1.   Corporate information

The consolidated financial statements of Integrated Diagnostics Holdings plc and its subsidiaries (collectively, the Group) for the year ended 31 December 2017 were authorized for issue in accordance with a resolution of the directors on 20 March 2018. Integrated Diagnostics Holdings plc "IDH" or "the company" has been established according to the provisions of the Companies (Jersey) law 1991 under No. 117257.

 

IDH's purpose is not restricted and the Group has full authority to do any activity as long as it is not banned by the Companies law unless amended from time to time or depending on the Companies (Jersey) law.

The Group's financial year starts on 1 January and ends on 31 December each year. The Group's main activity is concentrated in the field of medical diagnostics.

 

2.   Basis of preparation

Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (adopted IFRS) issued by the International Accounting Standards Board (IASB) and the Jersey Law 1991 an amendment to which means separate company financial statements are not required.

 

 

 

 

Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis, except where adopted IFRS mandates that fair value accounting is required.

 

Functional and presentation currency

Each of the Group's entities is using the currency of the primary economic environment in which the entity operates ('the functional currency'). The Group's consolidated financial statements are presented in Egyptian Pounds, being the reporting currency of the main Egyptian trading subsidiaries within the Group and the primary economic environment in which the Group operates. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation; the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.

 

Going concern

These consolidated financial statements have been prepared on the going concern basis. At 31 December 2017, the Group had net assets amounting to EGP 2,314,090. The Group is profitable and cash generative and the Directors have considered the Group's cash forecasts for a period of 12 months from the signing of the balance sheet. The Directors have a reasonable expectation that the Group has adequate resources to meet its liabilities as they fall due for at least 12 months from the date of approval of these condensed consolidated annual financial statements. Thus, they continue to adopt the going concern basis in preparing the financial information.

 

2.1. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

2.1. Basis of consolidation (continued)

i. Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

 

ii.  Change in subsidiary ownership and loss of control

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Where the group loses control of a subsidiary, the assets and liabilities are derecognised along with any related NCI and other components of equity.  Any resulting gain or loss is recognised in profit or loss.  Any interest retained in the former subsidiary is measured at fair value when control is lost.

 

iii. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

 

2.2. Significant accounting policies

Except for the changes below, the accounting policies set out below have been consistently applied to all the years presented in these consolidated financial statements.

The Group has adopted the following new standard, including any inconsequential amendments to other standards, with a date of initial application of 1 January 2017.

 

·     Annual Improvements to IFRSs - 2014-2016 Cycle

·     Disclosure initiative - amendment to IAS 7

·     Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12    

 

This new standard had a non-material impact on these consolidated financial statements.

 

a)    Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the

 

2.2. Significant accounting policies (continued)

proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

 

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

 

This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.

 

Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the statement of profit or loss. And when it is classified as equity it should not be remeasured and accounted for within equity.

 

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed.

 

If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purpose of impairment testing which it is done one an annual basis, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

 

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

 

b)    Fair value measurement

The Group measures financial instruments such as non-derivative financial instruments, available-for-sale financial assets and contingent consideration assumed in a business combination, at fair value at each balance sheet date.

 

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair value is categorised into different levels in a fair value hierarchy based on the inputs

 

2.2.  Significant accounting policies (continued)

used in the valuation techniques as follows:

 

Ø Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Ø Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

Ø Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing

categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.

 

The fair value less any estimated credit adjustments for financial assets and liabilities with maturity dates less than one year is assumed to approximate their carrying value.   The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contracted cash flows at the current market interest rate that is available to the Group for similar transactions.

 

c)    Revenue recognition

Revenue represents the value of medical diagnostic services rendered in the year, and is stated net of discounts. The Group has two types of customers: Walk-in patients and patients served under contract. For patients under contract, rates are agreed in advance on a per-test, client-by-client basis.

 

For both types of customers, revenue is recognized on completion of the services rendered. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received.

 

Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

 

d)    Leases

i.         Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

 

At inception or on reassessment of an arrangement that contains a lease, the Group separates out payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impractical to separate the payments reliably, then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.

 

2.2.      Significant accounting policies (continued)

ii.      Leased assets

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group's statement of financial position.

 

iii. Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

 

e)   Income Taxes

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

 

i.    Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

 

ii.   Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

 

Deferred tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.

 

However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

 

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

2.2. Significant accounting policies (continued)

f)  Foreign currency

Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.

 

Differences arising on settlement or translation of monetary items are recognised in the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

 

On consolidation, the assets and liabilities of foreign operations are translated into Egyptian Pounds at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at average rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions). The exchange differences arising on translation for consolidation are recognised in other comprehensive income and accumulated in the translation reserve or NCI as the case may be. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss.

 

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

 

g)   Property, plant and equipment

All property and equipment are stated at historical cost less accumulated depreciation.  Historical cost includes expenditure that is directly attributable to the acquisition of the items.

 

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of income during the financial period in which they are incurred.

Land is not depreciated. 

Laboratory Equipment held to perform the 'Hub spoke' at the Mega Lab and provided under finance lease arrangements are depreciated under a unit of production method as this most closely reflects the consumption of benefits from the equipment. 

 

Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual value over their estimated useful lives, as follows:

Buildings                                                                                 50 years

Medical, electric and information systems equipment           4-10 years

Leasehold improvements                                                       4-5 years

Fixtures, fittings & vehicles                                                     4-16 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

2.2. Significant accounting policies (continued)

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within 'Other (losses)/gains - net' in the consolidated statement of income.

 

h)   Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

 

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets. The Group amortises intangible assets with finite lives using the straight-line method over the following periods:

IT development and software              4-5 years

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

 

Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree.

 

Goodwill is stated at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (CGUs), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. the impairment assessment is done one an annual basis.

 

Brand            

Brand names acquired in a business combination are recognized at fair value at the acquisition date and have an indefinite useful life.

2.2. Significant accounting policies (continued)

i)  Financial instruments - initial recognition and subsequent measurement

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

i.         Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, AFS financial assets, as appropriate. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

 

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in three categories:

Ø Financial assets at fair value through profit or loss

Ø Loans and receivables

Ø Available for sale ("AFS") financial assets

 

The Group did not hold financial assets classified as financial assets at fair value through the profit or loss or AFS financial assets at 31 December 2017 and 31 December 2016.

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method ("EIR"), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss in finance costs for loans and in cost of sales or other operating expenses for receivables.

 

Derecognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Group's consolidated statement of financial position) when:

Ø The rights to receive cash flows from the asset have expired

Or

 

Ø The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks

and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

 

2.2. Significant accounting policies (continued)

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass- through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

 

Impairment of financial assets

Further disclosures relating to impairment of financial assets are also provided in the following notes:

Ø Disclosures for significant estimates and assumptions                    Note 2.3

Ø Financial assets                                                                                  Note 14

Ø Trade receivables                                                                               Note 16

 

The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred 'loss event'), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

 

ii.      Financial liabilities

Initial recognition and measurement

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

 

All of the Group's financial liabilities are classified as financial liabilities carried at amortised cost using the effective interest method.  The Group does not use derivative financial instruments or hedge account for any transactions. Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation of their fair values.

 

The Group's financial liabilities include trade and other payables, finance lease liabilities and loans and borrowings including bank overdrafts.

2.2. Significant accounting policies (continued)

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

 

iii.     Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

 

j)  Impairment of non-financial assets

Further disclosures relating to impairment of non-financial assets are also provided in the following notes:

Ø Disclosures for significant assumptions and estimates                    Note 2.3

Ø Goodwill and intangible assets with indefinite lives                            Note 13

 

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

 

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group's CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

 

Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to other comprehensive income ("OCI"). For such properties, the impairment is recognised in OCI up to the amount of any previous revaluation.

