INDEX KUYICHI SOCIAL REPORT 2014

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2 INDEX Summary: goals & achievements Sourcing strategy 2. monitoring and remediation 3. Complaints handling 4. Training and capacity building 5. Information management 6. Transparency & communication This Social Report was written by Kuyichi and approved by Fair Wear Foundation. Kuyichi is an affiliate of Fair Wear Foundation since July Images used in this report: All images in this report are made by Kevin Rijnders on behalf of Kuyichi. They show real workers from factories we work with in Turkey and Tunisia. Abbreviations used in this report: - CAP = Corrective Action Plan - CBA = Collective Bargaining Agreements - CMT = Cut-Make-Trim (sewing phase) - FCS = Fashion Company Sahel (jeans supplier in Tunisia) - FWF = Fair Wear Foundation - GOTS = Global Organic Textile Standard - RCM = Rajlakshmi Cotton Mills (top supplier in India) - SA8000 = Social Accountability WEP = Worker Education Program 7. Stakeholder Engagement 8. Corporate Social Responsibility AppendiCES

3 SUMMARY: GOALS & ACHIEVEMENTS 2014 According to Jan Bezemer, CEO of Kuyichi: For Kuyichi, sustainability and social responsibility have always been key issues in our strategy. By joining Fair Wear Foundation we believe we found the right partner to guide us in our sustainable journey. We will need more time and resources to fully adapt to FWF s approach and auditing system, but we are committed to do so in the near future. Since Kuyichi joined Fair Wear Foundation (FWF) in July 2013 it has been an exciting journey. We learned a lot but we realise we are not there yet can therefore be considered as a transition year for us, in which we faced some major challenges but also managed to take some important steps. During 2014, Kuyichi focused on the main jeans suppliers in Tunisia. Two factory audits by the Tunisian FWF team were conducted, of which one on behalf of Kuyichi. Both audits revealed some good outcomes but also several issues, which we currently try to solve in collaboration with FWF and the factory management. The Worker Education program (WEP), initiated by Kuyichi and organised by FWF in May 2014 can be considered a step in the right direction. Kuyichi s most important achievements of 2014 are related to transparency and communication, with the launch of our new website and webshop as main result. Last but not least Kuyichi organised factory visits to suppliers in China, India, Macedonia and Turkey. These visits were attended by the CR manager, CEO and/or members from the sourcing department. Some of these factories have their first FWF audit planned for We look forward to this.

4 1. Sourcing strategy 1.1. Sourcing strategy & pricing Kuyichi aims to establish long-term relationships with all our suppliers, from farm to factory. Good examples are the denim mills in Turkey, with whom Kuyichi has been working with for about ten years. Kuyichi is currently in the process to establish long relationships with the stitching factories and laundries. When choosing a new supplier, we use the following central criteria: - their willingness to work according to the FWF Code of Conduct - capability of the supplier to produce the product; - quality standard & workmanship; - respect of labour standards and environment; experience with sustainable and/or certified fabrics; - availability of required sustainable & innovative technologies/machines (enzymes-, ozone-, laser techniques); - minimum order quantities; - ability to fulfil timeline and deadlines; - capacity for the forecasted quantities; - FOB target price. Kuyichi s pricing strategy is focusing on making the best sustainable product at a price level that is acceptable for our customers. Our financial aim is not to maximise profit but to optimise profit, aiming for moderate growth. At the same time we want to offer state of the art sustainable concepts with good social conditions. Our online and offline products are equally priced Organisation of the sourcing department The sourcing department consists of three parts; the design, the development and the production stage. The sourcing department is working under the supervision of the CEO and in close cooperation with the CR Department. Figure 1: The sourcing department at Kuyichi (Design & Production):

