Sobeys Inc. announced its decision to discontinue further development and implementation of the SAP enterprise-wide software and systems initiative.

SAP will be phased out of operation in Sobeys Atlantic Division and 30 corporate Sobeys stores in Ontario. The operations of Sobeys Quebec, Sobeys West, Serca Food Service and the remaining 379 stores in Ontario had not been converted to SAP. The Company has identified alternate software options which will fully meet all the business requirements. The present intentions are to continue to use only the financial statement and human resources modules of SAP software.

Bill McEwan, President and Chief Executive Officer of Sobeys Inc., said, “We have come to the conclusion that what appeared to be growing pains with the implementation of enterprise-wide system are in fact systemic problems of a more serious nature. We have determined that there is insufficient core functionality in the SAP software component of our enterprise-wide systems to effectively deal with the extremely high number of transactions in our retail operating environment.”

In connection with this decision an after-tax special charge of $49.9 million, or $0.82 per share ($89.1 million or $1.47 per share pre-tax) will be incurred in the current quarter to reflect the abandonment of assets related to the Company’s SAP enterprise-wide software and related systems initiative.

Mr. McEwan added, “The systemic complexities of the SAP software, combined with a serious 5-day database and systems disruption in early December led to a comprehensive evaluation of the enterprise-wide software and systems initiative that resulted in today’s decision. The 5-day business disruption forced “work-around” accounting procedures and resulted in unprecedented out-of-stocks in our Atlantic and Ontario corporate stores. All of our employees are to be commended for their extraordinary efforts to maintain service to our customers and refill the distribution pipeline in the weeks following. We are compelled to indicate in conjunction with our SAP announcement that our reconciliation of “work-around” processes to date currently indicates third quarter operating earnings of approximately 22 cents per share, well below our previously expected results. As this was a significant one time disruption, we remain confident that our fourth quarter earnings will materialize as expected.”

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Mr. McEwan added, “The Sobeys organization is at an important juncture as we advance to our next stage of development and our firm decision to move forward with alternate, more flexible and adaptable supporting technologies reflects the confidence we have for the great potential for this Company.”

Mr. McEwan concluded, “Since joining Sobeys Inc. on November 25th, it has become very clear to me that we are very well positioned for growth, we have the commitment of the entire leadership team, and I believe the most dedicated and capable employees and franchisees in the industry. We are entering our next stage of development with continued optimism and renewed confidence.”

This press release contains certain forward-looking statements about the future performance of the Company. These statements are based on management’s assumptions and beliefs in light of the information currently available to it. We assume no obligation to update the information contained herein. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. TEL: (902) 752-8371 Allan D. Rowe, Executive Vice President and Chief Financial Officer
Sobeys Inc.