JSE Listings Requirements. Quick reference guide. kpmg.co.za

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1 JSE Listings Requirements Quick reference guide kpmg.co.za

2 Whilst every effort has been made to ensure this quick reference guide is accurate, it is only a summary of key JSE Listings Requirements and applicable legislation. Readers are encouraged to consult with their sponsor and/or professional advisor before taking action.

3 1 Foreword While many new applicants applying for a listing mistakenly believe that the path to a successful listing commences with the preparation of a prospectus and ends the day that the securities list on the exchange, nothing could be further from the truth. Subsequent to the listing, many executives find themselves struggling to adjust to the demands resulting from the new institutional environment which the company operates in subsequent to the listing. Executives are faced with familiarising themselves with the regulations pertaining to the King Code on Corporate Governance for South Africa, the Listings Requirements of the JSE Limited ( JSE ), the Companies Act, 2008 (Act No. 71 of 2008) including the Takeover Regulations, the Financial Markets Bill ( FMB ) as well as specific legislation applicable to their particular company and industry. This publication is intended to aid executives of listed entities with aspects of the JSE Listings Requirements and the FMB that are particularly relevant to directors and company secretaries.

4 2 Key definitions/terms Act means: the Companies Act, No 71 of 2008, as amended; AFS means: annual financial statements of the Listco; Associate of an individual is: immediate family; and/or trustees of any trust of which the individual or their immediate family is a beneficiary or discretionary subject; and/or any trust in which the individual or their immediate family, individually or taken together, has the ability to: control 35% of the votes of the trustees; or appoint 35% of the trustees; or appoint or change 35% of the beneficiaries of the trust; and/or any company in which the individual, their immediate family or a controlled trust has the ability to: control 35% of the votes at general meetings; or appoint or remove 35% of the directors; or control 35% of the votes at board of directors meeting; NEW Associate of a company is: its subsidiary or holding company; and/or another company in which directors act in accordance with the company s instructions; and/or another company in the capital of which, even on the fulfillment of a condition or the occurrence of a contingency, the company (and the entities listed above) would have a controlling interest (35%); and/or a trust where the company has the ability to: control 35% of the votes of the trustees; or appoint 35% of the trustees; or appoint or change 35% of the beneficiaries of the trust; NEW

5 3 JSE means: JSE Limited; Material means: information that, if omitted or misstated, could influence the economic decisions of users and includes a change in, or constituent of, a particular factor that may be regarded in the circumstances as being material (equal or exceed 10%); Major subsidiary means: a subsidiary that represents 25% or more of the total assets or revenue of the consolidated group based on the latest published interim or year-end financial results; Percentage ratio is: the consideration to market capitalisation or dilution; Pre-listing statement or listing particulars means: the statement required to be issued by companies in terms of Section 6 of the JSE Listings Requirements; Price-sensitive information means: unpublished information that, if it were made public, would be reasonably likely to have an effect on the price of the Listco s securities; Regulations means: the Takeover Regulations as defined in section 1 of the Act; and SENS means: the Stock Exchange News Service.

6 4 Dealing in securities Who does this section apply to? Directors and the company secretary of the Listco; Directors and company secretary of a major subsidiary; and Any associate of the above. What transactions are included? Any sale, purchase or subscription of the Listco securities; Any agreement to sell, purchase or subscribe for the Listco securities; Any donations of the Listco securities; Any dealing in warrants, single stock future, the contracts for difference or any other derivatives issued in respect of Listco securities; The acceptance, acquisition, disposal or exercise of any option to acquire or dispose of the Listco securities; Any purchase or sale of nil or fully paid letters; The acceptance, acquisition or disposal of any right or obligation, present or future, conditional or unconditional, to acquire or dispose of Listco securities; and Any other transaction that will provide direct or indirect exposure to the price of Listco securities. What is the procedure to trade? Board the Board must appoint the Chairman or a designated director to clear all directors dealings beforehand; a director may not be given clearance to trade during a prohibited period, namely: - when Listco is in a closed period ; or

