Financial Shenanigans

Financial Shenanigans — MTN Group Limited

The Forensic Verdict

MTN scores 42/100 — Elevated. The accounting is not "broken" — Ernst & Young issued an unqualified opinion, accrual quality is conservative (CFO has exceeded reported net income every year since FY2019), and working capital is not being stretched to flatter cash flow. Three forensic surfaces deserve underwriting: a FY2025-disclosed restatement of MTN Ghana's network-infrastructure leases that walked back R2.2bn of goodwill and re-cut FY2024 EPS by 12 cents; widespread use of IAS 29 hyperinflation accounting in Sudan, South Sudan and the Irancell joint venture (a net R1.3bn–R3.1bn non-cash earnings contribution every year); and a cluster of US/SA legal-regulatory matters — a US DoJ grand-jury inquiry, five US Anti-Terrorism Act suits and a R74bn Turkcell action — all carried as "remote" with no contingent liability accrued. The single piece of evidence that would most change the grade in either direction: clarity on the US DoJ inquiry's scope.

Shenanigans Scorecard — All 13 Categories

Breeding Ground

Governance scaffolding is investment-grade — PIC the largest single holder at 18-20%, 83% independent board, independent audit chair (Stan Miller), E&Y unqualified opinions including the FY2025 audit that documented the Ghana lease restatement as a Key Audit Matter. The risk concentration sits in the Iran-related legal cluster (DoJ grand jury disclosed H1 2025; five US ATA suits, Zobay past motion to dismiss; R74bn Turkcell action with SCA confirming SA jurisdiction April 2025) and in non-GAAP incentive design that diverges from reported numbers.

Neither cluster is a smoking gun, but together they argue for a higher-than-headline disclosure burden when reading future filings.

Earnings Quality

Reported earnings are volatile because MTN's footprint is volatile — naira and cedi devaluations are real, Sudan's conflict is real, hyperinflation accounting is real. What matters forensically is whether the volatility is faithfully reflected in receivables, capitalisation, reserves and below-the-line items. The answer is mostly yes, with two yellow flags.

Revenue versus receivables, contract assets and deferred revenue

Trade receivables are flat at R22.2bn while revenue grew 20.6% in FY2025; DSO improved from 43 to 36 days, and the allowance for impairment (R3.66bn) absorbed 16.5% of gross trade receivables. The receivables-impairment charge fell from R2.5bn to R1.8bn. No "revenue too soon" signature.

Cash conversion: net income, EBITDA and CFO over time

Cash generated from operations exceeded EBITDA every year FY2021-25 (105-119%). Net income is the volatile line because R/Naira and R/Cedi swings flow through "foreign exchange losses" and "net monetary gain" below operating profit. Headline earnings (a JSE-required metric stripping disposals and impairments) tracked closer to underlying performance — R23.2bn FY2025 vs R20.5bn FY2022.

Below-the-line, impairment and one-time items

FY2024 absorbed R10.2bn of Sudan PPE impairment plus R18.9bn of naira FX loss; FY2023 took R23.2bn of FX loss on the naira. Both were excluded from "CODM EBITDA". The forensic flag here is not the timing of the charges (they map to identifiable macro events), but the fact that the same exclusions repeat year after year and feed into the "Adjusted HEPS" used to compute executive compensation.

Capitalisation policy

Capex tracked 68-91% of depreciation across five years — consistent with a maturing telco, not aggressive capitalisation. The 30% combined share of "soft assets" (goodwill + intangibles + ROU) is driven by IFRS 16 leases (R64bn of ROU) and Ghana hyperinflation gross-up, not capitalisation of opex.

Cash Flow Quality

The cash-flow statement is the strongest forensic surface MTN presents. Operating cash flow has matched or exceeded EBITDA every year despite naira/cedi devaluation, the FY2024 restatement reduced CFO by R899m (lease-interest reclassification — direction is conservative), supplier finance is small and disclosed, and the only "boomerang" risk is the IHS Holdings acquisition closing in 2026.

CFO and FCF versus net income

FY2024 is the stress test. Net income swung to a R10.9bn loss, but CFO held at R45.9bn and FCF at R21.6bn — meaning the FX losses and Sudan impairment were largely non-cash. Cash generated from operations ran 105-119% of EBITDA across the window — consistent with D&A timing rather than working-capital engineering.

Working capital contribution to CFO

In both FY2024 and FY2025, working capital drained cash (R7.6bn and R3.2bn). Strong CFO is not coming from a payables stretch. Trade payables grew 9% vs revenue +21%.

Acquisition-adjusted free cash flow

For FY2021-25 MTN was a seller of subsidiaries (Afghanistan, Guinea-Conakry, Guinea-Bissau, partial Ghana/Uganda localisations), not a buyer — no acquisition leg suppressing FCF. That changes in FY2026: on 18 February 2026 MTN agreed to acquire the remaining 75.3% of IHS Holdings at US$8.50/share for US$2.2bn cash. The first post-deal cash-flow cycle will need close attention — purchase accounting effects could distort comparisons.

Supplier finance — disclosed and small

Supplier finance is confined to MTN SA, sits at R3.9bn (6.1% of group trade payables), and the financier had paid only R128m by year-end FY2025 (vs R448m FY2024). Not a cash-flow lifeline.

Metric Hygiene

This is where the most defensible criticism lives. MTN's headline disclosure features Headline EPS (a JSE-required measure) but executive compensation runs on a separately defined "Adjusted HEPS" — not equivalent to Headline EPS and not reconciled in the results booklet. "Net operating free cash flow" and "Cash upstreaming" also lack one-step reconciliation to the cash-flow statement.

The biggest metric-hygiene issue: Adjusted HEPS (985c) differs from reported HEPS (1,274c) by 289 cents (29%), and that gap drives STI payouts. The remuneration report contains the definition, but a reader of the headline results booklet would not see the gap reconciled in one place. Worth every-reporting-cycle vigilance for definition drift.

What to Underwrite Next