Second Cup Royalty Income Fund announces 2007 third quarter financial results

MISSISSAUGA, ON, Nov. 1 /CNW/ - Second Cup Royalty Income Fund (the
"Fund") reported financial results for the third quarter ended September 30,
2007. The Fund's units are traded on the Toronto Stock Exchange under the
symbol "SCU.UN". All amounts in this news release are presented in thousands
of Canadian dollars, unless otherwise indicated.

Third Quarter Results

Same café sales growth of cafés included in the Royalty Pool was 1.2% for
the quarter, representing the eleventh consecutive quarter of sales growth
since the inception of the Fund. System sales were $47,202 in the quarter, as
compared to $46,343 in the third quarter of 2006, an increase of 1.9%. For the
nine months ended September 30, 2007, system sales were $141,348 compared to
$135,528 for the nine months ended September 30, 2006, an increase of 4.3%,
primarily due to the same café sales growth of 3.8% achieved year-to-date.
"Same café sales in the third quarter were particularly challenging given
the comparably strong results from the third quarter of 2006, and the fact
that we were modernizing significantly more cafés this year compared to last.
In the third quarter alone, 17 cafés were modernized which negatively impacted
same café sales by approximately 1.0% due to their temporary closure while
under renovation. To date, we have renovated 30 cafés compared to only 11 in
total in the prior year, and expect to renovate approximately 10 more cafés by
year end," commented Bruce Elliot, President of The Second Cup Ltd. ("Second
Cup"). "We recently began rolling out our new grilled sandwich program across
our Montreal and Toronto markets, and have expanded our sandwich program in
Alberta, which we believe will positively impact sales for the balance of
year. We are also looking forward to another successful holiday program which
will commence in November."
The Fund reported net earnings of $2,571 or $0.2648 per unit for the
third quarter, compared to net earnings of $2,627, or $0.2726 per unit in
2006. Earnings were impacted in the quarter by additional general and
administrative expenses, primarily due to additional legal and advisory costs
incurred by the Fund. Excluding the reorganization costs and the impact of the
non-cash future income tax adjustments recorded in the second quarter of 2007
and 2006, net earnings for the year-to-date were $7,860 or $0.8096 per unit
compared to $7,623 or $0.7909 per unit in 2006, an increase of 2.4% on a per
unit basis.

Distributable Cash

Distributable cash is not an earnings measure recognized by generally
accepted accounting principles ("GAAP") and therefore may not be comparable to
similar measures presented by other issuers. Distributable cash is based on
cash flows from operating activities of the Fund and its wholly owned
subsidiary Second Cup Trade-Marks Limited Partnership ("MarksLP"). Cash flow
from operating activities of the Fund is adjusted to include cash flow from
operating activities of MarksLP. Excluding the impact of changes in non-cash
working capital and the reorganization costs, distributable cash for the third
quarter was $2,614 or $0.2692 per unit compared to $2,684 or $0.2785 per unit.
The decrease is mainly attributable to increased legal and advisory and other
general and administrative expenses incurred by the Fund and its subsidiaries.
For the year to date, excluding the impact of changes in non-cash working
capital and the reorganization costs, distributable cash was $8,014 or
$0.8255 per unit compared to $7,771 or $0.8063 per unit in 2006, an increase
of 2.4% on a per unit basis.

Outlook

The Fund's "top line" structure means that its success and growth depends
primarily on Second Cup's ability to maintain and increase the overall system
sales of cafés in the Royalty Pool. Growth in overall system sales is
dependent on same café sales growth and adding new cafés to the café network.
Subject to healthy economic conditions continuing across the company's
primary markets, and its expectation of another successful holiday season,
Second Cup currently expects same café sales growth of approximately 3% to 4%
for the 2007 fiscal year.
In terms of network expansion, Second Cup expects to open 14 to 15 new
cafés in Canada during the 2007 fiscal year. Further, Second Cup expects it
will permanently close between 8 and 10 cafés during the same period, all of
which have sales below the average performance of cafés in the Royalty Pool.
Second Cup also expects that renovations to approximately 39 to 41 of its
cafés will be completed during the year, 30 of which have been completed to
date.

Financial Highlights

The following table sets out selected financial information and other
data of the Fund and should be read in conjunction with the Fund's unaudited
interim consolidated income statements for the third quarter.

<<
(in thousands of dollars Three months ending Nine months ending
except cafés and September September September September
per unit amounts) 30, 2007 30, 2006 30, 2007 30, 2006
-------------------------------------------------------------------------

Number of cafés in Royalty Pool 351 352 351 352

Number of active cafés -
end of period 344 345 344 345

Same café sales growth 1.2% 5.7% 3.8% 5.6%

System sales reported by the
cafés in the Royalty Pool $47,202 $46,343 $141,348 $135,528

Royalty revenue earned by
MarksLP $3,090 $3,046 $9,236 $8,870

Net earnings for the period
excluding reorganization
costs and the impact of the
reorganization and new tax
legislation on non-cash
future income tax balances(1) $2,582 $2,637 $7,860 $7,623

Net earnings for the period $2,571 $2,627 $2,671 $7,032

Basic earnings per unit
excluding reorganization
costs and the impact of the
reorganization and new tax
legislation on non-cash
future income tax balances(1) $0.2659 $0.2736 $0.8096 $0.7909

