On 1 July 2015, ASX reissued Listing Rules Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 – 3.1B (Guidance Note).
The updated Guidance Note expands the guidance given in relation to earnings surprises, correcting and publishing analyst forecasts and consensus estimates, and analyst and investor briefings.
While ASX has clarified that there is no general obligation for listed entities to provide earnings guidance, or to correct analyst forecasts or consensus estimates, ASX does not preclude that disclosure may still be required. That is, it is fundamentally a matter of whether there is market sensitive information which requires disclosure under Listing Rule 3.1 or whether the exceptions from immediate disclosure under Listing Rule 3.1B can be properly relied upon.
ASX has provided useful additional guidance, including examples where ASX considers disclosure is not usually required. Some matters discussed in the additional guidance from ASX are highlighted below.
The reissued Guidance Note follows a Consultation Paper in March in relation to the proposed amendments to the Guidance Note. The final version of the Guidance Note has been slightly modified from the consultation draft released on 6 March 2015, mainly to address feedback received by ASX during the consultation process, the details of which are outlined in ASX’sconsultation response released on 22 June.
No general obligation to provide guidance or correct analysts
There is no general obligation for listed entities to provide earnings guidance, or to correct analyst forecasts or consensus estimates.
However, where variations do exist compared to an entity’s internal information or published guidance, the entity should consider carefully if there are matters properly requiring disclosure or if the company can rely on Listing Rule 3.1A to withhold immediate disclosure.
For example, has the confidentiality of internal projections or budgets been maintained?
In addition, ASX helpfully provides examples where entities may provide information prepared for internal management purposes (management accounts, internal budgets and forecasts) to bankers, insurer or rating agencies on a confidential basis, without having to disclose that information to the rest of the market under Listing Rule 3.1.1
Only market sensitive earnings surprises must be disclosed
ASX has emphasised that only market sensitive earnings surprises require disclosure under Listing Rule 3.1.
That is, where an entity becomes aware that its earnings for a current reporting period will differ significantly (upwards or downwards) from market expectations, the entity needs to carefully consider if the difference is of such a magnitude that a reasonable person would expect this information to have a material effect on the price or value of its securities.
The same is true for the period prior to release of periodic reports. While entities are not expected to release information prior to the scheduled release date of periodic reports, sometimes market sensitive information becomes apparent during that process which a reasonable person would expect to have a material effect on the price or value of securities. Examples are market sensitive earnings surprises and market sensitive material post-balance date events.
Will a 5-10% differential to actual or projected earnings be a market sensitive difference?
ASX distinguishes between the position for entities that do or do not publish earnings guidance.
ASX recommends that an entity that publishes earnings guidance consider updating that guidance if it expects a material difference between its actual or projected earnings for a period and its published guidance for that period. ASX suggests that the former Australian Accounting Standards materiality guidance be applied, that is:
- a variation of over 10% should be treated as material and entities should presume guidance requires updating; and
- a variation of less than 5% should be treated as not being material and entities should presume guidance does not require updating,
unless, in either case, there is evidence or a convincing argument to the contrary.2
This guidance does not affect the fundamental obligation to disclose market sensitive information, which may arise despite there being a difference within (or potentially below) the 5 to 10% range.
The focus on entities which publish guidance is because these entities have made a positive representation to the market of their expected earnings. In addition to continuous disclosure obligations imposed on all listed entities, there is potential liability for misleading the market as to their likely earnings3.
For entities which do not publish guidance, they must consider whether the variation to actual or projected earnings compared to market expectations is market sensitive. That is, disclosure is not expected merely because there is a 5 to 10% variation between actual or projected earnings and market expectations.
Analyst forecasts and consensus estimates
There is no general obligation to correct analyst forecasts or consensus estimates.
However, entities should monitor analyst forecasts, especially where the entity does not provide earnings guidance, to consider whether there are matters which properly require disclosure to the market.
Entities may publish information about analyst forecasts and consensus estimates on their websites, provided that the appropriate steps are taken to avoid the risk that the information will be viewed as de-facto earnings guidance.
These steps include publishing a full list of all analyst forecasts (i.e. not excluding ‘outliers’) or a range showing the ‘low’, ‘average’ (or consensus) and ‘high’ earnings estimates of the analysts covering the entity’s stock, together with a ‘no endorsement’ disclaimer.
ASX guidance also includes how to minimise the risk of selective disclosure when engaging with individual analysts.
Disclosure of new presentations
All ‘new’ presentations to be given at an analyst or investor briefing should first be made available to the market at large through ASX before the briefing, and thereafter published on the entity’s website.
If a series of presentations will be given over a short period, the second or subsequent presentations will not be considered ‘new’ presentations by ASX, provided that they are fundamentally the same and do not contain new market sensitive information.