5 1. Sourcing strategy 1.3. Production cycle Per calendar year, Kuyichi is launching two collections; a Spring-Summer collection and an Autumn- Winter collection. Above that we introduced new core styles as Never Out of Stock (NOS) items. With our NOS styles Kuyichi supports the slow fashion movement and gives retailers the possibility to re-order finished goods ready for sale. The production cycle of the jeans is as following; the denim fabrics are produced at mills in Turkey and Italy, and made into a pair of jeans at production facilities located in Turkey and Tunisia. After the Cut- Make-Trim production phase, jeans are transported to the laundries Kuyichi is working with in Turkey, Tunisia and Italy. Here the jeans are washed and get the final treatments (shading, abrasion and effects) after which they are being prepared for transport to the warehouses, from which they are going to the shops. Most of our top suppliers are vertically integrated factories. Production planning takes place based upon a so called Time & Action schedule drawn up by the supplier. In this schedule all the Cut-Make-Trim (CMT) phases including lead times are described and can be monitored. With the knowledge of the production planning, mills can be informed about fabric delivery times at sewing facilities, lead times can be finalized and travel planning arranged. In general lead times of the CMT phase (including laundry finishing) are 7-8 weeks ex. factory. Wherein lead times of fabrics, especially fabrics containing organic cotton, are not included Supplier relations The bulk of jeans production for 2014 has been manufactured at Fashion Company Sahel (FCS), the Tunisian factory Kuyichi is working with since December FCS matches Kuyichi in terms of size and craftsmanship. They deliver high quality products and produce both small and large order quantities. FCS is also our main jeans supplier during 2015; the remaining jeans are produced at Dinakon in Turkey. However, being a small brand means we sometimes have to cope with external difficulties. For example Kuyichi had to quit production at Fashion Matrix Oversees (in India) in 2014, due to problems with minimum order quantities. From our SS15 collection and onwards we therefore work with two new suppliers in India. These are the Fairtrade certified companies Mandala Apparels and The Rajlakshmi Cotton Mills (RCM), of which the stitching facility is also SA8000 certified Integration monitoring activities and sourcing decisions The sourcing department is responsible for the optimisation of the supplier base in order to achieve a complete sustainable collection in the best possible way. To reach this goal transparency and accountability in decision-making are the key elements of the sourcing process. Every Kuyichi staff member who is visiting a supplier will also discuss the social and environmental issues and progress. And bring forward the audit planning or implementation of the improvements (formulated as Corrective Action Plan or CAP) in close cooperation with our CR Manager.

6 2. Monitoring and remediation 2.1. Tunisia: Fashion Company Sahel & Interwashing Fashion Company Sahel In 2014, the majority of Kuyichi jeans was produced at stitching factory Fashion Company Sahel (FCS) in Tunisia. The Tunisian FWF team made a first verification audit here on behalf of Kuyichi in 2013 and a follow-up check on the Corrective Action Plan (CAP) was done by a FWF supervisor in December The most important findings per FWF labour standard are shown in Appendix A. Despite our commitment to the FWF Code of Labour Practices and Worker Education Programme (WEP) training organised by FWF together with Kuyichi, Fashion Company Sahel did not meet all FWF requirements. Efforts to improve labour conditions at FCS have been concentrated on four domains: - The Collective Bargaining Agreements (CBA) must be posted in the factory for all workers. - Setting up a grievance/ complaints procedure for all workers. - Setting up a route towards payment of Living Wages. All wages were above minimum wage but most were below the Living Wage. One factor influencing this gap is the high inflation rate in Tunisia. - Training in Health and Safety (first-aid and firefighting operation) for selected group of workers and forming an active Health & Safety committee Interwashing Kuyichi s jeans produced at FCS are mainly washed at Interwashing in Tunisia. Last year, FWF conducted the first audit here. The most important findings per FWF labour standard are shown in Appendix B. The audit highlighted many positive aspects, but also showed several issues. Most problems at Interwashing were related to Health & Safety. Follow-up As an affiliate of FWF, we have made the commitment to deliver training and capacity building programmes to improve the working conditions in their factories. Kuyichi takes all problems at our suppliers very seriously and we work hard to improve these shortcomings. We have been visiting several times since the audit and we are following-up with the responsible managers at both FCS and Interwashing. In addition, we consult FWF and seek for collaboration with other denim brands, so we can join forces to speed up the process. Despite disappointing findings we decided to continue the collaboration with FCS and Interwashing in 2015, so we can strive to make a difference and improve the life of workers. After the next factory audits new decisions can be made. It is clear that efforts must be made on all sides in order to maintain a long-term business relationship with these suppliers India: Rajlakshmi Cotton Mills Last year we made our first factory visit to our new top supplier Rajlakshmi Cotton Mills (RCM). RCM is an Indian vertically integrated garment factory. All its production facilities are being independently monitored by multiple institutes to ensure that standards stay high. A third party European auditor audits for the SA8000 certificate. Annual audits are done by Control Union to verify the Global Organic Textile Standard (GOTS) certification for organic cotton products and processes. The US Fair Trade association has also audited the facilities for Fair Labor practices and granted RCM their Fairtrade certification.

