Integrated Diagnostics Holdings Plc

Final Results

Tuesday, 28 April 2020

Integrated Diagnostics Holdings Plc records resilient growth and operational performance in 2019 final results

(London) Integrated Diagnostics Holdings ("IDH," "the Group," or "the Company"), a leading consumer healthcare company with operations in Egypt, Jordan, Sudan and Nigeria, released today its results for the year ended 31 December 2019, reporting revenues of EGP 2,226 million and a net profit of EGP 505 million for the year.

Results¹

Financial Highlights

·    Revenues: increased 16% year-on-year to EGP 2,226 million in 2019, supported primarily by improved average pricing as well as higher patient and test volumes. Egypt was the primary driver of growth during the year, recording an 18% year-on-year increase in revenue to EGP 1,903 million in 2019.

·    Gross Profit: recorded EGP 1,084 million in 2019, up 14% year-on-year, with a stable gross profit margin of 49%.

·    Operating Profit: grew by 15% to EGP 791 million in 2019 with a 36% margin, partly supported by the adoption of IFRS 16 along with the release of provision related to a training fund amounting to EGP 11.8 million. Operating profit margin remained stable versus the previous year. Operating profit was affected by losses recorded in Nigeria and ramp-up costs related to Wayak.

·    EBITDA²: recorded EGP 945 million for 2019, up 24% against the EGP 762 million in 2018, with an EBITDA margin 42% versus 40% in 2018. EBITDA strength was driven by revenue growth and the effect of adopting IFRS 16, which added EGP 68.2 million to EBITDA in 2019.

·    Normalized EBITDA³, which excludes the EGP 68.2 million related to the adoption of IFRS 16, reached EGP 877 million, up 15% year-on-year and with an EBITDA margin of 39%. Normalized EBITDA growth came despite the negative contribution from Nigeria and pre-operating expenses related to Wayak.

·    Net Profit: recorded EGP 505 million in 2019, up 2% against 2018 and with a net profit margin of 23% versus 26% in 2018. Bottom-line profitability was affected by higher interest charges related to Al Borg Scan and IDH's new headquarters, lower interest income due rate cuts, and the effect of adopting of IFRS 16.

·    Normalized Net Profit⁴, which excludes the effect of IFRS 16 (EGP 15.3 million), would reach EGP 520 million, up 5% versus 2018 and with a 23% net profit margin.

·    Earnings Per Share: of EGP 3.41 compared to EGP 3.35 in 2018.

·    Dividend: Due to the Covid-19 pandemic and consequent uncertainty regarding the macroeconomic environment, the Board of Directors has deemed it more appropriate to focus on retaining resources and will thus suspend the dividend decision till September 2020. At which point, further consideration will be given to developments in the global pandemic and confidence regarding the Group's future needs and financial outlook.

¹ Decimals are rounded to the nearest whole number.

² Consolidated EBITDA is calculated as operating profit plus depreciation and amortisation. Consolidated EBITDA includes negative contributions from its Nigerian operation which is still in the value-building phase.

³ Normalised EBITDA is calculated as consolidated EBITDA adjusted for the effect of adopting IFRS 16.

⁴ Normalised Net Profit is calculated as Net Profit adjusted for the effect of adopting IFRS 16

Operational Highlights

·    34: new branches added in 2019 bringing the Group's network to 452 branches across its footprint.

·    30.5: million tests performed across the Group in 2019 compared to 28.8 million last year.

·    7.5: million patients served in across the Group in 2019 compared to 7.0 million last year.

·    Radiology: services ramp-up at Al Borg Scan with increasing contribution to revenue and EBITDA and a second branch commencing operations in early 2020.

·    Nigeria: expansion with three new Echo-Lab branches established during 2019, bringing the total number of branches in the country to 13. Eight of the existing branches had been renovated by year-end 2019.

·    Wayak: established as new Egyptian subsidiary in September 2019 with the aim of offering its patients healthcare management services such as home-delivery of medications, diagnostics testing reminders and referrals to service providers.

Commenting on the year's performance and the Company's outlook, IDH Chairman Lord St John of Bletso said: "I am pleased to report that we continued to deliver impressive growth in 2019. Despite increased competition in Egypt and challenging market conditions in Sudan and Nigeria, IDH maintained its competitive edge as the leading healthcare provider with its scalable platform and value-added diagnostic services. In 2019, we achieved a 16% growth in revenue, benefiting from our strong core business, and we maintained encouraging gross margins. The Company continued its organic expansion with additional branches and expanding Al Borg Scan. We also restructured the business in Nigeria which will take time to mature. Management is confident in the strong fundamentals of IDH's markets and we are committed to driving growth through these expansions. And while the full global economic impact of Covid-19 will take several quarters to analyse and digest, IDH fortunately has strong defensive qualities as well as a strong and impressive track record"

IDH Chief Executive Officer Dr. Hend El-Sherbini added: "The novel coronavirus that causes the covid-19 illness continued to spread across the globe including in our markets. This pandemic has pushed governments, businesses and communities to adopt unprecedented mitigation efforts to control the spread of the disease. As a healthcare business, IDH has a role to play in our community - and an equally important role to play in keeping our staff safe as we navigate this new normal and ensure business continuity.

We have thus prepared a Crisis Management Plan (CMP) outlining measures to mitigate the risks posed by the pandemic, with a focus on strengthening our health and safety protocols, maintaining compliance and efficient stakeholder communication, assessing business strengths and financial resilience and running stress tests to better ascertain the financial impact on IDH under rapidly evolving scenarios. As we continue to operate across our footprint, our primary focus is to ensure staff and patient safety and to mitigate the risk of disease spread. IDH's strong liquidity position and underleverage balance sheet places us in a very resilient position, and we are actively working to preserve this position through cost discipline and a reduction of non-critical uses of cash such as in training, CAPEX and marketing."

"The strength of our position in the face of these unprecedent challenges is thanks to IDH's long track record of growth and prudent financial policies, and I am pleased to report that our performance in 2019 was no different. The Group's results for the year reflect the defensive nature of our business and the strength of our market position. Against a backdrop of sluggish consumer spending in our primary market of Egypt, along with political and economic challenges in Sudan, IDH delivered 16% growth in its top line while maintaining a normalized EBITDA margin at 39%."

