Caffe Nero Group plc

(“Caffe Nero” or “the Group”)

Interim Results for the six months ended 30 November 2005

Caffe Nero Group plc, the leading independent UK coffee house operator of 250 stores, which has been voted the top rated coffee brand by consumers for the last six consecutive years, announces record interim results for the six months ended 30 November 2005.

Highlights

• Revenue up 32% to £43.4m (2004: £32.8m)

• Store profit increased 45% to £10.9m (2004: £7.5m)

• EBITDA rose 53% to £7.3m (2004: £4.8m)

• Operating profit up by 236% to £3.9m (2004: £1.2m)

Adjusted* operating profit up by 62% to £3.9m (2004: £2.4m)

• Pre-tax profit jumped 384% to £3.5m (2004: £0.7m)

Adjusted* pre-tax profit rose 76% to £3.5m (2004: £2.0)

• Positive like-for-like sales of 4.5%

• 244 stores in November 2005; currently 250 stores operating in 116 UK towns and cities

• Roll-out of new stores currently opening at a rate of four per month and entirely funded by internal cash flow

• Encouraging start to the second half with like-for-like store sales up by 6.0% in December and January

* excluding non-recurring goodwill write-off

Gerry Ford, Chairman of Caffe Nero Group plc, commented:

“I am pleased to report another period of strong growth for the Group.   Our roll out continues apace and is ahead of schedule with 250 of this year’s target 255 stores already trading.  It is particularly encouraging that as we continue to expand, Caffe Nero has maintained its number one ranking with consumers for the sixth consecutive year.

“Trading in the second half has commenced well, enhanced by a particularly buoyant period over Christmas and New Year.  Caffe Nero is well placed to report another successful year as we continue to expand, deliver great service to our customers and focus on maximising shareholder value.” 

2 February 2006

Enquiries:

Chairman’s Statement

Introduction

Caffe Nero Group Plc (“Caffe Nero” or “The Group”) continued to grow rapidly in the UK during the period under review.  In the first six months (Jun-Nov 05) of this year, the Group expanded at the same rapid rate it had in the previous year: 30 stores were opened in 26 weeks, or approximately five stores a month.  Most of the openings were outside London, reflecting the strategy of taking the Caffe Nero brand further into the regions.  Whilst Caffe Nero continued its rigorous store growth pace, it also produced strong top-line revenue increases and notable profit and shareholder value growth.

Financial Performance

This is the first period when Caffe Nero will use IFRS accounting standards rather than UK GAAP as the basis to report its financial results.  This transition is bound to lead to some confusion, but readers should remember that differences between reported numbers under IFRS and UK GAAP are simply a result of the accounting switch-over and are not a reflection of a change in business performance.

All of the numbers in the main body of this report have been prepared using IFRS.  For information only, we have included in the appendix our financial results under pro-forma UK GAAP.  The pro-forma UK GAAP used is that which was applicable to the UK GAAP statutory financial statements for the year ended 31 May 2005.  A reconciliation between this pro-forma UK GAAP and IFRS is also included within the appendices.  We would also point readers to Caffe Nero’s report on the impact of IFRS (relative to UK GAAP) on the Group’s results released on 12 January 2006 and accessible on our website (www.caffenero.com).

Whatever the accounting methodology, Caffe Nero had a strong set of financial numbers for the first six months.  Group revenue, in the six months to 30 November 2005, rose by 32% to £43.4m (2004: £32.8m).

The underlying core estate performed well.  Like-for-like sales were positive 4.5% (which is at the top end of our normal +2-4% range), in spite of the difficult London summer trading following the July bombings.

Store profit (gross profit) increased by 45% to £10.9m (2004: £7.5m) as our stores, now widespread throughout the UK, continued to perform well.

EBITDA (Cash Profit) also rose significantly; it jumped 53% to £7.3m (2004: £4.8m).  Adjusted Operating Profit (before non-recurring goodwill write-off) climbed 62% to £3.9m (2004: £2.4m).  Operating profit grew by 236% to £3.9m (2004: £1.2m).

Adjusted Profit before tax (before non-recurring goodwill write-off) increased by 76% to £3.5m (2004: £2.0m).  Pre-tax Profit moved forward 384% to £3.5m (2004: £0.7m).

Balance Sheet and Funding

At the end of the first half, the Group had £5.3m cash in the bank and an additional £1.5m in bank facilities available.

Net debt was approximately £12.2m (less than 1 x annualised EBITDA).

The Group has also reached the fortunate position of self-financing: where its UK roll-out can be financed by its own internal cashflow.  EBITDA at the current rate is more than adequate to fund the capital expenditure for the anticipated 40-45 new sites in the UK per annum.

Expansion

In the first half, Caffe Nero maintained its recent UK roll-out strategy of moving further into regional locations.  Of the 30 new sites the Group opened, 24 stores (80%) were outside greater London.  This financial year has seen Caffe Nero open in locations such as Nottingham, Chester, Stockton, Gosforth, Hexham, Hanley, Lewes, East Grinstead, Ringwood and Oxted.

At the end of the first half, Caffe Nero had 244 stores.  Since the half year end another six stores have been opened, giving the Group a current total of 250 stores in 116 UK towns and cities.  This puts Caffe Nero in a good position to attain its year end (May 2006) goal of operating 255 UK stores.

The Group has also expanded its WIFI network, such that approximately 210 Caffe Nero stores have a wireless system in them.  This gives Caffe Nero one of the largest WIFI networks in the UK and further enhances its café format to provide greater benefits to it customers.

Recent Developments

In the first half, Caffe Nero was given several accolades.  In October 2005, Business Week published an edition dedicated to Europe’s “hottest companies” and named Caffe Nero as the 20^th fastest growing company in Europe.

In December 2005, Allegra Strategies, the definitive researcher on the UK coffee industry, once again issued its annual survey.  The report concluded that the branded coffee segment (Caffe Nero’s segment) was approaching £800 million in size and is expected to grow at the rapid rate of 8-9% per annum for the next few years.  Perhaps most importantly, the Allegra Report also named Caffe Nero as the top rated major UK coffee brand (study of 7,000 consumers) for the sixth consecutive year.

Current Trading and Future Prospects

Trading in December and January was robust, delivering 6.0% like-for-like sales.  Most satisfying was that London’s rebound from the summer appears to be complete, as greater London stores performed nearly as well as regional stores.

In the second half, Caffe Nero will maintain the same focus of strong new store expansion in the regions.  The Group already has sites lined up in Gloucester, Exeter, Ayr and Harpenden.

Over the next few months, Caffe Nero will also continue its programme of working with the arts.  For example, the Group is working alongside The British Museum sponsoring the new Michaelangelo exhibition that will run from April to July, as well as The Royal Shakespeare Company to market its forthcoming London season of Shakespeare plays.

Further afield, international expansion continues to be an area of interest and focus.  We are still exploring which opportunities and markets are best suited for the Caffe Nero brand.

Finally, with eight months of our year completed, the directors feel optimistic about the remaining four months.  Site availability at reasonable prices is good, the coffee bar market is showing strong growth and our Caffe Nero brand continues to perform well.

The course for the Group for the next few months will be the same as the first half: continue our UK roll-out, deliver great service to our customers and enhance shareholder value.

Gerry Ford

Chairman & Chief Executive

2 February 2006

Group Income Statement

for the six months ended 30 November 2005 – International Financial Reporting Standards

Group Balance Sheet

At 30 November 2005 – International Financial Reporting Standards

Group Statement of Cash Flows

For the six months ended 30 November 2005 – International Financial Reporting Standards

Consolidated statement of changes in equity at 30 November 2005

International Financial Reporting Standards

Notes to the Interim Financial Report

1. The interim financial statements have been prepared in accordance with the accounting policies and presentation required by those International Financial Reporting Standards, incorporating International Accounting Standards (“IASs”) and Interpretations (collectively “IFRS”), which are expected to be adopted by the EU and applicable for use in the company’s annual financial statements for the year ended 31 May 2006. The company published its statement on the Impact of the adoption of IFRS on 12 January 2006 which is available on the company website at caffenero.com and these figures have been used save for an adjustment to the tax charge in the income statement to correct the treatment of the tax on share options exercised.

Subsequent to the publication of this statement, the group has adopted IAS 32 and 39 effective from 1 June 2005.  The adoption of these standards had had no impact on the amounts reported in the 6 months ended 30 November 2005.  The new accounting policies reflecting the adoption of these standards are disclosed below:

Interest Bearing loans and Borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

Comparative information for the six months ended 30 November 2004 and for the year ended 31 May 2005 has been restated on an IFRS basis. The endorsed IFRS that will be effective (or available for early adoption) in the annual financial statements for the year ended 31 May 2006 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for the period will only be determined finally when the annual consolidated financial statements are prepared for the year ended 31 May 2006.

