Last month's record AUD$1.2 million fine to Newcrest Mining in Australia for breaching continuous disclosure laws has raised the issue of analyst discussions and the need for management to be aware of and avoid selective disclosure.

The case centered around information on Newcrest management's expectations on gold production and capital expenditure for the year, which were lower than market consensus and expectations. The problem was that this information was given to a select group of analysts before it was disclosed to the wider market. Following the selective briefings, a 'flurry of negative reports and gossip from investors with access to the price-sensitive information' filtered out, with more than 40 million shares worth more than $600m changing hands and a 9.6% drop in the share price. As well as the ASIC fine, the company now also has to contend with potential class action lawsuits from disgruntled shareholders.

There are a number of guidance notes and reports from regulatory and investor groups to ensure management are aware of their continuous disclosure obligations in regards to analyst briefings and managing consensus estimates. A list of these can be obtained from spice communications group. 

A snapshot summary of these documents highlights a number of actions management can take to ensure they are meeting their disclosure requirements.

• Companies are required to provide earnings guidance when their earnings outlook varies by a ‘material’ amount compared to prior year and/or consensus numbers.

• As a general rule, this deviation is approximately 10 – 15% but erring on the side of caution, it would be closer to 10%

•  Officers of listed entities should refrain from publicly commenting they are happy or comfortable with analysts’ consensus forecasts or a range of analysts’ forecasts. Its only obligation in this area is to provide an appropriate announcement immediately if and when it becomes aware of a market sensitive earnings surprise.

•  Where an entity becomes aware that an analyst’s forecast for its earnings differs materially from its internal forecast, it is in the entity’s interests for it to explore with the analyst why that might be so and, if it becomes apparent that the analyst may have made a factual or computational error or may have missed a particular announcement the entity has made to ASX, to point that out to the analyst.

•  Listed entities should refrain from 'massaging' market expectations through selective briefings.

•  The way to manage earnings expectations in the market is by using the continuous disclosure regime to establish a range within which earnings are likely to fall.

•  Beware of providing ‘de facto guidance’ by commenting on analyst reports or consensus estimates.

•  Ensure that any slides and presentations used in analysts briefings are published on the NZX/ASX Market Announcements Platform and on the company website, so that they are available to all analysts, including those not able to attend the briefing, as well as to investors more generally.

•  Ensure that any material information is included in the documents released to the NZX/ASX.

•  Keep records of and review all discussions with analysts to determine if market sensitive information has been provided, and if it has, release immediately to the market. Be particularly careful when dealing with analysts’ questions that raise issues outside the intended scope of discussion.

•  Listed companies should have formal disclosure policies in place for handling confidential, market-sensitive information.

For the full snapshot report on Continuous Disclosure in regards to Analyst Briefings and Managing Market Expectations and Consensus, please contact Jackie Ellis at Ellis and Co.  

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