"Alongside strong organic growth of our business, our Group in 2019 also continued to make headway on its strategic initiatives. We have ramped-up operations at Al-Borg Scan, our new radiology unit in Egypt, which is increasingly contributing to revenue and EBITDA; and we are witnessing good momentum in volumes in Nigeria as we continue renovating and expanding our branch network while deploying new state-of-the-art equipment. While these expansions have weighed down the Group's consolidated net profit, we expect Al Borg Scan and Nigeria to turn to bottom-line profitability in the near term."

"We remain fundamentally optimistic about the outlook for our businesses following the resolution of the covid-19 crisis. Egypt is (and for the foreseeable future will remain) our largest business, with key long-term growth drivers unaffected by current events. Regionally, we expect continued growth in Jordan, which enjoys some of the most modern health care infrastructure in the Middle East and where strong fundamentals have allowed IDH to deliver growth despite strict price regulation. I am also increasingly confident in the growth prospects of our business in Sudan, where increasing stability supports growth in number of patients and test volumes and with it improved financial performance. In Nigeria, we will continue to focus on implementing our value-building phase.

"In short, we believe the business is well served by strong market positions, supporting macroeconomic and industry trends over the long-term, an expanding services portfolio, and clearly defined strategies that will allow us to deliver consistent growth once the current global crisis resolves."

Outlook

Management remains confident in the attractive underlying trends in the healthcare industries across the Group's footprint, and in IDH's continued ability to expand its reach and increase the numbers of test per patient. A key growth driver is the continued optimisation of IDH's test mix to extract higher value from operations, as well as growing the Group's service offering through the introduction of new medical services that leverage the Group's network and reputable brand position. IDH also continues to explore opportunities to expand into new geographies through selective, value-accretive acquisitions, and targets fragmented and underpenetrated diagnostic services markets where its business model is well-suited to capitalise on similar healthcare and consumer trends.

About Integrated Diagnostics Holdings (IDH)

IDH is a leading consumer healthcare company in the Middle East and Africa with operations in Egypt, Jordan, Sudan and Nigeria. The Group's core brands include Al Borg and Al Mokhtabar in Egypt, as well as Biolab (Jordan), Ultralab and Al Mokhtabar Sudan (both in Sudan) and Echo-Scan (Nigeria). A long track record for quality and safety has earned the Company a trusted reputation, as well as internationally recognised accreditations for its portfolio of over 1,400 diagnostics tests. From its base of 452 branches as of 31 December 2019, IDH will continue to add laboratories through a Hub, Spoke and Spike business model that provides a scalable platform for efficient expansion. Beyond organic growth, the Group's expansion plans include acquisitions in new Middle Eastern and African markets where its model is well-suited to capitalise on similar healthcare and consumer trends and capture a significant share of fragmented markets. IDH has been a Jersey-registered entity with a Standard Listing on the Main Market of the London Stock Exchange (ticker: IDHC) since May 2015.

IDH's forward-looking strategy rests on leveraging its established business model to achieve four key strategic goals, namely: (1) continue to expand customer reach; (2) increase the number of tests per patient; (3) expand into new geographic markets through selective, value-accretive acquisitions; and (4) introduce new medical services by leveraging the Group's network and reputable brand position. Learn more at idhcorp.com.

Analyst Call

IDH will hold an analyst call on the full-year 2019 results on Tuesday 28 April 2020 at 2pm BST. A live audio webcast can be accessed at this link and you may dial in using the conference call details below:

•     Access code: 1181767#

•     UK dial in: +44 20 7107 9450

•     USA dial in: +1 (866) 499-2813

For more information about the event, please contact ebba.hellsten@panmure.com.

Forward-Looking Statements

These Year-End Results have been prepared solely to provide additional information to shareholders to assess the group's performance in relation to its operations and growth potential. These Year-End Results should not be relied upon by any other party or for any other reason. This communication contains certain forward-looking statements. A forward-looking statement is any statement that does not relate to historical facts and events, and can be identified by the use of such words and phrases as "according to estimates", "aims", "anticipates", "assumes", "believes", "could", "estimates", "expects", "forecasts", "intends", "is of the opinion", "may", "plans", "potential", "predicts", "projects", "should", "to the knowledge of", "will", "would" or, in each case their negatives or other similar expressions, which are intended to identify a statement as forward-looking. This applies, in particular, to statements containing information on future financial results, plans, or expectations regarding business and management, future growth or profitability and general economic and regulatory conditions and other matters affecting the Group.

Forward-looking statements reflect the current views of the Group's management ("Management") on future events, which are based on the assumptions of the Management and involve known and unknown risks, uncertainties and other factors that may cause the Group's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The occurrence or non-occurrence of an assumption could cause the Group's actual financial condition and results of operations to differ materially from, or fail to meet expectations expressed or implied by, such forward-looking statements.

The Group's business is subject to a number of risks and uncertainties that could also cause a forward-looking statement, estimate or prediction to differ materially from those expressed or implied by the forward-looking statements contained in this communication. The information, opinions and forward-looking statements contained in this communication speak only as at its date and are subject to change without notice. The Group does not undertake any obligation to review, update, confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of this communication.
 

Chairman's Message

We live in unprecedented times. The full global economic impact of Covid-19 will take several quarters to analyse and digest. Your Company fortunately has strong defensive qualities as well as a strong and impressive track record.

I am pleased to report that we continued to deliver impressive growth in 2019. Despite increased competition in Egypt and challenging market conditions in Sudan and Nigeria, IDH maintained its competitive edge as the leading healthcare provider with its scalable platform and value-added diagnostic services.

In 2019, we achieved a 16% growth in revenue, benefiting from our strong core business, and we maintained encouraging gross margins. The Company continued its organic expansion with additional branches and expanding Al Borg Scan. We also restructured the business in Nigeria which will take time to mature. Your management is confident in the strong fundamentals of IDH's markets and we are committed to driving growth through these expansions.

