Second Cup Royalty Income Fund announces first quarter results and April distribution

MISSISSAUGA, ON, May 10 /CNW/ - Second Cup Royalty Income Fund (the
"Fund") reported financial results for the first quarter ended March 31, 2007
and the approval of the April distribution payment. 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.

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Highlights

- Same café sales growth of 6.1% for the quarter.
- Distributions declared to Unitholders increased by 7.5% on a per unit
basis compared to the first quarter of 2006.
- Basic earnings per unit, before reorganization costs, was $0.2649 for
the quarter, compared to $0.2530 for the comparable period a year
ago, representing a 4.7% increase.
- Basic earnings per unit was $0.2339 for the quarter, compared to
$0.2329 for the comparable period a year ago.
>>

"We are pleased with the overall performance of Second Cup, and
particularly pleased with the same café sales growth of 6.1% for cafés in the
Royalty Pool in the first quarter of 2007 given the impressive 6.4% same café
sales achievement we were lapping from our first quarter in 2006," commented
Bruce Elliot, President of The Second Cup Ltd. ("Second Cup").

First Quarter Results

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 Royalty Pool Cafés. Same café sales growth is of particular
importance as it directly correlates to increased cash available for
distribution and is a key indicator of brand health and franchise
profitability.
Same café sales growth of cafés included in the Royalty Pool was 6.1% for
the quarter, representing the ninth consecutive quarter of same café sales
growth since the inception of the Fund. System sales were $45,997 in the
quarter, as compared to $43,373 in the first quarter of 2006.
System sales in the first quarter of 2007 were positively impacted by the
redemption of Second Cup Café Card balances originally loaded during the
holiday season, price increases implemented in 2006 and Second Cup's winter
promotional program.
The source of revenue for the Fund in the first quarter was through its
100% ownership in Second Cup Trade-Marks Inc. ("MarksCo") which, in turn,
received royalty income from Second Cup under a Royalty and License Agreement
(the "Agreement"). For the quarter, MarksCo earned total royalty revenue of
$2,999 (2006 - $2,826) and paid $2,372 in interest (2006 - $2,354) and $190
(2006 - $85) in dividends to the Fund. The Fund incurred total operating
expenses of $74 (2006 - $75), excluding $111 (2006 - $95) incurred by MarksCo.
Operating expenses of the Fund and MarksCo are limited to general and
administrative expenses, term loan interest expense, and amortization of
deferred financing fees. During the quarter, the Fund incurred additional
expenses of $301, or $0.0310 per unit, related to the previously-announced
reorganization of the structure of the Fund (2006 - $193) which was
implemented at the beginning of the second quarter of 2007.
Net earnings for the quarter included current income taxes of $56 (2006 -
$24), including current income tax expense of $53 relating to MarksCo (2006 -
$21). As a result of the reorganization of the Fund's subsidiaries into a
non-taxable limited partnership, income tax expense will be eliminated from
April 2, 2007 onwards, until the proposed income tax legislation on income
funds becomes applicable in 2011.
Net earnings of the Fund were $2,271 or $0.2339 per unit, for the
quarter, compared to $2,245 or $0.2329 per unit, in 2006. Net earnings for the
first quarter of 2007 excluding the above mentioned reorganization costs were
$2,572 or $0.2649 per unit, compared to $2,438 or $0.2530 per unit, for 2006,
representing an increase of 4.7% on a per unit basis.
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 MarksCo. Cash flow from
operating activities of the Fund is adjusted to include cash flow from
operating activities of MarksCo. Distributable cash was $2,693, or $0.2774 per
unit, compared to $2,617 or $0.2715 per unit in 2006. Excluding the $301 (2006
- $193) in expenses relating to the reorganization of the Fund and changes in
non-cash working capital of MarksCo and the Fund, distributable cash in the
quarter increased to $2,613 or $0.2691 per unit, compared to $2,488 or $0.2581
per unit, in 2006, an increase of 4.3% on a per unit basis. Distributions
declared by the Fund increased 7.5% on a per unit basis over 2006, from
$0.2500 per unit to $0.2687 per unit in 2007, as a result of the two increases
in the monthly distribution rate since the first quarter of 2006.

April Distribution Announcement

The Fund also announced that its Board of Trustees approved a cash
distribution of $0.0910 per unit for the month of April, 2007 to be paid on
May 31, 2007 to Unitholders of record at the close of business on May 29,
2007.

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 Royalty Pool Cafés. Growth in overall system sales is dependent on
same café sales growth, and adding net new cafés to the café network.
Looking forward, Second Cup maintains its expectation to achieve same
café sales growth of approximately 3% to 5% for the 2007 fiscal year.
In terms of network expansion, Second Cup continues to expect to open 14
to 18 new cafés in Canada during the 2007 calendar year. Further, Second Cup
expects it will permanently close between 8 and 12 cafés during the same
period, the majority of which have sales below the average performance of
cafés in the Royalty Pool. Second Cup also continues to expect that
approximately 30 of its cafés will be renovated during the year.
Overall, based on the Second Cup initiatives outlined above and others,
the anticipated economic environment and market conditions affecting the
specialty coffee industry, the Fund continues to expect a successful 2007
fiscal year.

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 first quarter.

<<
-------------------------------------------------------------------------
Three months ending
(in thousands of dollars, except number of Mar. 31, Mar. 31,
cafés and per unit amounts) 2007 2006
-------------------------------------------------------------------------

Number of cafés in Royalty Pool 351 352

Number of active cafés - end of period 348 350

Same café sales growth(1) 6.1% 6.4%

System sales of cafés in the Royalty Pool(1) $ 45,997 $ 43,373

Net earnings for the period excluding
reorganization costs(2) $ 2,572 $ 2,438

Net earnings for the period $ 2,271 $ 2,245

Basic earnings per unit excluding
reorganization costs(2) $ 0.2649 $ 0.2530

Basic earnings per unit $ 0.2339 $ 0.2329

Diluted earnings per unit $ 0.2337 $ 0.2326

Distributable cash per unit excluding
reorganization costs and changes in non-cash
working capital(3) $ 0.2691 $ 0.2581

Distributable cash per unit(3) $ 0.2774 $ 0.2715

Distributions declared per unit $ 0.2687 $ 0.2500
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(1) "System sales" and Same café sales" are non-GAAP measure that 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. 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.

(2) "Net earnings for the period excluding reorganization costs" and
"Basic earnings per unit excluding reorganization costs" for 2007
represent non-GAAP measures and are calculated by adding back to net
earnings $301 of costs incurred related to the reorganization
(2006 - $193).

(3) "Distributable cash", "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 above in
this news release, and adding back costs incurred related to the
reorganization of $301 (2006 - $193) and excluding changes in
non-cash working capital balances of the Fund and MarksCo.
>>

The unaudited interim consolidated financial statements of the Fund,
together with its Management's Discussion and Analysis for the first 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 May 11, 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.

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