GILES RAFFERTY, Corporate Communication and Media Advisor

The ASX is continuing its focus on market sensitive earnings surprises during the August 2025 reporting season and has called out ASX 200 companies as being of particular interest.

In broad terms an earnings surprise occurs when the price of listed entities securities moves by 10% or more, which is considered to be a material change, following the release of its results. When an entity becomes aware that the earnings it intends to release will differ materially from market expectations, it needs to consider if it has a legal obligation to disclose that to the market. This obligation arises if it can be argued that a reasonable person would expect the change in earnings to have a material effect on the price or value of the entity’s securities.

Managing Earnings Surprises

Key considerations for managing ‘earnings surprises’ are contained in ASX Guidance Note 8, including:

• • How does an entity determine what the market is expecting its earnings for the current reporting season to be?
  • How does an entity translate sell-side analyst forecasts into an estimate of the market’s expectations for its earnings?
  • How large does an earnings surprise have to be to trigger a disclosure obligation?
  • What guidance can ASX give on when an earnings surprise should be disclosed?
  • When does an entity become aware of a market sensitive earnings surprise?
  • What should be included in an announcement about a market sensitive earnings surprise?
  • When should an announcement be made about a market sensitive earnings surprise?

Listed entities are encouraged to review this guidance ahead of the upcoming reporting season.

ASX Aware Letter

The ASX is warning that where a listed entity has not updated it guidance, and in the absence of other factors that might explain a material change in the price of its securities, it will issue an Aware Letter to the entity. The Aware Letter requires a listed entity to explain what it did to manage its continuous disclosure obligations in the lead up to the announcement of its results.

A response to an Aware Letter will likely include:

• • how an entity determined what the market’s expectations were
  • whether it considered if its earnings materially varied from market expectations, and
  • the date when it became aware of this with a reasonable degree of certainty.

An Aware Letter will also ask if there is any other explanation for the trading in an entity’s security that would move the price by 10% or more following its results announcement.

Key considerations for the ASX following the issue of an Aware Letter include:

• • the closing price on the day of the results release (or the next trading day if the results are released after market close);
  • an expectation an entity will be specific about dates and times when responding;
  • the reliance on the expectations of analysts in current or future periods, something the ASX does not usually consider to be relevant to a response to an Aware Letter; and
  • an explanation, where an entity indicates it was aware of a material difference between its earnings and the market’s expectations, of why it did not believe the difference would constitute a market sensitive earnings surprise.

Referral to ASIC

The ASX does concede there are many variables that can influence earnings forecasts and assessments of market expectations. It accepts these variables can make it hard to judge how the market will react if earnings differ materially from expectations. And that it will be mindful of this when considering if it should refer a market sensitive earnings surprise to ASIC.