 

2.2. Significant accounting policies (continued)

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased.

 

If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

Goodwill is tested for impairment annually as at 31 October and when circumstances indicate that the carrying value may be impaired.

 

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible assets with indefinite useful lives are tested for impairment annually as at 31 October at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

 

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (CGU). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.

 

k) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less estimated selling and distribution expenses.

 

l)  Cash and short-term deposits

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

 

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group's cash management. 

 

2.2.   Significant accounting policies (continued)

m)  Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement.

 

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as a finance cost.

 

n)   Pensions and other post-employment benefits

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Obligations for contributions to defined contribution pension plans are recognized as an expense in the income statement in the periods during which services are rendered by employees.

 

o)   Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions.

 

New and amended standards and interpretations not yet adopted

The Group has not early adopted any other standard, interpretation or amendments that have been issued but not yet effective for the year ended 31 December 2017.

None of these are expected to have a material effect on these consolidated financial statements of the Group, except for the following which could change the classification and measurements of financial assets.

 

·     IFRS 9 "Financial instruments" (expected effective date of January 2018).

 

·     IFRS 16 'Leases' (effective date of January 2019) introduces an on balance sheet accounting model for operating leases. The Group has significant operating lease commitments through the lease of branches and is anticipated to have a material effect when these arrangements are required to be brought on balance sheet.

 

2.3. Significant accounting judgments, estimates and assumptions (continued)

Estimated impact of the adoption of IFRS 9 and IFRS 15

IFRS 15

The Group is required to adopt IFRS 15 Revenue From Contracts With Customers From 1 January 2018.

 

IFRS 15 'Revenue from Contracts with Customers' sets out the principles for the measurement and recognition of revenue and will replace IAS 18. The standard provides a five step model to determine when an entity should recognise revenue and at what amount, by allocation of the transaction price to separate performance obligations. The Group has two types of customer: walk-in patients and patients served under contract. For patients served under contract, rates are agreed in advance on a per-test, client-by-client basis. For both types of customer, revenue is recognized on completion of the services rendered.

 

The Group's services are provided a point in time rather than over a period of time and there are stand-alone sales prices per test stipulated in the contracts that exist with selected customers.

 

The Group considers the current basis of revenue recognition to remain appropriate as the only performance obligation, being completion of a test, reflects the current policy. Therefore the Group considers that the initial application IFRS 15 will have no impact on its consolidated financial statements based on the assessment undertaken to date, however the Group may enter into contracts in the near future that would be accounted for differently under IFRS 15 than the existing standards.

 

IFRS9

The Group is required to adopt IFRS 9 Financial Instruments from 1 January 2018.

IFRS 9 'Financial Instruments' sets out the requirements for recognizing, classifying and measuring financial assets and financial liabilities and includes guidance in respect of general hedge accounting. This standard replaces IAS 39 and sets out two key criteria for determining the classification and measurement of financial assets including the entity's business model for managing financial assets and the contractual cash flow characteristics. IFRS 9 also sets out a single impairment model to ensure expected credit losses on financial instruments are always recognized as soon as they are forecast. In relation to hedge accounting, IFRS 9 adopts a principles-based approach for testing hedge effectiveness instead of setting specific numerical thresholds.

 

The Group has made an initial assessment of the impact that the initial application of IFRS 9 will have on its consolidated financial statement by considering the level of loss experienced from customers across the portfolio at a macro level. The financial impact of this assessment is an adjustment (net of tax) to the opening balance of the Group's equity at 1 January 2018 of EGP 2.5 m due to the recognition of an impairment charge for the expected credit loss of trade receivables. The final impact of adopting the standard at 1 January 2018 may change because the Group is in the process of undertaking an extensive exercise to assess the credit loss on a customer basis, which has not been finalised. Additionally, the testing and assessment of controls over new IT systems has not been complete. It is not expected that the impact of the final assessment will be materially different.

 

2.3.   Significant accounting judgments, estimates and assumptions (continued)

The total estimated adjustment (net of tax) to the opening balance of the Group's equity at 1 January 2018 is EGP 2.5 m due to the recognition of an impairment charge for the expected credit loss of trade receivables.

 

The preparation of the Group's consolidated financial statements in conformity with adopted IFRSs requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

 

Other disclosures relating to the Group's exposure to risks and uncertainties includes:

Ø Capital management                                                              Note 4

Ø Financial instruments risk management and policies           Note 14

Ø Sensitivity analyses disclosures                                            Notes 14

 

Judgments

In preparing these consolidated financial statements, management have made a material judgment, that affect the application of the Group's lease accounting policy and the reported amounts of assets, liabilities, and expenses. Information about judgment, estimate and assumptions relating to finance leases are set out in note 26.

 

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

 

Impairment of intangible assets

The Group tests annually whether goodwill and other intangibles with indefinite lives have suffered any impairment. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The recoverable amounts of cash generating units have been determined based on value in use. The value

in use calculation is based on a discounted cash flow ("DCF") model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset's performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes.

 

Impairment of trade and notes receivables

The requirement for impairment of trade receivables is made through monitoring the debts aging and reviewing customer's credit position and their ability to make payment as they fall due. An impairment is recorded against receivables for the irrecoverable amount estimated by management. At the year end, the provision for impairment of trade receivables was EGP 21,784K (31 December 2016: EGP 19,154k).

 

3.   Segment information

The Group is viewed as a single operating segment, as the Group's Chief Operating Decision Maker (CODM) reviews the internal management reports and KPIs of the Group as whole and not at a further aggregated level.

 

The Group operates in three geographic areas, Egypt, Sudan and Jordan. Each area offers similar services and the KPIs of each are viewed to be the same and they are not viewed as individual operating segments. The revenue split between the three regions is set out below.

	Revenue by geographic location
For the year ended	Egypt region EGP'000	Sudan region EGP'000	Jordan region EGP'000	Total EGP'000
31 December 2017	1,250,584	45,687	217,986	1,514,257
31 December 2016	1,024,378	34,103	112,140	1,170,621

The operating segment profit measure reported to the CODM is EBITDA, as follows:

	2017 EGP'000	2016 EGP'000
Profit from operations	540,371	466,192
Property, plant and equipment depreciation	57,148	40,224
Amortization of Intangible assets	4,774	4,506
EBITDA	602,293	510,922

The operating segment assets and liabilities measure reported to the CODM is in accordance with IFRS as shown in the Group's Consolidated Statement of Financial Position.

 

5.   Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

 

In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

The repatriation of a declared dividend from Egyptian group entities is subject to regulation by Egyptian authorities. The outcome of an Ordinary General Meeting of Shareholders declaring a dividend is first certified by the General Authority for Investment and Free Zones (GAFI).

 

Approval is subsequently transmitted to Misr for Central Clearing, Depository and Registry (MCDR) to distribute dividends to all shareholders, regardless of their domicile, following notification of shareholders via publication in one national newspapers.

 

4.   Capital management (continued)

The Group monitors capital on the basis of the net debt to equity ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total liabilities (being total current liabilities plus long-term financial obligations) less cash and cash equivalents.

 

 

 

 

 

As a provider of medical diagnostic services, IDH's operations in Sudan are not subject to sanctions.

 

	2017 EGP'000	2016 EGP'000
Total liabilities	624,313	601,389
Less: cash and short-term deposits (Note 17)	(685,211)	(683,721)
Net (cash)/debt	(60,898)	(82,332)
Total Equity	2,314,090	2,299,464
Net debt to equity ratio	-2.6%	-3.6%

 

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2017 and 2016.

