmed that they would like to invest in the Rights Issue and their proposed investment amounts are shown in the table in Appendix 3. However, as these individuals are not Existing Shareholders, they will only be able to invest in the event that other Existing Shareholders do not take up their pre-emption rights in full.

Can I apply by post rather than online?

Yes – the Application Form is available at the back of this document which can be printed, completed and posted to Ethex at the address detailed on the form. Please note however that applying online through the Ethex website at www.ethex.org.uk/cafedirectshareoffer is the quickest and easiest way to register your application.


44

How can I pay for the shares?

Payment for Shares must be made to Ethex, the Receiving Agent, by cheque or by bank transfer.

Wherever investors make an online application, they will receive an email confirming their order with a unique order reference number and should use the order reference number for their bank transfer payment.

If paying by cheque the order reference number followed by your surname and initial (e.g. “Smith J”) should be written on the back of the cheque. Cheques must be payable to ‘Ethex Investment Club Ltd and should be crossed ‘a/c Payee’. Your cheque must be drawn in sterling on an account in your name at a branch (which must be in the UK, the Channel Islands or the Isle of Man) of a bank which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques to be presented for payment through the clearing facilities provided for the members of either of those companies, and must bear the appropriate sort code number in the top right-hand corner. Third party cheques will not be accepted with the exception of bank or building society cheques where the building society or bank has confirmed the name of the account holder by stamping and endorsing the cheque to such effect and where the name endorsed matches the Applicant. Cheques will be cashed upon receipt.

The bank account details for making payment are:

Account name: Ethex Investment Club LtdAccount number: 20367668Sort code: 60-83-01

Are there any charges associated with subscribing?

No, there are no costs or charges associated with subscribing for the New Ordinary Shares. Cafédirect covers the cost of the receiving agent’s fees.

Are there any incentives associated with an investment in the Rights Issue?

Yes, the Company is offering an incentive in the form of a heavily discounted Cafédirect Handpicked subscription for 2018. This is partly to encourage Existing Shareholders to invest in the Rights Issue and partly to encourage more of the Company’s shareholders to try out a Handpicked subscription. There are two incentive schemes depending on the amount invested and further details are included on page 15. The costs associated with this discounting offer have been anticipated in the financial forecasts presented in this document.

Will you send me confirmation of receipt of my application and payment?

Ethex will send an email acknowledging receipt of both paper and online applications, if no payment has been made this email will contain payment instructions. Upon receipt of payment an automated email will be sent to the investor acknowledging receipt of the payment.

When will I receive my Share certificate?

Share certificates will be sent to successful applicants after the allotment following the close of the Rights Issue.

When will the Rights Issue close?

The Rights Issue will close on the earlier of the Target Subscription being reached or 12.00 noon on Friday 14th July 2017 unless extended by the Directors at their sole discretion.


45

DIVIDENDS, RETURNS AND SHARE ADMINISTRATION

What financial return (dividend) will be targeted in the future?

The Company will not be in a position to pay dividends in the near future because before being able to do so, the Company will need to generate significant retained profits to extinguish its current negative profit and loss reserve account (negative £3.4 million as at 31 December 2016).

Instead the Directors confirm their intention to procure an exit for those shareholders who wish to sell their shares within the next five years. The Directors would also draw attention to the continued social and environmental returns available on an investment in Cafédirect.

How can I track the value of or sell my Cafédirect Shares?

Cafédirect shares are not listed on a recognised investment exchange, therefore the value of the Shares cannot be tracked. However, Shares can be traded through the Matched Bargain Market operated by Ethex (www.ethex.org.uk), a specialist not-for-profit organisation designed to support the growth and development of social and environmental businesses through the provision of a secondary trading platform for shares and bonds. Through Ethex, registered shareholders may be able to sell their shares to registered buyers. Please note that neither Cafédirect nor Ethex can provide advice about the merits or suitability of this investment for any shareholder seeking to trade shares. The share price for the Matched Bargain Market is set by mutual agreement between buyers and sellers.

Shares are matched on an ongoing ‘first come, first served’ basis. The money is then dispatched to the seller after deduction of charges and the buyer receives a share certificate. Sales or purchases not matched are carried forward and remain on the market until a buyer or seller is found.