7 2. Monitoring and remediation The main goal of the visit to Rajlakshmi Cotton Mills was to establish a relationship with the factory management. In 2015 Kuyichi aims to gain insight in the Corrective Action Plans from the SA8000 audit report, and to help with improvements where possible China: Jiecco Last year we paid one factory visit to top supplier Jiecco, located in China. Jiecco is an environmentally conscious company, working with organic cotton and other certified fabrics. The factory is audited by Business Social Compliance Initiative (BSCI). Positive outcomes of the last social audit were related to the factory building, workers facilities and workers protection. During the time of the audit, Jiecco had just shifted from paper cards to an electronic system to record workers attendance. Therefore it was not possible to verify overtime hours and compensation. The first FWF verification audit at Jiecco has been scheduled in April The first impression of FWF was really positive; more details will be published on our website. According to FWF, Jiecco is interested in having a Worker Education Program (WEP) in We will be in touch with the management and see where we can contribute to further improvements Macedonia/Greece: Mercury In 2014 Kuyichi organised two factory visits to top supplier Mercury. The stitching factory in Macedonia is SA8000 certified. We decided to follow up on the CAPs set up by SA8000, as the level of social compliance of the stitching factory in Macedonia is comparable to FWF s Code of Labour Practices. During the last visit all CAPs were discussed, and Kuyichi is being involved in the follow-up improvement plan. Hereby the focus is on implementing a management system (complaints procedure + communication system). We are currently discussing whether we will make a FWF audit or Worker Education Program (WEP) at Mercury in Turkey: Dinakon In November 2014 Kuyichi visited Dinakon, a Turkish manufacturer of denim and non-denim garments. The trip included a full factory visit and was centered around CSR. Dinakon is currently being monitored by BSCI. The last social audit highlighted that the factory is in good condition and employees are treated properly. All wages were in accordance to the law but not always at a living wage, something that was discussed during our visit and has to be looked into. The aim for 2015 is to conduct the first FWF audit at Dinakon, on behalf of Kuyichi External production Not applicable.

8 3. Complaints handling Kuyichi strives to improve communication about Fair Wear Foundation and make workers aware of the FWF complaint mechanism. Worker Information Sheets are posted are posted in the factories, featuring contact details of Kuyichi s CR Manager and/or FWF s country contact person and the FWF Code of Conduct in the local languages. Our CR Manager is responsible for dealing with potential complaints from workers or their representatives against their employer within the supply chain of Kuyichi. We want to do everything within our power to resolve a complaint in a timely manner, in close cooperation with FWF. In 2014 neither Kuyichi nor FWF s country contact persons received complaints from factory workers or management involved in our supply chain. Kuyichi is currently establishing the complaint handling procedure to detect problems and implement it in our monitoring system, in order to better support remediation of working conditions. Figure 2: The FWF Code posted in the local language at garment factory Jiecco, China

9 4. Training and capacity building 4.1. Activities to inform staff members Throughout the year the Kuyichi staff members are regularly informed by the CR Manager about the FWF membership and what it means for us to be a member. For example updates regarding FWF audits at suppliers are communicated both per and face to face, for example in sourcing meetings. The CR Manager also shares important documents with the entire staff, such as the sheet provided by FWF explaining the difference of FWF and Fairtrade. Kuyichi is also interested in hosting an internal workshop in collaboration with FWF, preferably in Activities to inform agents Kuyichi explains our collaboration with FWF and the FWF Code of Conduct in all our main communication channels (e.g. website, blog and collection brochures). In June 2014, the CR Manager held a presentation during the sales meeting, explaining the basics of FWF. Video materials from FWF were shown and there was room for Q&A. Kuyichi s sourcing -, salesand marketing department were present at this meeting too Activities to inform manufacturers and workers As an affiliate of the FWF, Kuyichi has made a commitment to deliver training and capacity building programmes to improve the working conditions in their factories over a long term business relationship. The CR Manager informs all suppliers about FWF membership and what it entails. In addition: - Model letters and questionnaires shall be provided to inform all suppliers. - Suppliers will be asked to accept the Code of Labour Practice and have to confirm their commit ment to work towards compliance with the Code. - Also the factory management will be informed by the CR Manager about FWF membership. If agents are playing a role, they will be instructed to give support as well. - The FWF Code has to be posted in the factories in the local languages. - CSR is a standard topic during all factory visits by the sourcing staff, the CR Manager and the CEO. This also applies to sub-suppliers. Having the FWF Code posted in factories does not guarantee workers actually understand its content. Kuyichi acknowledges this problem and initiated a Worker Education Program (WEP) at Fashion Company Sahel in Tunisia. This training was organised by FWF in May 2014 and aimed to explain the role of FWF and to improve communication within the factory. The Worker Education Program led to a step in the right direction. The discussions in both trainings at FCS have been very open and provided lots of feedback and response. All workers stated that their knowledge about their rights and the role of FWF was increased thanks to the training. Another outcome of the WEP was that the factory must adopt new ways for effective communication with workers. All managers agreed that they will communicate better with workers after the training, especially during face-to-face dialogues. Kuyichi intends to initiate more WEPs at other suppliers in the coming years.