 

6.   Group information

 

Information about subsidiaries

The consolidated financial statements of the Group include:

	Principal activities	Country of Incorporation	% equity interest
			2017	2016
Al Borg Laboratory Company ("Al-Borg")	Medical diagnostics service	Egypt	99.3%	99.3%
Al Mokhtabar Company for Medical Labs ("Al Mokhtabar")	Medical diagnostics service	Egypt	99.9%	99.9%
Molecular Diagnostic Center*	Medical diagnostics service	Egypt	99.9%	99.9%
Medical Genetic Center	Medical diagnostics service	Egypt	55.0%	55.0%
Al Makhbariyoun Al Arab Group (Hashemite Kingdom of Jordan)	Medical diagnostics service	Jordan	60.0%	60.0%
Golden Care for Medical Services	Holding company of SAMA	Egypt	100.0%	100.0%
Integrated Medical Analysis Company (S.A.E)	Medical diagnostics service	Egypt	99.6%	99.6%
SAMA Medical Laboratories Co.  ("Ultralab medical laboratory ")	Medical diagnostics service	Sudan	80.0%	80.0%
AL-Mokhtabar Sudanese Egyptian Co.	Medical diagnostics service	Sudan	65.0%	65.0%
Integrated Diagnostics Holdings Limited	Intermediary holding company	Caymans Island	100.0%	100.0%
Dynasty Group Holdings Limited	Intermediary holding company	Caymans Island	51%.0	51.0%

 

* "Molecular Diagnostic Center" is no longer treated as a subsidiary with effect from 5 May 2016 following the start of liquidation proceedings as control has been passed to the liquidator [ Abd EL Wahab Kamal] under Egyptian Law.

Full details of the Group historical acquisitions can be found in the prospectus for the initial public offering by the Company dated 6 May 2015 and available at www.idhcorp.com.

 

 

7.   Business combinations and acquisition of non-controlling interests

No change in business combinations and acquisition of non-controlling interests during the year.

 

 

8.   Non-Controlling interest

Financial information of subsidiaries that have material non-controlling interests is provided below:

Proportion of equity interest held by non-controlling interests:

 

	Country of incorporation		2017	2016
Medical Genetic Center		Egypt	45.0%	45.0%
Al Makhbariyoun Al Arab Group (Hashemite Kingdom of Jordan)		Jordan	40.0%	40.0%
SAMA Medical Laboratories Co.  " Ultra lab medical laboratory "		Sudan	20.0%	20.0%
Al Borg Laboratory Company		Egypt	0.7%	0.7%

 

 

The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.

 

 

	Medical Genetic Center EGP'000		Al Makhbariyoun Al Arab Group (Hashemite Kingdom of Jordan) EGP'000		SAMA Medical Laboratories Co.  "Ultralab medical laboratory " EGP'000		Alborg Laboratory Company EGP'000			Other individually immaterial subsidiaries EGP'000				Intra-Group eliminations EGP'000		Total EGP'000
Summarised statement of profit or loss for 2017:
Revenue	11,454		218,077		36,959		589,275			323,786		-						1,179,551
Profit	1,311		22,253		1,948		194,660			61,224		-						281,396
Other comprehensive income	-		(4,082)		(2,341)		-			1,528		-						(4,895)
Total comprehensive income	-		(4,082)		(2,341)		-			1,528		-						(4,895)
Profit allocated to non-controlling interest	590		8,901		390		1,378			(1,200)		(353)						9,706
Other comprehensive income allocated to non-controlling interest	-		(1,633)		(468)		-			535		-						(1,566)
Summarised statement of financial position as at 31 December 2017:
Non-current assets	962			106,439	2,454		145,751			118,934		-						374,540
Current assets	6,844			50,562	18,448		430,089			159,687		-						665,630
Non-current liabilities	42			-	-		6,118			85,427		-						91,587
Current liabilities	4,154			60,639	12,004		132,693			110,905		-						320,395
Net assets	12,002		217,640		32,906		714,651			474,953		-						1,452,152
Net assets attributable to non-controlling interest	5,403		87,056		6,581		5,058			(1,981)		(33,616)						68,502
		Medical Genetic Center EGP'000		Al Makhbariyoun Al Arab Group (Hashemite Kingdom of Jordan) EGP'000		SAMA Medical Laboratories Co.  "Ultralab medical laboratory " EGP'000		Alborg Laboratory Company EGP'000			Other individually immaterial subsidiaries EGP'000		Intra-Group eliminations EGP'000				Total EGP'000
Summarised cash flow information for year ended 31 December 2017:
Operating		625		40,715		437		155,451			41,979		-				239,207
Investing		84		(28,326)		(756)		45,017			(2,199)		-				13,820
Financing		(1,565)		(10,933)		-		(69,410)			(46,577)		-				(128,485)
Net increase/(decrease) in cash and cash equivalents		(856)		1,456		(319)		131,058			(6,797)		-				124,542
Summarised statement of profit or loss for 2016:
Revenue		11,881		112,266		27,160		482,002			207,452		-		840,761
Profit		1,818		13,850		1,360		199,827			(57,725)		-		159,130
Other comprehensive income		-		52,930		(1,115)		-			393		-		52,208
Total comprehensive income		-		3,016		850		-			(297)		-		3,569
Profit allocated to non-controlling interest		818		5,540		272		1,414			(916)		(610)		6,519
Other comprehensive income allocated to non-controlling interest		-		21,172		(446)		-			139		-		20,865

 

	Medical Genetic Center EGP'000	Al Makhbariyoun Al Arab Group (Hashemite Kingdom of Jordan) EGP'000	SAMA Medical Laboratories Co.  "Ultralab medical laboratory " EGP'000	Alborg Laboratory Company EGP'000		Other individually immaterial subsidiaries EGP'000	Intra-Group eliminations EGP'000	Total EGP'000
Summarised statement of financial position as at 31 December 2016:
Non-current assets	885	92,168	3,363	136,938		136,316	-	369,670
Current assets	7,761	47,090	20,548	311,085		306,983	-	693,467
Non-current liabilities	9	773	-	-		99,339	-	100,121
Current liabilities	4,518	42,014	14,657	120,345		324,452	-	505,986
Net assets	6,121	40,845	9,009	194,900		122,583	-	373,458
Net assets attributable to non-controlling interest	5,930	72,818	7,714	4,023		(1,327)	(26,997)		62,161

 

7.   Non-Controlling interest (continued)
Summarised cash flow information for year ended 31 December 2016:
Operating	2,687	18,034	1,508	189,193	73,254	-	284,676
Investing	(37)	(11,955)	(410)	(55,929)	(8,326)	-	(76,657)
Financing	(3,163)	(6,848)	-	(52,256)	(8,928)	-	(71,195)
Net increase/(decrease) in cash and cash equivalents	(513)	(769)	1,098	81,008	56,000	-	136,824

 

8.   Expenses and other income

Included in profit and loss are the following:

	2017 EGP'000	2016 EGP'000
Impairment on trade and other receivables	5,561	4,298
Impairment of goodwill	-	1,849
Charge for increase in provisions	3,536	2,224
Operating lease payments (buildings)	51,478	32,234
Professional and advisory fees	22,945	24,907
Amortisation	4,774	4,506
Depreciation	57,148	40,224
Total	145,442	110,242

 

 

8.1.     Auditor's remuneration

The group paid or accrued the following amounts to its auditor and its associates in respect of the audit of the financial statements and for other services provided to the group

 

	2017	2016
	EGP'000	EGP'000
Fees payable to the Company's auditor for the audit of the Group's annual financial statements	5,459	2,411
The audit of the Company's subsidiaries pursuant to legislation	1,593	1,136
Tax compliance and advisory services	608	571
	7,660	4,118

 

8.   Expenses and other income (continued)

 

8. 

