Integrated Diagnostics Holdings PLC
LSE:IDHC
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Integrated Diagnostics Holdings PLC
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Hello, everyone. This is Ahmed Moataz from EFG Hermes, and welcome to IDH's 9M 2024 Results Call. I'm pleased to be joined with: Dr. Hend Sherbini, Chief Executive Officer; Sherif El Zeiny, VP and Group CFO; and Tarek Yehia, Investor Relations Director.
As usual, the company will start with a brief on the recent results and updates, and then we'll open the floor for Q&A. Dr. Hend, please go ahead. Thank you.
Thank you, Ahmed. Good afternoon, ladies and gentlemen, and thank you for joining us for IDH Third Quarter Analyst Call. My name is Tarek Yehia, I'm Head of Investor Relations. Joining me today is: Dr. Hend, our Chief Executive Officer; and Mr. Sherif El Zeiny, our CFO. Dr. Hend will begin the call with a summary of the period's main development and our guidance for the remainder of the year. After that, I will discuss our operational results in more detail and provide a high-level overview of our financials. After my presentation, Mr. Sherif will offer a deeper analysis of our financial performance. Then we'll open for Q&A.
Thank you. Please, Dr. Hend, go ahead.
Thank you, Tarek, and good afternoon, everyone. I'm Dr. Hend El Sherbini, CEO of IDH. Despite economic headwinds in a number of key markets, we are pleased to report that at the consolidated level, revenue reached EGP 4.1 billion, up 34% year-on-year. Growth was driven by notable expansions in both test volumes and the average revenue per test, which increased by 23% and later coming in at 28.8 million tests for the 9-month period. Careful cost management also allowed us to protect our margins, driving profitability improvement at all levels, with our bottom line margin improving by 5 percentage points versus last year.
Diving into our regional performance, Egypt continues to anchor our growth, accounting for 82% of total revenue. In Egypt, both Pathology and Radiology segments continued on their growth paths. Through branch expansions and targeted efforts to attract and retain patients, we were able to increase both test volumes and test per patient, both key drivers for long-term growth. We also implemented strategic price adjustments, helping to boost average revenue per test and safeguard the business against the continued inflationary pressures. Pathology remains our largest revenue source in Egypt, contributing around 95% of the country's revenue. Nearly 27 million pathology tests were conducted in Egypt during the first 9 months of the year, presenting a 10% rise from last year and driving a 34% increase in revenue.
Al-Borg Scan, our Radiology division also continued to build on its positive momentum with revenue climbing 53% year-on-year as the venture further establishes itself in the fragmented radiology market. Al-Borg Scan now operates 7 branches across Greater Cairo and is on track to perform more than 250,000 scans in 2024, incredible achievement, which highlights its growth potential. In total revenue in local currency terms declined slightly by 2% from last year despite test volumes rising marginally year-on-year. Meanwhile, government-imposed price controls continue to weigh on our average revenue per test in the country.
Nigeria recorded a strong 38% year-on-year revenue increase in local currency despite patients' purchasing power being further eroded by high inflation and the naira devaluation earlier in the year. While this weighed on demand for our services, we continue to successfully drive growth through strategic price adjustments.
In Saudi Arabia, we are ramping up expansion efforts and are encouraged by our progress. Our 2 currently operational branches continue to gain traction in line with the expectations with the quarter-on-quarter growth strengthening our conviction that the country will be a key source of future growth for the group.
Finally, while the ongoing conflict in Sudan continues to see the majority of our branches in the country remain shut, we were able to reopen 1 of the 18 during the third quarter. As always, all our decisions are taken with the safety of our staff and patients as a key priority.
On the corporate front, following our full delisting from the EGX in September, we completed the treasury shares removal process, resulting in the cancellation of around 18.7 million treasury shares, reducing our ordinary shares to around 581 million. Looking ahead, in light of our 9-month performance and as macroeconomic conditions across our geographies gradually normalize, we are reaffirming our full year guidance. More specifically, we remain on track to deliver full year consolidated revenue growth of around 30% in 2024, with an EBITDA margin, excluding onetime items and ramp-up expenses in Saudi Arabia to come in at around 30%.
With that, I'll hand it back over to Tarek and Sherif, who will delve into a detailed review of our quarterly operational and financial results. Tarek?
Thank you very much, Dr. Hend. As mentioned in the first 9 months of 2024, we delivered an impressive 34% year-on-year expansion in revenue, reaching EGP 4.1 billion. Top line growth was dual driven by rising volumes and price adjustments, highlighting the continued success of our growth strategies.
