Integrated Diagnostics Holdings PLC
LSE:IDHC
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Integrated Diagnostics Holdings PLC
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Hello, everyone. This is Hend Tamale from EFG Hermes, and welcome to IDH's first quarter 2021 results for today. On the line we have today, from IDH, Dr. [indiscernible]. We'll start with a brief presentation from management and then will open the line for Q&A.
Thank you,[indiscernible] . Good afternoon, ladies and gentlemen, and thank you for joining our analyst call for the first quarter of 2021. Dr. Hend El Sherbini, Chief Executive Officer of IDH. And with me today are Omar Bedewy, our CFO; and Nancy Fahmy, our Director of Investor Relations. I'll begin today's call with an overview of the group's performance and key developments in the first 3 months of the year, after this, Tamar will run you through our regional and consolidated financials before opening the floor to your questions. Ladies and gentlemen, I'm delighted to report that we started the new year building on the strong momentum from the end of 2020. We leveraged an expanded service offering and delivery capabilities to drive exceptional top line growth and improvements in profitability. We reported over a twofold increase in consolidated revenue, primarily supported by our COVID-19-related test offering. We also recorded a 20% year-on-year rise in revenue generated by our conventional test offering, which is in line with our historical averages and signals the sustained recovery of our non COVID-19 business. This impressive growth in revenue was both volume and price driven, with over 32% growth in tests, while our average revenue per test grew 71% year-on-year. We are also very pleased to have served 2.4 million patients in the first quarter of 2021, which is a surge of 50% in patient numbers year-on-year. Although growth across both indicators was bolstered by our generally higher-priced and highly demanded COVID-19-related test offering. It's important to know that we are also witnessing a recovery in conventional testing as restrictions imposed to limit the spread of the pandemic were eased. Geographically in both Egypt and Jordan, we recorded double-digit test volume and revenue growth in our non COVID-19 business and further supported by the ramp-up of house call service. More specifically, our house call service contributed 23% of consolidated revenue for the quarter compared to 12% in the same 3 months of last year. Through the house call service, we served slightly over 300,000 house call patients, which is more than double those served in the first quarter of 2020. Egypt's performance was further enhanced by Al-Borg Scan, which reported a remarkable 122 year-on-year rise in revenues. Top line growth was supported by the addition of the new PET/CT service coupled with contributions from Al-Borg Scan second branch, which was launched midway through the first quarter of last year. The new PET/CT service further strengthens our radiology diagnostic capabilities and guarantees patients access to the latest technology and diagnostic techniques available in the market. I'm also very pleased with our performance in Nigeria, where our value building efforts are beginning to bear fruit. It delivered a strong 44% year-on-year rise in revenues, supported by higher test and patient volumes and optimized service mix. More importantly, the EBITDA losses continue to narrow in line with our expectations, and we remain on path to turn EBITDA positive in 2021. Finally, in Sudan, our results continue to be impacted by currency translation. However, in local currency terms, we continue to deliver growth and remain committed to the country in the long term. Our impressive top line performance was efficiently carried down to profitability across all income statement metrics. IDH's gross profit margin expanded by 8 points to a remarkable 57%. And while EBITDA margin was well over our traditional guidance at 52% in the first quarter of 2021. These margin enhancements were partially driven by the higher price nature of our COVID-19 related test offering as it leveraged on our economies of scale as well as the growing EBITDA contributions from Nigeria and Al-Borg Scan. We expect some of these gains to sustain in the long term. Looking ahead, while the company's immediate focus is to continue supporting governments across our footprint to combat the pandemic, IDH's long-term outlook remains strong, as evidenced by the recovery of our conventional business witnessed in the first quarter of 2021. Our focus for 2021 is the continued enhancement of our service offering to drive new growth and deliver exceptional value to our patients. And this includes expanding our test portfolio and strengthening our digital offering. IDH will also continue to invest in growing our geographical footprint, targeting the rollout of around 30 new branches in the remainder of 2021. And this includes the third Al-Borg Scan branch, which is expected to come online later this month. In parallel, we are also on the outlook for expansion opportunities in new geographies. And more specifically, we're targeting value-accretive acquisition opportunities in Africa and Middle Eastern and Asian markets, where our business model is well-suited to capitalize on prevailing healthcare and consumer trends. To support our growth efforts over the coming period, IDH has secured a $45 million debt financing agreement from IFC with an 8-year tenure. This builds on our long-standing partnership with IFC and delivers on our shared goal of meeting the strong demand for health care services in our region. In order to manage strong performance in the first quarter of the year and management's view of a sustained recovery going forward, we upgrade our guidance for the full year revenue growth of over 20% with a consolidated EBITDA margin in line with 2020 levels. Finally, I reiterate our excitement with our debut on the Egyptian Exchange in May 2021 as the first dual-listed healthcare company on the EGX and LSE. The door listing sees us gain access to a larger pool of geographically diversified investors and in turn, offer local retail and institutional investors as well as global emerging market specialists. We regularly invest through the EGX, an attractive opportunity to capitalize on IDH solid growth prospects. With that, I will conclude my remarks for today and pass the call over to Omar. Thank you.