8.2.     Net finance costs

	2017		2016
	EGP'000		EGP'000
Finance charges payable under finance leases	(10,391)		(9,271)
Net foreign exchange loss	(19,940)		(88,877)
Bank Charges	(2,674)		(924)
Total finance costs	(33,005)		(99,072)
	2017		2016
	EGP'000		EGP'000
Interest income	51,064		21,418
Total finance income	51,064		21,418
Net finance (cost)/ income	18,059		(77,654)

8.3.    Employee numbers and costs

The average number of persons employed by the Group (including directors) during the year and the aggregate payroll costs of these persons, analysed by category, were as follows:

		2017			2016
	Medical		Administration	Total		Medical	Administration	Total
Average number of employees	4,226		443	4,669		4,307	381	4,688

 

	2017 EGP'000			2016  EGP'000
	Medical	Administration	Total	Medical	Administration	Total
Wages and salaries	219,493	73,604	293,097	179,626	59276	238,902
Social security costs	15,537	4,091	19,628	12,086	2678	14,764
Contributions to defined contribution plan	3,168	479	3,647	3,131	511	3,642
Total	238,198	78,174	316,372	194,843	62,465	257,308

 

Details of Directors' and Key Management remuneration and share incentives are disclosed in the Remuneration Report and note 27.

10. Income tax

a)   Amounts recognised in profit or loss

	2017	2016
	EGP'000	EGP'000
Current tax:
Current year	(117,844)	(135,727)
Deferred tax:
Effect of reduction in tax rate to 22.5%		-
Deferred tax arising on undistributed reserves in subsidiaries	(19,808)	(18,876)
Relating to origination and reversal of temporary differences	(37,049)	32,983
Total Deferred tax income / (expense)	(56,857)	14,107
Tax expense recognised in profit or loss	(174,701)	(121,620)

                                                                                                              

b)   Reconciliation of effective tax rate

The Company is treated as a tax resident of Jersey for the purpose of Jersey tax laws and is subject to a tax rate of 0%. And the Company tax domicile in the UK. As a holding company for the IDH group, the Board concluded that the UK represents the most effective and efficient jurisdiction from which to manage the Company. The current income tax charge for the Group represents tax charges on profits arising in Egypt, Jordan and Sudan.  The significant profits arising within the Group subject to corporate income tax are generated from the Egyptian operations and subject to 22.5% (2016: 22.5%) tax rate. The reconciliation of effective income tax rate has been performed using this rate.

 

	2017	2016
	EGP'000	EGP'000
Profit before tax	558,430	388,538
Profit before tax multiplied by rate of corporation tax in Egypt of 22.5% (2016: 22.5%)	125,647	87,421
Effect of tax rate in Jersey of 0% (2016: 0%)	9,558	(2,210)
Effect of tax rates in Jordan and Sudan of 20% and 15% respectively (2016: 20% and 15%)	(609)	(452)
Tax effect of:
Change in unrecognized deferred tax assets	703	303
Deferred tax arising on undistributed reserves	19,808	18,876
Reduction in tax rate on deferred tax balances	10,240	8,940
Non-deductible expenses for tax purposes - employee profit share
Non-deductible expenses for tax purposes - other	9,354	8,742
Tax expense recognised in profit or loss	174,701	121,620

 

Deferred tax

Deferred tax relates to the following:

	2017						2016
	Assets	Liabilities				Assets		Liabilities
	EGP'000	EGP'000				EGP'000		EGP'000
Property, plant and equipment	-	(17,159)				-		(9,528)
Intangible assets	-	(106,651)				-		(101,661)
Undistributed reserves from group subsidiaries*	-	(37,532)				-		(30,175)
Provisions and finance lease liabilities	2,630					27,044		-
Deferred tax assets (liabilities) before set-off	2,630	(161,342)				27,044		(141,364)
Set-off of tax	-	-				(8,737)		8,737
Net deferred tax assets (liabilities)	-		(158,712)				18,307		(132,627)

 

 

9.   Income tax (continued)

All movements in the deferred tax asset/liability in the year have been recognised in the profit or loss account.

Deferred tax liabilities and assets have been calculated based on the enacted tax rate at 31 December 2017 for the country the liabilities and assets has arisen. The enacted tax rate in Egypt is 22.5% (2016: 22.5%), Jordan 20% (2016: 20%) and Sudan 15% (2016: 15%).

 

* Undistributed reserves from group subsidiaries

The Group's dividend policy is to distribute any excess cash after taking into consideration all business cash requirements and potential acquisition considerations. The expectation is to distribute profits held within subsidiaries of the Group in the near foreseeable future. During 2015 the Egyptian Government imposed a tax on dividends at a rate of 5% of dividends distributed from Egyptian entities. As a result a deferred tax liability has been recorded for the future tax expected to be incurred from undistributed reserves held within the Group which will be taxed under the new legislation imposed and were as follows:

 

	2017 EGP'000	2016              EGP'000
Al Mokhtabar Company for Medical Labs	13,517	11,378
Alborg Laboratory Company	17,507	11,490
Integrated Medical Analysis Company	2,582	2,192
Molecular Diagnostic Center	317	1,095
Golden Care for Medical Services	-	677
Medical Genetics Center	47	189
Al Makhbariyoun Al Arab Group	3,562	3,154
	37,532	30,175

 

Unrecognized deferred tax assets

The following deferred tax assets were not recognized due to the uncertainty that those items will have a future tax benefit:

	2017	2016
	EGP'000	EGP'000
Impairment of trade receivables (Note 16)	21,784	19,154
Impairment of other receivables (Note 16)	8,069	8,068
Provision for legal claims (Note 22)	2,685	2,191
	32,538	29,413
Unrecognized deferred tax asset	7,321	6,618

 

 

 

10. Earnings per share (EPS)

Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. There are no dilutive effects from ordinary share and no adjustment required to weighted-average numbers of ordinary shares.

The following table reflects the income and share data used in the basic and diluted EPS computation:

	2017 EGP'000	2016 EGP'000
Profit attributable to ordinary equity holders of the parent for basic earnings	374,023	260,399
Weighted average number of ordinary shares for basic and dilutive EPS	150,000	150,000
Basic and dilutive earnings per share (expressed in EGP)	2.49	1.74

 

There is no dilutive effect from equity.

