Integrated Diagnostics Holdings plc (IDHC) Earnings Call Transcript & Summary

Hello, everyone. This is Ahmed Moataz from EFG Hermes and welcome to IDH's 2024 Results Conference Call. I'm pleased to be joined with Dr. Hend El Sherbini, Chief Executive Officer; Sherif El Zeiny, Chief Financial Officer; and Tarek Yehia, Head Director of Investor Relations. As usual, the company will start with a brief update on recent results and guidance, and then we'll open the floor for Q&A. Tarek, please go ahead.

Good afternoon, ladies and gentlemen, and thank you, Ahmed for joining us and hosting the call today. My name is Tarek Yehia, and I'm IDH Investor Relations Director. Joining me today, Dr. Hend El Sherbini, our CEO; and Mr. Sherif El Zeiny, our Group CFO and VP. Dr. Hend will begin the call with a summary of the year main highlights. After that, I will discuss in more detail the main macroeconomics and geopolitical trends seen across our markets. We will then open the floor for our questions. With that, I will hand the call to Dr. Hend.

Thank you very much, Tarek, and good afternoon, everyone. I'm Dr. Hend El Sherbini, CEO of IDH. As I reflect back on 2024, I'm proud of all that IDH has been able to achieve despite the significant operational challenges that we continue to face across our growing footprint. The past year was truly a record-breaking one for the group, which saw us set all-time highs across all main KPIs. Our results for the year even surpassed our 2021 figures, which had been notably boosted by our COVID-19-related offering. While delivering outstanding results, we also made notable progress on all key pillars of our strategy, building a future-proof business capable of delivering world-class service and value in the years to come. Before diving deeper into our results for the year, it's important to note that as with previous years, 2024 did not come without its challenges. Throughout the past 12 months, we witnessed macroeconomic difficulties in Egypt and Nigeria, rising instability in the MENA region and ongoing fighting in Sudan. While Tarek will provide you with more information on the market conditions and outlook in just a few minutes, it goes without saying that these unfortunate circumstances greatly weighed on both businesses and individuals across our geographies. Against this backdrop, we delivered an impressive 39% year-on-year expansion in revenue, which recorded EGP 5.7 billion for the year, the highest ever top line reported by the group. During the year, we performed more tests than ever at 39.2 million, representing a 5-year compounded annual growth rate in our conventional test volume of 12% and clearly highlighting the success of our strategies. In parallel, we repriced our offering in both Egypt and Nigeria, ensuring that our prices keep pace with the record high inflation rates seen across both markets. What was even more impressive was the group's ability to systematically grow its test per patient metric, which is a key pillar of our long-term growth strategy. More specifically, in 2024, we performed 4.4 tests per patient, and this is up from 4.2 in 2023 and 3.7 in 2022. The consistent growth in our test per patient metric reflects a strategy that over the past several years has been -- has seen us build long-term relationships with patients with the launch of a loyalty and reward program. It also reflects a strategic decision over the last years to share the inflationary burden with our patients, in turn building trust and stickiness across our target segment. The standout geography during 2024 continued to be our home market of Egypt, where despite the unprecedented operational difficulties we faced, we delivered a 38% expansion in revenues. Top line growth in the market was dual driven as we performed a record-breaking volume of tests and high prices across our portfolio. Looking at our performance by segment, our pathology offering continued to make up the lion's share of revenue supported by an expanded offering and reach. On this front, during the year, we continued to invest significantly in expanding our patient access points. More specifically, we rolled out 43 new branches in the country, taking our total network to 587 branches in Egypt. This sees us remain the largest diagnostic provider in the country, shielding us from rising competition and allowing us to leverage our scale to negotiate favorable supplier contracts. At the same time, we continue to capitalize on the popularity of our [ house call ] service, which in 2024, generated 18% of the country's top line, far ahead of its pre-COVID contributions. Meanwhile, our radiology venture remained on an accelerated growth trajectory with its contribution to our top line reaching a new high of 4.8%, up nearly 2 percentage points from its contribution back in 2022. Looking quickly at our radiology ventures results in more detail, in 2024, Al Borg Scan reported revenue of 45% with revenue reaching EGP 224 million. During the year, IDH performed 263,000 scans, an increase of 22% from the previous year. Meanwhile, average revenue per scan also climbed 19% year-on-year in 2024 to reach EGP 854. All in all, it's clearer than ever that Egypt's fragmented and unserved radiology market represents a substantial opportunity for us, and we'll continue to invest significantly to capture a growing share of this market. Highlights from our other markets included without a doubt, the official launch of our KSA venture in January of last year. During the venture's first year, it made growing contribution to our top line, generating EGP [ 18 ] million in revenue from its 2 currently operational branches. While the ramp-up has been slower than originally expected, we remain very optimistic that the Saudi Arabian market represents the main driver of future growth for us. In line with this, in December, we completed the acquisition of our Saudi partners' 49% stake in the venture, taking our effective control to 100%. This move is designed to give us greater flexibility in executing our ramp-up strategy in the country, and we are certain that momentum will only accelerate from here onwards. I'll leave Tarek to discuss key results from across our other markets in just a few -- a little while. Turning to profitability. During the course of 2024 and under the guidance of our new CFO, Sherif El Zeiny, we led the group-wide initiative to optimize spending and boost efficiency. Overall, we saw our efforts pay off with margin improvements recorded across the board. This was a particularly notable result, given the rising cost pressures coming as a result of high inflation and weakening currencies across several of our markets. Sherif will go into more details with regards to costs and margins, but it's important to highlight that we saw enhanced profitability at the gross EBITDA and net levels during 2024, leaving us optimistic that this trend will carry through into 2025. Before I hand over to Tarek and Sherif, allow me to end with a quick look at what lies ahead for the group. With just over a quarter of 2025 now behind us, I'm happy to report that the new year is shaping up to be another successful one for IDH. In the coming months, we are hoping to capitalize on improving market conditions at home and across our wider footprint to continue generating growth and value. In our more mature markets of Egypt, Jordan and Nigeria, we remain focused on driving revenue expansion through a combination of higher volumes and prices. Over in Saudi Arabia, we're excited to leverage our increased stake in Biolab KSA to accelerate the ventures ramp-up. Throughout the year, we expect to see a further recovery in margins as inflation normalizes across our markets, and our cost optimization efforts continue to pay off. Finally, we have opted to defer the declaration of a dividend for the year ended 31st of December 2024 until after the release of our half year results in August. This will allow us to better assess our capital needs in light of the potential expansion opportunities that we are considering as well as the prevailing market conditions. As always, we remain firmly committed to our strategic goals and to delivering value to our shareholders. And we thank you all for your continued support and trust. With that, I'll hand it back over to Tarek and Sherif, who will delve deeper into key trends across our chosen markets and our financial results for the year. Thank you very much.