Thank you, [indiscernible] Good afternoon, ladies and gentlemen. I'll begin today's presentation by going through the key financial and operational highlights for the first quarter compared to the fourth quarter of last year as it shows growth over an already exceptional quarter. I will then switch to discuss our year-on-year performance in detail before finally opening the floor to your questions. On a quarter-on-quarter basis, IDH delivered a 15% increase in revenues in Q1 to reach GBP 1.1 billion, making this the highest quarterly revenue on REC. Top line growth was fueled by our Adaptive COVID-19 service offering, which contributed 47% of IDH revenues in Q1 versus a 41% contribution in the fourth quarter of last year. IDH conducted around 400,000 COVID-19 tests during Q1 2021, the PCR antigen and antibody testing. This compares to some 300,000 tests in Q4 last year and with Egypt contributing approximately 45%, while Jordan made up the remaining 55%. In terms of profitability, the strong growth in consolidated top line supported a 25% Q-on-Q increase in gross profits. As such, the group saw a strong expansion in gross profit margin from 52% in Q4 last year to 57% in Q1. Similarly, EBITDA for the quarter reached an all-time high of GBP 586 million, expanding by an impressive 27% Q-on-Q EBITDA margin also expanded to 52% compared to 47% last quarter. This came on the back of IDH's strong profitability along with the dilution of fixed costs related to SG&A and sales. Switching to year-on-year comparison, revenues for Q1 2021 posted a record-breaking 126% growth versus last year. And this was driven by a 32% increase in volume, along with improved pricing on account of the higher value of COVID-19 testing. As Dr. Hend mentioned, the quarter performance was also supported by a consistent recovery in our conventional business. With the revenue from non-COVID-19 testing growing 20% year-on-year on the back of an 11% growth in conventional test volume. Our performance was also supported by a growing contribution for our house calls service, which continues on the promising trajectory witnessed in the second half of 2020. Revenue from this service contributed around 23% to our top line during the first quarter of 2021, up from 12% in the same period last year. Overall, the number of patients served under the service almost tripled to 316,000. On a regional basis, Egypt contributed the lion's share of revenue at 81.5%, followed by Jordan of around 17% and meanwhile, Nigeria contributed around 1% and finally Sudan made up 0.6% of this quarter revenue. In our home market, Egypt, revenues recorded 117% year-on-year increase, of which conventional revenue growth accounted for 20%. In Jordan, Biolab delivered an impressive 228% year-on-year growth supported by the substantial number of PCR tests, which the company has been offering since the start of this pandemic. COVID-19 testing in Jordan contributed 64% to the Jordanian subsidiaries revenue in Q1 2021, noting that Biolab revenue from conventional tests grew by 29%. In Nigeria, top line increased by 49% in local currency terms and 44% in Egyptian pounds. The continuous improvement in our Nigerian operations saw its EBITDA losses narrowing from NGN 56 million last year to only NGN 11 million in Q1 this year. Meanwhile in Sudan revenue grew 74% in local currency terms. However, when translated to Egyptian pounds, revenue declined by 31% due to the devaluation of the Sudanese pound in February 2021. Finally, at Al-Borg Scan, the successful ramp-up in operations and the integration of our second branch midway through Q1 last year, drove an impressive 122% year-on-year growth in revenues. We are planning to open an additional 3 branches during 2021 to bring the total number of geology branches to fall by the end of this year. Moving to profitability IDH posted consolidated gross profit growth of 162% in Q1, with a 57% gross profit margin compared to 49% in the same quarter last year. The margin expansion came on the back of the dilution of some fixed costs, mainly salaries and wages. Similarly, our EBITDA expanded by an impressive 189% year-on-year with a margin of 52% compared to 41% in the same period last year. This is despite booking dual listing fees of EGP 10 million in this quarter. Net profit was up by impressive 230% year-on-year to EGP 339 million for the first quarter with a net profit margin of 30%. As of March 2021, accounts receivable days on hand stood at 97 days compared to 144 days at year-end 2020. This indicates a significant improvement in collection during the first quarter of 2021. As such, provision for doubtful accounts established during the quarter amounted to EGP 5 million compared to EGP 10 million booked in the same 3 months of last year. Finally, IDH continues to enjoy a liquid balance sheet with the group total cash balance standing at EGP 1.3 billion as at the 31st of March 2021, and this is a 51% increase compared to our closing balance in 2020. With that, I'll conclude my remarks and open the floor to your questions.
[Operator Instructions] We have our first question from the line of Sergey Dubin.
Congratulations on outstanding results. Well done. Just a very quick question regarding the IFC loan that you guys obtained trust what kind of interest rate does it carry? And is that like a bullet maturity? Or is it amortizing over 8 years? And then the second more substantive part of the question is regarding the use of proceeds. I mean you hinted that you will do some acquisitions, but also expand the portfolio of tests like can you give us a split of how much would go for the first versus the second? Use the proceeds and also regarding acquisitions, are you planning mostly to buy small labs in Egypt? Are you looking outside of Egypt, like a little bit more color around the acquisition strategy would be helpful.