A key development during 2019 was the opening of IDH's new headquarters in Smart Village on the West side of Cairo.

This brought the IDH family together and has boosted productivity, efficiency and morale.

IDH is growing its regional footprint and working to further strengthen its competitive advantage by offering patients value propositions that increase retention rates and safeguard our Company's leading market position.

Apart from the immediate challenges for global businesses with the Covid-19 threat, Egypt has experienced a more stable economic and political environment in the last year with a strengthening pound and a commitment by the Government to promote proactive healthcare services.

We are also seeing a gradual improvement in Sudan, where our business remains stable after a year of significant political transition, and we are particularly pleased with Jordan, which has been a solid and growing business.

Your Company is cognizant and committed to our ESG policy and responsibilities promoting gender equality, increased training programs and following best practices on transparency, accountability and good governance.

Management regularly updates and monitors our risk matrix and heat map to ensure we have all the right checks and balances in place and ensuring business continuity processes.

IDH's success relies on the dedication and hard work of its senior management team, and we constantly review our KPIs and remuneration policy to retain and promote talent. We are also cognizant of succession planning.

Your Company continues to enjoy strong organic growth momentum and is constantly evaluating potential M&A opportunities in the Middle East and Africa to further accelerate this trajectory.

We are grateful to the loyalty and support of our shareholders. At a time of volatility in the listed healthcare sector, your Company is well positioned to maintain growth and profitability in an increasingly competitive landscape.

Lord St John of Bletso

Chairman

Chief Executive's Review

Before unpacking our performance in 2019, I note that as of this writing, the novel coronavirus that causes the covid-19 illness continued to spread across the globe including in our markets. This pandemic has pushed governments, businesses and communities to adopt unprecedented mitigation efforts to control the spread of the disease. As a healthcare business, IDH has a role to play in our community - and an equally important role to play in keeping our staff safe as we navigate this new normal and ensure business continuity.

We have thus prepared a Crisis Management Plan (CMP) outlining measures to mitigate the risks posed by the pandemic, with a focus on strengthening our health and safety protocols, maintaining compliance and efficient stakeholder communication, assessing business strengths and financial resilience and running stress tests to better ascertain the  financial impact on IDH under rapidly evolving scenarios. Our primary goal is to ensure safe continuity of business activities and keeping critical functions running. The CMP is regularly reviewed and updated by a specialized crisis committee that is responsible for daily monitoring of the situation across our footprint and ensuring our organization is prepared for any eventualities.

As of date, the health ministry in Egypt has made testing for the SARS CoV-2 the exclusive responsibility of state-owned laboratories. Were we to be called by the national health authority to assist with testing, we stand ready with the necessary systems and having reviewed our risk matrix and our staff are trained on how to safely administer the test. Whilst there is a nationwide nighttime curfew in Egypt, our branches continue to operate and we are offering free house visits by phlebotomist to encourage patients to stay home.

In Jordan, a complete nationwide lockdown had initially seen 17 of our 19 Biolab branches shutdown, however, as of date 17 of our branches are fully operational, with only two branches located within shopping centres remaining closed. We are also currently conducting testing for SARS CoV-2 at one location in Jordan. In Nigeria, covid-19 cases remain few according to official numbers and all our branches continue to operate despite the complete lockdown in the country. Finally, in Sudan, the government has imposed a curfew and we are currently operating with four branches.

As we continue to operate across our footprint, our primary focus is to ensure staff and patient safety and to mitigate the risk of disease spread. Key health and safety measures include:

·    All of our staff use appropriate protective equipment when interacting with patients, including those suspected of having covid-19 or any other infectious disease. We maintain a robust stock of protective equipment to ward against supply-chain risk.

·    All of our frontline staff are trained on procedures for interacting with patients suspected of carrying covid-19 or any other communicable disease. Managers regularly review these procedures with their teams and a refresher has been disseminated to all employees. These procedures include steps that are taken to (a) protect our staff and (b) protect other patients presenting at our clinics for testing.

·    Daily temperature check conducted for all employees and visitors at the headquarters and the Mega Lab.

·    The Mega Lab and branch employees are split into two alternating groups for two continuous weeks. In case of infection, the Mega Lab/branch will undergo a complete sterilization, and the off duty group will be called on to resume work the following day.

·    Our team have a protocol for referring patients they suspect may carry covid-19 to the nearest state lab for testing.

·    We are prepared with standard operating procedures for SARS CoV-2 testing in the event that we are asked by a competent health authority to participate in testing efforts.

·    All staff who may come into contact with a covid-19 patient are given a 14-day home leave and are monitored carefully.

·    All members of our team are subject to regular messages reminding them that they may not report to work if they have symptoms of a covid-19 infection.

·    Headquarters employees have alternating attendance, meetings are conducted virtually, and remote work is encourage where possible.

·    Weekly attendance plan is prepared and implemented by each department for all employees, ensuring a minimum labor force and separate teams to limit interactions.

On the business continuity front, we have outlined measures to ensure preparedness in the case of a complete lockdown in Egypt which would require headquarter employees to work from home. Currently, our headquarters is operating with a 50% employee capacity and we have tested the tools and IT infrastructure - including Customer Relationship Management, Laboratory Management Systems and SAP - to allow for stable and remote day-to-day operations. These measures extend across all functions, including our marketing activities and relevant digital media campaigns to maintain and strengthen customer relationships.

IDH is also in constant communication with all its key suppliers to mitigate against supply chain disruptions, with daily monitoring of kit use and raw materials.  As of 31 March 2020, our average testing kit stock covers three months of operation (with the exception of short shelf life kits which constitute c.10% of total number of kits). We are therefore covered through to July 2020 and we have placed a new order for a further three-month supply, which is expected to be delivered in April 2020 and would extend coverage to September 2020.

Most importantly, we are ensuring prudent cash management and preparing for changes in our cash conversion cycle. Management is continuously monitoring our short-term liquidity position, including daily revenue, debt retirement schedules and covenants. IDH's strong liquidity position and underleverage balance sheet places us in a very resilient position, and we are actively working to preserve this position through cost discipline and a reduction of non-critical uses of cash such as in training, CAPEX and marketing.

