In a new Continuous Disclosure Guidance Note published last week (the New Guidance), NZX Regulation (NZXR) has provided more detailed guidance on an issuer's continuous disclosure obligations in relation to:
NZXR's previous Continuous Disclosure Guidance Note otherwise remains unchanged.
New Guidance makes clear that, although there is no requirement for
issuers to provide earnings guidance to the market, NZXR believes
earnings guidance will provide “the best foundation from which to assess market expectations" and may therefore provide a “benchmark that assists an issuer in managing its disclosure obligations".
also provides practical examples on what may constitute “earnings
guidance", which may include statements made by an issuer that it is
comfortable with consensus analyst performance expectations and
statements made by an issuer that it expects its performance to be
below, in line with, or to exceed, its performance in a prior comparable
Correcting market expectations
New Guidance sets out detailed considerations for issuers to take into
account when determining whether a deviation in an issuer's actual or
projected earnings from market expectations is “material information"
requiring disclosure under the Listing Rules. Certain key aspects of
NZXR's guidance in this respect are briefly described below.
Assessing market expectations
should assess deviations in financial performance against market
expectations, including taking into account the issuer's own published
earnings guidance (which NZXR emphasises should provide the best
foundation from which to assess market expectations), outlook statements
and other disclosures, as well as analyst coverage, prior comparable
period earnings and the impact of external events known to the market.
New Guidance states that it is reasonable for issuers to place less
emphasis on analyst coverage that is less credible or represents an
issuers to be cautious in taking a view that the market will have
correctly and fully deduced, concluded or inferred the impact of
external events on the issuer without the issuer itself having provided
disclosure of those impacts to the market.
Nature of the deviation
should consider various factors regarding the nature of the deviation
when assessing whether a deviation in financial performance constitutes
set out a non-exhaustive list of those factors, which include whether
the deviation affects cash flows or will affect the outlook of the
issuer in the future reporting period, whether near term earnings is a
material driver of the price of an issuer's financial products and
whether the issuer's performance is usually stable.
Extent of the deviation
should consider the extent of the deviation when assessing whether a
deviation constitutes material information. However, NZXR draws a
distinction between the extent of deviations of performance from market
expectations, where those expectations are derived from an issuer's own
earnings guidance and where those expectations are derived from other
sources (including analyst coverage or prior comparable period).
NZXR's view, a material deviation of performance from market
expectations derived from an issuer's own guidance will usually require
disclosure. NZXR considers that, although not solely determinative,
where an issuer has published earnings guidance, a deviation from that
of 10% or more will usually be material,
of between 5% and 10% may be material, and
below 5% will not usually be material.
above thresholds are consistent with the price movement thresholds that
NZXR uses as a general point of reference when determining whether
information has had a material effect on the price of securities under
its own review function (as set out in section 3.1 of the New Guidance).
notes that for the purposes of quantifying the extent of a deviation
where an issuer has presented its earnings guidance as a range, the
issuer should use the floor of the issuer's guidance range as the base
amount for negative deviations and use the ceiling of the issuer's
guidance range as the base amount for a positive deviation.
contrast, NZXR considers that it is not appropriate to have prescribed
percentage guidelines for deviations where an issuer has not published
earnings guidance (i.e., where market expectations are derived from
sources other than the issuer's own earnings guidance) as those market
expectations will inherently be less certain. The New Guidance provides
that a deviation of performance from market expectations derived from
such other sources will usually need to be more significant in order to
require disclosure than a deviation derived from an issuer's own
Certainty of the deviation
the New Guidance remains largely unchanged in stating that a reasonable
degree of certainty that there will be a material deviation needs to
exist before a disclosure obligation arises. In this context, NZXR notes
that an issuer's earnings being materially ahead or behind market
expectations early in a reporting period does not necessarily require
disclosure where there is still an opportunity for that position to
revert back closer to market expectations by the end of the reporting
When it is
sufficiently certain that an issuer's performance will deviate from
market expectations and the issuer has assessed that deviation is
material information, a disclosure obligation will arise. It is noted
that an indication of the order of magnitude of the deviation should be
included in any such disclosure (which may be a description of the
extent of the deviation if the issuer is unable to numerically assess
New Guidance does not materially change NZXR's previous guidance on
monitoring analyst coverage and engaging with analysts. NZXR also has
retained its position that it does not consider that issuers have a
general obligation under the Listing Rules to:
correct analyst earnings forecasts or consensus estimates which do not align with an issuer's internal earnings projections, or
their internal earnings projections solely because they do not align
with analyst earnings forecasts or consensus estimates.
you have any questions about NZXR's New Guidance or your general
continuous disclosure obligations, please get in touch with the contacts
listed or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.