10 5. Information management Kuyichi has a good understanding of our suppliers in every production step. Presently, we work with suppliers located in China, India, Macedonia/Greece, Poland, Turkey and Tunisia. For our Autumn-Winter 14 (AW14) collection we also produced in Ecuador and Slovakia. Kuyichi keeps track of all suppliers including sub-suppliers in our internal database. Here we list suppliers status, contact details, certificates, audit results and more. All Cut Make Trim factories we work with are also listed in the FWF online database. During factory visits we always discuss sub-suppliers, and inform about their production processes (to avoid unknown sub-suppliers of sub-suppliers). We also try to visit relevant sub-suppliers, especially factories with labour intensive production processes like washing. Sometimes sub-suppliers work under the same holding or even in the same building as the stitching factory. This is mainly the case with vertically intergated companies, who can have different companies for washing, printing, packaging etc.

11 6. Transparency & communication Kuyichi s mission is to become fully transparent about their supply chain, as we feel consumers have the right to know where their clothes come from and how they are made. During 2014 we made a big step towards opening up our supply chain. This in itself is not new to Kuyichi: in the past we made use of MADE-BY s Track & Trace system, but after MADE-BY ceased this in 2012 we had to find our own way. During 2013 and 2014 we researched different communication channels and collected data. Finally we managed to integrate all information in our new website and webshop, launched in January The doors of the factories are literally opened by the campaign Let s be true. Consumers are invited to see where and how Kuyichi products are made. Now it s possible to find out where the cotton comes from, where the fabric is made, and where the products are stitched. The consumer is also able to see portraits and videos of the factory employees. In this way, the consumer can see the people behind the products. The true stories behind the product. Furthermore the new website includes an elaborate CR section. All suppliers are briefly described and FWF audit summaries are added. Figure 3: Impression of Kuyichi s new website

12 7. Stakeholder Engagement During 2014 we made use of the FWF country studies of Macedonia, China, Turkey and Tunisia. We mainly use these reports to prepare ourselves for factory visits, but we also share insights from these reports during meetings with suppliers. Our goal is to make better use of FWF s resources such as the Wage Ladder during the next years. During the year our CR department and sourcing team attended several social responsibility related events. For example Kuyichi attended a seminar by Modint and participated in one of their work groups. Together with over 100 companies, Kuyichi signed the plan called Verduurzaming Nederlandse textiel- en kledingsector (improving sustainability in the textile and garment sector), which was offered to the Dutch ministry for Foreign Trade and Development Coorperation. In 2014 we had regular contact with MADE-BY, Fairtrade and Solidaridad. Topics discussed with these stakeholders include the use of sustainable materials, community involvement and wet-processing. For the latter, we started to make use of the MADE-BY Wet Processing Benchmark for pre-treatment, dyeing, printing and finishing of fabrics. These benchmarks illustrate the sustainability of common wet processing techniques and applications in terms of water use, energy use, and potential chemical or safety hazards.

13 8. Corporate Social Responsibility Kuyichi continued the support of the Ubuntu Academy, a school for arts, entrepreneurship & leadership in Cape Town, South Africa. In 2014, Kuyichi co-founded STUB: A collaboration between Ubuntu Academy Cape Town, renowned artist SIT and Kuyichi. STUB offers youth a platform to explore their passion. SIT worked together with the students to guide them to conceptualise and design their ideas. As part of the process SIT and a selection of the Ubuntu Academy students also designed a T-shirt collection for Kuyichi SS15. Figure 4: One of the T-shirts designed by SIT and Ubuntu students In 2014 we started collaborating with Chetna Organic, a complete farmer owned supply chain in India. Chetna farmers produce GOTS and Fairtrade certified cotton and improves the livelihood options of small and marginal farmers by making their farming systems more sustainable and more profitable. As Fairtrade licensee (in the Netherlands Fairtrade operates as Max Havelaar ), Kuyichi supports the production of ethical traded goods and pays a premium on our Fairtrade products. Our stakeholder Solidaridad is also involved in the development of Chetna Organic. Kuyichi s aim is to collaborate with one of Chetna s community projects. A visit is planned in In 2014, 90% of Kuyichi s collection was produced using Class A, B and C fibres (MADE-BY Benchmark). In addition, Kuyichi did not use any conventional cotton within its collection, but instead used organic (Class B) or recycled cotton (Class A). Organic cotton was used in the majority of Kuyichi s collection, accounting for 87% of total fibre use. Organic cotton production demands a radical change in production practices, processing and manufacturing systems. Organic cotton is 100% pesticide free. Pesticides pollute soil and water, killing wildlife and harming communities.