There can be no guarantee that a secondary market in the Shares will develop, whether on the Matched Bargain Market provided by Ethex or otherwise.

How will shareholders be kept informed about Cafédirect in the future?

Shareholders are kept up to date on our news through our website www.cafedirect.co.uk.

Historically, Cafédirect has issued communications to shareholders at various times throughout the year including an Annual Report. If you have not already done so, you can elect to receive all such communications electronically by notifying the Registrars, Capita Asset Services on 0871 664 0300 or by email at [email protected]

46

A P P E N D I X

47

A P P E N D I X 1 : D E F I N I T I O N S A N D T E R M S

Application Form. The application form accompanying this document.

Brexit. The UK’s decision to leave the European Union.

Cafédirect Producers’ Foundation or CPF. A registered charity (charity number 1133218) and company limited by guarantee (company number 6959165), that is responsible for implementing the grower led development programmes.

Cafédirect Producers Ltd or CPL. A company incorporated in England and Wales, company number 4804115 that currently holds 461,600 shares (5.5% of the issued share capital) in Cafédirect plc. CPL has a co-operative structure and is 100% owned by 33 coffee, tea and cocoa smallholder organisations in developing countries.

Closing Date. The earlier of the Target Subscription being reached or 12.00 noon on Friday 14th July 2017 unless extended by the Directors at their sole discretion.

The Company, Cafédirect or We. Cafédirect plc, company number SC 141496.

Directors or the Board. The directors of the Company.

EIS. The Enterprise Investment Scheme

Existing Shareholders. Shareholders of the Company whose names appear in the register of members of the Company at the close of business on the day prior to the issue of this document.

Fairtrade – a trading partnership based on dialogue, transparency and respect that seeks greater equity in international trade.

FCA. The Financial Conduct Authority.

Financial Services Compensation Scheme. The UK statutory deposit insurance and investor compensation scheme for customers of authorised financial services firms.

Guardian Share Company Ltd. A company incorporated in England and Wales, company number 4863720 that holds one Guardian Share in Cafédirect plc.

HMRC. HM Revenue & Customs.

Issue Price. £0.30 per New Ordinary Share.

Management Team. The executive management team which manages the Company on a day-to-day basis.

Matched Bargain Market – a secondary trading platform operated by Ethex which is designed to support the growth and development of social and environmental businesses by helping willing

buyers and willing sellers to trade shares and bonds on a matched bargain basis.

Minimum Subscription. The minimum subscription per investor of 100 shares (£30).

Net Asset Value – the value of the net assets of a company minus its liabilities as shown on its balance sheet.

New Ordinary Shares. Up to 3,000,000 of Shares of 25 pence each in the capital of the Company to be issued and allotted to investors under the Rights Issue.

Oikocredit. Oikocredit Ecumenical Development Co-operative Society S.A. is a worldwide co-operative that promotes sustainable development by providing loans, capital and capacity building support to microfinance institutions, co-operatives, fairtrade organisations, small to medium sized enterprises and renewable energy projects.

Online Application. An application made through the Ethex website at www.ethex.org.uk/cafedirectshareoffer

Oxfam. Oxfam Activities Ltd, a company incorporated in England and Wales with company number 830341.

RAG. Red, Amber, Green

48

A P P E N D I X 1 : D E F I N I T I O N S A N D T E R M S

Rights Issue or Rights Issue Memorandum. The offer for subscription of shares in the Company as set out in this document.

Shares or Ordinary Shares. Ordinary shares of 25 pence each in the capital of the Company.

Shareholders. Holders of Shares.

Target Subscription. The target subscription is £900,000.

49

A P P E N D I X 2 : D E T A I L S O F T H E R I G H T S I S S U E

The Rights Issue Up to 3,000,000 New Ordinary Shares are available under the Rights Issue.

The Rights Issue is conditional upon the Target Subscription being raised.

