Rules found wanting when companies downgrade profits

The 1? a share Darren Lockyer Dividend yields a 5 per cent return.

Seven West Media's shock downgrade on Tuesday night highlighted once again how inadequate the corporate watchdog and Australian Stock Exchange requirements are for companies to produce meaningful disclosure.

As the shares inevitably tumble on the market this morning, corporate regulators should be looking at why a rule that is supposedly designed to disclose information does not force companies to provide comparative figures.

Kerry Stokes's media group, like too many listed companies, complied with legal requirements to tell shareholders their profit was going to fall short of expectations, but did not bother to tell investors the size of that shortfall.

Technically, they did not have to because the seven-year-old ASX guidance note covering the issue is so poorly written it gives companies the latitude to interpret the requirement in the least helpful fashion. (The ASX has secured this clearly "Top Secret" document by making it unprintable from its web page - nice touch for an organisation trying to ensure transparency.)

Newsflash ASX and corporate watchdogs: retail investors do not, for the most part, have access to consensus earnings estimates of brokers or keep files on forecast results, so when a company such as Seven West makes a statement that it now thinks earnings before interest and tax are likely to be between $460 million and $470 million, how on earth can they know whether that is halved, 20 per cent down, or 2 per cent down without comparative numbers?

There is simply no excuse for companies not providing a comparison with either their own forecasts, or the variation from the average of brokers' estimates. Not doing so can only be interpreted as an attempt to deceive the market into thinking not much has changed.

The ASX guidance on disclosure says only that companies should consider that if their profit is likely to vary by more than 10 per cent from either a forecast or an actual outcome, and shareholders are unaware of that, they need to tell the market as soon as the board becomes aware.

While logic would suggest that when a company makes such a statement, investors can be reasonably certain that the movement is significant, boards really have a higher duty of disclosure than expecting their shareholders to apply Sherlockian deduction techniques.

In Seven West's case, it had not provided any firm public figures on where the profit might fall this year yet stockbroking analysts had a clear view (usually because the company has guided them in that direction) that it was going to be between $500 million and $520 million. Stokes and his board could have used that as the benchmark if they did not think last year's $550 million of EBIT was the right basis for comparison.

Seven West is far from alone on this issue. Already this week, Insider has noted several other companies doing exactly the same thing - semi-disclosure. One or two did bother to go the extra mile of relating the new figure to previous expectations, but they are sadly exceptions.


Telstra shares hit this week their highest point since December 2009, driven almost entirely by its dividend rather than its growth prospects.

During trading on Tuesday, they touched $3.48 each, which meant the simple yield on its 28? a share dividend is now a little more than 8 per cent, and 11.5 per cent after allowing for the tax advantage of being fully franked.

With every likelihood the Reserve Bank will slice as much as 0.5 percentage points from the official cash rate next week, and the probability of banks reducing deposit rates after that, yields such as Telstra's are going to become even more sought after by investors.

Now for some perspective. At $3.48, Telstra shares are showing a princely 14.5-year capital gain of 5 per cent over their 1997 float price of $3.30 - and that is before discounting for the effects of inflation.


Brisbane Broncos, the company that "owns" the rugby league team, does not quite yield as well as Telstra - but the 1? a share Darren Lockyer Dividend just banked by shareholders works out to a 5 per cent return.

That shades by a long way the miserly distributions of its 69 per cent shareholder, Rupert Murdoch's News Corp, where investors are getting a return of 0.9 per cent.

Lockyer, the club champ who retired at the end of last season, was a key driver behind the high match turnouts that generated a revenue and membership participation boost last season, and which translated into a $1.4 million profit, about half of which would have been pocketed by News when the dividend was paid.

In spite of the feel good factor, voting from the Broncos' meeting suggests even less investor interest than usual, with only 3 per cent of the company's shares voted by proxy.

News even gets to vote on the remuneration report, because it appoints only one of the four directors - at the moment, Dennis Watt. He is the only director to be paid a fee for his work, and it goes back to head office. The others, curiously, only get superannuation payments, and the total payments to board members are less than $80,000.

Slightly different to the jammy multimillion-dollar packages the Murdoch family and their acolytes get in the parent company.

Also worth noting is that despite a total wages bill for Brisbane Broncos of $10.4 million, only $1.3 million of that is soaked up by executive management (on-field stars are not management, so their salaries are undisclosed). Given the NRL salary cap for last year was $4.3 million for the top 25 players (about $172,000 each), plus another $300,000 for others on the list, that suggests the club is spending a hefty $5 million a year on other administrative staff.

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