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METRO SEES INCREASED SYNERGIES FROM A&P INTEGRATION

MONTREAL - Metro here said it expects to achieve nearly 30% more in synergies this year from its acquisition of A&P Canada last summer than it originally forecast.Most of the additional savings are coming from a reduction in procurement costs from all suppliers, plus administrative cost reductions and a store rationalization program that's starting to be implemented, Eric La Fleche, executive vice

MONTREAL - Metro here said it expects to achieve nearly 30% more in synergies this year from its acquisition of A&P Canada last summer than it originally forecast.

Most of the additional savings are coming from a reduction in procurement costs from all suppliers, plus administrative cost reductions and a store rationalization program that's starting to be implemented, Eric La Fleche, executive vice president and chief operating officer, told industry analysts during a conference call to discuss financial results for the third quarter and 40 weeks that ended July 1.

Metro said it is raising its synergy projections for this year to just under $40 million (U.S.), compared with earlier projections of $31 million, and boosting its two-year expectations to $62.2 million, an increase of nearly 17% over the $53.3 million it initially anticipated.

"The integration is exceeding our financial targets, with procurement savings, the changeover of IT systems to Metro's platform and banner rationalization moving forward," La Fleche said.

Metro acquired 236 A&P locations in Ontario from Montvale, N.J.-based A&P last August. La Fleche said most Loeb stores in Ontario have been remerchandised to conform with the A&P Dominion banner, and all of Metro's remaining Super C stores in Ontario have been converted to the Food Basics banner.

Net income for the 16-week third quarter rose 49.6% to $75.5 million (U.S.) and 24.2% to $154.5 million for the 40-week period, while sales jumped 75.8% to $3 billion for the quarter and 76.2% for the year to date. Excluding the A&P acquisition, decreased sales of tobacco products and discontinuance, at the end of 2005, of certain low-margin supply contracts in its food-service operation, Metro said sales were up 2.9% in the quarter and 3.4% for the 40 weeks. Same-store sales rose 0.8% for the quarter and 1.1% for the year to date.

Pierre Lessard, president and chief executive officer, said Metro has a 14% stake in Achille de la Chevrotiere Limitee, a wholesaler being acquired by Sobeys. "We had the right of first refusal on the sale," he noted, "but we decided not to exercise it, deeming that the investment required to purchase and modernize the network seemed too high to earn an adequate return on capital."

Once the sale goes through, he said Metro stands to lose sales of about $111 million (U.S.) a year, although there will be no impact on profitability. The net gain after taxes to Metro from the deal will be approximately $7.1 million, he added.

La Fleche said Metro is ready for the scheduled opening in October of the first Wal-Mart supercenter in Ontario.

"We think we are well positioned to defend ourselves because of the strong discount image of Food Basics," he explained. "Those stores are priced in line with the pantry sections of Wal-Mart's discount stores, and we think we're well positioned to see them come in."

3RD-QUARTER RESULTS

Qtr Ended: 7/1/06; 7/2/05

Sales: $3 billion (U.S.); $1.7 billion

Change: +75.8%

Comp-store: +0.8%

Net Income: $75.5 million; $50.5 million

Change: +49.6%

Inc/Share: 65 cents; 52 cents

40 Weeks: 2006; 2005

Sales: $7.3 billion (U.S.); $4.2 billion

Change: +76.2%

Comp-store: +1.1%

Net Income: $154.5 million; $124.4 million

Change: +24.2%

Inc/Share: $1.33; $1.28

TAGS: Walmart