More specifically, during the 9-month period, we performed 28.8 million tests, marking a solid 9% increase versus the same period of last year. During the period, we were particularly pleased to note that our average number of tests per patient reached yet another record high of 4.4 tests. This compares to 4.2 last time -- this time, last year and 3.7 in the comparable period of 2022. The steady rise reflects our success in attracting and retaining patients. As we continue to add new in-demand tests to our roster, while reaping the benefits of our very successful loyalty program launched in 2021. In parallel, our strategic price adjustments also supported growth with average revenue per test rising 23% to reach EGP 142.
Looking at the economic landscape of our potential areas, we see that the Egyptian pound has largely stabilized against the dollar. In recent weeks, we have seen the pound move closer to the EGP 50 to $1 mark, an encouraging sign that Egyptian Central Bank remains committed to the currency float. The relative stability of the currency, along with the Central Bank's strong approach to inflation has slowed the growth of average prices throughout the year. The latest inflation rate stand at 26.4%, significantly lower than last year levels.
In Nigeria, economic challenges persist. While the naira has stabilized, it remains weaker than expected in turn, weighting on inflation and the wider economy. Similar to Egypt, while the IMF expects inflation to slow heading into 2025, it is set to remain in the mid-20s throughout the coming 12 months.
In Saudi Arabia, inflation remained stable at a low 2% with The Kingdom posting solid GDP growth in the third quarter of the year. Meanwhile, in Jordan, inflation in the last 3 months has significantly declined compared to the first half of the year.
Overall, we are firstly optimistic about the economic picture across our markets heading into the new year as Egypt and Nigeria normalize and Saudi Arabia continue to drive economic growth and diversification.
Turning to our performance by geography. Our home market of Egypt continues to be the standout performer, posting strong growth and validating our investment and growth strategies. During the period, revenue in the country reached EGP 3.4 billion, up 35% versus the same 9 months of last year. We were very pleased to note the 10% and 7% expansion in tests and patient volume, respectively, which continue to showcase the strong demand for our services. This is also evident in our test per patient metric, which reached a new high of 4.3 in the first 9 months of the year. Finally, as the country continues to report presently high inflation, we have strategically adjusted price levels with average revenue per test reached EGP 126 for the period. As always, we remain committed to sharing the burden with the patient to ensure our tests remain affordable to as many people as possible.
As demand for our service continue to grow since the start of the year, we have added another 30 branches to our network. This is not only allowing us to tap into new segments of the population, but also ensuring we maintain our leadership position in the Private Diagnostic segment. We also continue to see our house call service making substantial contributions to the country's top line or exceeding our pre-pandemic averages. Finally, in line with our long-term vision, our Radiology venture, Al-Borg Scan, continues on its growth, posting revenue growth of 53% and contributing to 4.9% of Egypt's revenue for the first 9 months. Delving deeper into the venture's latest performance, Al-Borg Scan generated EGP 165 million in revenue during the period. This growth was fueled by a 25% rise in the number of scans conducted, which reached 191,000 along with a 23% increase in average revenue per test.
Looking at our other markets. In Jordan, we saw a margin decline in revenue in local currency terms despite volume rising during the period. As expected, in Egypt terms, revenue in our second large market jumped 43% year-on-year, owing to a weaker fund.
In Nigeria, revenue in local currency terms grew by 38% during the period as lower volumes were more than outweighted by successfully implemented price hikes. It is worth noting that the naira devaluation earlier this year meant that the revenue in EGP term declined 23% for the period.
Finally, in Saudi Arabia, across our 2 currently operational branches, we recorded revenue of SAR 790,000 since inception, with Biolab KSA having performed 21,000 tests since operation launch. More importantly, looking at the quarter-on-quarter performance, the venture recorded revenue of SAR 451,000 in the third quarter of the year, up 60% from the second quarter as our effort to boost brand awareness paid off.
In terms of profitability, IDH delivered improved margins at all levels of profitability in the first 9 months of 2024. More specifically, we reported a gross profit of EGP 1.6 billion, a 38% increase from the same period last year, with a gross profit margin of 38% compared to 37% last year. Our EBITDA for the period stood at EGP 1.3 billion, yielding a margin of 30%, up from 29% in the previous year. Finally, net profit reached EGP 724 million, marking an impressive 87% year-on-year increase with a net profit margin of 18%, up from 13% in the same period of last year.
I will now handle the call over to Mr. Sherif, who will provide a more detailed overview of our cost and profitability for the period.
Hello. Good afternoon. Thank you, Tarek. Good afternoon, ladies and gentlemen. I'd like to start by thanking Dr. Hend and Tarek for their valuable insights. As Tarek mentioned, I will focus my presentation today on costs and profitability before we open up the floor to your questions.
