Second Cup Royalty Income Fund announces second quarter 2005 results

MISSISSAUGA, ON, Aug. 11 /CNW/ - Second Cup Royalty Income Fund (the
"Fund") reported today financial results for the second quarter of 2005. As
the Fund went public on December 2, 2004, there are no year-over-year
comparables for the period. The Funds units are traded on the Toronto Stock
Exchange under the symbol "SCU.UN".
System sales of the Royalty Pool CafDes during the quarter were
$43.6 million and same cafDe sales growth was 4.6%. For 2005, the Easter
weekend fell in the first quarter of the year, whereas in 2004 it fell in the
second quarter. Management estimates that this timing difference had a
positive impact of approximately 0.6% on system sales for the quarter due, for
the most part, to Office Tower and Mall situated cafDes being closed on the
holiday. System sales growth benefited from a price increase implemented in
the first quarter. The increase was applied to certain product offerings and
resulted in an overall price increase of approximately 3.0% for the second
quarter. Year-to-date sales reflect the seasonality of the business and
continue to be in line with management's expectations.
The source of revenue for the Fund is through its ownership in Second Cup
Trade-Marks Inc (MarksCo) which, in turn, receives royalty income from The
Second Cup Ltd. (Second Cup or the Company) under a Royalty and Licence
Agreement. For the quarter, MarksCo earned total royalty revenue of $2,845,000
and paid $2,365,000 in interest and $105,000 in dividends up to the Fund. The
Fund incurred total operating expenses of $73,000, excluding $261,000 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, and were in line with management's expectations. Net
earnings of the Fund were $2,479,000 or 25.87 cents per unit for the quarter.
Distributable cash, a non-GAAP measurement, represents net earnings of
the Fund adjusted for future income taxes and non-cash amortization expenses
of the Fund and its wholly-owned subsidiary, MarksCo, and was $2,508,000, or
26.17 cents per unit compared to distributions declared of $2,397,000 or 25.01
cents per unit for the quarter. The small difference between distributable
cash and total distributions is reflective of the seasonality inherent in
Second Cup's system sales.
During the quarter, a cafDe from the initial Royalty Pool was closed.
Annualized system sales for this cafDe were well below the average of all the
Royalty Pool cafes and amounted to $80,000. Second Cup has opened four new
cafDes subsequent to September 12, 2004, the date of determination of the
initial Royalty Pool CafDes. These cafDes are expected to be vended in as
Royalty Pool CafDes on January 1, 2006, the first adjustment date under the
License and Royalty Agreement.

<<
Highlights

(in thousands of dollars except   Three months ending  Six months ending
 cafDes and per unit amounts)            June 30, 2005      June 30, 2005
-------------------------------------------------------------------------

Number of cafDes in Royalty Pool                   348                348

Same cafDe sales growth                            4.6%               3.9%

System sales of Royalty Pool CafDes           $ 43,590           $ 84,026

Net earnings for the period                     2,479              4,768

Basic and fully diluted earnings per unit    $ 0.2587           $ 0.4976

Distributable cash per unit                  $ 0.2617           $ 0.5083

Distributions declared per unit              $ 0.2501           $ 0.5000
-------------------------------------------------------------------------

The consolidated financial statements of the Fund, together with its
Managements Discussion and Analysis, will be available at www.sedar.com and on
the Fund's website at www.secondcupincomefund.com on or before
August 12, 2005.

Outlook

The overall growth and performance of Second Cup and the Fund is driven
primarily by growth in system sales and, for the Fund, by the expansion of the
Royalty Pool. In connection with Second Cup's previously-stated growth
strategies, the Company can report on the following initiatives:

- The Company is implementing a phased rollout of a reloadable
  convenience card (the "Second Cup CafDe Card") across its major markets.
  The card allows customers to load a dollar amount on the card at a cafDe
  and redeem it not only for their daily purchases at participating
  cafDes, but also at Cara Operations Limited's full service restaurant
  brands including Swiss Chalet, Kelsey's, Milestone's and Montana's. The
  program has been launched in Edmonton, Calgary, Ottawa and Montreal and
  is expected to be rolled out to all of the Company's major Canadian
  markets by November, in time for the holiday season.

- The Company also has a renewed commitment to training and development
  initiatives focused on two of its key stakeholders, namely its
  franchisees and front line Coffee Agents. Examples of such initiatives
  include the development of a formalized business planning tool for
  franchisees and training courses targeted directly at front line Coffee
  Agents that are focused on improving customer engagement and selling
  skills.

- Over the next three years, in excess of 70 cafes are expected to be
  renovated. The Company has renovated 11 cafes to date and expects that
  it will modernize 15 to 20 cafes during 2005.

- The Company expects that it will open 8 to 10 new cafDes during the
  current fiscal year. No new cafDes were opened during the first two
  quarters of 2005.

Overall, based on the Second Cup initiatives underway, the anticipated
economic environment and market conditions affecting the specialty coffee
industry, Second Cup and the Fund continue to expect a successful year for
2005.

Distribution Announcement

The Fund has announced that its Board of Trustees has approved a cash
distribution of $0.0833 per unit for the month of July to be paid on
August 31, 2005 to unitholders of record at the close of business on
August 24, 2005.

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 cafDes, 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 subsidiary,
the Canadian trade-marks and other intellectual property and associated rights
used by The Second Cup Ltd. ("Second Cup") in connection with the operation of
Second Cup cafDes in Canada. The trade marks are licensed to Second Cup for 99
years for which Second Cup pays the Fund 6.5% of system sales of royalty
pooled cafDes. For further information on the Fund, visit
www.secondcupincomefund.com.

About Second Cup

Second Cup is Canada's largest specialty coffee cafDe franchisor and
second largest retailer of specialty coffee, as measured by number of cafDes.
For the ultimate on-line coffee experience, visit www.secondcup.com. Second
Cup is a wholly owned subsidiary of Cara Operations Limited, Canada's leading
integrated restaurant company.

>>
%SEDAR: 00021352E