MISSISSAUGA, ON, May 10 /CNW/ - Second Cup Royalty Income Fund
(TSX:SCU.UN) is pleased to report its first quarter results and announce that
it is increasing its monthly cash distributions.
The monthly distribution will increase 4.04% from $0.0833 per unit to
$0.0867 per unit. The new monthly distribution of $0.0867 equates to an
annualized distribution of $1.0404 per unit. The board of trustees has
approved the first distribution of $0.0867 per unit effective for the month of
April 2006 which will be paid on May 31, 2006 to unitholders of record on May
25, 2006.
"The first quarter of 2006 was the fifth consecutive quarter of positive
same cafDe sales growth since the Fund's inception in December of 2004. We have
been pleased with the Fund's royalty growth since its inception and wish to
pass on this success to our unitholders in the form of an increase in
distributions going forward," said David Bloom, Chairman of the Board of
Trustees of the Fund.
FIRST QUARTER RESULTS
System sales of cafDes in the Royalty Pool were $43.4 million for the
quarter and same cafDe sales growth was 6.4%. System sales benefited from a
continuing improvement in sales mix, driven by increased sales of premium
beverages, food and merchandise. System sales growth also benefited from a
mild winter season in the Ontario market, and the timing of Easter. In
addition a price increase implemented in the first quarter of 2005 by The
Second Cup Ltd. ("Second Cup") accounted for approximately one percentage
point of the same cafDe sales growth for the period. System sales for the
quarter reflect the seasonality of the business and were in line with
management's expectations.
The source of revenue for the Fund is its ownership of Second Cup Trade-
Marks Inc ("MarksCo") which, in turn, receives royalty income from Second Cup
under a Licence and Royalty Agreement. For the quarter, MarksCo earned total
royalty revenue of $2,826,000. The Fund incurred ongoing operating expenses of
$169,000, including expenses of MarksCo. In addition, expenses of $193,000, or
$0.02 per unit, were incurred in the quarter related to the previously-
announced proposed reorganization of the Fund. Operating expenses of the Fund
and MarksCo were in line with management's expectations. Net earnings of the
Fund before any cash distribution were $2,245,000 or $0.2326 per unit on a
dilutive basis 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 $2,295,000, or
$0.2382 per unit, compared to distributions declared of $2,410,000 or $0.2500
per unit for the quarter. Excluding costs associated with the reorganization,
distributable cash of the Fund for the quarter was $2,488,000 or $0.2582 per
unit, representing an increase of 4.7% from the distributable cash per unit of
the first quarter of 2005.
During the quarter, two cafDes from the Royalty Pool were closed.
Annualized system sales for these cafDe were below the average of all the
Royalty Pool cafes and totaled approximately $848,000.
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Highlights
(in thousands of dollars Three months Three months
except cafDes and per unit ending ending
amounts) March 31, 2006 March 31, 2005
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Number of active cafDes in
Royalty Pool - end of period 350 349
Same cafDe sales growth 6.4% 3.3%
System sales of cafDes in the
Royalty Pool $ 43,373 $ 40,436
Net earnings for the period 2,245 2,289
Basic earnings per unit $ 0.2329 $ 0.2389
Fully diluted earnings per unit $ 0.2326 $ 0.2389
Distributable cash per unit $ 0.2382 $ 0.2466
Distributions declared per unit $ 0.2500 $ 0.2499
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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 cafDes in the Royalty Pool. Growth in overall system sales is
dependent on same cafDe sales growth, and adding net new cafDes to the cafDe
network.
Looking forward, Second Cup maintains its expectation to achieve same
cafDe sales growth of approximately 3% to 5% for the 2006 fiscal year. In
addition, Second Cup continues to expect to renovate 20 cafDes during the year,
open 15 to 20 new cafDes and close 12 to 15 cafDes during the fiscal year.
For a more detailed discussion of these results and Second Cup's
initiatives, refer to the Management's Discussion and Analysis for the
quarter, which, along with the consolidated financial statements of the Fund
and Second Cup, will be available at www.sedar.com and on the Fund's website
at www.secondcupincomefund.com on or before May 16, 2006.
Overall, based on the Second Cup initiatives for 2006 and the performance
of the Fund through the first quarter of the year, the Fund continues to
expect a successful 2006 fiscal year.
Forward Looking Information
Certain statements in this press release may constitute forward looking
information within the meaning of applicable securities legislation. Forward
looking information can be identified by words such as "may", "will",
"should", "expect", "anticipate", "believe", "plan", "intend" and other
similar words. Forward-looking information reflects current expectations
regarding future events and operating performance and speaks only as of the
date of this press release. It should not be read as a guarantee of future
performance or results and will not necessarily be an accurate indication of
whether or not those results will be achieved. Forward looking information is
based upon a number of assumptions and is subject to known and unknown risks,
uncertainties and other factors, many of which are beyond the Fund's control,
that may cause the Fund's actual results, performance or achievements, or
those of MarksCo, Second Cup, Second Cup cafDes, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking information. The following are
some of the factors that could cause actual results to differ materially from
those expressed in or underlying forward looking information: competition;
availability of premium quality coffee beans; the ability to attract qualified
franchisees; the location of Second Cup cafDes; the ability to exploit and
protect the Second Cup Marks; changing consumer preferences and discretionary
spending patterns; reporting of system sales by franchisees; and the results
of operations and financial condition of Second Cup. The foregoing list of
factors is not exhaustive, and investors should refer to the risks described
in the Fund's latest Annual Information Form.
Although the forward looking information contained in this press release
is based upon what management believes are reasonable assumptions, there can
be no assurance that actual results will be consistent with this forward
looking information. Certain assumptions made in preparing forward-looking
information include the assumption that the Canadian economy will remain
stable or expand at a moderate pace in 2006 and that inflation will remain
relatively low. The Fund has also assumed that interest rates will gradually
increase in 2006 and that demand for specialty coffee will be comparable with
demand in 2005.
As this forward looking information is made as of the date of this press
release, the Fund does not undertake to update any such forward-looking
information whether as a result of new information, future events or
otherwise. Additional information about these assumptions and risks and
uncertainties is contained in the Fund's filings with securities regulators.
These filings are also available on the Fund's website at
www.secondcupincomefund.com.
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 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.
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%SEDAR: 00021352E