So the first question about the loan from the IFC, it has a tenor of 8 years with 4 years grace period. It has an availability of 2 years, and it will be mainly used for expansion in Egypt and outside Egypt. Can you repeat the second question because...
What's the interest rate on the loan? And also, what kind of -- a little bit more color regarding the acquisition strategy, are you looking because the press release that you issued, it sounded like there will be some money that will be used for strengthening portfolio of test, is that what you said? So just want to understand what that means. But also regarding acquisitions that you're looking mostly in Egypt to expand the regional footprint and buy smaller labs in Egypt, are you looking outside? If so, like what countries? And what are you -- what specific capabilities are you looking to fill that you don't have already.
So the interest rate on this loan are extremely competitive. Not disclosed. We're not in a position to disclose it right now. But again, what I can say to you, it's a very competitive rate. Regarding the acquisition of labs in Egypt. We don't do that. We do not acquire existing labs here in Egypt because for us to open our new labs, it takes less time and less costly.
Sergey, you were asking because your line in. I think you're asking a brand or the use of 45, 95 -- okay. Okay. So Hi. We are planning to use -- let me get that. So we are planning to use the money in acquisitions, either in Egypt. So we're looking at opportunities in Egypt and outside Egypt. However, regarding the increasing the test portfolio and increasing the our test menu and test portfolio, this we do it organically. We're not really going to use the loan to do that. Does this answer your question, Sergey?
Well, yes. I'm trying to understand in foreign market, what you guys already in Nigeria you're in Jordan, you're in Sudan. Are you going to expand in these 3 markets already. Are you looking at completing new ones?
We are doing both. We're looking outside these countries, and we're also looking at opportunities in the countries we're in right now.
And I understand what kind of -- are you talking about fairly small acquisitions? Or is it going to be a larger one. And would it be in pathology and radiology, just a little bit more. You don't have to name...
Yes. We're just -- when we have a concrete a concrete opportunity, then we'll let the market know. But right now, we're looking at different opportunities in the countries we're working in as well as other countries.
Okay. And just last point. Is that kind of a 3-months event, you think, or 12-months event? Like what kind of time horizon are we looking at?
Omar, do you have a timeline or should we say this year? Can you hear me or there's something wrong with the line? Can you hear me? Yes. So I mean, we don't have a definite time line, but we -- when we have a concrete time line would share it with you.
We have a question from Sultan [indiscernible] from BCP.
I have multiple questions that I'll share with you all in one go. Just to save time. So is it possible to kind of elaborate on -- or rather quantify a bit what part of the margin expansion is due to the higher price tests and what part is due to the larger quantity of tests in terms of operating leverage, just so that we can understand over the long term, once you do reach these quantities that you got because of COVID, what kind of margins do we expect? That's the first question. And the other 2 small questions is out of these new patients that came from -- because of COVID, how many do you think you'll retain? This was a good opportunity for them to drive IDH labs. Do you think this will translate into growth in the conventional tests even more than your guidance? The third question is, out of the new branches, can you just -- the guidance for this year? If you can repeat how many of them are for your regular labs and how many for your radiology?
Okay. I'll take the first question regarding our operating leverage. As you know, our business is characterized by high operating leverage. So the more you add to our top line figure, we have given that 60% of our cost is fixed, then our margin will increase accordingly. Let me give you some numbers regarding the increase in our top line this year. And what's the difference between the revenue per test for COVID-related tests compared to our conventional test. First, the COVID-related test, of course, are way more expensive. So I'm going to give you an example that revenue per test for conventional testing is around EGP 88 per test compared to the revenues from PCR and other covered related tests is around EGP 418 or GBP 420 per test. So consequently, the increase that we witnessed this year, part of it is dated to the extensive test related to COVID. Having said that, that the revenue per test for conventional tests increased by 8% year-on-year. Given as well that there was an increase in our total volume by around 32% year-on-year.
Does this answer your first part?
I mean, these numbers are on a, what I was asking is the margin expansion. Let's -- I forgot the exact number, but on the net income, it was about, what, 7 or 8 percentage points. What part of that is because COVID is highly priced? And what part of it is because you've been able to utilize more of your fixed costs. If you've done that kind of analysis, if you haven't, then please ignore the question.
We do have the same contribution margin. Again, so as I always say, the profitability for the PC and other copper related test, it is the same compared to the profitability of the conventional testing. There is no difference doesn't mean that -- because those tests are way more expensive than we -- our margin from those tests or -- no. It is not the case. Margins are the same. An on a gross level, other than the salaries and the fixed costs at that level, they're the same in terms of profitability.
Yes. Well, AMAT is specifically talking when he mentions contribution margins, we just refer price, revenue minus the raw material, specifically. So that you exclude completely the other nature on the other costs. So because it's hard to.