7 5 - during any period when there exists any matter which constitutes unpublished price sensitive information (regardless of whether the relevant director has knowledge of such information or not); and written records of clearances given must be maintained. Directors a director must secure clearance from the Chairman or designated director before dealing; a director must advise their associates and any investment manager dealing on his/her behalf or on behalf of any of his/her associates of the name/s of the Listcos of which he/she is a director; a director must advise all of his associates in writing that they must notify him immediately after they have dealt in securities relating to the Listco; a director must advise his investment manager in writing that they may not deal in the Listco s securities without such directors consent in writing; directors must still comply with the provisions of the Securities Services Act (to be replaced by the Financial Markets Bill); and subsequent to trading, a director must disclose all of the relevant information relating to the trade to the Listco within 24 hours of the trade. What is a closed period? From the date of the financial year end until the date of earliest publication of the results announcement; From the date of the expiration of the interim period until the date of publication of the interim results announcement; Where applicable, from the date of expiration of the second interim period until the date of publication of the interim results announcement; Where applicable, from the date of expiry of the quarter period until the date of publication of the quarterly results; and Any period when Listco is trading under a cautionary announcement.

8 6 Cautionary Announcements When should a cautionary be published (excluding a trading statement)? Listcos are only required to issue a cautionary announcement in the following circumstances: the Listco acquires knowledge of material price-sensitive information; and the confidentiality of such information cannot be maintained or the Listco suspects that the confidentiality has or may have been breached. There is a general obligation for a Listco to publish information relating to any developments which are not public knowledge and which may lead to material movements in the Listco s share price e.g. strike on a mine, etc., unless kept confidential for a limited period of time. Ask yourself the following questions: Is it material? If = Yes If = No Can it be kept confidential? do nothing Non-material price sensitive announcement If = Yes If = No on SENS do nothing Cautionary announcement in press and on SENS

9 7 How should confidentiality be approached? Material price-sensitive information may not be released (even under time embargo) until it is on SENS or (if after hours) arrangements made to release on SENS before market opens the next day. Listcos that deem it necessary to provide information prior to releasing such information on SENS must ensure that in doing so, they do not commit an offence in terms of the Security Services Act and, in particular, Section 73(3) which states: insider knows that he/she has inside information; and discloses the inside information to another person. Who can talk to the media? suggest always two people; and suggest briefing and Q&A beforehand. Planned release to shareholders must go on SENS at the same time. Unplanned releases must go on SENS immediately.

10 8 Trading Statements When is a trading statement required? All Listcos must publish a trading statement (on SENS only) as soon as they are satisfied that a reasonable degree of certainty exists that the financial results for the period to be reported on next, i.e. annual results or interim results, will differ by at least 20% (property entities 15%) from the most recent of either: financial results for the previous corresponding period; or a profit forecast, provided to the market, in relation to such period. The directors of Listcos have to exercise judgment in deciding on a reasonable degree of certainty. What are the disclosure requirements of a trading statement? A trading statement must give specific guidance by the inclusion of the period to which it relates and: a specific number or percentage to describe the differences; or a range to describe the differences (range may not exceed 20%); or a minimum percentage difference, together with any other available information (in circumstances where the Listco has reasonable certainty but is not yet able to provide specific guidance as per the points above once the Listco has reasonable certainty it must provide the specific guidance as per the points above). If, after the trading statement has been announced but before the actual results are announced, the Listco is reasonably certain that the previously published number, percentage or range has changed, a further trading update must be published. NEW

11 9 Financial results measurement for trading statement purposes are: Firstly: Earnings per share; and Headline earnings per share; Secondly: Net asset value per share ( NAVPS ) but only if more relevant (because of the nature of the Listco s business). The following conditions exist if NAVPS is used: upon first adoption, announce NAVPS basis on SENS in advance of period end; and confirm NAVPS basis annually in the AFS. The following words cannot be used in trading statements due to the fact that these words have specific meanings as defined in the JSE Listings Requirements and, therefore, imply a range differing from 20%: significant (less than 10%); material (equal to or exceeding 10%); and substantial (equal to or exceeding 30%). Listcos must either: include a statement in the trading statement that the forecast has not been reviewed or reported on by the auditors; or produce and submit to the JSE a profit forecast or estimate and a Reporting Accountants Report thereon.