Terms of the Rights Issue

The Rights Issue is intended to raise up to £900,000 by the offer of up to 3,000,000 New Ordinary Shares to Existing Shareholders.Subject to the terms and conditions set out below and, where relevant in the Application Form, the Company invites Existing Shareholders to apply for New Ordinary Shares at a price of 30p per Share. Subject to the Minimum Subscription, Existing Shareholders can invest at whatever level they choose (subject to the availability of shares). All welcome letters issued to Existing Shareholders will state the amount required to be invested in order for each Existing Shareholder to maintain their existing percentage shareholding – however, Existing Shareholders are free to apply for Shares in excess of this amount.

The Target Subscription cannot be exceeded and so, in the event of an over-subscription, any investments by Existing Shareholders in excess of pre-emption right levels may be scaled-back.

Rights Issue Costs

The total costs of the Rights Issue are expected to be £84,500 plus VAT. The Company intends to offset these costs against the share premium account.

Closing Date

The Rights Issue will close on the earlier of reaching the Target Subscription or 12 noon on Friday 14th July 2017, unless extended by the Directors in their absolute discretion. The subscription monies will be kept in a separate client money bank account and, if the Target Subscription has not been achieved by the Closing Date (or subsequent extension at the discretion of the Directors), the Rights Issue will be withdrawn and the subscription monies refunded without interest within 14 business days of the Rights Issue being withdrawn.

50

A P P E N D I X 3 : G E N E R A L I N F O R M A T I O N O N C A F É D I R E C T P L C

1. RESPONSIBILITY

The Directors (whose names appear on page 5) and the Company accept responsibility for the information in this document. To the best of the knowledge of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

2. INCORPORATION AND PRINCIPAL ACTIVITY

The Company was incorporated in Scotland with Company number SC141496. The principal activity of the Company is that of brand management and trading in Fairtrade coffee, tea and cocoa products under the brand name Cafédirect.

3. OBJECTS OF THE COMPANY

The Objects of the Company, as set out in the Company’s Articles of Association are as follows:

i. i. To engage in and promote fair trade with small farmers’ organisations, manufacturers and suppliers of all kinds of goods and services in developing countries;

ii. To promote justice in international trade;

iii. To carry on business as a general commercial company; and

iv. To carry on any activity and to effect any transaction whatsoever whether or not that activity or transaction is incidental or conducive to the carrying on of any trade or business by the Company

Provided that in carrying out the Objects the Company shall at all times apply the key principles of the Gold Standard which are:

a) the Company primarily supports and is influenced by smallholder growers in the developing world. Growers have the right to nominate and appoint one quarter of the Company’s Board of Directors (being up to two Directors);

b) the Company’s financial policy is structured to provide both social and financial returns to stakeholders, including members. To deliver the social return, each year at least one third of the Company’s Audited Profit* is specifically allocated to strengthening smallholder grower organisations in developing countries; and

c) the Company measures the social, environmental and financial impacts of its business. It sets targets, strives for sustained improvement and annually reports progress to its members in a transparent manner.

* The Company’s Audited Profit is defined as being the Company’s audited Profit before the deduction of the cost of any donations to Cafédirect Producers’ Foundation and before tax which shall be nil if there is an audited loss.

51


4. SHARE CAPITAL OF THE COMPANY

Set out below are details of the authorised and issued share capital of the Company as at 12th June 2017 (the latest practicable date prior to the publication of this document) and the authorised and issued share capital of the Company as it will be immediately following the Rights Issue, assuming full subscription.

5. DIRECTORS’ INTERESTS

The interests of the Directors and their immediate families (all of which are beneficial) in the issued share capital of the Company which:

• have been notified to the Company; or

• so far as the Directors are aware having made due and proper enquiry of such persons connected with each Director;

• as they are as at 12th June 2017 (the latest practicable date prior to the publication of this document) and as they will be immediately following the Rights Issue, assuming full subscription, are as follows:

AUTHORISED AND ISSUED SHARE CAPITAL, NOW AND IMMEDIATELY AFTER THE FUNDRAISING

DIRECTORS’ INTERESTS IN THE COMPANY, NOW AND IMMEDIATELY AFTER THE SHARE OFFER

Ordinary Shares of25p each (number)

Nominal value (£)