On your question on the patient acquisition yet. As you rightfully mentioned, post-COVID, we know that we managed to acquire new patients. Through the services we provided and the expansion in the household service as well. And we're monitoring that. Actually, we quantify those patients. It's around 16%. And new patients, and we are preparing actually a strategy for those in action to the other patient base, we're developing more loyalty programs to retain those patients as part of our database.
And regarding the branches, as Dr. Hend mentioned in her speech, we do open -- we will open 35 branches this year, by the end of this year.
Sorry, I missed it when you said it before. What's the breakdown of the new branches in terms of radiology versus the regular blood test.
So we have other -- third radiology center that is going to open, hopefully, by the end of this month. And then we're targeting another 3 radiology scans, as we mentioned before, together with the regular pathology laboratories that we're aiming to open.
I'll take a few questions from the chat. There is a question from Nina Chen from Azimut. Since you're guiding for over 20% growth in revenue for 2021 that means you expect your growth for the rest of the year to be much more normalized or continue at the same growth level as the first quarter. And her second question is on guidance on SG&A to sales ratio.
So the guidance is for the revenue to be over 20%. And for the EBITDA margin in line with last year.
And regarding SG&A to sales, SG&A to sales went down from 19% during the first quarter of 2020 to only 9% this quarter. And again, this indicates the high operating leverage this -- for this business.
We have a question from the line of Sanet [indiscernible] from Old Mutual?
Okay. Yes. I was saying congratulations on a great set of results. So there are also a few questions. So first one is a follow-up on the question from the chat. So if we are looking at revenue growth of over 20% for the year. And the growth in the first quarter was almost 130%. And so my question is, what is the trend that you have seen already in the second quarter? And what are you expecting for the last 2 quarters of the year? Because if we are expecting just over 20%. That means that the last 2 quarters of the year are going to be quite weak. So -- and the second one is, I understand the new guidance of margin at the level of EBITDA margin at the level of 2020's margin. But my question is, how -- or what are we looking at in the future in terms of EBITDA margin like on 2020 onwards? And also as earnings, like how would we see the earnings grow? And then my third question is about the pricing, like in 2022. And I understand this year is a bit not a usual year. But obviously, those levels of pricing are not going to sustain in the future. So what is the pricing strategy for the coming year and the CapEx also as a percentage of sales?
Okay. So on the first part of your question, you -- the 20% that we quote or the over 20% that we quoted in our earnings release, it basically involves a phase of or a gradual leveling of COVIS. So far, the second quarter looks strong from the 2 months that we have been seeing so far throughout the second quarter, April and May are strong as the first quarter. However, we believe in this environment that it's safe to assume a gradual phasing out of -- or leveling of COVID towards the end of the year. And this is how we reach the over 20%. Yes, as you rightfully mentioned, it assumes a weaker second half, but so far, we're in a situation that we'd rather be conservative rather than overpromising the market with anything. But so far, we're very comfortable with during over 20% growth from what we're seeing from April and May, so far, our numbers are very strong.
And regarding the margin and EBITDA, actually, there are several buckets that we need to address to answer your question. The first one is that we see a continuous growth in our top line figure over the years even before EBITDA of 20% plus, and this was driven by an increase in volume and an increase in pricing at the same time. This is number one. Number two, there are some -- there is a significant improvement, as we said, in the EBITDA of Nigeria that was pulling down or putting a downward pressure for consolidated EBITDA. And we expect that Nigeria will post EBITDA during 2020 and improve forward. This is number two. #3 is the continuous improvement as well in the EBITDA of our radiology business. And this will add on to our consolidated EBITDA as well and improve our promotion. So there are several buckets. First, our business that poses to grow 20% plus year-on-year and witnesses an improvement in the margin given the characteristic of the high operating leverage of our business. In addition to our adds on our new businesses like Nigeria and radiology and even [indiscernible] all those sector -- all those combined together are witnessing an improvement during 2021 and will add on to our EBITDA and margin. For your last question for the pricing. So as we always do, we increase in Jan of each year, we increase prices for the walk-in by 10% and for the corporate of for around 7%.
It's usually an inflation back to price increases.
Okay. So the -- back to normal increases per year, 10% walk-in and 7% the corporate, right?
Yes, more or less, roughly.
Okay. And just the last one on...
And if you see the revenue per test for revenue per test for the conventional testing, year-on-year, you will find it's -- there is an 8% increase compared to the same quarter last year.
So what we're seeing -- let me explain something. So what we're seeing is an increase this year is due to the increase in the change in the test mix this year was due to COVID. However, we are trying to increase, as I said before, our test offering, which will include more esoteric testing, which are also more expensive than the usual routine tests.
So the pricing should actually improve better than the 10% and the 7% in mix?
It's not really a pricing. It's more of a price mix. So at the end of the day, it contributes to the revenue increase.
Okay. Perfect. And just on the CapEx, I saw that the last guidance was 5% to 5.5% of sales. But I heard you earlier talking about new investments and expansion. So does that still stand? Or did the CapEx change?