The strength of our position in the face of these unprecedent challenges is thanks to IDH's long track record of growth and prudent financial policies, and I am pleased to report that our performance in 2019 was no different. The Group's results for the year reflect the defensive nature of our business and the strength of our market position.

RESILIENT GROWTH AND OPERATIONAL PERFORMANCE

Against a backdrop of sluggish consumer spending in our primary market of Egypt, along with political and economic challenges in Sudan, IDH delivered 16% growth in its top line while maintaining a normalized EBITDA margin at 39%.

IDH's strong brand equity and its comprehensive suite of diagnostic services allowed us to attract a growing number of patients in 2019, with consumer loyalty remaining intact amidst a multitude of forces weighing down on their purchasing power, including the cumulative impact of subsidy cuts, higher energy prices, erosion of disposable income, higher taxes and runaway inflation since the float of Egyptian pound in late 2016.

Alongside strong organic growth of our business, our Group in 2019 also continued to make headway on its strategic initiatives. We have ramped-up operations at Al-Borg Scan, our new radiology unit in Egypt, which is increasingly contributing to revenue and EBITDA; and we are witnessing good momentum in volumes in Nigeria as we continue renovating and expanding our branch network while deploying new state-of-the-art equipment. While these expansions have weighed down the Group's consolidated net profit, we expect Al Borg Scan and Nigeria to turn to bottom-line profitability in the near term.

IDH recorded revenue of EGP 2,226 million in 2019, a 16% increase over the EGP 1,921 million recorded in the previous year, with growth being primarily driven by improved pricing and test mix as well as higher volumes during the year. Stronger pricing delivered 11 percentage points of the Group's growth in 2019, in step with average inflation rates, while higher volumes contributed 6 percentage points. IDH recorded a 6% increase in both number of patients served, and tests performed, closing the year with 7.5 million patients and over 30.5 million completed tests. Meanwhile, one percentage point of the Group's local-currency growth was lost to currency translation on account of the Egyptian pound's appreciation.

Our contract segment reported a 17% year-on-year increase in revenue in 2019, making up 60% of the Group's top-line and contributing circa 10 percentage points to total growth. The segment's performance was driven by a higher number of patients served (+7% compared to 2018) as well as improved pricing, which drove average revenue per patient up 9%. On the other hand, walk-in revenues grew 15% in 2019, similarly driven by growing number of patients during the year (+4%) along with better pricing leading to a 10% increase in average revenue per patient.

Our ability to absorb higher volumes and capture resilient demand for our services is underpinned by IDH's continued investment in its geographic footprint. In 2019, our Group has opened 33 labs in Egypt and three in Nigeria, while closing two unprofitable branches in Sudan, leaving us with a branch network of 452 locations as at year-end, up from the 418 branches operated as of 31 December 2018. IDH's Egyptian expansion drive continues to be supported by its state-of-the-art, College of American Pathology-accredited Mega Lab, which is the backbone of our "Hub, Spoke and Spike" business model. IDH's Mega Lab is the sole CAP-accredited facility in Egypt, deploying the most advanced technology to run more than 20,000 tests per hour. The facility also provides a leading clinical trials laboratory service, helping biopharmaceutical and diagnostics customers develop new medical insights.

Regionally, our Group witnessed strong and improving performance in 2019 across our core businesses in Egypt, Jordan and Sudan.

In Egypt, revenue grew 18% year-on-year to EGP 1,903 million and continued to make up the largest share of both the Group's consolidated revenue and total revenue growth for the year. Egypt's performance continued to be driven by the market's strong fundamentals and rising healthcare awareness. In that regard, I am particularly pleased with our subsidiaries' participation in the state-sponsored 100 Million Healthy Lives campaign, which ran from November 2018 through June 2019 with the aim of eradicating Hepatitis C in Egypt through testing of asymptomatic people. Our participation in national health awareness campaigns is a natural outgrowth of our responsibilities as a healthcare provider and we are proud to have helped the 250,000 people who walked through our doors under the campaign's umbrella to lead better and healthier lives.

I am also pleased with the Group's performance in Jordan, where we delivered growth despite exogenous factors including austerity measures and a decade-long price freeze maintained by the regulator. Biolab was successful in growing patient and test volumes to deliver a 6% increase in revenue to EGP 257 million for the year (+12% in JOD terms), while cost efficiencies are yielding substantial improvements in profitability. Jordan's EBITDA grew by a sharp 74% year-on-year in 2019 to EGP 90 million, and its EBITDA margin expanded 6 percentage points to 27% when normalizing for the positive impact of IFRS 16.

In Sudan, despite nationwide protests last year that culminated in significant political change and the continued impact of a sharp currency devaluation that began in 2018, we were successful in growing patient numbers and passing on price increases in step with inflationary pressures. The results are clear with revenue in local-currency (SDG) terms recording a strong 64% increase, while in EGP terms the geography delivered a 4% increase in the top-line to EGP 37 million, the first year-on-year growth since 2017. Moreover, Sudan's profitability improved at the gross profit and EBITDA levels owing to a turnaround in revenue and following staff localization efforts to lower foreign currency-denominated salaries.

At the holding level, the Group's gross profitability remained intact with gross profit for the year increasing 14% over 2018; we also maintained a healthy gross profit margin of 49%. This is a direct consequence of management's focus on increasing operational efficiency and on cost-reduction initiatives throughout the year. As such, our raw materials cost as a percentage of sales has decreased to 18.3% in 2019, down from last year's 19.3%. EBITDA grew 24% to EGP 945 million with an EBITDA margin of 42% (2018: 40%), partly owing to the adoption of IFRS 16 which added EGP 68.2 million to EBITDA in 2019. Nonetheless, normalized EBITDA increased 15% year-on-year, and normalized EBITDA margin was largely stable year-on-year despite the negative contribution for Nigeria, which incurred increased ramp-up costs and lower capacity as branch renovations took place.