Guardian Share

14,999,999

£3,750,000

1

8,393,557

£2,098,389

1

14,999,999

£3,750,000

1

11,393,557

£2,848,389

1

Authorised Issued

Following the fundraising

Following the fundraising PresentPresent

Jeff Halliwell

Bart Van Eyk

Belinda Gooding

Lebi Hudson

Lenin Tocto Minga

John Shaw

John Steel

Present Following the Share Offer

% of issuedshare capital

0.02%

0.02%

0.02%0.12%

% of issuedshare capital

0.01%

Number

2,000

1,667

2,00010,000

Number

1,000

Director

In addition, the senior executive management team are proposing to invest in the Rights Issue. Details of their investment are as follows:Katrina Pantelli £750 (2500 shares)Julian Burnham £750 (2500 shares)John Dunlop £750 (2500 shares)

52


6. SERVICE CONTRACTS AND EMOLUMENTS OF THE DIRECTORS

The Chair and the non-executive Directors do not have service contracts. The Chair receives an annual fee of £10,000 and each non-executive Director receives an annual fee of between £5,000 and £6,000. One non-executive Director currently waives their fee.

The Chair and the non-executive Directors are not entitled to participate in the Company’s share incentive plan, nor in any performance-related pay schemes or pension schemes and would not receive any compensation in the event of early termination.

The Executive Director, John Steel, has a service contract which is subject to a notice period of 6 months. He is paid a basic annual salary of £127,970 and is also entitled to join the Company’s defined contribution pension scheme, to which the Company contributes 9% of basic salary provided the Director contributes at least 1% of his basic salary; and receive the benefit of private medical insurance.

7. MATERIAL CONTRACTS

Underwriting commitment from Oikocredit

Oikocredit have provided a commitment to invest up to £450,000 in the Rights Issue at 30p per share thereby providing an element of effective underwriting in the event that Existing Shareholders do not take up their pre-emption rights.

This commitment is formal but non-binding and no underwriting fees are payable. Oikocredit have provided the commitment to help ensure the success of the Rights Issue and to demonstrate their confidence in the Company’s business plan.

Borrowing Facilities

Cafédirect currently operates with an overdraft facility of £1.4 million from Triodos Bank. The facility is due to expire on 31 July 2017. Upon successful completion of the Rights Issue, Triodos Bank have agreed to convert the overdraft facility into an 8 year repayment term loan of £1.3 million plus a seasonal stock facility of £400,000. It is intended that the new facilities commence on 1 August 2017.

Other Agreements

The Company has a number of other commercial agreements with third parties. All agreements are in the normal course of business and have been negotiated on arm’s length terms.

8. TAXATION OF INVESTORS

Individual tax circumstances may differ from Investor to Investor and persons wishing to invest are advised to seek tax advice based on their own circumstances.

The Rights Issue does not qualify for EIS relief.

53

A P P E N D I X 4 : P R O C E D U R E A N D T E R M S A N D C O N D I T I O N S O F A P P L I C A T I O N

Procedure for application

The Rights Issue is being made by the Company. Applications must be made either by making an Online Application (www.ethex.org.uk/cafedirectshareoffer) or by using the accompanying Application Form. No other form of application will be accepted.

Terms and conditions of application

The contract created by the acceptance of applications under the Rights Issue will be conditional upon the Target Subscription being reached by the Closing Date.

The right is reserved by the Company and Ethex to present all cheques for payment on receipt and to retain surplus application monies pending clearance of successful applicants’ cheques. The Company and Ethex reserve the right to reject, in whole or in part, any application. If any application is not accepted in full, or is accepted for fewer New Ordinary Shares than the number applied for, or if any contract created by acceptance does not become unconditional, the application monies or, as the case may be, the balance thereof will be returned (without interest) by BACS in favour of the applicant, through the post to the applicant’s address set out on the Application Form at the risk of the person(s) entitled thereto within seven days of the closing of the Rights Issue.

The Company reserves the right to treat as valid and binding upon the applicant any application, even if the accompanying Online Application or Application Form is not completed in all respects in accordance with the instructions or is not accompanied by the power of attorney where necessary. The right is reserved to reject any application in respect of which the applicant’s cheque has not been cleared on first presentation. Notifications of acceptance or non-acceptance will not be issued pending issue of definitive certificates for the Shares or return of application monies (as the case may be).

