What CAs Can Learn from MTN's R22.55 Billion Tuesday
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MTN put out a trading statement this morning and by close, the share was down 5.99% at R193.20 and R22.55 billion had come off the market cap, leaving the group at R354.27 billion.
Read the statement quickly and you'd be confused about why given some of their current operating boasts. Nigeria's net income jumped 71%, while Ghana's profit was up 43%, with Uganda adding 38%. Data usage and fintech are doing what management said they would do. So the question remaining is: why did the market take R22 billion off the table?
The short answer being that MTN gave the market three different earnings numbers, and they don't agree with each other.
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The three earnings numbers
Basic EPS (IAS 33): between R3.77 and R4.31, down from R5.39. A decline of 20% to 30%.
HEPS (JSE 8.63(b), per SAICA Circular): between R5.80 and R6.45, against R6.45 last year.
Adjusted HEPS (MTN's own definition): between R7.75 and R8.08, up from R6.57. A rise of 23% at the high range.
The spread between the first two is almost entirely an impairment of about 213 cents per share on MTN's 49% stake in Irancell, its Iranian joint venture.
Why the impairment vanishes from HEPS
Headline earnings splits a company's results between its operating activities and what the SAICA circular calls the "platform", meaning the capital base the business trades on. Remeasurements of the platform get stripped out while Impairments of non-current assets fall on the platform side, so they come out.
That's why the Irancell writedown shows up in basic EPS, disappears from HEPS, and never troubles adjusted HEPS at all.
Worth noting: some coverage today has said headline earnings were flat because of the Iran impairment. That's backwards, the impairment is precisely the thing HEPS excludes. HEPS is flat for other reasons, most likely currency and hyperinflation effects in the African operations.
What the market cared about
MTN decided to sell its Irancell stake in 2020 but US sanctions have blocked it since. February's conflict made this significantly worse and now, six years later, the stake is still on the books and now carries a material impairment.
An interesting consideration is whether this ever properly qualified as held for sale? IFRS 5 wants the sale completed within a year but there's an extension where the delay is beyond your control and you remain committed, which sanctions clearly satisfy. But "beyond our control" applied for six consecutive reporting periods starts to look less like a delay and more like a permanent condition.
The market has subsequently punished MTN for a 49% asset that generates no repatriable cash, can't be sold, and will keep being written down.
Insights From The Pocket CA
We've partnered with Pocket CA, an AI tool built for accountants, and ran this situation through:
IAS 33 / Circular 02/2013. HEPS is a JSE Listings requirement under 8.63(b), disclosed alongside basic EPS with a full reconciliation. It's not an IFRS measure. Companies can't override the circular's rules even where they think the operating-versus-platform split misrepresents their business.
JSE 3.4(b). A trading statement is compulsory once the issuer has reasonable certainty that results will differ by at least 20% from the prior corresponding period. MTN's 20% to 30% EPS decline is what forced today's announcement.
IAS 28.40 to .43. The Irancell investment is tested as a single asset. Goodwill inside the carrying amount isn't tested separately, and any impairment isn't allocated to specific assets. Value in use is the present value of MTN's share of Irancell's cash flows plus disposal proceeds, or the present value of expected dividends plus disposal.
IAS 28.41C. War, sanctions and adverse legal or economic change in the environment the JV operates in are all objective evidence of impairment. Textbook trigger.
IFRS 5.9 and Appendix B1. The one-year rule can be extended where delay is beyond the entity's control and there's sufficient evidence the entity remains committed to selling. Auditors will want that evidence documented every period, not assumed.
IAS 21 (Lack of Exchangeability, effective 2025). Where a currency isn't exchangeable within a normal administrative delay through a mechanism creating enforceable rights, you estimate the spot rate and disclose the restriction, the rate, the estimation process and the risk exposure. Sanctioned Iran is the obvious case.
Look-through. The headline earnings rules apply to the underlying earnings of an associate or JV too, not just the parent's own line items.
Check out the Pocket CA, and get your own CA on speed dial.
The Bottom Line
Three earnings numbers is not a scandal. Basic EPS is what IFRS requires, HEPS is what the JSE requires, and adjusted HEPS is what management thinks tells you about the underlying business. All three are legitimate and all three were adequality disclosed.
But the moment a company hands you a ladder of numbers, each one better than the last, the interesting question is what's being climbed over and ignored. Today the answer was 213 cents of Iranian write-down attached to an asset MTN has been trying to sell since 2020.
Full results are due later this month. Watch whether Irancell is still sitting in held for sale.
Until next week,
The Journal Entry Team
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