For our conventional business is around 5% to 5.5%, business, correct. This excludes, of course, any acquisitions.
We move to a few questions from the chat. Questions from Ali Adel from Beltone. Can you elaborate more regarding the significant increase in salaries? And second question is are you seeing the same level of COVID-19 and PCR tests in both Egypt and Jordan, given that the number of new cases in both countries surged until the end of May?
Okay. It's a good question regarding salaries. And there are 2 buckets here. The first bucket is that during the first half -- the first quarter of 2020, salaries does not reflect this and [indiscernible] curfews that happened in the regions in which we do [indiscernible]. In addition, according to IS1, which is the international accounting standard, 10% of the net profit is recorded in the salaries and wages. So consequently, based on the first quarter of 2020, the profitability at that time was GBP 100 million compared to GBP 340 million. So the 10% of those GBP 340 million is added to the salaries and wages in 2021. This is not in the Egyptian accounting standard, but this is according to international accounting standards. And we are -- as you all know, we do report IFRS. Does it answer your question?
Yes. The second question was regarding whether you're seeing the same level of COVID and PCR tests in Egypt and Jordan up until the end of May?
Yes, yes. More or less.
Okay. Two questions from [ Farouk Miya ] from AllAfrica. The first one is what is the driver of COVID volumes as cases go up or at least go up to COVID volume rise? Or is it mainly linked to government corporate regulations pushing for more testing? The second question is what percentage of the COVID business is walk-ins? And his third question is why Jordan portion of COVID business is higher than in the legacy business?
So there are no -- let me get that. Let me get the part of there are no regulations from the government pushing the PCR testing to increase. And regarding the PCR numbers in Jordan, so they are actually doing more testing in terms of PCR testing -- COVID PCR testing than here in Egypt.
Yes. And regarding the part of COVID for the corporate. So PCR antibody and other COVID-related tests contributed around 44% of reported revenue during the first quarter of the year.
Next question was on the contribution to walk-ins.
To walk-in, sorry. Okay. I'm sorry. It's around 50%.
We have a few questions from Donatas from LGM. The first question is -- the answer to that, regarding CapEx, how much are you planning to spend on CapEx this year? And the second question is, are you seeing any raw material supply disruptions or inflation?
No. As we mentioned, we keep the same guidance as 5% to 5.5% of our top line would be dedicated to capital expenditure. And the second question...
About supply disruption.
Yes. There is no supply disruption at all. And this is -- we did not witness any supply disruption even during Q2 2020 and [indiscernible].
The other part of his question is are you seeing any inflation in raw material prices?
No, we don't. As you all know, we do have contractual agreements with our suppliers and the tenor of those agreements are ranging between 5 to 7 years, and the prices are fixed. So there is no inflation in those prices. And even when we reach a certain level of volume, we can negotiate the price down. So there is no increase in the prices of raw material also.
There's a question from the line of [ Saif Al-khamees ].
Hello?
Yes, we can hear you.
Good. I just would like to ask about the management, what -- as you know, after corona disappears, hopefully, gradually, what is the management is going to do to make up -- there would be a decline in the revenue coming from corona-related test. As you see now, it is GBP 536 million coming from COVID-related test. So almost 50% of the revenue. So what is the management going to do with this?
So when we're talking about the COVID-related tests here, you're talking about the regular tests. COVID-related tests are CBC, complete blood picture, CRP, ferritin and all that. So all these tests are tests that are done for follow-up of any other infectious disease or any other tests. So it's not really only done for COVID. However, what we -- we try to put them -- we put them as COVID-related tests in order to understand why we have seen this tremendous increase. This is because of the pandemic. But these tests are usually ordered for other conditions because these are routine tests, unlike the COVID PCR and the COVID antigen.
So Dr. Hend, that means you didn't see a drop in the revenue or a decline in the revenue in the foreseeable future?
You mean -- I do not expect a drop in the revenue? I expect to drop in the COVID PCR, maybe later with the increase in the vaccination program and the widespread vaccination program in Egypt and Jordan. However, I do not expect a decrease in the other tests.
So that means you expect a decline in the revenue.
Yes. So I expect a decline in the COVID PCR, antigen and antibody because these are tests that are related to the pandemic. So with the vaccination program rolled out, I think we'll see a decrease in the public cases.
Question on the chat from [ Brook Qadeer ] from [ Mochna ]. Would you characterize the 5% to 5.5% CapEx guidance as all maintenance CapEx? Or is there a growth component in this? If there is a growth component, how much is it?
No, the CapEx are mainly, of course, related to new branches. The maintenance is a small part of this CapEx or the rehabilitation and the refurbishment of the existing branches. But the main component of the 5% to 5.5% is directed to the establishment of new branches.
Follow-up question from Donatas. Could you give us an update on Wayak?
Yes, sure. So Wayak has been doing well. As you know, it's -- the operations are based on our database of 13 million patients from IDH. And what the company has done is segmenting this database and targeting different patient segments based on their profile. In the first quarter, actually, we saw Wayak posting a revenue of GBP 2 million. And actually, it's on its way to report the positive EBITDA in the coming -- actually by June, actually this month.
