(MENAFN- ProactiveInvestors) You know you are is spot of bother when the world€™s most famous stock picker dumps your shares saying the investment was €˜huge mistake€™.
Oddly billionaire Warren Buffett€™s exit from the () register in October was probably the least of the grocer€™s problems during the year from hell.
For in 2014 it also issued four earnings alerts sacked its chief executive and suspended eight of senior staff after profits were found to be overstated to the tune of £263mln.
The matter is now in the hands of the Serious Fraud Office which has launched a criminal probe.
So pity new boss Dave Lewis who must have seen more in the last few months with than he ever encountered in his 28 years with former employer .
On January 8 Lewis finally gets the opportunity provide his blue-print for .
No doubt his strategy has changed radically since he first accepted the job.
For is a company in need of fixing not one that requires a quick brand refresh.
The 45% fall in the share price in the year to date wiping £12bn off the business€™ value reveals the damage years of neglect have wrought.
Its worries don€™t just affect a few men in grey suits at €™s Hertfordshire head office or in the Square Mile. Its shares are a core holdings in many pension funds and investment schemes which means tens of thousands of savers have been affected in some small way by this meltdown.
So just what will it take to make investable again
According to City analysts there are three areas Lewis must address.
He must come up with a strategy to tackle and stifle the competition - and specifically he must decide how to take on the discounters.
At the same time Lewis must sort out €™s dysfunctional relationship with suppliers. And finally he must shore up the balance balance sheet.
Going forward is likely to be smaller and leaner; it may have to sell businesses and exit overseas markets.
The interim dividend has been cut by 75%. Analysts at the French brokerage Societe Generale said there is the possibility the final shareholder distribution will be scrapped as well as next year€™s payout to conserve cash.
The capital investment plans will be reined back while a £3bn rights issue may also be on the cards.
The business needs the cash infusion to maintain the investment status of its debt which at the last results was net £7.5bn.
The easiest way to avoid issuing new shares would be to sell assets such as its share of Bank the marketing business Dunhumby or one of its overseas arms. But it would almost certainly take too long to offload the assets.
There is a chance we could see the grocer taking the decision to opt out of certain overseas markets; those where it is subscale such as Malaysia Turkey or Central Europe.
And it may also receive an offer it can€™t refuse for prized assets such as Thailand and Korea.
According to Peter Elston Global Investment Strategist at Seneca Investment Managers the slim-down may not be a bad thing.
For he believes €™s break-neck growth sowed the seeds for its ultimate demise.
€œBetween 2000 and 2010 trebled its fixed assets by expanding into new markets and industries€ he said.
'Such an aggressive approach is often fraught with danger and has been paying the price of its hubris.
'It will take a while for the company to digest the problems caused by its rapid expansion but digest them it will.€
But €™s problems are not simply borne of rapid expansion.
The retailer is being eaten alive by the competition in its home market which accounted for around 70% of its sales at the interim results stage and where it has grown consistently for decades.
The arrival of the discount retailers Aldi and Lidl has really ramped up the pressure which has afflicted all the established food retailers.
The latest data for Kantar World Panel revealed €™s market share shrank by 2.7% in the latest 12 weeks although with just under 30% of the British grocery market it is still well ahead of the pack. By contrast Aldi and Lidl€™s sales grew by 22% and 18% respectively.
Price is the key. Perhaps not surprisingly is more expensive than the two low-cost operators. But it is also 6% more pricey than its closest mainstream rival ASDA according to JP Morgan Cazenove.
It can€™t afford to be the outlier which means piecemeal price promotion may not be the answer. Lewis and his team may have to cut the cost of the whole shopping trolley of goods.
This will obviously have a knock-on impact on profit margins but it could also increase the competitive tensions.
may also have to reset its relationship with suppliers who provide the retailer with incentives to display their wares prominently in-store.
Lewis is already reclaiming that shelf space but recent results revealed the loss of supplier discounts and allowances had tangible impact on profitability.
Finally an interesting but slightly worrying piece of research from JP Morgan Cazenove turned the attention back to those accounting irregularities.
Digging by the broker into €™s filed accounts suggested the profit overstatement might actually be £319mln not £263mln.
So ladies and gentlemen brace yourself.
Dave€™s to-do list
+ Arrest the slide in sales in the UK
+ Which means being more price competitive
+ Fix €™s relationship with its suppliers
+ Maintain investment-grade rating of debt
+ This may mean the sale of businesses
+ Or a £3bn rights issue
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