 

11. Property, plant and equipment

	Land & Buildings EGP'000	Medical, electric & electronic equipment EGP'000	Leasehold       improvements EGP'000	Fixtures, fittings & vehicles EGP'000	Building & Leasehold improvements in construction EGP'000	Total EGP'000
Cost
At 1 January 2016	167,612	164,382	76,272	31,949	3,576	443,791
Additions	-	18,138	18,050	2,740	4,570	43,498
Disposals	(648)	(1,994)	(315)	(342)	-	(3,299)
Exchange differences	6,285	15,937	23,646	6,095	2,248	54,211
Transfers	-	4,114	1,198	-	(5,312)	-
At 31 December 2016	173,249	200,577	118,851	40,442	5,082	538,201
Additions*	27,700	41,275	17,788	5,588	50,765	143,116
Disposals		(2,697)	(888)	(477)	-	(4,062)
Exchange differences	10,825	(1,547)	(1,037)	(503)	(80)	7,658
Transfers	-		12,637	-	(12637)	-
At 31 December 2017	211,774	237,608	147,351	45,050	43,130	684,913
Depreciation and impairment
At 1 January 2016	19,331	52,690	31,088	12,463	-	115,572
Depreciation charge for the year	2,757	22,045	12,947	2,475	-	40,224
Disposals	-	(1,497)	(306)	(248)	-	(2,051)
Exchange differences	77	2,060	1,280	665	-	4,082
At 31 December 2016	22,165	75,298	45,009	15,355	-	157,827
Depreciation charge for the year	2,857	33,446	17,278	3,567	-	57,148
Disposals	-	(2,594)	(663)	(385)	-	(3,642)
Exchange differences	-	(154)	(18)	(34)	-	(206)
At 31 December 2017	25,022	105,996	61,606	18,503	-	211,127
Net book value
At 31 December 2017	186,752	131,612	85,745	26,547	43,130	473,786
At 31 December 2016	151,084	125,279	73,842	25,087	5,082	380,374

 

Property, plant and equipment (continued)

*Additions include EGP 60.8m (EGP 23.7m land, EGP 29.3m building) related to the Group's new Headquarter purchased in April 2017. Included in this amount are capitalised borrowing costs related to the improvement of the building of EGP 7.8m. Calculated using capitlisation rate of 20.75% (note 24). 

 

Leased equipment

The Group leases medical and electric equipment under finance lease arrangements. This equipment is supplied to service the Group's new state-of-the-art Mega Lab. The equipment secures lease obligations, see note 26 for further details. At 31 December 2017, the net carrying amount of leased equipment was EGP 47m (Dec 2016: EGP 59m).

 

12. Intangible assets

	Goodwill		Brand Name		Software		Total
	EGP'000		EGP'000		EGP'000		EGP'000
Cost
At 1 January 2016	1,231,199		375,026		32,371		1,638,596
Additions		-		-		5,039		5,039
Effect of movements in exchange rates		26,153		13,066		791		40,010
At 31 December 2016	1,257,352		388,092		38,201		1,683,645
Additions	4,391		-		6,386		10,777
Effect of movements in exchange rates	(1,290)		(805)		(18)		(2,113)
At 31 December 2017	1,260,453		387,287		44,569		1,692,309
Amortisation and impairment
At 1 January 2016	-		-		22,713		22,713
Impairment Loss	1,849		-		-		1,849
Amortisation	-		-		4,506		4,506
Effect of movements in exchange rates	-		-		215		215
At 31 December 2016	1,849		-		27,434		29,283
Amortisation	-		-		4,774		4,774
Effect of movements in exchange rates	-		-		-		-
At 31 December 2017	1,849		-		32,208		34,057
Net book value
At 31 December 2017	1,258,604		387,287		12,361		1,658,252
At 31 December 2016	1,255,503		388,092		10,767		1,654,362

 

 

13. Goodwill and intangible assets with indefinite lives

Goodwill acquired through business combinations and intangible assets with indefinite lives are allocated to the Group's CGUs as follows:

 

	2017 EGP'000	2016 EGP'000
Medical Genetics Center
Goodwill	1,755	1,755
	1,755	1,755
Al Makhbariyoun Al Arab Group ("Biolab")
Goodwill	52,086	47,953
Brand name	22,746	23,224
	74,832	71,177
Golden Care for Medical Services ("Ultralab")
Goodwill	8,386	9,417
Brand name	1,156	1,484
	9,542	10,901
Alborg Laboratory Company ("Al-Borg")
Goodwill	497,275	497,275
Brand name	142,066	142,066
	639,341	639,341
Al Mokhtabar Company for Medical Labs ("Al-Mokhtabar")
Goodwill	699,102	699,102
Brand name	221,319	221,319
	920,421	920,421
Balance at 31 December	1,645,891	1,643,595

 

 

The Group performed its annual impairment test in October 2017. The Group considers the relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators of impairment.

Goodwill and intangible assets with indefinite lives (continued)

Key assumptions used in value in use calculations and sensitivity to changes in assumptions

IDH instructed FinCorp Investment Holding (referred to hereafter as "Fincorp") an independent financial advisor, to prepare an independent impairment assessment of the Group's CGUs. The assessment was carried out based on business plans provided by IDH.  These plans have been prepared based on criteria set out below: 

	Ultra Lab	Bio Lab	Al-Mokhtabar	Al-Borg
Average annual patient growth rate from 2018 -2022	7%	5%	5%	3%
Average annual price per test growth rate from 2018 -2022	7%	0%	11%	12%
Annual revenue growth rate from 2018 -2022	15%	5%	17%	15%
Average gross margin from 2018 -2022	41%	36%	52%	48%
Terminal value growth rate from 1 January 2023	2%	2%	3.9%	3.9%
Discount rate	25.8%	15.4%	19.58%	19.58%

Fincorp has prepared discounted cash flow projections using the key assumptions above so as to be able to calculate the net present value of the asset in use and determine the recoverable amount. The projected cash flows from 2018- 2022 have been based on detailed forecasts prepared by management for each CGU and a terminal value thereafter. Management have used past experience and historic trends achieved in order to determine the key growth rate and margin assumptions set out above. The terminal value growth rate applied is not considered to exceed the average growth rate for the industry and geographic locations of the CGUs.

 

This recoverable amount is then compared to the carrying value of the asset as recorded in the books and records of IDH plc.  The discount rate is the pre-tax rate taking into account the risks of each CGU.

 

These risks include country risk, currency risk as well as the beta factor relating to the CGU and how it performs relative to the market. 

 

Based on the sensitivity analysis, A 1% change in the WACC would result in a 5-7% change in the valuation of the CGU. 

 

The conclusions from the impairment review were that there was headroom within the forecasts and therefore no impairment is required.

 

14. Financial assets and financial liabilities

The fair values of all financial assets and financial liabilities by class shown in the balance sheet are as follows:

	2017 EGP'000	2016 EGP'000
Held-to-maturity
Short term deposits - treasury bills	685,211	683,721
Cash and cash equivalent	9,149	95,575
Trade and other receivables	174,902	120,873
Total financial assets	869,262	900,169
Financial liabilities measured at amortised cost
Trade and other payables	215,176	211,533
Put option liability	93,256	102,082
Finance lease liabilities Loans and borrowings	117,714 60,763	151,799 -
Total financial liabilities	486,909	465,414
Total financial instruments	382,353	434,755

The fair values of all of the Group's financial instruments are the same as their carrying values. All financial instruments are deemed Level 2.

Financial instruments risk management objectives and policies

The Group's principal financial liabilities are trade and other payables, put option liability and finance lease liabilities. The Group's principal financial assets include trade and other receivables, and cash and short-term deposits that derive directly from its operations.

 

The Group is exposed to market risk, credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of markets and seeks to minimize potential adverse effects on the Group's financial performance. The Group's senior management oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.

The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

 

-     Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings and deposits.   

 

The sensitivity analyses in the following sections relate to the position as at 31 December in 2017 and 2016. The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and the proportion of financial instruments in foreign currencies are all constant.

 

Financial assets and financial liabilities (continued)

The analyses exclude the impact of movements in market variables on: the carrying values of pension and other post-retirement obligations; provisions; and the non-financial assets and liabilities of foreign operations.The following assumptions have been made in calculating the sensitivity analyses:

Ø The sensitivity of the relevant statement of profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 December 2017 and 2016.

Ø The sensitivity of equity is calculated by considering the effect of any associated cash flow hedges and hedges of a net investment in a foreign subsidiary at 31 December 2017 for the effects of the assumed changes of the underlying risk.