We have a question from the line of Florian from LGM.
Yes. The question is just related again to the IFC loans. I mean, we've seen in the past that -- or in Nigeria that the IFC was happy to go as a partner or a shareholder. So what is different this time? Where would you take some debt at the same time? Again, when I see the cash generation in first quarter, if second quarter is going to be the same, I mean, just the cash balance is kind of blow out. Of course, there's the dividend coming out in the coming months. But you will have very -- almost more than $100 million fairly soon on the bank account. So -- and you can eventually also reduce the dividend in the coming years if you really find attractive opportunity. So I'm just wondering you've never taken any debt so far in the history of the company. And I'm just wondering why would you take debt this time, given that you could have structured any potential M&A either like in Nigeria or funded through your own cash generation.
It's a good question, but let me correct something. We already do have 2 medium-term loans on our balance sheet, yes, was way smaller than the $45 million. Those combine together are almost in the vicinity of GBP 100 million. So we already do have 2 medium-term loans on our balance sheet. This is number one. Number two, potential acquisitions that we are looking at are way bigger than the Nigeria. Nigeria was a very small company that we did acquire. It was something like an acquiring license to operate in Nigeria. But the current opportunities on the table are way bigger than Nigeria. So -- and we were contemplating that our balance sheet -- our debt-to-equity ratio currently is at the level less than 4%. So consequently, we can capitalize on our very strong balance sheet and do a leverage buyout and consequently increase the return to our investors. First, we will distribute dividends. Second, utilize the remaining balance on our balance sheet in acquisition along with the $45 million from the [ IFCS win ].
And if I may add that, as Omar said in the beginning of the call, this loan has an availability period of 2 years. So we don't draw down the loan immediately. We monitor or we look at the expansions. We're looking [indiscernible]. We study the countries. We look [indiscernible] expanding, and then we draw the loans. [indiscernible] reflect on our balance sheet immediately. And as also Omar said, it's a good opportunity for us at a very competitive rate.
We have a follow-up question from Sergey.
Yes. I just wanted to come back to the questions that were asked a few minutes ago regarding expectations for 2021. I know you guys said over 20% revenue growth, but that strikes me as very conservative because you already achieved 130% revenue growth in Q1. And you said that only 1 million people out of 100 million have been vaccinated in Egypt, maybe a little bit higher now but still very small numbers. So it sounds to me like for 2021, you're almost sure to have fairly robust COVID vaccine testing business. It may trade-off in 2022. But I think it's important to be clear because people get confused and you misinterpret that you expect like a huge drop off a cliff, which doesn't -- to me, it doesn't at all look like the case. So can you just clarify that and help us understand it over 20%, like 21% or over 20% could be 40% to 50% revenue growth? Like what's a more realistic expectation. I know you guys don't want to disappoint, but nobody is sort of looking to -- I think people are just looking for better read of the trend. And it sounds to me, both on everything you said and you're saying now that COVID vaccine tests are going to be very robust in 2021. Am I wrong here? Or what am I missing?
Yes. So far, we haven't seen -- in the first -- in the 2 months after the first quarter, we've seen also still increased number of COVID PCR and antigen. And -- but however, it's not really -- things are not very clear with the pandemic. So we see a decrease and then another surge like what we've seen last year. And there is also the vaccination, and we don't know how fast they're going to go with the vaccination program. So things are not very clear with the pandemic, and we usually do not like to overpromise and underachieve. However, you're absolutely right. It's probably way over 20%. But we don't want to give like numbers that we cannot achieve, while we're seeing things that keep on changing dramatically over time. However, so far, yes, we haven't seen any major decreases in the COVID testing.
Okay. Great. And then just a quick follow-up also. So just to be clear, you said even excluding COVID test, your revenue in Q1 was up 1% year-on-year, excluding COVID-related testing. So is that 20%? That 20% of what? Is that fair to assume that's roughly 10% price increase, 10% volume growth? Or how does it break out in profit though?
Yes. 11% -- yes, it's 20% and 11% test, 20% revenue growth and 11% test.
No, we can break, I mean...
Excluding.
Excluding, yes.
You're asking about the excluding of the -- exclusion of the COVID, right?
Yes. Yes. Excluding COVID, that 20% revenue growth ex COVID. That's like 10% revenue, 10% -- 10% price growth, 10% volume growth roughly [indiscernible].
It's 11% volume and around 8% increase in price.
A couple of follow-up questions from many Ali Adel. First one is do you see now COVID-19 tests returning to the normal levels in Egypt. I mean the pathology services, excluding COVID test, will you recover to the pre-pandemic levels? This is his first question. And his second question is are their plans to offer COVID-19 tests in Sudan and Nigeria?