In the event of oversubscription, the Company reserves the right to scale back, on a pro-rata basis, any applicants whose investment amount is in excess of their pre-emption rights. Any return of monies to applicants as a result of the Rights Issue being oversubscribed will be made by bank transfer up to 14 days after the closing date.

By completing and delivering an application each applicant:

1. offers to subscribe for the number of New Ordinary Shares specified in his or her application (or such lesser number for which his or her application is accepted) at the Issue Price on the terms of and subject to this document, including these terms and conditions, and the Memorandum and Articles of Association of the Company;

2. agrees that, in consideration of the Company agreeing that it will not after 14 July 2017 (or such later date if the Rights Issue is extended) issue or allot any New Ordinary Share which is subject to the Rights Issue to any person other than by means of the procedures referred to in this document, his or her application shall not be revoked and this paragraph shall constitute a collateral contract between him or her and the Company which will become binding upon online submission to, despatch by post to or (in the case of delivery by hand) on receipt by Ethex of his or her application; 3. warrants that his or her remittance will be honoured on first presentation and agrees that, if such remittance is not so honoured, he or she will not be entitled to receive a share certificate in respect of the New Ordinary Shares applied for or to enjoy or receive any rights or distributions in respect of any New Ordinary Shares unless and until he or she makes payment in cleared funds for such New Ordinary Shares and such payment is accepted by the Receiving Agent on behalf of the Company (which acceptance shall be in its absolute discretion and may be on the basis that he or she indemnifies the Company against all costs, damages, losses, expenses and liabilities arising out of or in connection with the failure of his or her remittance to be honoured in first presentation) and that, at any time prior to unconditional acceptance by the Company of such late payment in respect of such New Ordinary

54


Shares, the Company (without prejudice to any other rights) may void the agreement to allocate such Shares to him or her and may re-allocate New Ordinary Shares to some other person, in which case he or she will not be entitled to any refund or payment in respect of such New Ordinary Shares (other than the refund to him or her at his or her risk of any proceeds of the cheque accompanying this application, without interest); 4. agrees that any monies returnable to him or her may be retained by the Company pending clearance of his or her remittance and that such monies will not bear interest;

5. agrees that applications may be subject to the UK’s verification of identity requirements which are contained in the Money Laundering Regulations 2007 as amended, updated, replaced or superseded from time to time; 6. agrees with the Company promptly, on request, to disclose in writing any information which it may request in connection with his or her application and authorises the Company to disclose any information relating to his or her application it may consider appropriate;

7. agrees that any definitive share certificate to which he or she might become entitled and monies to be returned to him or her may be retained pending clearance of his or her remittance or pending investigation of any suspected breach of the warranties of this Appendix and that such monies will not bear interest; 8. agrees that all applications, acceptance of applications and contracts resulting therefrom under the Rights Issue shall be governed by and construed in accordance with English law, and that he or she submits to the jurisdiction of the English courts and agrees that nothing shall limit the right of the Company to bring any action, suit or proceedings arising out of it in connection with any such applications, acceptances of applications and contracts in any other manner permitted by law or in any court of competent jurisdiction;

9. confirms that in making such application he or she is not relying on any information or representation in relation to the Company other than the information contained in this document and accordingly he or she agrees that no person responsible solely or jointly for this document or any part thereof or involved in the preparation thereof shall have any liability for any such other information or representation;

10. agrees that, having had the opportunity to read this document, he or she shall be deemed to have had notice of all information and representations concerning the Company contained therein; 11. confirms and warrants that he or she has read and complied with Appendix 5, paragraphs 6 and 7; 12. warrants that he or she is not under the age of 18; 13. agrees that all certificates, documents, monies and cheques sent by post to, by or on behalf of the Company or Ethex will be sent at the risk of the person(s) entitled thereto to the address specified in the Application Form (or, in the case of multiple applicants, the first named);

14. warrants that, if an Application Form is signed on behalf of somebody else, the signatory has the authority to do so and such person will be bound accordingly and will be deemed also to have given the confirmations, warranties and undertakings contained in these terms and conditions;

55


15. warrants that no other application (not being an application under the terms of the Online Application and Application Form) is being made by him or her for his or her own account or by another on his or her behalf or for benefit and with his or her knowledge for such purpose or, if he or she is applying as agent or nominee of another, that no other application is being made by him or her (not being an application as aforesaid) as an agent or nominee for that other person and that other person is not, to his or her knowledge, acting in concert with any other person or persons as aforesaid; 16. warrants that, in connection with the application he or she has observed the laws of all relevant territories, obtained any requisite governmental or other consents which may be required, complied with all requisite formalities and paid any issue, transfer or other taxes due in connection with his or her application in any territory, other than stamp duty or Stamp Duty Reserve Tax, and that he or she has not taken any action which will or may result in the Company or any of its directors, officers, agents or employees acting in breach of the regulatory or legal requirements of any territory in connection with the Rights Issue or the application; and

17. authorises the Company or its agents to do all things necessary to effect registration into the applicant’s name(s) of any Shares for which his or her application is accepted and authorise any representative of the Company to execute and/or complete any document of title required.

No person receiving a copy of this document, an Application Form or viewing the Online Application in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him or her, nor should he or she in any event use such Application Form unless, in the relevant territory, such an invitation or offer could lawfully be made to him or her or such Application Form could lawfully be used without contravention of any registration or other legal requirements. It is the responsibility of any person outside the United Kingdom wishing to make an application hereunder to satisfy himself or herself as to full observance of the laws of any relevant territory in connection therewith, including obtaining any requisite governmental or other consents, observing any other formalities requiring to be observed in such territory and paying any issue, transfer or other taxes required to be paid in such territory.

No offer is made and no sales would be made to US persons within the definition of the US Securities Act 1933 (as amended).

Save where the context otherwise requires, words and expressions defined in this document have the same meaning when used in the Online Application and the Application Form and any explanatory notes in relation thereto.

Documents of title

Paper Application Forms for the Rights Issue should be sent by post or delivered by hand to Ethex, The Old Music Hall, 106 -108 Cowley Road, Oxford, OX4 1JE together with the appropriate remittance, so as to be received not later than 12.00 noon on 14 July 2017.

Temporary documents of title will not be issued. Definitive share certificates will be despatched by first class post within a few weeks of the allotment and issue of New Ordinary Shares under the Rights Issue, pending which, transfers will be certified against the register. Allotments of New Ordinary Shares will be made at the discretion of the Board.

56


Money Laundering Regulations

It is a term of the Rights Issue that, to ensure compliance with the Money Laundering Regulations 2007 as amended, updated, replaced or superseded from time to time the Company or Ethex may, at their absolute discretion, require verification of identity from any person lodging an Application Form (the ‘Applicant’). Although the value of investments in response to this Rights Issue may fall below the threshold at which the Money Laundering Regulations 2007 apply, Ethex reserves the right to verify the identity of all applicants.

If within a reasonable period of time following a request for verification of identity, Ethex, or the Company have not received evidence satisfactory to it/them, the Company may, at its absolute discretion, reject any such application, in which event the remittance submitted in respect of that application will be returned to the Applicant (without prejudice to the rights of the Company to undertake proceedings to recover any loss suffered by it as a result of failure to produce satisfactory evidence of identity).

Payments must be made by cheque or by bank transfer from an account in the same name as that shown on the application. Payments must be made in pounds sterling drawn on a branch in the United Kingdom of a bank or building society which is a member of either the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques to be cleared through the facilities provided for members of any of these companies. Such cheques must bear the appropriate sort code in the top right-hand corner. Cheques, which must be drawn on the personal account of the individual investor where they have a sole or joint title to the funds, should be made payable to ‘Ethex Investment Club Ltd’ and crossed ‘a/c Payee’. The unique order reference in the email generated when an online order is made should be written on the reverse of the cheque if the payment is part of an online order.

If it appears to the Company or Ethex that an applicant is acting on behalf of some other person, further verification of the identity of any person on whose behalf the applicant appears to be acting will be required.

57

A P P E N D I X 5 : G U I D E T O T H E A P P L I C A T I O N F O R M

The following instructions should be read in conjunction with the Application Form for the Rights Issue.

1. In Section 1, please enter your shareholder reference number. Your shareholder reference number can be found on your Rights Issue welcome letter.

2. In Section 2, please insert (in figures) the number of Ordinary Shares for which you are applying in Box 1 and the investment amount in Box 2. Applications must be for a minimum of 100 shares (£30). Applications to invest any lesser amount will be rejected.

Your payment should be for the amount detailed in Box 2, which represents £0.30 multiplied by the number of New Ordinary Shares you wish to apply for.

Whatever level you chose (equal to or in excess of the minimum investment amount and subject to availability of New Ordinary Shares). All welcome letters issued to Existing Shareholders state the amount required to be invested in order for each Existing Shareholder to maintain their current percentage shareholding – however, Existing Shareholders are free to apply for Shares in excess of this amount.

The Target Subscription cannot be exceeded and so, in the event of an over-subscription, any investments by Existing Shareholders in excess of pre-emption right levels may be scaled-back.

Amount £ 30751503007501,5003,0006,00015,00030,000

Examples:

Number of Shares 100 250 500 1,000 2,500 5,000 10,000 20,000 50,000100,000

3. In Section 3 please tick the box to indicate whether you will make payment by cheque or by bank transfer. The account details for making payment are detailed in Section 3 of the application form and in Sections 8 and 9 of this Guide to the Application Form.

4. Insert in Section 4 your full name, address, email address, daytime telephone number, date of birth, gender, nationality and country of birth. Please use block capitals.

If you have changed address within the last three years, please provide details of your previous address.

If you have a joint shareholding then please complete this section for both ‘Applicant 1’ and ‘Applicant 2’ where shown.

Applications may only be made by persons aged 18 or over.

Under the provisions of the Money Laundering Regulations 2007, you may be required to produce satisfactory evidence of your identity (see page 39 for further details).

5. If an application is being made on behalf of an organisation, please complete the box in Section 4b with the information requested.

58

A P P E N D I X 5 : G U I D E T O T H E A P P L I C A T I O N F O R M

6. Under Section 5, after carefully reading the Rights Issue memorandum and the Application Form, you must tick the boxes to confirm that you have read and understood both of the documents.

You must confirm that you have read and understood the Rights Issue memorandum and the Application Form and the terms and conditions contained therein, otherwise the Application Form shall not be accepted. 7. After carefully reading the Declaration, if you wish to accept the Rights Issue, the Application Form must be signed and dated by the applicant named in Section 4.The box should be signed and, in the case of a company either by two directors or by one director and the company secretary or by one director in the presence of an independent adult witness who also signs the application form to attest that director’s signature. An independent witness is one who is over the age of 18 and who is not related to the director.

8. If you are paying by cheque, you must affix, where indicated, to the completed Application Form a cheque for the full amount payable.

Your cheque must be payable to ‘Ethex Investment Club Ltd for the amount inserted in Section 2 and should be crossed ‘a/c Payee’. Your cheque must be drawn in sterling on an account in your name at a branch (which must be in the UK, the Channel

Islands or the Isle of Man) of a bank which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques to be presented for payment through the clearing facilities provided for the members of either of those companies, and must bear the appropriate sort code number in the top right-hand corner. Third party cheques will not be accepted with the exception of bank or building society cheques where the building society or bank has confirmed the name of the account holder by stamping and endorsing the cheque to such effect and where the name endorsed matches the Applicant. Cheques will be cashed upon receipt. Electronic bank transfers are also accepted. 9. If paying by bank transfer please attach the following reference to your bank transfer so we can match it against your completed application form: Surname and Initial - for example “Smith J”.The bank account details for making payment are:

Account name: Ethex Investment Club Ltd Account number: 20367668Sort code: 60-83-01

10. Your attention is drawn to the warranties as set out in the section headed ‘Procedure and Terms and Conditions of Application’ in Appendix 4 of this Application Pack.

InvestmentamountBox 2

£

S E C T I O N 1 - Shareholder reference number

Please write your shareholder reference number in the box below. You will find this on your Rights Issue welcome letter.

S E C T I O N 2 - Value of application

Please specify the number of New Ordinary Shares you are applying for and the investment amount in pounds (for an explanation of this please see Appendix 5 of this Rights Issue Memorandum).

Applications must be for a minimum of 100 shares at £0.30 per share (£30.00).

The number of shares needed to be subscribed for by each individual shareholder in order to maintain their current percentage shareholding (their pre-emption rights) is detailed in the welcome letter. Existing Shareholders can apply for more than this but the Target Subscription cannot be exceeded and so, in the event of an over-subscription, any investments by Existing Shareholders in excess of pre-emption right levels may be scaled-back.

I M P O R TA N T :

Before completing this form, you should read the Cafédirect Rights Issue Memorandum dated June 2017. Save where the context otherwise requires, words and expressions defined in the Rights Issue Memorandum have the same meaning when used in the Application Form.

R E T U R N I N G Y O U R A P P L I C A T I O N F O R M :

Please send your completed Application Form and payment by post toEthex, The Old Music Hall, 106-108 Cowley Road, Oxford, OX4 1JE,or by hand to the same address during normal business hours only.

If you have any questions relating to this Application Form, please email [email protected] or telephone 01865 403 304.

Please note that Ethex cannot provide advice on the merits of the Rights Issue nor give any financial, legal or tax advice.

Number of sharesapplied forBox 1

Price per share

£0.30 per share

Applications can also be made online at:www.ethex.co.uk/cafedirectshareoffer.

Your application will be processed more quickly if it is completed online.

C A F É D I R E C T 2 0 1 7 R I G H T S I S S U E - A P P L I C A T I O N F O R M

S E C T I O N 3 - Payment method

I am making payment by cheque

For cheque payments please attach a cheque for the amount detailed in Section 2, made payable to “Ethex Investment Club Ltd”

I am making payment by bank transfer

For bank transfer payments please attach the following reference to your bank transfer so we can match it against your completed application form:

Surname and initial - for example “Smith J”

The bank account details for making payment are:

Account name: Ethex Investment Club LtdAccount number: 20367668Sort code: 60-83-01

Please complete either section 4a OR section 4b

S E C T I O N 4 A - All individual or joint shareholders

APPLICANT 1

Title

Full name

Address

Postcode

Previous address*

Postcode

Country(if not UK)

Date of birth

Country of birth

Nationality

Gender

Email

Daytime telephone**


*If you have changed address within the last three years**Please provide your telephone number so that we can contact you if we have any questions about your application


APPLICANT 2 (if a joint shareholding)

Title

Full name

Address

Postcode

Previous address*

Postcode

Country(if applicable)

Date of birth

Country of birth

Nationality

Gender

Email

Daytime telephone**

*If you have changed address within the last three years**Please provide your telephone number so that we can contact you if we have any questions about your application

S E C T I O N 4 B - All Applicants on behalf of an organisation

All applications being made on behalf of an organisation please complete the following box:

Name of Organisation

Registered address

Postcode

Registered number(if applicable)

Charity number (if applicable)

Primary contact name

Position

Telephone number

Email

Secondary contact Name Position

Telephone number

Email


Signatures on behalf of an organisation, if applicable (either 2 directors ora director and a witness)

Director name

Address

Country of birth

Nationality

Date of birth Gender

Signature 1

Date

Director/witness name(if applicable)

Address

Country of birth

Nationality

Occupation(if signing as a witness)

Date of birth Gender

Signature 2

Date

Signature of individual applicants

Applicant 1

Signature

Applicant 2 (if a joint shareholding)

Signature

Date

Date

S E C T I O N 5 - Applicant declaration and signature

I/We have read and understood the Rights Issue Memorandum dated June 2017

I/We have read and understood the Application Form

Declaration: I/We irrevocably authorise Cafédirect Plc to accept on my/our behalf an application for allotment of shares to me/us up to the amount set out above in the Cafédirect Rights Issue at the price of £0.30 per share. I/We confirm that I/we have read the Rights Issue Memorandum. I/We agree to be bound by all the terms and conditions set out therein and irrevocably submit to the jurisdiction of the English Courts in respect thereof. I/We authorise Cafédirect or Ethex to make any enquiries they deem necessary to confirm the details on this application. To the best of my/our knowledge and belief the particulars I/we have given are correct. I/We declare that I/we am/are not a US person as defined under the US Securities Act of 1933.