Ad-hoc disclosure obligation for financial figures
New developments and explanations by BaFin on the handling of forecasts and financial figures as well as dividend-related measures
The Covid-19 crisis has a significant impact on issuers' financial figures. Against the background of existing transparency obligations under capital market law, the question arises as to how deviations from already communicated or published figures should be assessed.
If financial figures qualify as non-public information which concern the issuer and have a considerable potential to influence the share price (so-called inside information, cf. Art. 7(1a) Market Abuse Regulation – MMVO) they have to be published isolated from other information at the earliest possible, i.e. without delay (so-called ad hoc publicity, cf. Art. 17(1) MMVO). A change in the financial figures (both historical and forecast), can in principle be suitable inside information within the meaning of the MMVO. When such changes are to be regarded as relevant to the share price must be determined on the basis of the specific circumstances of the individual case.
The Federal Financial Supervisory Authority (BaFin) has published information for issuers on its website under “Covid-19 situation: BaFin information on new developments and key points” (available here; latest update on 22.04.2020) regarding the ad hoc publicity of forecasts and financial figures as well as of dividend-related measures. This is intended to serve as guidelines for issuers and set out the supervisory practice of BaFin.
In principle, the issuer can stick to an already published forecast, if the related effects of Covid-19 are not yet foreseeable with sufficient probability. However, it has to be noted that a change in the forecast is not sufficiently precise only once the exact effects can already be fully determined. Rather, the existence of inside information is to be assumed if the issuer must assume with sufficient probability that the communicated forecast will be clearly missed, even if the issuer cannot yet make a new detailed forecast. In this case, BaFin considers it permissible for the issuer to merely “withdraw” the existing forecast “from the market” by means of an ad hoc disclosure without already issuing a new detailed forecast. As a rule, a detailed new forecast must be published immediately by means of an ad hoc disclosure if the issuer can provide it at a later date.
Deviations from financial figures
If an issuer's financial figures deviate significantly from their relevant benchmark, this may in principle result in an ad hoc disclosure obligation. However, the sharp price fluctuations on the stock markets caused by the Corona crisis and the resulting widespread increase in volatility cause difficulties regarding the determination whether information has the potential to have a significant effect on share prices. In the opinion of BaFin, therefore, stricter criteria may have to be applied on the assessment standard in individual cases, namely with regard to the obviousness of the deviation determined in the individual case. According to BaFin, it is irrelevant whether the effects on the financial position and financial performance are non-recurring. Strong price fluctuations following the publication of the financial figures do not allow to automatically assume its stock price sensitivity. As in the past, the valuation with regard to price sensitivity is to be based on an ex-ante forecast.
Consensus estimates and appropriate determination of market expectations
In the case of financial figures, the decisive factor for the assumption of price sensitivity is whether the information in question deviates significantly from its relevant reference value. The issuer's published forecast, if available, is used as the reference value. Otherwise, the respective market expectation is to be taken as a basis, which BaFin determines by means of the so-called “consensus estimates” (arithmetic mean of the current analysts' estimates at the time the inside information was created), whereby adjustments for any outliers are not permitted. However, if too few analysts' estimates are available, it should now be possible to determine market expectations by other means if they are plausible. Against the background of the current effects of the corona virus, it should even be justifiable in individual cases to adjust an existing consensus estimate in a suitable, objectively comprehensible manner by obviously old estimates that do not take the current situation into account, for example by using current press reports.
Dividend related measures
In the opinion of BaFin, the mere postponement of the dividend payment resolution due to the postponed annual general meeting does not necessarily justify an ad hoc disclosure obligation due to the lack of significant effects on the financial position and financial performance of the issuer. However, this rule should not apply to derivatives relating to the shares concerned with regard to price sensitivity, so that the issuer of the respective derivative may need to take action. Irrespective of this, a change in the dividend payment amount originally announced and already communicated may also constitute inside information subject to ad hoc disclosure. The latter has also been confirmed by BaFin, but applies regardless of the current Covid-19 crisis.
With regard to the profound Covid-19 crisis, the explanations provided by BaFin on its administrative practice are to be welcomed. The specific details provide indications as to how the effects of the pandemic on forecasts and financial figures as well as dividend-related measures can be taken into account within the framework of capital market transparency obligations. However, still every individual case has to be assessed in the light of its specific circumstances.