Yes. We're seeing a consistent recovery in the conventional testing, Ali. So it's very consistent. But we believe that there's more recovery that we can see in conventional testing. We still believe that there's still -- not all the tests are fully back, not all the patients are fully back in the health care arena. So if you look at our volumes now, and you exclude the COVID test and you -- of course, you understand that when we say COVID, we also include whatever is COVID related, also the routine test that surged after the COVID as well. So if you look at the tests in Egypt, specifically, they're back to their 2019 level in the conventional testing. So that shows you that there's still more growth -- can grow in the conventional testing from those who haven't recovered yet.
Yes. And I want to break it down for Egypt. There was a year-on-year increase in the volume by around 12% and adding to those increase in pricing by around 8%, it will get you the 20% that we witnessed in Egypt revenues, excluding COVID.
His second question is are you planning to offer COVID-19 tests in Sudan and Nigeria?
Sorry, can you say again, [indiscernible]. We can't hear you.
Are there plans to offer COVID-19 tests in Sudan and Nigeria?
We are currently not offering PCR in Sudan and Nigeria. However, in the in the very near future, we will be offering COVID testing in Nigeria.
Question from [ Aren Fogel ] from Drakens. I know the number of tests run during the quarter was well within IDH's total capacity. But given how quickly the number of tests increased, did the company experience any bottlenecks or operational strain from the quick ramp up? Was there anything unexpected?
No, not at all actually. Our capacity is still at very comfortable levels. The mega lab is running at 60% utilization. The branches are still being able to serve everybody. The house-call service is doing over 5,000 visits a day. So no, we're not running sort at the moment. In fact, we're being able to meet all the demand that we're seeing. And we're monitoring that day by day actually.
And we still have ample capacity.
Follow-up question from [ Saif Al-Khamees ]. Is the GCC, especially Saudi Arabia, out of your options regarding potential acquisitions?
No. We're exploring opportunities in the GCC as well, of course. Saudi Arabia is on our radar.
Question from Michel Said from CI Capital. What's the contribution of travel certificates to the PCR revenues? How should this evolve in the second quarter? And any new potential contracts to be signed with Saudi or GCC airlines?
We already have several contractual agreements with several agencies, like Pure Health. And some of the passengers already take the tests at our labs and take the results and can travel with it. So we cannot exactly quantify and specific how much of the test we conduct is related to travel. However, revenue generated from Pure Health in Q1 amounted to GBP 32 million, representing around 12% of the PCR conducted in Egypt.
A question from [ Ajay Bhatti ]. Given higher volumes imply a larger gross margin, what is the gross margin level you're looking at around 70% utilization?
Again, it's -- the gross profit margin itself -- again, we need to differentiate between several -- the definition of margin. First, at the contribution margin level as a percentage, having PCR or non-PCR or COVID, non-COVID, conventional, those -- all those tests have more or less the same contribution margin. And contribution margin meaning that price for test minus raw material per test. So most of the tests that we do offer to our patients, they do have the same contribution margin. The point behind the increase in our profitability is related to the fixed cost that we do have, that we -- 70% of our -- 60% of our cost is fixed. So the business is characterized by high operating leverage to. The more you add to your top line figure, the more those fixed cost get diluted, and there is an increase in margins. And this is what we saw during Q4 2020 and Q1 2021. Except, we did not calculate how -- what will be the margin if we do have 70% utilization in our mega lab. Because, again, it really depends on which kind of test you're talking about. So -- and the pricing of those tests -- and again, as I mentioned, because I think that there is a bit of confusion for you guys. When you think about the profitability and the pricing of the PCR and other COVID-related tests compared to other testing. Again, the revenue per test for the COVID-related test is around GBP 418 compared to conventional test of around GBP 88, GBP 89 per test. So it's not just having 60% utilization or 70% utilization. And then our -- what will be our margin. It really depends from which test, is it conventional, is it from PCR. It's -- you cannot calculate it like that.
We have a question from the line of [indiscernible].
Well, congratulations on your results. A brilliant set of results. Well done. So 2 questions. For the collection centers, which you're continuing to expand, can you just talk us through the profitability of those collection centers? Are they all profitable? And how is the revenue trending or the profitability trending with the home service and so on? So basically, are all the sites profitable? And I guess, do you have a sense of what number would you stop at collection centers? What's the capacity? Is it 500 or -- so talk me through that. And the second point is for the acquisitions. I'm getting the sense that, yes, you'll have firepower to maybe do an acquisition of USD 50 million, USD 60 million, something like that, firepower. Is your preference to have 1 or 2 large acquisitions or at 5 smaller acquisitions, just give us a sense of that, please?
So let me address the branch question first, and then Omar will highlight on the rest. So you're inquiring about our branch acquisition and the rationale [indiscernible] branch expansion, I mean. So our branch expansion plan continues to be 30 to 35 branches a year. And this is what we feel is adequate with the growth of the country in Egypt, specifically, of course. Because if you've ever come to Egypt, the country has been expanding heavily in terms of infrastructure. There's massive expansion by the government in the East and the West, especially in the city, the capital Cairo. And actually not just city -- the Capital city, also in the other governeries as well. So we're seeing new compounds, new commercial space, new communities being built from scratch. And these are still being -- the occupancy there is being increased, it's increasing by time. And these are the typical areas where we target. We want to be present everywhere. We want to have our labs present for all around -- or all over the country. And that's why we believe that it's a fair growth for our branch expansion to be around 30, 35 a year to cover all that.