12 10 Transactions What is a Transaction? A Transaction includes: an acquisition or disposal by the Listco or any subsidiary the grant or acquisition of an option to acquire or dispose of assets (if exercise of option is at the Listco s discretion, the transaction is categorised on exercise only and only the premium/consideration for the grant will be used for categorisation purposes); and excludes the following: an issue of securities (other than an issue of shares for cash or an offer for subscription by way of a rights offer by a subsidiary or an offer of securities in a subsidiary company by the Listco in connection with the listing of the subsidiary); an issue of securities or a transaction to raise finance that does not involve the acquisition or disposal of any asset of the issuer or its subsidiaries; and a transaction between the following: - the Listco and a wholly-owned subsidiary; - two or more wholly-owned subsidiaries of the Listco; or - a wholly-owned subsidiary on the one hand and the Listco and one or more wholly-owned subsidiaries on the other hand; also excludes: transactions in the ordinary course of business (need explicit ruling from the JSE that transaction is in the ordinary course of business) where either: - the categorisation percentage ratios are equal to or less than 10%; or - the Listco or its subsidiary concluding the transaction is a financial institution (as defined in the Financial Services Act No 97 of 1990) dealing in funds which are not primarily for the benefit of its shareholders and the counter party to the transaction is not a related party of the Listco.

13 11 How is a transaction categorised? For JSE purposes, a transaction is categorised by assessing its size relative to that of the Listco proposing to make it or its holding company, if applicable. The comparison of size is made by the use of percentage ratios resulting from each of the following calculations: Consideration to market capitalisation, i.e. the consideration divided by the aggregate market value of all the Listco s listed equity securities; Dilution, i.e. the number of listed equity securities issued by Listco as compensation for the acquisition, compared to those in issue, excluding treasury shares; and Transactions to be settled partly in cash and partly in shares i.e. the categorisation size for such a transaction is calculated by first assessing the cash to market capitalisation percentage and then adding this percentage to the dilution percentage.

14 12 Categorisation and what is required? Categorisation % ratio Category 2 transaction Main board: 5% or more and less than 25% Altx: 5% or more and less than 50%. Category 1 transaction Main board: 25% or more Altx: 50% or more Announcement Yes Yes Yes Circular No Yes Yes Revised listing particulars No No Yes Shareholder approval No Yes Yes Pro forma financial effects Yes Yes Yes Reporting accountant s report No Yes Yes Reverse take-over % ratio is 100% or more, or Would result in a fundamental change in the business, or Would result in a change in the Board of Directors or voting control.

15 13 Related Party Transactions What is a related party transaction? A transaction or a variation of an agreement between a Listco (or its subsidiaries) and a related party and any transaction which results in unusual vested or other interests or rights for a related party. What is a related party? material shareholder (10% or more) in listed entity or in its subsidiaries or holding company; director of listed company or any subsidiary (current or in last 12 months); adviser with beneficial interest in listed company or its subsidiaries (current or in last 12 months); a principal executive officer of the issuer (current or in last 12 months); asset manager or management company of property entity, including anyone whose assets they manage or administer; and an associate of any of the above. What is required for a related party transaction? When entering into a related party transaction, the issuer must: make an announcement; issue a circular to shareholders; obtain shareholder approval; and obtain a fairness opinion. What is a small related party transaction? For a related party transaction where the percentage ratio is more than 0.25% but less than 5%, Listco must obtain a fairness opinion and make an announcement (opinion must be fair). If the opinion is not fair, Listco (in addition to above) must issue a circular and obtain shareholder approval. If the percentage ratio is less than 0.25%, there are no requirements