The Group recorded a 2% year-on-year increase in net profit to EGP 505 million in 2019, with net profit margin at 23%, partly affected by the adoption of IFRS 16. When excluding the effect of applying IFRS 16, normalised net profit for the year would reach EGP 520 million, up 5% year-on-year. A detailed breakdown of the effects of adopting IFRS 16 is provided in the Operational and Financial Review section of this report on pages 16 - 17. Our bottom-line profitability was affected by higher net interest charges related to Al Borg Scan and IDH's new headquarters and lower interest income due to rate cuts.

GROWTH IN NIGERIA

IDH pressed on with its value-building program in Nigeria during 2019, including refurbishment of existing Echo-Lab branches and the rollout of new locations. As of year-end, we had completed renovations at eight out of our current 13 branches in the geography, as well as inaugurating two new locations in Victoria Island and Akowonjo.

Despite rotating downtime during the upgrade period, we are witnessing strong volume growth: number of tests was up by 38% in 2019 compared to the previous year, and patient numbers rose 8% year-on-year. This growth is being driven by Echo-Lab's strengthening position in the market with a growing reputation as a quality provider of diagnostic services with new state-of-the-art radiology equipment. IDH recently installed new radiology equipment at Echo-Lab, including magnetic resonance imaging (MRI) and computed tomography scan (CT) that started operation in the second half of 2019. Echo-Lab is also implementing marketing and business development activities to drive higher volumes, with a key focus on engaging with corporate clients as well as targeting doctor forums to build referral networks.

We have also completed the deployment at Echo-Lab of the Group's Laboratory Information Systems (LIS) and its System Application and Product (SAP) platform and expanded our Nigerian subsidiary's range of diagnostic testing by sending select samples to our Mega Lab in Egypt. Most importantly, IDH continues to train Echo-Lab staff on quality standards and procedures, supported by strong commitments to training and development of operational staff as well as the recruitment of new management to help deliver on its strategic goals for the geography.

Our efforts to ramp up operations in Nigeria and improve Echo-Lab's service offering are beginning to reflect on the geography's performance, with revenues in NGN terms recording a 23% year-on-year increase. However, the Egyptian pound's appreciation during 2019 saw revenue remain flat year-on-year at EGP 30 million when translated into our consolidated financial statements.

RAMP UP AT AL BORG SCAN

The Group's first full-fledged radiology branch in Egypt began operations in October 2018 under the Al Borg Scan brand and has since been delivering a promising growth trajectory with strong profitability. The sole branch's first full year of operations saw it record EGP 14 million in revenue for 2019, contributing one percentage point to IDH's 16% consolidated revenue growth in 2019. I am also pleased to report that with only one operational branch thus far, Al Borg Scan is an EBITDA positive operation having recorded EGP 1.8 million in 2019.

Throughout the year, Al Borg Scan served more than 19,000 patients and conducted over 27,000 tests, including 4,000 CT scans, 4.8 thousand MRIs and 6.8 thousand x-rays. The branch is attracting patients through various corporate accounts, physicians and by leveraging the strong relationship between the Al Borg brand and its millions of customers. Our high-quality offering is delivered by state-of-the-art technology supplied by global brand names including Siemens, Hitachi and GE Healthcare, and a highly trained staff of radiologists, technicians and front office personnel.

We anticipate significant growth at Al Borg Scan as we continue with our branch rollout plan, starting with a second location in Cairo set to commence operations in early 2020. Our expansion into this adjacent, high-value segment will continue to be supported by strong marketing campaigns, capitalizing on Al Borg's strong brand equity and in tune with the Group's overarching strategy of raising healthcare awareness.

OUR COMMITMENT TO OUR STAKEHOLDERS

As a woman-led business offering quality, affordable consumer healthcare solutions for millions of people across Africa and the Middle East, IDH has long taken into account what it means to be a good corporate citizen. This starts with our prime motivator: To leave the communities in which we do business healthier than we found them by ensuring everyone has the tools they need to take charge of their health.

Our team, more than 30% of which are women, pride themselves on their support of national healthcare campaigns that expand access to affordable healthcare, including most recently the c. 4.4 million tests we completed for the 100 Million Healthy Lives campaign in Egypt. And we continue to run awareness campaigns for patients suffering from treatable chronic conditions that impact patients' health and quality of life.

It is against this backdrop that I welcome the growing calls in the investment community for more reporting on environmental, social and governance (ESG) issues - and for real-world policies that drive improvement in key matrixes.

Since we went public on the London Stock Exchange, we have been governed by a world-class Board of Directors made of up majority independent, non-executive directors and backed up by a robust policy framework. And by the nature of our business, IDH has both a low environmental footprint compared to many enterprises and a high social impact.

I am, however, very cognizant that there is much more to do. Late in 2019, our management team began laying the groundwork for an ESG review that will result in both the creation of our first ESG policy, in our establishing a matrix of responsibility for key indicators, and in our regular reporting on these indicators before the end of 2020.

In doing so, we aim to tell a story that emphasizes where we have room for improvement - and that clearly outlines the benefits IDH delivers to patients, to our employees and the communities in which we are privileged to operate.

PROPOSED DIVIDEND AND DIVIDEND POLICY

Whilst we maintain our long-term dividend policy that sees us return to shareholders the maximum amount of excess cash after taking careful account of the cash needed to support operations and expansions, our Board of Directors will postpone the dividend decision in light of the current situation and uncertainty surrounding the covid-19 pandemic. We will review the situation in our upcoming Board meeting in September and assess the Group's cash position at the time before a decision is made and a distribution date is set.

2020 OUTLOOK

We remain fundamentally optimistic about the outlook for our businesses following the resolution of the covid-19 crisis. Egypt is (and for the foreseeable future will remain) our largest business, with key long-term growth drivers unaffected by current events. Regionally, we expect continued growth in Jordan, which enjoys some of the most modern health care infrastructure in the Middle East and where strong fundamentals have allowed IDH to deliver growth despite strict price regulation. I am also increasingly confident in the growth prospects of our business in Sudan, where increasing stability supports growth in number of patients and test volumes and with it improved financial performance. In Nigeria, we will continue to focus on implementing our value-building phase.