Basic earnings per unit $0.2648 $0.2726 $0.2751 $0.7296

Diluted earnings per unit $0.2641 $0.2716 $0.2744 $0.7270

Distributable cash per unit
excluding reorganization
costs and changes in
non-cash working capital(2) $0.2692 $0.2785 $0.8255 $0.8063

Distributable cash per unit(2) $0.2696 $0.2783 $0.8225 $0.7907

Distributions declared
per unit $0.2730 $0.2601 $0.8147 $0.7702
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) "Net earnings for the period excluding reorganization costs and the
impact of the reorganization and new tax legislation on non-cash
future income tax balances" and "Basic earnings per unit excluding
reorganization costs and the impact of the reorganization and new tax
legislation on non-cash future income tax balances" represent non-
GAAP measures and are calculated by adding back to net earnings
expenses relating to the reorganization of $11 for the three months
and $312 for the nine months ending September 30, 2007, and $10 for
the three months and $367 for the nine months ending September 30,
2006; net earnings exclude the non-cash recovery of future income
taxes relating to the reorganization of the Fund of $nil for the
three months and $10,668 for the nine months ended September 30, 2007
and a non-cash future income tax charge relating to the new tax
legislation enacted on June 12, 2007 of $nil for the three months and
$15,545 for the nine months ended September 30, 2007; and $nil for
the three months and $224 for the nine months ended September 30,
2006, net earnings exclude a non-cash income tax charge relating to a
reduction of future income tax rates recognized in the second quarter
of 2006.

(2) "Distributable cash per unit" and "Distributable cash per unit
excluding reorganization costs and changes in non-cash working
capital" represent non-GAAP measures. "Distributable cash per unit
excluding reorganization costs and changes in non-cash working
capital" in 2007 and 2006 are calculated by taking the Distributable
cash calculated as described the Fund's MD&A, and adding back costs
related to the reorganization of $11 for the three months and $312
for the nine months ending September 30, 2007 and $10 for the three
months and $367 for the nine months ending September 30, 2006 and
excluding changes in non-cash working capital balances of the Fund
and MarksLP.
>>

The unaudited interim consolidated financial statements of the Fund,
together with its Management's Discussion and Analysis for the third quarter
of 2007, are expected to be available at www.sedar.com and on the Fund's
website at www.secondcupincomefund.com on or before November 2, 2007.

Forward Looking Information

Certain statements in this news release may constitute forward-looking
statements. Forward-looking statements include words such as "may", "will",
"should", "expect", "anticipate", "believe", "plan", "intend" and other
similar words. These statements reflect current expectations regarding future
events and operating performance and speak only as of the date of this
release. These forward-looking statements should not be read as guarantees of
future performance or results and will not necessarily be accurate indications
of whether or not those results will be achieved. Forward-looking statements
are subject to known and unknown risks, uncertainties and other factors that
may cause the Fund's actual results, performance or achievements, or those of
Second Cup cafés, or industry results to be materially different from any
future results, performance or achievements expressed or implied by those
forward-looking statements.

Non-GAAP Terms

In addition to using financial measures prescribed by GAAP, non-GAAP
financial measures and other terms are used in this news release. These terms
include "system sales", "same café sales growth", "net earnings for the year
excluding reorganization costs and the impact of the reorganization and new
tax legislation on non-cash future income tax balances", "basic earnings per
unit excluding reorganization costs and the impact of the reorganization and
new tax legislation on non-cash future income tax balances", "distributable
cash per unit excluding reorganization costs and changes in non-cash working
capital" and "distributable cash". These terms are not financial measures
recognized by GAAP and do not have any standardized meaning prescribed by GAAP
and therefore may not be comparable to similar terms and measures presented by
other similar issuers. These non-GAAP measures and terms are intended to
provide additional information on the Fund's performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP.
System sales and same café sales growth are presented in reference to the
sales performance of the Royalty Pool Cafés. The Fund believes they are useful
measures as they provide an indication of the top-line sales on which the
royalty that is the Fund's indirect source of income is based. Distributable
cash is presented in reference to the Fund's distribution policy. The Fund
believes distributable cash is a useful measure as it provides investors with
an indication of cash available for distribution. Management believes, in
addition to net income, distributable cash is a useful supplemental measure in
evaluating the Fund's performance as it provides investors with an indication
of cash available for distributions and working capital needs. Investors are
cautioned, however, that distributable cash should not be construed as an
alternative to the statement of cash flows as a measure of liquidity and cash
flows. The method of calculating distributable cash for the purposes of this
news release may differ from that used by other issuers and, accordingly,
distributable cash in this news release may not be comparable to distributable
cash used by other issuers.

About the Fund

The Fund is an open-ended trust established under the laws of the
Province of Ontario. It holds, through an indirect wholly-owned limited
partnership, the Canadian trade-marks and other intellectual property and
associated rights used by Second Cup in connection with the operation of
Second Cup cafés in Canada. For more information on the Second Cup Royalty
Income Fund please visit www.secondcupincomefund.com.

About Second Cup

Second Cup is Canada's largest specialty coffee café franchisor and
second largest retailer of specialty coffee, as measured by number of cafés.
For further information on Second Cup, visit www.secondcup.com.

%SEDAR: 00021352E