16 14 Listing particulars When are listing particulars required? new listings (including reverse take-overs); and existing listed companies which issue more than 25% of securities currently in issue either as a single issue or in tranches over a period of three months (unless the issue of shares is only for cash). What is required? Compliance with the requirements of Sections 7 and 11 of the JSE Listings Requirements, including, inter alia: confirmation that the directors have established proper financial procedures; confirmation that the directors understand their responsibilities under the Listings Requirements and what is required of them to avoid the creation of a false market; submission to the JSE by each director of a directors declaration (Schedule 21); confirmation that the financial information contained within the JSE circular has been considered by the audit committee; confirmation that the sponsor has made proper enquiry of the directors in connection with the preparation of any profit forecast and that the directors have disclosed all information required for the sponsor to conclude that it has been properly prepared; and confirmation that the Board and the sponsor have discharged their responsibilities with regards to the working capital statement.

17 15 Financial Results What are the various financial results announcements? Abridged results An abridged report is a summary of the complete AFS and is published once the annual report is issued (i.e. sent to shareholders and the JSE). The abridged report contains details of the annual general meeting, i.e. date, time and venue. The abridged report is published on SENS only and is not sent to shareholders. As the SENS announcement itself has not been audited, where reference is made to the audited financial statements, it should be clear that audited refers to the complete set of AFS included in the annual report. Provisional results A provisional report is a compulsory financial results announcement and is published where the AFS of a company have not been issued within three months of its financial year end. A provisional report is published on SENS, in the press and is distributed to each shareholder. A provisional report must be reviewed at a minimum. Preliminary results A preliminary report is a voluntary financial results announcement published prior to the issue of AFS or a provisional report. A preliminary report is only published on SENS and is not distributed to shareholders. A preliminary report must be reviewed at a minimum.

18 16 Interim reports Interim reports are published on SENS and in the press and distributed to shareholders after the expiration of the first 6-month period of a financial year, by no later than three months after that date. Interim reports are not usually required to be reviewed by a Listco s auditors. Where the financial period covers more than 12 months (due to a change in year-end), an interim report must be published in respect of the 12-month period and the financial information must be reviewed. A signed copy of the auditors review opinion must be submitted to the JSE within 24 hours of the publication of the 12-month results. Diagrammatic overview of financial reporting requirements Year end (12 months) 3 months after year end AGM Option 1: Publish an Abridged Report on SENS and post AFS on same day. Option 2: Issue a Preliminary Report on SENS and later, issue AFS (no changes from the Preliminary Report) and announce a No Change Report plus details of the AGM on SENS. Option 3: Issue a Preliminary Report on SENS and later, issue AFS (changes from the Preliminary Report) and announce an Abridged Report on SENS. 7 Calendar days and 15 Business Days Year end (12 months) 3 months after year end 6 months after year end AGM Option 4: Issue a Preliminary Report on SENS but AFS not issued OR AFS not issued Option 4 (a): Issue AFS (no changes from Provisional Report) and announce a No Change Report and details of AGM on SENS. OR Option 4(b): Issue AFS (changes from Provisional Report) and announce an Abridged Report on SENS. 7 Calendar days and 15 Business Days Publish mandatory Provisional Report on SENS and in the Press.

19 17 What are the minimum contents of a financial results announcement? Interim, preliminary, provisional and abridged reports must be prepared in accordance with, and containing the information required by International Financial Reporting Standards ( IFRS ) on the Financial Reporting (i.e. IAS 34). The minimum information that must be disclosed in financial results announcements is as follows: consolidated statements of comprehensive income; consolidated statements of financial position; consolidated statements of changes in equity; consolidated cash flow statements; segmental analysis; including: revenues from external customers; inter-segment revenues; and segment profit or loss; disclosure of an itemised reconciliation between earnings and headline earnings per share; diluted earnings per share data must include the effects of all dilutive potential ordinary shares. Contingently issuable shares (including share issues which are subject to the fulfilment of conditions which have not yet been fulfilled at the reporting date) should be included in the calculation of diluted earnings per share if their issue would have a negative impact on earnings per share; disclosure regarding the basis of preparation including a statement that the information has been prepared in accordance with IAS 34;

