An example of how this may play out can be seen in a recent example in ZIP.
On 9/8/17 Zip made an announcement which included some finacial forecasts. They went into trading halt later that day, then suspension.
It took around a month, a director resignation and new policies introduced by the company before they resumed trading.
I beleive GSW’s forecasts of delivery numbers will be treated as a financial forecast.
The 18/8/17 announcement response to the asx contains a letter sent by the ASX to the company.
Some relevent points made by the ASX are:
C. ASIC’s Regulatory Guide 170: Prospective financial information, in particular:
a. RG 170.11 - We believe the general test of whether prospective financial information must be
disclosed is whether it is:
i. relevant to its audience; and
ii. reliable (i.e. there must be a reasonable basis for it: see GIO Australia Holdings Ltd v. AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584).
b. RG 170.17 - The making of a statement that contains prospective financial information (i.e. a forward-looking statement) must have reasonable grounds or it will be taken to be misleading under s728(2) or 769C of the Corporations Act. What are ‘reasonable grounds’ should be determined objectively in light of all of the circumstances at the time of the statement, so that a reasonable person would view as reasonable the grounds for the statement.
c. RG 170.18 - We consider that prospective financial information based on hypothetical assumptions (rather than reasonable grounds) is likely to be misleading and provide little information value to investors. In our view, prospective financial information without reasonable grounds is not material to investors, nor would an investor reasonably require it or reasonably expect to find it in a disclosure document or PDS.
d. RG 170.41 - We generally consider that prospective financial information for a period of more than two years may require independent or objectively verifiable sources of information to establish that there are reasonable grounds to provide it. However, for an existing business preparing a statement on estimates for up to two years, we will generally not regard as necessary independent verification if there otherwise appear to be reasonable grounds to make the statement. Directors should state why they believe the information is objectively reasonable. We may still take action on a statement on estimates for up to two years if we believe there are no reasonable grounds to provide it.
e. RG 170.42- The reasonable grounds requirement means that there should be a relevant factual foundation for the prospective financial information and that the information is not contrived: see George v. Rockett (1990) 170 CLR 104 and Re Aldred & Dept of the Treasury (1994) 35 ALD 685.
f. RG 170.50 - The general principles in this regulatory guide also apply to advertising because of the interaction of s769C and 1041H. [emphasis added]
Section 769C states:
For the purposes of this Chapter, or of a proceeding under this Chapter, if:
(a) a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and
(b) the person does not have reasonable grounds for making the representation; the representation is taken to be misleading.
Section 1041H states:
A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.
g. RG 170.59 - Investors should be given enough information to enable them to:
i. assess whether the prospective financial information is relevant and reliable (i.e. to form
their own view about how reasonable the grounds are for making the statement); and
ii. identify with certainty the facts and circumstances that support prospective financial information, as well as being able to demonstrate that the information is reasonable.
h. RG 170.61 - A disclosure document or PDS must specifically disclose any assumptions used in compiling prospective financial information that materially affect the forecast outcome. The assumptions should be detailed and specific enough to enable the investor to work through all of the prospective financial information. This may require details about how returns are calculated during each year that the information covers. Among other things, assumptions about expenditures, revenues, inflation rates and other such variables should be clearly disclosed and highlighted if different assumptions have been used for different parts of the term that the prospective financial information covers.
i. RG 170.62 Investors must be able to assess:
i. the validity of the assumptions on which the prospective financial information is based;
ii. the likelihood of the assumptions actually occurring; and
iii. the effect on the prospective financial information if the assumptions vary.
j. RG 170.63 - We expect a disclosure document or PDS to disclose material assumptions about:
i. specific future economic conditions; and
ii. particular circumstances affecting a company or financial product and the industries relevant to that company or financial product.
k. RG 170.64 - Disclosure of the material assumptions allows an investor or adviser to make an informed assessment of an issuer’s prospects, or a person as a retail client to make an informed decision whether to acquire the product.
l. RG 170.65 - An assessment of the impact of these assumptions on prospective financial information should also be included. However, a disclosure document or PDS does not have to:
i. state general assumptions, such as the absence of war or natural disasters, unless the forecast takes these events into account; or
ii. disclose assumptions that would not materially affect the prospective financial information.
m. RG 170.66 - It is not sufficient to state the general nature of an assumption. Specific quantities or amounts should be set out. For example, it may not be sufficient to state that prospective financial information is based on an anticipated recovery in equity markets, without setting out the amount of the required recovery: see GIO Australia Holdings Ltd v. AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584.
n. RG 170.67 - We consider that because the presence or absence of reasonable assumptions is a factor in any determination of whether an issuer has satisfied the relevant disclosure obligation, the basis for the assumptions underlying the prospective financial information should be stated in the disclosure document or PDS in order that an investor has some means of assessing that information: see Miba Pty Ltd v. Nescor Industries (1996) 141 ALR 525 and Wesfi Ltd v. Blend Investments Pty Ltd (1999) 31 ACSR 69.
o. RG 170.68 - Disclosure of the basis for prospective financial information may reduce the capacity of the information to mislead because such disclosure assists the assessment/decision of an investor or retail client.
p. RG 170.78 - Investors must be able to assess the reliability of prospective financial information. To do this, they should be able to assess whether the key assumptions are likely to occur. Therefore, a disclosure document or PDS must disclose material details about the enquiries and research undertaken and the process followed in preparing the information.
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