And before we open any new branch, we conduct a feasibility study for this branch based on our experience of -- for the revenue, the forecasted revenue generated from this branch and our threshold that we do not -- if the intended rate of return of this branch is less than 30%, then we do not open it. So of course, all our branches are profitable. Due to the fact that -- and they do ramp up very quickly. In less than a year, those branches ramp up. Regarding your question of acquisition, whether we prefer a big 1 or 2 acquisitions of $45 million, $50 million compared to smaller acquisitions. Again, it depends. It depends on region, it depends on the opportunity itself. Because currently, we're doing very well in Nigeria, and it was a very small acquisition. And we see that this -- that Nigeria will contribute a significant portion of our top line figure within the next 3 to 4 years. And there might be another opportunity, a big -- way bigger opportunity on the table that will add instantly to our to our top line figure and EBITDA. However, it will be way more expensive than having an acquisition like Nigeria. But again, we don't have a specific preference, whether it's going to be big or small, depends on the opportunity itself and our forward-looking on this opportunity.
We will take our last question as a follow-up from [ Ajay Bhatti ] from [ Garier ].
In terms of the utilization, the question is the volume increase in the reagents, the volume increases, you get a discount on that. That's what I wanted to understand, how much margin increase can it give you at 70% utilization, if it makes sense.
I don't have a number now. And we didn't compare this exercise. It really depends on the type of tests and for how long it will sustain. Again, it really depends. Is it one shot that we had the significant discount from our suppliers during the $100 million campaign or now we're squeezing the suppliers to get better pricing for PCR tests? And this is what we did during Q1 this year. It really depends on the type of test itself and the supplier and whether is it onetime or...
I would be rather concerned about -- I'm sorry to cut you off, I'm sorry. The question was rather on the longer-term impact, not one-off impacts I'm looking at on the conventional tests that we do.
I need to highlight something here about utilization because utilization doesn't necessarily continue to go up. Because you know how our business model is structured, right? We replace machines all the time based on the contract of this machine, okay? So when you replace the old machine, you can get an efficient machine that actually can produce or conduct more tests than the older one. So as a result, actually, you become more efficient, so your utilization does not go through the roof, right? So I mean when we continue to replace machines, we become more efficient and the ability or the capability of the machinery itself increases by time. So it's not that direct relation. It's not like a factory or something when there is like full...
No, but -- so let me interrupt. [ Ajay ] is absolutely right. When we increase the -- when our volume is increased, we're always getting better pricing from the companies. And it's always related to volume increase. And you're also right, we replace the machines to get to a better, more efficient machines, but we also get better pricing. So it's all -- everything -- the pricing is also related to volume together with the newer -- of course, newer machines and more efficient ones.
Yes. Does that address your question?
Yes, yes, it does.
Okay. There are no more questions at this stage. I hand this over to you if you have any concluding remarks?
Can I jump very quickly with 1 question. I just posted in the chat, but I'm still kind of like a little confused because on, one hand, you're saying the contribution margin is the same for both PCR and conventional routine pathology tests, right? So I understand the PCR and COVID-related test maybe a higher price. They also have higher [ variable ] cost. So if your contribution margin is the same, if your price minus raw material is the same, that tells me that you actually is different than a sense what tests you're doing in terms of -- like it truly should be the function of utilization. So the more utilization you have, the better operating leverage you have, the more gross margin expansion you should experience. So why are you making -- if that's the case, why are you making a distinction? I think you -- in answering one question, you said, well, it depends what kind of tests we're doing, but it really seems better, right? If your contribution margin is the same, why should it matter?
Okay. So let's take a very simple and straightforward example. If you have 1 test for GBP 100 and your cost is GBP 20, then your contribution margin is 80% okay? If you have 1 test for GBP 10 and it's cost GBP 2, then you have 80% as well contribution margin. Having said that, your profitability or the first test is GBP 80. This is absolute, and the profitability for the second test is only GBP 8. Consequently, the profitability -- the GBP 80 -- well, the quantum of GBP 80 when dilute the fixed cost compared to the GBP 8 only will not have the same dilution effect on your fixed cost. Did you get my point? So I'm talking about competition -- so the way to say then is that the margin is the same, but the absolute competition is much higher. That's what you really need, right?
Absolute...
Correct.
There is just a last question and the chat from [ Kevin Osborne ]. Has the ex dividend date been announced?
Yes. It will be announced with the AGM circular. It's in July, and we'll publish the EGM circular tomorrow.
Thank you very much. I think that concludes today's call. Thank you to IDH's management team, and thank you, everyone, for participating.
Thank you.
Thank you, everyone. Bye-bye.
Thank you.