In short, we believe the business is well served by strong market positions, supporting macroeconomic and industry trends over the long-term, an expanding services portfolio, and clearly defined strategies that will allow us to deliver consistent growth once the current global crisis resolves.

Dr. Hend El-Sherbini

Chief Executive Officer

Operational & Financial Review

IDH revenues came in at EGP 2,226 million in FY2019, 16% above last year's figure on the back of both higher volumes and favourable pricing. Top-line growth for the year was supported by both the company's walk in and contract segments with the first recording a 15% year-on-year rise in revenues and the latter reporting a 17% year-on-year top-line expansion.

Revenue Growth Drivers

On a geographical basis, IDH's Egyptian operations continued to be the main driver for total revenue growth for the year, expanding 18% year-on-year in FY 2019. Rising revenues in Egypt were supported by both favourable pricing across both the walk in and contract segments and higher test volumes. Egypt's performance was buoyed by the ramp up of operations at the new Al Borg Scan branch - the Group's radiology unit - which contributed c.4.3% to Egypt's total revenue growth for the year.

In Jordan, revenue growth began to accelerate with Biolab recording a 6% year-on-year increase in FY2019 (12% in JOD terms), supported by rising consumer confidence from lows following a period of austerity measures implemented by the government. Revenues in Sudan rose 4% y-o-y in EGP terms, while in SDG terms revenues recorded an impressive 64% y-o-y expansion. Finally, despite the restructuring works that took place across the Group's Nigerian operations over the course of the year, revenues in NGN terms reported solid 23% y-o-y rise for FY2019. However, in EGP terms, following an appreciation of the Egyptian pound over the course of the year, revenues in Nigeria came in flat at EGP 30 million for FY2019.

Revenue Growth Drivers by Geography

The company's cost of sales recorded a 17% year-on-year increase in FY2019 to EGP 1,143 million with IDH's gross profit margin for the year unchanged at 49%.  EBITDA margin grew two percentage points year-on-year to 42% in FY2019 following the implementation of IFRS 16 (stable at 40% when the application of IFRS 16 and Wayak's results are excluded). Profitability for the year was further supported by a strong improvement in Jordan where EBITDA grew 74% year-on-year in FY2019 and EBITDA margin expanded 14 percentage points to 35%. On a similar note, operations in Sudan generated a positive EBITDA of EGP 7 million (margin of 20%) for the year, compared to the negative EGP 3 million EBITDA in FY2018.

On the operational front, IDH expanded its branch network to 452 branches as at year-end 2019. This is up from the 418 branches operated as of 31 December 2018. The Group's network expansion drive continues to be supported by its state-of-the-art Mega Lab which allows IDH to deploy its Hub, Spoke and Spike business model in Egypt to roll out capital-efficient "C" labs more rapidly. Over the last year, IDH has opened 33 labs in Egypt, three in Nigeria, and closed two unprofitable branches in Sudan.

Branches by Country

Our Customers

IDH serves two principal types of clients: contract (corporate), including institutions such as unions, private insurance companies and corporations who enter into one-year renewable contracts at agreed rates per-test and on a per-client basis, and walk-in (individuals). Within each of these categories, the Group also offers a house call service, and within the contract segment, a lab-to-lab service.

IDH served a total of 7.5 million patients between both segments during FY2019, 6% above last year's figure. During the year, the total number of tests performed reached 30.5 million, up 6% year-on-year. The ratio of contract to walk-in patients during the year was 73:27 largely unchanged from last year's ratio. 

Key Performance Indicators* (excluding Wayak)**

* KPIs exclude Wayak's top-line figure amounting to EGP 632 thousand in 2019, inclusion of which would distort the KPIs with an unrelated line of business.

** Percent changes are calculated based on exact decimal numbers which are rounded to the nearest whole number in the table

Revenue Analysis: Contribution by Patient Segment

The Group's contract segment reported a 17% y-o-y rise in revenues during FY2019, making up 60% of the company's total revenues and contributing to 62% of IDH's total revenue growth for the year. During FY2019, IDH served 5.4 million contract patients (up 7% y-o-y) and performed 23.6 million tests (up 6% y-o-y).

Average revenue per contract test witnessed a 10% y-o-y rise to EGP 57 in FY2019, while average revenue per contract patient was up 9% to EGP 245 in FY2019 from EGP 225 recorded last year.

Within the Group's walk-in segment, revenues recorded a 15% y-o-y increase to EGP 895 million, making up 40% of the Group's total revenues for the year and contributing to 38% of the Group's total revenue growth in FY2019. The segment's revenue growth for the year was both volume and price driven as average revenues per walk-in test increased 9% y-o-y to EGP 129, while the total number of walk-in tests increased 5% y-o-y for the period to 6.9 million tests.

IDH's overall average revenue per test rose 9% y-o-y to EGP 73 in FY2019. The Group's combined average revenue per patients also reported a 9% y-o-y to EGP 298.

Revenue Analysis: Contribution by Geography

Revenue Contribution by Country

At IDH's Egyptian operations, revenues expanded 18% y-o-y to EGP 1,903 million in FY2019. Growth for the year came on the back of both higher volumes and favourable pricing. Both the number of total patients served and of tests performed increased 6% y-o-y, with the first reaching 6.9 million and the latter recording 27.9 million for the year.

On a segment basis, contract patients served by IDH in Egypt reached 5.1 million, up 6% y-o-y, while walk in patients increased 5% y-o-y to 1.7 million in FY2019. Test performed at the company's contract segment reached 22.1 million in FY2019, up 5% y-o-y. At the walk-in segment, tests performed were up 7% y-o-y to 5.7 million. Egypt's contract segment recorded revenues of EGP 1,197 million in the year, a 17% y-o-y increase, while at the walk-in segment revenues reached EGP 705 million, up 20% y-o-y. Wayak recorded revenues of EGP 632 thousand in FY2019. 

In Jordan, where consumers continued to adjust to the government's austerity measures, including an increase in income tax rates, IDH reported revenues of EGP 257 million in FY2019, a 6% y-o-y rise (up 12% in JOD terms). Biolab, the Group's Jordanian subsidiary, served 311 thousand patients in FY2019, a 12% increase y-o-y, while the total number of tests performed also increased 12% y-o-y during the year reaching 1.8 million.

In Sudan, revenues came in 4% above last year's figure at EGP 37 million as results continued to be impacted by the devaluation of the Sudanese pound. However, in SDG terms, revenues increased 64% y-o-y as increasingly favourable pricing more than offset the lower test volumes on account of political unrest in the early part of 2019. Growth in SDG terms came on the back of a strong rise in revenue per test at the Group's walk-in segment as the company passed on price increases in step with currency devaluation.

At the Group's Nigerian subsidiary, revenues came in flat at EGP 30 million for the year as results continued to be impacted by ongoing restructuring works and delays in new branch openings. As of year-end 2019 the Group has renovated a total of 8 out of 13 branches in the country and rolled out its new Victoria Island and Akowonjo branches which came online in June and October of 2019, respectively. In NGN terms, the division's top-line increased by a 23% y-o-y in FY2019 driven by rising volumes.

Cost of Sales

IDH's cost of sales increased 17% y-o-y to EGP 1,143 million in FY 2019. The Group's gross profit reached EGP 1,084 million in FY 2019, up 14% y-o-y. Gross profit margin for the year came in unchanged at 49%.

COGS Breakdown as a Percentage of Revenue

Raw materials costs, increased 10% y-o-y to EGP 408 million in FY 2019, continuing to contribute the largest share of total consolidated COGS at 35.7%. The average raw material cost per test performed during the year stood at EGP 13.4, up from the EGP 12.9 with a modest increase of 4%. Raw materials as a percentage of sales decreased to 18.3% from last year's 19.3% in line with management's efficiency and cost-reduction initiatives, and EGP appreciation.

Direct salaries and wages continued to make up the second largest share of total COGS during the year at 33.5% in FY 2019, as they reached EGP 383 million for the period, 22% above last year's figure. Direct salaries and wages as a percentage of sales increased almost one percentage point to 17.2% for the year.

Direct depreciation and amortisation rose 87% y-o-y to EGP 133 million, on the back of capitalised leases amounting to EGP 265 million (gross) related to the implementation of IFRS 16 (noting that related depreciation amounts to EGP 48 million). Growth in depreciation was also driven by the addition of new equipment at Al Borg-Scan and Nigeria, with their depreciation recording EGP 7.6 million and EGP 7.8 million respectively. As such, direct depreciation and amortisation as a percentage of revenues increased to 6.0% in FY 2019 from the 3.7% figure last year.

EBITDA

IDH's consolidated EBITDA in FY 2019 stood at EGP 945 million, up 24% y-o-y. EBITDA margin for the year was 42%, up two percentage points versus the 40% EBITDA margin recorded in FY 2018 supported by the positive impact of adopting IFRS 16. When normalising for the impacts of IFRS 16, normalized EBITDA records EGP 877 million, up 15% y-o-y, with a normalized EBITDA margin of 39% despite the negative contributions from Nigeria and pre-operating expenses related to Wayak.

Operating Profit to Normalised EBITDA Reconciliation

IFRS 16 Effect on Regional EBITDA*

* Decimals are rounded to the nearest whole number

Egypt's EBITDA recorded EGP 877 million in FY2019, up 19% y-o-y. EBITDA margin stood at 46% during the year (44% when controlling for IFRS 16), down 2% from last year's figure, which is mainly attributable to the recognition of EGP 27 million related to employees' profit share as well as pre-operating expenses related to Wayak.  

In Jordan, IDH's operations reported an impressive 74% y-o-y rise in EBITDA for FY2019, with the associated margin rising to 35% (27% when excluding IFRS 16) compared to 21% recorded in FY2018. The significant rise came on the back of raw material cost optimization along with further cost savings attributable to salaries and the decrease in rent related to the training centre. In it is important to note that FY2019 EBITDA figure includes a USD 400 thousand related to the IT & Technology purchase agreement with Mega Lab in Georgia.

Sudan's EBITDA for the year recorded EGP 7.5 million, up from the negative EGP 2.6 million figure recorded last year. EBITDA margin stood at 20% (15% when excluding IFRS 16) compared to the negative 7% margin recorded in FY 2018. Stronger EBITDA results were supported by a significant increase in 3Q 2019 revenues due to continued price increases in addition to the decrease in salaries expense as the Company replaced Egyptian expats with Sudanese employees.

In Nigeria, EBITDA losses increased to EGP 30 million from negative EGP 25 million EBITDA recorded last year. The loss was largely related to delays in new branch openings along with the large amount of salaries as a percentage of revenue. As branch renovations are completed along with the installation of new state-of-the-art radiology equipment, management expects the Group's Nigerian operations to turn EBITDA positive during 2020.

Interest Income / Expense

IDH recorded interest income of EGP 44 million in FY2019, 27% below last year's EGP 59 million figure. The fall is largely attributable to the multiple rate cuts by the Central Bank of Egypt during the course of 2019 (a cumulative 450 bps cut) combined with the decrease in cash balances during the first half of the year to secure the dividends' payment in June 2019.

Interest expenses came in at EGP 65 million for the year versus the EGP 15 million recorded in FY2018. The increase came on the back of the implementation of IFRS 16 which added EGP 35 million to the period's interest expense. As of year-end 2019, IDH's borrowing costs stood at EGP 20 million for the year related to medium term loans for the Al Borg Scan expansion (EGP 6.5 million) and the Group's new headquarters in Cairo's Smart Village (EGP 13.5 million).

Foreign Exchange

IDH recorded net forex losses of EGP 15.5 million in FY 2019.

Taxation

Tax expenses for the year stood at EGP 254 million up from the EGP 220 million tax expense recorded in FY2018. The effective tax rate was 33% in FY2019 compared to 31% last year. The increase in the Group's effective tax rate recorded during the year is largely attributable to:

·    EGP 6.25 million related to the new healthcare tax law imposed by the Egyptian Government (0.25% of revenues);

·    Starting January 2019, the Jordanian corporate tax rate increased 1% to reach 21% with a net effect amounting to EGP 552 thousand.

