Safeway accounting practices questioned

Safeway, the supermarket group at the centre of a five-way bid battle, yesterday moved to stem criticism of its accounting policies ahead of the publication of a controversial piece of analysts' research.

The report, compiled by Cheuvreux, the stockbroking arm of the French bank Crédit Agricole, is understood to pose questions about Safeway's profitability and its accounting methods. It could be published as soon as today.

Safeway has instructed its legal advisers, Clifford Chance, to get hold of the note – a move one adviser played down as designed to make sure the note did not contain any "factual inaccuracies".

Mike Dennis, the Cheuvreux analyst that wrote the research note, met with Safeway's finance director, Simon Laffin, last Wednesday. But the two are not thought to have discussed accountancy-related issues.

"Safeway has not seen the note," a spokeswoman for the chain said, adding: "However, we would defend all our accounting policies vigorously."

Paul Smiddy, a food retail analyst at Robert W Baird Securities, said yesterday that Safeway is viewed by the City as having the least conservative accounts in the supermarket sector. He said William Morrison, currently the only potential suitor to have tabled a formal bid for Safeway, is seen as the most conservative.

Mr Smiddy said: "You can generally see how conservative a retailer is by how high their tax rate is. Safeway's is quite low, which tends to reflect the degree of aggression of their accounting policies," he said.

Mr Dennis, who is one of the sector's few analysts not involved with one of the bid parties, has recently questioned a string of supermarket groups about how they account for payments from suppliers.

To compensate for slowing rates of sales growth, Safeway is understood to have put its suppliers under more pressure ahead of its financial year-end on 31 March.

Wal-Mart, which owns Asda, is believed to be preparing a dawn raid on Safeway's shares.