Country Foods, mushrooms and still not the Z

Would you lend money to Country Foods Limited? According to the Z score perhaps you should have participated in the listing in October 2007. Based on their prospectus and audited financial results for the year to September 2007, their Z-score was high within the grey zone, within reach of the coveted “safe zone”. As recently as June this year, Business Report was describing their winning recipe.

Now, with complaints of non-payment from suppliers, a resigned founder and CEO, vague comments about restructuring and now a request to be suspended from the AltX. Not an ideal scenario. The Z-score now? Well into the danger zone based on the interim numbers I have.

The cause of the decreased Z-score? Two primary items account for most of the change. First, from Business Report:

In its first-half profit statement it reported that profit fell 96 percent to R219 000 because of a late crop and power cuts.

The second is the share-price and thus implied market value, down from a listing price of 100c to 15c.

So, the Z-score certainly demonstrates consistency with the change in fortunes of the company. To this extent, it is a success. As for the use of the Z-score to manage a turnaround,  the two useful suggestions the formula spits out to the acting CEO?

  1. Increase earnings
  2. Increase market value

Because I know I wouldn’t have thought of that without the Z.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.