·    The increase in Sudan tax rate from 15% to 30% with a net effect amounting to EGP 221 thousand.

There is no tax payable for IDH's two companies at the holding level. Tax was paid on profits generated by operating companies in Egypt, Jordan and Sudan.

Net Profit

IDH's consolidated net profit increased 2% y-o-y in FY2019 to reach EGP 505 million. Net profit margin stood at 23% for the year compared to 26% in FY2018. Declined net profitability was due to net losses sustained at Nigeria, higher borrowing costs related to Al Borg Scan and IDH's new headquarters, a decrease in interest income and the adoption of IFRS 16 (negative EGP15.3 million). When excluding the effect of IFRS 16, net profit records EGP 520 million, up 5% y-o-y with a net profit margin of 23%.

Net Effect of IFRS 16 on Net Profit

Balance Sheet

On the assets side, IDH held gross property, plant and equipment (PPE) of EGP 1,131 million as of year-end 2019, up from the EGP 973 million as of 31 December 2018. The rise came largely on the back of CAPEX outlays for the addition and renovation of branches totalling EGP 146 million (EGP 71 million in Egypt, EGP 64 million in Nigeria and EGP 11 million in Jordan), and reflects foreign currency translation adjustments of negative EGP 48 million.

As of 31 December 2019, accounts receivable stood at EGP 261 million compared to EGP 220 million at year-end 2018. Accounts receivables' days-on-hand (DOH) normalised at 129 days (based on credit revenues of EGP 726 million) following the increase witnessed at year-end 2018. The Group's "days inventory outstanding" came in unchanged from last year at 82 days for FY2019.

IDH's cash balances stood at to EGP 631 million as at year-end 2019 compared to EGP 664 million as at 31 December 2018, remaining relatively stable despite the distribution of EGP 451 million (US$ 26.4 million) in dividends for FY2018 paid in June 2019. It should be noted that cash balances include cash on hand, current accounts, time deposits, treasury bills and restricted cash.

On the liabilities side, accounts payable as of year-end 2019 stood at EGP 145 million compared to the EGP 158 million as of 31 December 2018. The Group's days payable outstanding (DPO) decreased to 141 days from 145 days as of 31 December 2018.

The adoption of IFRS 16 led to the addition of EGP 37 million in short-term lease liabilities and EGP 232 million in long-term lease liabilities as at 31 December 2019.

Cash Flow

Net cash flow from operating activities recorded EGP 704 million in FY2019 compared to EGP 556 million in the previous year, demonstrating the company's strong cash generation ability. Net cash used in investing activities totalled EGP 143 million in FY2019, driven by acquisition of property, plant and equipment which recorded EGP 213 million during the year. Finally, net cash used in financing activities reached EGP 549 million in FY2019, driven primarily by the EGP 451 dividend payment in June 2019.

Dividend

Due to the Covid-19 pandemic and consequent uncertainty regarding the macroeconomic environment, the Board of Directors has deemed it more appropriate to focus on retaining resources and will thus suspend the dividend decision till September 2020. At which point, further consideration will be given to developments in the global pandemic and confidence regarding the Group's future needs and financial outlook.

Going Concern

The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been considered as part of the Group's adoption of the going concern basis. The Board has considered the potential impact of the COVID-19 outbreak on the Group's financial position and liquidity, but given the unknown magnitude of COVID-19, Management has considered several downside scenarios and stress tests. One of the stress tests considered the following key assumptions: a complete lockdown with a substantial loss of revenue by more than 75% for a period of eight months (from May to December), no fixed costs reductions, forecasted capital expenditure (mainly the yearly expansionary plan of opening new branches that are not required for the current operation) reduced in 2020 by 86%, and cessation of dividend payments. Reducing revenues by more than 75% will negatively impact EBITDA and consequently will affect the Group's ability to meet financial covenants such as Debt service Coverage Ratio. The conducted stress test displayed the ability of full repayment of the existing loans balances. The downside scenarios showed that the Group's current financial position and cash balance will alleviate any potential downside risk in the Group's cash flow generated from its operational activities, thus the Directors continue to adopt the going concern basis in preparing the financial information.

Principal Risks, Uncertainties and Their Mitigation

As in any corporation, IDH has exposure to risks and uncertainties that may adversely affect its performance. IDH Chairman Lord St John of Bletso has emphasised that ownership of the risk matrix is sufficiently important to the Group's long-term success that it must be equally shared by the Board and senior management.

While no system can mitigate every risk - and some risks, as at the country level, are largely without potential mitigants - the Group has in place processes, procedures and baseline assumptions that provide mitigation. The Board and senior management agree that the principal risks and uncertainties facing the Group include:

Statement of Directors' Responsibilities

The directors are responsible for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the EU ("IFRS as adopted by the EU").  Company law requires the directors to prepare Group financial statements for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that year.

In preparing those financial statements, the directors are required to: 

·    select suitable accounting policies and then apply them consistently; 

·    make judgements and estimates that are reasonable, relevant and reliable; 

·    state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; 

·    assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

·    use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and the Company and to prevent and detect fraud and other irregularities. 

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.

The Directors of the Group confirm that to the best of their knowledge that:

·    The Group is in compliance with the Jersey code in relation to all applicable corporate law and tax filing requirements;

·    The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, including International Accounting Standards; and Interpretations adopted by the International Accounting Standards Board give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole; and

·    The sections of this Report, including the Strategic Report, Performance Review and Principal Risks and Uncertainties, which constitute the management report, include a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

Dr. Hend El Sherbini

Executive Director
27 April 2020

Consolidated Statement of Financial Position as at 31 December 2019

Consolidated Income Statement for the Year Ended 31 December 2019

Consolidated Statement of Other Comprehensive Income for the Year Ended 31 December 2019

Consolidated Statement of Cash Flows for the Year Ended 31 December 2019