Analyst Questions Accounting of UK Safeway
LONDON - Questions are being raised by an analyst about the way British chain Safeway accounts for supplier rebates, according to a report in The New York Times. Safeway, which is the subject of a bidding war in the UK, said there was nothing unusual about its practices.
The analyst's report comes at a time when there are growing concerns over the way food companies, such as Royal Ahold, account for rebates, or payments from suppliers tied to volume sales.
The author of the report, Michael Dennis of the French bank Credit Agricole Indosuez Cheuvreux, said in an interview that by his calculations, Safeway's reliance on rebates is about three times the industry average. Dennis said he expected rebates at Safeway to total as much as 50 million pounds ($80 million) for the financial year that will end on March 30, or about 12 percent of pretax profit for the period.
"Safeway could be recording some of its upfront supplier payments as rebates against cost of goods, before the promotional event has occurred, rather than as part of its deferred income on the balance sheet," he noted in the report.
Dennis also said he was concerned about the sharp rise in money owed to Safeway by suppliers, which has jumped 153 percent, to 210 million pounds ($333 million), from 83 million pounds ($132 million) in 2001, at a time when Safeway's sales are falling.
Kevin Hawkins, a spokesman for Safeway, said the company's accounting for rebates was in line with industry practices.
The UK government hopes to announce the outcome of the inquiry into the Safeway bid battle today.
The analyst's report comes at a time when there are growing concerns over the way food companies, such as Royal Ahold, account for rebates, or payments from suppliers tied to volume sales.
The author of the report, Michael Dennis of the French bank Credit Agricole Indosuez Cheuvreux, said in an interview that by his calculations, Safeway's reliance on rebates is about three times the industry average. Dennis said he expected rebates at Safeway to total as much as 50 million pounds ($80 million) for the financial year that will end on March 30, or about 12 percent of pretax profit for the period.
"Safeway could be recording some of its upfront supplier payments as rebates against cost of goods, before the promotional event has occurred, rather than as part of its deferred income on the balance sheet," he noted in the report.
Dennis also said he was concerned about the sharp rise in money owed to Safeway by suppliers, which has jumped 153 percent, to 210 million pounds ($333 million), from 83 million pounds ($132 million) in 2001, at a time when Safeway's sales are falling.
Kevin Hawkins, a spokesman for Safeway, said the company's accounting for rebates was in line with industry practices.
The UK government hopes to announce the outcome of the inquiry into the Safeway bid battle today.