July 20, 2015
The Australian Stock Exchange (ASX) has issued updated guidance on continuous disclosure rules for listed entities. The ASX had become concerned that through private briefings, entities were influencing analyst forecasts to align them with their own numbers, thus reducing the need to provide an earnings update. This has led to analyst consensus estimates acting as ‘de facto earnings guidance’ rather than the entity giving official guidance to the market. This in effect lowered the risk of the entity having to give an earnings update.
The ASX listing rules do not require entities to release an earnings guidance to the market, but investor demand for such information dictates that those entities that fail to provide guidance are not given the analyst/research coverage enjoyed by those that do. Where other information such as forecast operational and capital expenditure, or expected exploration to be undertaken, has been released to the market, the entity may have in some circumstances an obligation to update investors if the announced targets are not expected to be met. For example in 2014, the Federal Court determined that Newcrest Mining Ltd had contravened, on two occasions, the continuous disclosure provisions of the Corporations Act by selectively disclosing information on expected gold production and capital expenditure. The court applied aggregate penalties of $1.2 million.
The new ASX guidance provides;
- where earnings guidance has been previously given, any forecast variations of 10% or more are material and require official disclosure,
- where an entity has not given earnings guidance, the ASX does not think it appropriate to set specific rules or percentage guidelines on when a difference in actual earnings compared to market expectations should be considered market sensitive, and
- information to be presented at investor and analyst meetings that may be market sensitive should first be disclosed to the ASX.
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