20 18 information relating to business combinations; including: effective changes in the composition of the group during the period, including business combinations, acquisitions or disposals of subsidiaries and long-term investments, restructurings and discontinuing operations; acquisition date of business combinations; percentage of voting instruments acquired; cost of acquisitions; if equity is issued or to be issued in payment for an acquisition, disclose the number of equity instruments issued or to be issued and the fair value of those instruments/basis for determining the fair value; the amount of the acquiree s profit or loss since acquisition date included in the group profit for the period; the revenue and results of the group for the period, as if the acquisition dates had been at the beginning of the period (pro forma); and any gain/loss recognised in the reporting period relating to the business combinations effected during the period. JSE guidance on audit report matters The JSE notes that companies often publish additional voluntary information with their financial results which is not covered by the auditor s report. The JSE therefore recommends the inclusion of the following wording in audited or reviewed results announcements: The auditor s report does not necessarily cover all of the information contained in this announcement/financial report. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor s work they should obtain a copy of that report together with the accompanying financial information from the registered office of the company. If the abovementioned wording is not included, it will be assumed that all of the information is covered by the auditor s report.

21 19 Corporate Governance The JSE requires compliance with the following corporate governance requirements: There must be a policy detailing the procedures for appointments to the Board. Such appointments must be formal and transparent and a matter for the Board as a whole, assisted where appropriate by a Nomination Committee; The Nomination Committee: must constitute only non-executive directors majority must be independent; and should be chaired by the Board chairman. There must be a policy evidencing a clear balance of power and authority at board level, to ensure that no one director has unfettered powers of decision-making; The issuer must have an appointed CEO and a chairman and these positions must not be held by the same person. The chairman must be an independent director or the issuer must appoint a lead independent director, in accordance with the King Code (Alternative exchange exempt); All issuers must appoint an Audit Committee and Remuneration Committee and, if required, a Risk Committee and Nomination Committee. The Annual Report must disclose: the composition of such committees; a brief description of their mandates; the number of meetings held; and other relevant information; The Annual Report must contain a brief CV of each director standing for election or re-election at the annual general meeting; The capacity of each director must be categorised as executive, non-executive or independent (see the Listing Requirements for guidelines);

22 20 The Audit Committee must set a policy with regard to non-audit services provided by the external auditor; All issuers must have an executive financial director (cannot hold two jobs e.g. Financial Director and Managing Director); The Audit Committee must consider, on an annual basis, and satisfy itself of the appropriateness of the expertise and experience of the financial director. The fact that the Audit Committee has executed this responsibility must be stated in the Annual Report; and The Board must consider and satisfy itself, on an annual basis, on the competence, qualifications and experience of the company secretary. The fact that the Board has executed this responsibility and the steps taken by the Board to make this annual assessment must be included in the Annual Report as well as an explanation as to why the Board believes there is an arms-length relationship between itself and the company secretary. JSE guidance on audit committees The audit committee must comprise at least three independent nonexecutive directors. If an issuer has an independent non-executive chairman of the Board, he/she may be a member of the audit committee, subject to the following provisions: all the other members of the audit committee (at least two) are independent non-executive directors; he/she may not be the chairman of the audit committee; the dual role (chairman of the Board and member of the audit committee) must be specifically disclosed to shareholdings at the annual general meeting (include in the relevant resolution); and shareholders must approve the appointment of the chairman to the audit committee at the annual general meeting.

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24 KPMG team Nick Matthews Director: Corporate Finance M: +27 (0) E: Mickey Bove Director: Corporate Finance M: +27 (0) E: Robbie Cheadle Associate Director: Corporate Finance M: +27 (0) E: Aamena Nagdee Associate Director: Corporate Finance M: +27 (0) E: Taryn McAllister Advisor: Corporate Finance M: +27 (0) E: 2013 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in South Africa MC9726. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.