In light of the challenging operating environment faced across several of our markets and in particular, in our home geography of Egypt over the last year, we have placed particular focus on efficiencies and cost management. Looking at our latest results, we can see that our efforts have been paying off with margin improvements at all levels of profitability, directly reflecting our strategies. Breaking this down in more details, on the raw material front, we have -- we are pleased to note that despite rising inflationary pressure, our proactive inventory management strategy, coupled with our strong supplier relationships allowed us to keep raw material as a share of revenue stable at 21.9%
Meanwhile, we successfully reduced total salaries to revenue to 18.8% of revenue by optimizing our headcount while continuing to reward our existing staff as part of our retention strategies. Overall, we saw both COGS and SG&A as a share of revenue declined versus the same period of last year, in turn, boosting profitability.
The previously mentioned points can better visualize on this -- in this slide. Meanwhile, higher marketing and advertising expenses versus last year partially reflect spending to support the launch of Biolab KSA's marketing. This expense represents 34% of the company's total advertising costs for the 9 months period.
Further down the income statement, we reported a 5% point (sic) [ 5 percentage point ] increase in net profit margin, reflecting the previously mentioned cost savings, coupled with ForEx gain from intercompany transactions. However, including these ForEx gains from both periods, we would still have recorded a 24% improvement in net profit versus the previous year with an adjusted margin of 12% versus 9% last year. As of the end of September 2024, our cash balance stood at EGP 1.3 billion, an increase from EGP 835 million at the close of 2023.
Before we move to the Q&A session, let me restate the guidance Dr. Hend shared at the beginning of this call. Since the flotation of the Egyptian pound in March, we have witnessed a recovery in the Egyptian economy, which we believe will continue to stabilize in the coming months, fueling our optimism. With this in mind, we anticipate full year revenue growth of around 30% with an EBITDA margin also of approximately 30%. This forecast doesn't include contributions from the expanding Saudi Arabia market or any one-off expenses.
Thank you for your attention. I now welcome any questions you may have. Thank you very much.
[Operator Instructions] One question is, if you would be able to provide guidance for 2025 at this time or still early?
We still haven't got the Board approval for the budget. So it's still early to give a guidance about the budget of 2025, I'm afraid.
Understood. Second is, kind of a related question. If your pricing strategy for 2025 as well. Is it going to be in line with inflation or slightly lower in order to gain market share, et cetera?
We'll give guidance on the price increase in 2025 when we share our budget for the year after we take the approval of the Board.
Another is on the strategy for store openings and specifically in Saudi. Is that something you can provide? Or we'll also have that once it's approved by the Board?
And for 2024, we're still operating 2 branches for Saudi, and we will give more guidance once we finalize the budget.
Our initial plan to have at least 6 branches next year, but this will be decided in the budget as well.
Okay. [ Farouk Miya ] from All Africa is asking any visibility on reinstating dividends for 2024? That's one. The second part of his question is the walk-in business seems to remain under pressure. What measures can you take in order to support this part of the business?
He has 2 more questions. So I'll just leave it for now, and I'll ask the other 2 after you're done.
So we haven't decided to give dividends this year, given that we are in the process of -- we have different projects that we're looking at. So we haven't taken the bold decision to distribute dividends up till now. This is just to answer the first question.
And the second question related to the walk-in business. We saw a 34% increase in revenue per test and 28% increase in the revenue for the walk-ins, 9 months versus 9 months.
Okay. His 2 other questions are mainly on Saudi. Would you describe the current performance being on track with what you've initially anticipated? Or is it higher or lower? And if it's lower, what measures do you think can be taken in order to speed it up?
Sorry, Ahmed, can you repeat again? There was a broken line.
Sorry. So the performance done by the Saudi operations so far has been in line with your initial expectations? Or has it been higher or lower? And if it is lower, what measures could you take in order to speed up the business there?
So the plan was to open the 6 branches that Sherif mentioned. This year, however, we opened only 2 branches, and this is why the revenue is lower than what was put in the initial business plan. However, this is actually justified because of many issues in Saudi Arabia and many licenses and regulations that needs to be fulfilled before opening these branches. So I think in 2025, we'll be back on track with the opening of the rest of the branches.
Understood. For [ Al-Dhabu Shahin ] is asking -- how do you -- I think you've already answered this part, but I'll just -- in case you have something additional to add. How do you think about share buybacks versus dividends in next year? Presumably, at some point, the share price is attractive enough given prices -- given the current prices at which the management has acquired shares at?
We haven't actually discussed any share buyback after the delisting from Egypt. So -- and as I said before, about dividends, we're still looking at the money that we have and the projects that we have in hand before really deciding to distribute dividends.
Great. [ Janish ] has 2 questions. Do you have medium-term targets for the gross profit and EBITDA margins? And should we expect that EBITDA margins remain below the historical 40% going forward?
We are aiming at increasing our EBITDA margin -- gross profit and EBITDA margin. And as you can see this year, we have improved on the gross profit, EBITDA and net profit margins. However, we cannot go back to the 40 all at once. It has to be done gradually. But we are on the right track regarding this.