 

-     Interest rate risk

The Group adopts a policy of ensuring that between 50 and 55% of this interest rate risk exposure is at a fixed rate. This is achieved partially by entering into fixed-rate instrument and partly by borrowing at the floating rate.

 

Exposure to interest rate risk

The interest rate profile of the Group's interest-bearing financial instruments as reported to the management of the group is as follow:

	2017 EGP'000	2016 EGP'000
Fixed-rate instruments
Finance lease liabilities (note 26)	117,714	151,799
Variable-rate instruments	60,763	-
Loan and borrowings (note 24)

The Group does not account for any fixed-rate financial liabilities at FVTPL. Therefore, a change in interest rates at the reporting date would not affect profit or loss.

 

Cash flow sensitivity analysis for variable-rate instruments

A reasonable possible change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts EGP 779K. This analysis assumes that all other variables, remain constant.

 

-     Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates.

 

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar, Sudanese Pound and the Jordanian Dinar. Foreign exchange risk arises from to the Group's operating activities (when revenue or expense is denominated in a foreign currency), recognized assets and liabilities and net investments in foreign operations. However, the management aims to minimize open positions in foreign currencies to the extent that is necessary to conduct its activities.

 

Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity's functional currency.

At year end, major financial assets / (liabilities) denominated in foreign currencies were as follows (the amounts presented are shown in the foreign currencies):

 

Financial assets and financial liabilities (continued)

	31-Dec-17
	Assets				Liabilities					Net exposure
	Cash and  cash equivalents	Other assets	Total assets		Put option	Finance lease	Trade payables and other liabilities	Total liability
US Dollars	11,705	149	11,854		-	(7,062)	(1,660)	(8,722)		3,132
Euros	66	-	66		-	-	(13)	(13)		53
GBP	4	-	4		-	-	(197)	(197)		(193)
JOD	216	1,816	2,032		(3,747)	(334)	(1,228)	(5,309)		(3,277)
SDG	12,826	11,722	24,548				(5,316)	(5,316)		19,232
	31-Dec-16
	Assets				Liabilities					Net exposure
	Cash	Other assets	Total assets		Put option	Finance lease	Trade payables and other liabilities	Total liability
US Dollars	22,652	203	22,855		-	(7,866)	(2,619)	(10,485)		12,370
Euros	95	-	95		-	-	(68)	(68)		27
GBP	12	-	12		-	-	(211)	(211)		(199)
JOD	157	1,692	1,849		(4,017)	-	(1,147)	(5,164)		(3,315)
SDG	12,652	7,501	20,153		-	-	(4,023)	(4,023)		16,130

 

The following is the exchange rates applied against EGP:
	Average rate for the year ended
		2017		2016
US Dollar		17.68		10.15
Euros		20.05		11.09
GBP		22.84		13.43
JOD		24.92		14.57
SAR		4.71		2.71
SDG		1.04		1.20
		Spot rate at the year ended
		31-Dec-17		31-Dec-16
US Dollar		17.67		18.00
Euros		21.09		18.87
GBP		23.73		22.04
JOD		24.89		25.41
SAR		4.71		4.80
SDG		0.88		1.28

 

Financial assets and financial liabilities (continued)

At 31 December 2017, if the Egyptian Pounds had weakened / strengthened by 10% against the US Dollar with all other variables held constant, pre-tax profit for the year would have been increased / decreased by EGP 5,5m (2016: EGP 22.3m), mainly as a result of foreign exchange gains/losses on translation of US dollar-denominated financial assets and liabilities. The effect on equity would have been an increase/decrease by EGP 6,7m due to the impact from translation of foreign subsidiaries.

 

 

At 31 December 2017, if the Egyptian Pounds had weakened / strengthened by 10% against the Jordanian Dinar with all other variables held constant, pre-tax profit for the year would have been increased / decreased by EGP (8.2m) (2016: EGP (8.4m)), mainly as a result of foreign exchange gains/losses on translation of JOD - denominated financial assets and liabilities. The effect on equity would have been an increase/decrease by EGP 8m due to the impact from translation of foreign subsidiaries.

 

At 31 December 2017, if the Egyptian Pounds had weakened / strengthened by 10% against the Sudanese Pound with all other variables held constant, pre-tax profit for the year would have been increased / decreased by EGP 1.7m (2016: EGP 1.8m, mainly as a result of foreign exchange gains/losses on translation of SDG -denominated financial assets and liabilities. The effect on equity would have been an increase/decrease by EGP 1.1m due to the impact from translation of foreign subsidiaries.

 

-     Price risk

The group does not have investments in equity securities or bonds and accordingly is not exposed to price risk related to the change in the fair value of the investments.

 

-     Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

           

Credit risk is managed on a group basis, except for credit risk relating to accounts receivable balances. Each local entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.

 

For banks and financial institutions, the Group is only dealing with the banks which have a high independent rating and a good reputation.

 

-     Trade receivables

Each business unit subject to the Group's established policy, procedures and control relating to customer credit risk management manages customer credit risk. Credit quality of a customer is assessed based on an individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and the average general credit terms given to contract customers are 45 days.

 

An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The Group does not hold collateral as security.

 

The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 16.

 

 

Cash and cash equivalents

Credit risk from balances with banks and financial institutions is managed by the Group's treasury department in accordance with the Group's policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group's Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Group's management. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through a counterparty's potential failure to make payments.

 

The maximum exposure to credit risk at the reporting date is the carrying value of cash and cash equivalents disclosed in Note 17.

 

 

-     Liquidity risk

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of finance leases and loans.

The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

Financial assets and financial liabilities (continued)

 

Year ended 31 December 2017	1 year or less	1 to 5 years	more than 5 years	Total
Obligations under finance leases	38,275	128,726		167,001
Put option liability	93,256	-	-	93,256
Loans and borrowings	14,575	38,425	-	53,000
Trade and other payables	215,176	-	-	215,176
	361,282	167,151	-	528,433
Year ended 31 December 2016	1 year or less	1 to 5 years	more than 5 years	Total
Obligations under finance leases	48,373	152,234	8,438	209,045
Put option liability	102,082	-	-	102,082
Loans and borrowings	-	-	-	-
Trade and other payables	211,533	-	-	211,533
	361,988	152,234	8,438	522,660

 

Cash flow forecasting is performed in the operating entities of the group and aggregated by group finance. Group finance monitors rolling forecasts of the group's liquidity requirements to ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration the group's compliance with internal financial position ratio targets and, if applicable external regulatory or legal requirements - for example, currency restrictions.

 

The group's management retain cash balances in order to allow repayment of obligations in due dates, without taking into account any unusual effects which it cannot be predicted such as natural disasters. All suppliers and creditors will be repaid over a period not less 30 days from the date of the invoice or the date of the commitment.

 

15. Inventories

	2017 EGP'000	2016 EGP'000
Chemicals and operating supplies	69,935	51,715
	69,935	51,715

 

During 2017, EGP 306,641k (2016: EGP 184,087k) was recognised as an expense for inventories carried at net realisable value. This was recognised in cost of sales.

 

16.       Trade and other receivables

	2017 EGP'000	2016 EGP'000
Trade receivables	139,885	107,193
Prepaid expenses	27,353	27,502
Receivables due from related parties	6,441	4,294
Other receivables	11,000	6,214
Accrued revenue	17,576	3,172
	202,255	148,375

 

For terms and conditions relating to related party receivables, refer to Note 27.

As at 31 December 2017, trade and other receivables with an initial carrying value of EGP 29,852k (2016: EGP 27,222k) were impaired and fully provided for. Below shows the movements in the provision for impairment of trade and other receivables:

	2017	2016
	EGP'000	EGP'000
At 1 January	27,222	25,098
Charge for the year	5,561	4,298
Utilised	(1,331)	-
Unused amounts reversed	(1,461)	(2,768)
Exchange differences	(139)	594
At 31 December	29,852	27,222

 

As at 31 December, the ageing analysis of trade receivables is as follows:

 

 

	Total
	Total		< 30 days	30-60 days	61-90 days	> 90 days
2017	139,885		99,143	12,111	6,523	22,109
2016	107,193		54,072	8,450	19,477	25,194

 

 

17. Cash and cash equivalent

	2017 EGP'000	2016 EGP'000
Cash at banks and on hand	139,974	426,578
Short-term deposits (less than 3 months)	545,237	257,143
	685,211	683,721

 

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates ranging from 15%- 16% per annum.

 

18. Restricted cash

	2017	2016
	EGP'000	EGP'000
Restricted cash	13,226	13,253
	13,226	13,253

 

The cash balance related to "Molecular Diagnostic Center" and not available for use by the Group because the entity deconsolidated starting May 2016 and control has been transferred to the liquidator. The process of liquidation will end next year 2018 and once complete the total cash amount is expected to be returned to IDH.

19. Other investments

 

	2017	2016
	EGP'000	EGP'000
Fixed term deposits	9,149	90,000
Treasury bills	-	5,575
	9,149	95,575

 

The maturity date of the fixed term deposit between 9-12 months and the effective interest rate on the USD deposit is 2.25% (2016: on the EGP14.65%).

 

Fixed term deposits and treasury bills are classified as held to maturity

20. Share capital and reserve

 

The Company's ordinary share capital is $150,000,000 equivalent to EGP 1,072,500,000.

All shares are authorised and fully paid and have a pair value of $1.

	Ordinary shares	Ordinary shares
	31-Dec-17	31-Dec-16
In issue at beginning of the year	150,000,000	150,000,000
In issue at the end of the year	150,000,000	150,000,000

 

Capital reserve

The capital reserve was created when the Group's previous parent company, Integrated Diagnostics Holdings LLC - IDH (Caymans) arranged its own acquisition by Integrated Diagnostics Holdings PLC, a new legal parent. The balances arising represent the difference between the value of the equity structure of the previous and new parent companies. When the capital position of the parent company is rearranged, the capital reserve is adjusted appropriately such that the equity balances presented in the Group accounts best reflect the underlying structure of the Group's capital base.

 

Legal reserves

Legal reserve was formed based on the legal requirements of the Egyptian law governing the Egyptian subsidiaries. According to the Egyptian subsidiaries' article of association 5% (at least) of the annual net profit is set aside to from a legal reserve. The transfer to legal reserve ceases once this reserve reaches 50% of the entity's issued capital. If the reserve falls below the defined level, then the entity is required to resume forming it by setting aside 5% of the annual net profits until it reaches 50% of the issued share capital. 

 

Put option reserve

Through acquisitions made within the Group, put option arrangements have been entered into to purchase the remaining equity interests in subsidiaries from the vendors at a subsequent date. At acquisition date an initial put option liability is recognised and a corresponding entry recognised within the put option reserve. After initial recognition the accounting policy for put options is to recognise all changes in the carrying value of the liability within put option reserve. When the put option is exercised by the vendors the amount recognised within the reserve will be reversed.

Translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries, including gains or losses arising on net investment hedges.

 

21. Distributions made and proposed

	2017 EGP'000	2016 EGP'000
Cash dividends on ordinary shares declared and paid:
US$ 0.14 per qualifying ordinary share (2016: US$ 0.06)	371,875	79,470
	371,875	79,470
After the balance sheet date the following dividends were proposed by the directors (the dividends have not been provided for):
US$0.16 per share (2016: $0.14) per share	424,080	371,875

 

The proposed 2017 dividend on ordinary shares are subject to approval at the annual general meeting and is not recognised as a liability as at 31 December 2017.

22.   Provision

	Egyptian Government Training Fund for employees EGP'000	Provision for legal claims EGP'000	Total EGP'000
At 1 January 2017	10,011	2,191	12,202
Provision made during the year	2,003	1,533	3,536
Provision used during the year	-	(39)	(39)
Provision reversed during the year	-	(1,000)	(1,000)
At 31 December 2017	12,014	2,685	14,699
Current	-	-	-
Non- Current	12,014	2,685	14,699

 

	Egyptian Government Training Fund for employees EGP'000	Provision for legal claims EGP'000	Total EGP'000
At 1 January 2016	7,995	2,967	10,962
Provision made during the year	2,016	208	2,224
Provision used during the year	-	(267)	(267)
Provision reversed during the year	-	(717)	(717)
At 31 December 2016	10,011	2,191	12,202
Current	-	-	-
Non- Current	10,011	2,191	12,202

 

 

Employees training provision

The provision for employees training fund have been provided for in accordance with the Egyptian law and regulations.

 

Legal claims provision

The amount comprises the gross provision in respect of legal claims brought against the Group. Management's opinion, after taking appropriate legal advice, is that the outcome of these legal claims will not give rise to any significant loss beyond the amounts provided as at 31 December 2017.

 

23.   Trade and other payables

	2017 EGP'000	2016 EGP'000
Trade payables	126,140	126,069
Accrued expenses	73,821	77,646
Other payables	15,215	7,818
Put option liability	93,256	102,082
Accrued interest	7,763	-
Finance lease liabilities	17,237	32,161
	333,4322	345,776

 

The accounting policy for put options after initial recognition is to recognise all changes in the carring value of the put liability within equity.

 

Through the historic acquisitions of Makhbariyoun Al Arab the Group entered into separate put option arrangements to purchase the remaining equity interests from the vendors at a subsequent date. At acquisition a put option liability has been recognised for the net present value for the exercise price of the option.

 

The options are exercisable in whole from the fifth anniversary of completion of the original purchase agreement, which fell due in June 2016. The vendor has not exercised this right at 31 December 2017.

24. Loan and borrowings

In April 2017 AL-Mokhtabar for medical lab, one of  IDH subsidiaries, was granted a medium term loan amounting to EGP 110m from Commercial international bank "CIB Egypt" to finance the purchase of the new administrative building for the group. As at 31 December 2017 only EGP 53m had been drawn down from the total facility available. The loan contains the following financial covenants which if breached will mean the loan is repayable on demand:

 

1.   The financial leverage shall not exceed the following percentages  

 

Year	2017	2018	2019	2020	2021	2022
%	2.33	1.71	1.32	1.04	0.85	0.73

             "Financial leverage": total liabilities divided by net equity

 

2.   The debt service ratios (DSR) shall not be less than 1.

"Debt service ratios": cash operating profit after tax plus Depreciation for the financial year less annual maintenance on machinery and equipment divided by total distributions plus accrued interest and loan instalments.

 

3.   The current ratios shall not be less than 1.

"Current ratios": Current assets divided current liabilities.

 

4.   The capital expansions in AL Mokhtabar company shall not exceed EGP 20m per year, other than year 2017which includes in addition the value of the building financed by EGP 110m loan facility. This condition is valid throughout the term of the loan.

 

The agreement includes other non-financial covenants which relate to the impact of material events on the Company and the consequential ability to repay the loan.

The terms and conditions of outstanding loans are as follows:

 

	currency	Nominal	Maturity	31 Dec 17	31 Dec 16
		interest rate
CIB ـــ BANK	EGP	CBE corridor rate+1%	Apr-22	53,000	-
-				53,000	-
Amount held as:
Current liability				14,575	-
Non- current liability				38,425	-
				53,000	-

 

25. Long-term financial obligations

	2017 EGP'000	2016 EGP'000
Finance lease liabilities (see note 26)	100,478	119,638
	100,478	119,638

26. Commitments and contingencies

 

Operating lease commitments

Non-cancellable operating lease rentals are payable as follows:

	2017 EGP'000	2016 EGP'000
Less than one year	50,072	39,805
Between one and five years	178,938	139,466
More than five years	101,343	81,868
	330,353	261,139

 

The Group lease certain branches for the operation of the business. During the year EGP 51,478K was recognised as an expense in the income statement in respect of operating leases (2016: EGP 32,234K).

 

Finance lease 

The Group has finance leases for various items of plant and machinery. Future minimum lease payments under finance leases and hire purchase contracts, together with the present value of the net minimum lease payments are, as follows:

	2017 EGP'000	2016 EGP'000
Finance lease liability - laboratory equipment	114,727	74,023
Finance lease liability - other	2,987	461
	117,714	151,799

Finance lease liabilities for the laboratory equipment are payable as follows:

	Minimum lease payments	Interest	Principal
At 31 December 2017	2017 EGP'000	2017 EGP'000	2017 EGP'000
Less than one year	35,549	19,512	16,037
Between one and five years	126,938	28,248	98,690
More than five years	-	-	-
	162,487	47,760	114,727

 

	Minimum lease payments	Interest	Principal
At 31 December 2016	2016 EGP'000	2016 EGP'000	2016 EGP'000
Less than one year	47,834	16,212	31,622
Between one and five years	150,971	38,628	112,343
More than five years	8,438	2,407	6,031
	207,243	57,247	149,996

 

26. Commitments and contingencies (continued)

The Group entered into 2 significant agreements during the prior year ended 31 December 2015 to service the Group's new state-of-the-art Mega Lab.Both agreements have minimum annual commitment payments to cover the supply of medical diagnostic equipment, kits and chemicals to be used for testing and ongoing maintenance and support services over the term of the agreement. The agreement periods are 5 and 8 years which is deemed to reflect the useful life of the equipment. If the minimum annual commitment payments are met over the agreement period ownership of the equipment supplied will legally transfer to the IDH. Management fully expect to be able to fulfil the minimum payments and the basis of treating the proportion of payments relating to the supply of equipment as a finance lease.

 

Management have performed a fair value exercise in order to allocate payments between the different elements of the arrangements and identify the implicit interest rate of the finance lease. Due to the difficulty in reliably splitting the payments for the supply of medical equipment from the total payments made, the finance asset and liability has been recognised at an amount equal to the fair value of the underlying equipment. This is based on the current cost price of the equipment supplied provided by the suppliers of the agreement. The implicit interest rate of both finance leases has been estimated to be 11.5%. The equipment is being depreciated based on units of production method as this most closely reflects the consumption of the benefits from the equipment.

 

Both agreements have been judged to be US$ denominated due to the future minimum lease payments for the use of the equipment and corresponding finance lease liability being directly connected to the US$.

 

Contingent liabilities

There are no contingent liabilities relating to the group's transactions and commitment with banks.

27. Related party disclosures

The significant transactions with related parties, their nature volumes and balance during the period 31 December 2017 and 2016 are as follows:

					31-Dec-17
Related Party	Nature of transaction		Nature of relationship		Transaction amount of the year EGP'000		Amount due from EGP'000
Life Scan (S.A.E)*	Expenses paid on behalf		Affiliate**		1		278
International Fertility (IVF)**	Expenses paid on behalf		Affiliate***		2,240		6,000
Dr. Hend Elshrbini***	Loan arrangement		CEO**		164,483		-
Integrated Treatment for Kidney Diseases (S.A.E)			Entity owned by Company's CEO				163
	Rental income				296
	Medical Test analysis				33
Total							6,441
					31-Dec-16
Related Party	Nature of transaction		Nature of relationship		Transaction amount of the year EGP'000		Amount due from EGP'000
Life Scan (S.A.E)**	Expenses paid on behalf		Affiliate**		-		277
International Fertility (IVF)***	Expenses paid on behalf		Affiliate***		3,760		3,760
Integrated Treatment for Kidney Diseases (S.A.E)			Entity owned by Company's CEO				53
	Rental income				274
	Medical Test analysis				53
Total							4,090

 

Related party disclosures (continued)

 

* Life Scan is a company whose shareholders include Dr. Moamena Kamel (founder of IDH subsidiary Al-Mokhtabar Labs).

** International Fertility (IVF) is a company whose shareholders include Dr. Moamena Kamel (founder of IDH subsidiary Al-Mokhtabar Labs).

*** During the year 2017 Dr. Hend (C.E.O) granted 2 loans to IDH Cayman amounting to US$ 9m. and the loan was settled by Al Mokhtabar on behalf of IDH Cayman for EGP 164m at the prevailing exchange rate of US$/EGP 18.35 - 17.82. The loan was not interest bearing.

The transactions with related parties are conducted based on terms equivalent to those that prevail in arm's length transactions.

 

 

Terms and conditions of transactions with related parties

The transactions with the related parties are made on terms equivalent to those that prevail in arm's length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2017, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2016: nil). This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

 

IDH commits up to 1% of the net after-tax profit of the subsidiaries Al Borg and Al Mokhtabar to the Moamena Kamel Foundation for Training and Skill Development. Established in 2006 by Dr. Moamena Kamel, a Professor of Pathology at Cairo University and founder of IDH subsidiary Al-Mokhtabar Labs and mother to the CEO Dr. Hend El Sherbini. The Foundation allocates this sum to organizations and groups in need of assistance. The foundation deploys an integrated program and vision for the communities it helps that include economic, social, and healthcare development initiatives. In 2017 EGP 3,674K (2015: EGP 2,740K) was paid to the foundation by the IDH Group.

 

Compensation of key management personnel of the Group

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel.

	2017 EGP'000	2016 EGP'000
Short-term employee benefits	32,426	23,085
Total compensation paid to key management personnel	32,426	23,085

 

28. Subsequent events

 

Integrated Diagnostics Holdings ("IDH"), and Man Capital LLP ("Man Capital"), the investment arm of the Mansour Group, jointly announced their first investment in Nigeria's promising healthcare industry.

 

The investment will see Dynasty Group ("Dynasty"), a venture that is 51% owned by IDH, partner with the International Finance Corporation ("IFC"), a member of the World Bank Group, to invest in Eagle Eye Echo-Scan Services Limited ("Echo-Scan"), a leading medical diagnostics business based in Nigeria.

 

 

28. Subsequence events (continued)

 

The transaction will see Dynasty acquire a majority stake in Echo-Scan and assume management control of the company, while both Dynasty and the IFC will invest USD 20 million and USD 5 million respectively to expand Echo- Scan's nationwide service offering, footprint, and quality standards. Over the coming year, Echo- Scan will refurbish and upgrade existing locations as well as significantly augment its number of branches.

 

In February 2018, IDH transferred MUSD 2.69 to Dynasty.  Dynasty in its turn transferred MUSD 4.5, representing its contribution in Eagle Eye Nigeria.

 

On 22 January 2018, the transaction completed but the accounting for the transaction has not been finalised and as such detailed the fair value of the identifiable assets and liabilities acquired together with the Goodwill acquired is not available for disclosure at present.

 

The shareholders structure of the transaction, Dynasty acquires 75.8%, International Finance Corporation ("IFC") 19.1% and 5.1% other founders.