Additional line items for EBITDA and Operating Profit before goodwill write off have been presented on the face of the income statement as the Board believes their presentation is relevant to the understanding of the Group’s financial performance.

Revenue, which is stated net of value added tax, represents amounts received and receivable from the Group’s principal continuing activity, the operation of high quality Italian style coffee bars. All of the revenue is derived in the United Kingdom.

2. The basic profit per ordinary share for the six months ended 30 November 2005 is based upon a profit after taxation of £2,161,000 (30 November 2004: £998,000) and the weighted average number of ordinary shares in issue of 67,049,892 (30 November 2004: 65,748,108).

The diluted earnings per share for the six months ended 30 November 2005 is based on 81,741,589 (30 November 2004: 78,169,638) ordinary shares, which is calculated by including the weighted average number of shares 14,691,697 (30 November 2004: 12,421,530) relating to potential dilution from share options.

The calculation of the pre-tax earnings per ordinary share for the six months ended 30 November 2005 is based on the profit before taxation of £3,470,000 (30 November 2004: £717,000) and the same number of shares as above.

3. The financial information herein does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The UK GAAP financial statements for the year ended 31 May 2005, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.

4. The taxation charge has been calculated by reference to the expected effective corporation tax and deferred tax rates for the full financial year to end on 31 May 2006. The underlying effective full year tax charge is estimated to be 38%.

A tax credit arose in the six months to 30 November 2004 as a deferred tax asset of £1,255,790 was recognised.

5. Included in Administrative expenses excluding depreciation and goodwill write off for the six months ended 30 November 2005 is a charge of £245,000 (30 November 2004: £140,000) for share based payments.

6. Included in deferred tax assets is an amount of £10,905,000 (30 November 2004: £3,555,000) which relates to the potential deduction against corporation tax for the profit made by employees on exercise of share options. This amount is calculated based on the share price at the end of the period but the actual deduction will depend on the share price at the time the options are exercised.

7. IAS 12 requires that an adjustment is made to goodwill when a group recognises a deferred tax asset that relates to a subsidiary company’s trading prior to its acquisition by the group and that was not recognized in calculating the goodwill at acquisition. On acquisition of Aroma Limited in 2002 the Group did not include the potential deferred tax asset of the company due to the history of losses incurred by Aroma Limited.  £1,251,000 of the asset was recognized in the period to 30 November 2004 as Aroma Limited became profitable.  There is hence a corresponding charge to operating profit in the six months to 30 November 2004 and the year to 31 May 2005.

8. The directors have reviewed the terms of certain options contracts which have been found to have had incorrect expiry dates disclosed. After discussions with the company’s brokers and the UKLA the following corrections are made to the expiry dates of directors options disclosed at 31 May 05.

All other options are unaffected.

INDEPENDENT REVIEW REPORT TO CAFFE NERO GROUP PLC

Introduction

We have been instructed by the company to review the financial information for the six months ended 30 November 2005 which comprises  the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity, and the related notes 1 to 8.  We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.

This report is made solely to the company in accordance with guidance contained in Bulletin 1999/4 ‘Review of interim financial information’ issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors’ responsibilities

The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority.

As disclosed in note 1, the next annual financial statements of the company will be prepared in accordance with those IFRSs adopted for use by the European Union.

The accounting policies are consistent with those that the directors intend to use in the next financial statements. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements for the first time in accordance with those IFRSs adopted for use by the European Union. This is because, as disclosed in Note 1, the endorsed IFRS that will be effective (or available for early adoption) in the annual financial statements for the year ended 31 May 2006 are still subject to change and to additional interpretations and therefore cannot be determined with certainty.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4 ‘Review of interim financial information’ issued by the Auditing Practices Board for use in the United Kingdom.  A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies have been applied.  A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions.  It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit.  Accordingly we do not express an audit opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 November 2005.

Ernst & Young LLP

1 More London Place

London, SE1 2AF

2^nd February 2006

Appendix 1

Consolidated Income Statement for the six months to 30 November 2005 under pro-forma UK GAAP* (Unaudited)

Group Statement of Total Recognised Gains and Losses

There are no recognised gains or losses other than as shown above.

* The pro forma UK GAAP applied in this appendix is defined as that which was applicable to the Group’s UK GAAP statutory financial statements for the year ended 31 May 2005.
Appendix 2

Reconciliation of Proforma UK GAAP* to IFRS

* The pro forma UK GAAP applied in this appendix is defined as that which was applicable to the Group’s UK GAAP statutory financial statements for the year ended 31 May 2005.