Understood. We have questions from the line of [ Karim Abadir from FIM. ]
[ You ] don't want to give guidance for 2025. But if you could just talk about generally what you're seeing and what you're expecting next year? What are maybe the larger challenges? And just the overall market dynamics? I'd just be curious.
Yes. I mean we are working, as I said, to increase our market share, increase our number of patients, number of tests, opening new branches to do so and opening new ways of doing business, increasing our house call team, increasing also our reach to patients. However, the main challenge that we are facing in Egypt is the economy and the devaluation of the pound. So hopefully, we're not going to see another devaluation of the pound because this really affects our cost structure. It affects the raw material costs and also the way we do business because we are -- at the end of the day, we are operating in Egyptian pounds and all our supplies are imported.
Karim, if you have a follow-up, please [ go on yourself, ] otherwise, we can move into the chat again.
I'm fine. Thank you.
Okay. There are 2 more questions in the chat. [Operator Instructions] The first one, do you have any initial estimates as to how much the Saudi operations would generate in terms of losses for the full year 2024?
And the second question is what areas adjacent to Pathology and Radiology would you or you are currently considering for growth?
We have losses till end of the year in Saudi Arabia will be about SAR 10 million.
What is the other question, please?
The other question is, if there are -- what areas adjacent to Pathology and Radiology would you -- or you're currently considering for growth?
We are not looking at any areas right now. We're focusing on Pathology and Radiology for the time being.
One final question. Are you facing any issues in sourcing USD in Egypt right now? And the kind of a follow-up to that is would you still need to do any further pricing adjustments? Or after you've done -- the one you've done this year and the currency has stabilized in a way, you don't have to do anything excessive going forward?
For the currency, no more issues as used to be in the Central Bank in Egypt, and it is normal now to facilitate for suppliers better than what used to be last year.
Regarding the price adjustment, we're not looking at any increases for the rest of the year because you have only 2 months to go, maybe less than 2 months to go. So we're not looking at increasing prices any further this year. However, in the coming year, we're going to look at the inflation and decide on the price increase and as a part of the whole budget.
All right. We've actually received a couple of more questions. Anup from Moon Capital. How is the competitive environment in Egypt? And what is happening to your market share?
We haven't seen any dramatic change in the competitive scene in Egypt. So the players that have been in the market in the private sector are the same. Some of them have dropped actually when you look at some of the names we used to hear about like Speed or [ Shams, ] these labs, we don't hear much about them, and we don't see them even in the corporate side. So I don't see anything dramatic happening in the competitive scene in the private sector.
Sure. Okay. Farouk has follow-ups. Do you think the increase in share coming from the contract segment to revenue is cyclical or structural? Or in other words, it would remain at 60%-plus? And are contracts in general, a lower margin business than walk-ins?
So just to understand the question, do you mean the ratio between the corporate and the walk-in because I didn't really get that.
Revenue contribution. Revenue contribution from the contract segment has been increasing at the expense of walk-ins. So he's asking whether this is something that's cyclical or structural that would remain in the business going forward?
And the second part of the question is whether the businesses have differences in margins?
Yes. So just to answer the second question first, yes, there is a difference in margins because the corporate side is discounted when you compare it to the walk-in. However, it gives you a larger volume with the increased number of tests per patient. So this is the benefit of the corporate. And it's true, and you're absolutely right, Farouk, there is an increase in the corporate at the expense of the walk-in, and we have been seeing this for several years now, and this is due to the high inflation and the devaluation of the pound that is putting pressure on the consumer purchasing power. So people are trying to find subsidy for their medical expenses, be it diagnostics or drugs or hospital. So we are seeing this shift for several years now.
Great. Final question. And after you answer, if you have any concluding remarks, please proceed with them or else we'll end the call. The test per patient has been increasing nicely now, reaching 4.6. Congrats on that. What has been the driver to this? And where can it get to?
So we have different programs put in place for the -- to increase the number of tests per patient, be it the loyalty program that we have implemented, the focus on the walk-ins, the increase in the house call team and increase in the house call service, which also show an increase in the test per patient. So all these measures have increased our test per patient. And we see there is a big room for growth in the test per patient. So when you look at the numbers in test per patient in Jordan, for example, it's 6 maybe 0.2 (sic) [ 6.2 ] And in Saudi Arabia is around 10. So there is a big room for growth in the test per patient, and we're working to increase it.
Great. We have no further questions in the chat or the Q&A.
Any more questions, Ahmed?
No. We thank you very much to IDH's management for their time and answering all questions patiently. This concludes today's earnings call. Have a good rest of the day, everyone.
Thank you. Thank you, everyone. Thank you, Ahmed. Thank you.
Thank you.