14 APPENDIX A APPENDIX B Fashion Company Sahel (FCS), Tunisia. FCS was first audited by the Tunisian FWF team on behalf of Kuyichi in December The follow-up on CAPs was checked by FWF in December The most important findings were: Interwashing, Tunisia. Interwashing was audited by the Tunisian FWF team on behalf of Kuyichi in September The most important findings were: FWF labour standard 1. Employment is freely chosen 2. Freedom of association and the right to collective bargaining 3. There is no discrimination in employment 4. No exploitation of child labour 5. Payment of a living wage 6. Reasonable hours of work 7. Safe and healthy working conditions 8. Legally binding employment relationships Most important findings Wages are sometimes paid with a delay. Many workers complained about this. No areas for improvement No areas for improvement No areas for improvement Wages are calculated on an hourly basis, not on productivity. Workers are thus not forced to produce as fast as possible. All wages at FCS are above the minimum wage and in accordance to the garment CBA. However, most wages are below the estimated living wage limit, as calculated by FWF s Wage Ladder. Overtime work is rare and only concerns a small part of the workers (on average of hours/week). Overtime is voluntary and workers get compensated, but without premium and without being mentioned on payrolls. Overall, the factory is spacious and machines are in good condition. The work place is equipped with air conditioners and it is heated in winter. Protective personal equipment is provided and used by workers, and there are no chemicals used. Fire exits, all clearly marked, but there is no evacuation training. The building s ventilation is good, yet the work place is too dusty and the canteen was in poor condition. The accident register and medical files are well kept in the factory, and emergency boxes are complete. Both the consortium of labour and a free general practitioner visit the factory weekly. Overtime hours are not included on payslip, leading to a decrease in social security contributions. Follow-up Wages should be paid right after the end of the month. No improvements have been made yet. Will be discussed in next meetings. No actions required No actions required No actions required Kuyichi s goal for 2015 is to start an investigation to assess whether our payment to FCS is sufficient to support a living wage (including a cost price breakdown to analyse current wages). Together with FWF, we aim to set up a plan towards realisation of Living Wages. Although overtime rarely occurs, this is something that needs to be looked after. In response the factory management already tackled some problems. For example the canteen was cleaned and repainted. But most actions still need to be undertaken. Also the Health and Safety committee should be more active. An audit to a dormitory is planned for Although ovetime is rare, payments should be included in payroll and social security contributions. FWF labour standard 1. Employment is freely chosen 2. Freedom of association and the right to collective bargaining 3. There is no discrimination in employment 4. No exploitation of child labour 5. Payment of a living wage 6. Reasonable hours of work 7. Safe and healthy working conditions 8. Legally binding employment relationships Most important findings No areas for improvement No areas for improvement No areas for improvement No areas for improvement Wages for a regular working week (without overtime work) are above the estimated living wage limit across all the factory departments, as calculated by FWF s Wage Ladder. In addition workers receive some bonuses, for example for transport, but lack a so called presence bonus. Interwashing opts for regular working hours, but during peak periods one or two hours per day overtime is common for some departments. Overtime work is voluntary, workers get compensated and overtime is mentioned on payrolls. Several improvements are needed. For example the factory is spacious but not well maintained and can be noisy. Chemicals are properly stored, segregated and properly identified, yet on the other hand protective equipment is not always used by the workers, and there is no training on health & safety. More than 80% of the workers have a permanent contract. However, some workers sign contracts for one month period renewable. Follow-up No actions required No actions required No actions required No actions required The management should review the CBA with the labour inspection. All CBA bonuses should be paid. Overtime should not exceed the limit of 12 hours/week. Official working hours schedule should be posted and noticed on a register. Workplaces should be well maintained and staff needs to be trained properly. The health and safety committee should be more active. One month renewable contract should be reviewed, as this doesn t offer social guarantees for workers.

15 CONTACT Kuyichi Europe H.Figeeweg 3G BJ Haarlem The Netherlands T: +31- (0) E: