The finding by NZX Regulation that Fletcher Building Ltd (FBU) was not in breach of its continuous disclosure obligations in the management of last year’s two earnings downgrades would have been greeted with sighs of relief in the company’s Penrose headquarters.
We consider that the decision is correct on the facts established in the investigation. Two requirements need to be satisfied to establish non-compliance:
- the information must be material, and
- the company must have been dilatory in releasing it to the market.
Given the size of the revisions – around 15% down on the earnings forecast range in March and down a further 14% to 19% in July – the materiality of the information was never in doubt.
But the NZX found that on each occasion the FBU Board and senior management became aware that the forecast earnings may fall below the published guidance range, they had applied immediately for a trading halt and had then announced the revised forecast at the earliest opportunity and before the market opened.
This meant that they were in compliance with their duty under the listing Rules to respond “immediately” they had knowledge of the new situation, which the NZX Guidance Note says means “promptly and without delay”.
Chapman Tripp comment
The report reinforces the importance of robust internal oversight and escalation processes to enable material operating and financial issues to be identified early and dealt with appropriately.
NZX Regulation has been necessarily circumspect in its description of the underlying communications between executives and the board and other inputs relevant to its inquiry.
It has made some useful observations that warrant close reading on the way that FBU evaluated market rumours on how projects were performing, the impact that had on FBU’s overall financial performance, and the commercial judgements made.
Further Chapman Tripp commentaries on the continuous disclosure regime are available here and here.