Thank you very much, Dr. Hend. And as was just mentioned, 2024 was a challenging year for several of our markets as the macroeconomics and geopolitical issues seen through 2023 carried forward into the year-end. In our home market of Egypt, the year got off to a turbulent start as record inflation, the lack of FX availability and high interest rates. The country began turning a corner in late February and early March and since then, has been on an improving with foreign investment, business confidence and remittance recovering rapidly. Most notably in 2024 March, the CBE floated the Egyptian pound. Since this historical decision, the currency has lost over 60% of its value. The Egyptian pound movement following the announcement is widely seen as a positive sign, indicating that the commitment to float the currency remains firm. Finally, it is worth noting that as expected in February and March 2025, inflation dropped to 12.8 and 13.6, respectively, reflecting normalizing condition as well as high base effect. This should support a gradual recovery of consumer spending following 2 tough years of Egyptian consumers. In Nigeria, we faced a similar obstacle with patient purchasing power weighted down by a weakened local currency and high inflation. Meanwhile, Jordan was affected by Izhoor, which impacted patient volumes throughout 2024 and early 2025. Finally, Sudan civil war has continued during the year. Economic activity in the country remained greatly impacted by the conflict. I will now quickly cover some of the main highlights from our other markets, including Jordan and Nigeria. During this past year, Jordan remained our second largest market despite the country reporting largely stable revenue in local currency terms. In 2024, our Jordanian operation reported a 3% rise in test volumes, a solid expansion that highlights the potential offered by Jordanian market. This was, however, offset by lower average revenue per test, reflecting the tight pricing regulation imposed on Jordanian health sector. Meanwhile, in Nigeria, Echo-Lab reported revenue growth in local currency terms of 39% on back of price increased rolled out to keep up with inflation in the country. As Dr. Hend mentioned, the first year rollout of our new venture in Saudi Arabia has been encouraging, further fueling our optimism on the [ future ] potential. In 2025, we are doubling down on Biolab KSA as we look to fully capture the opportunity offered by the Saudi market. Finally, in Sudan, our results were significantly impacted by the ongoing conflict. It's worth noting that over several months throughout 2024, all 18 brands -- all the 17 branches are closed, and we only operate with 1 branch. While now I'll hand the call to Mr. Sherif, who will provide more detailed overview of our cost and profitability of the year. Thank you. Mr. Sherif.

Hello. Good afternoon, ladies and gentlemen. I would like to start by thanking Dr. Hend and Tarek for their valuable insights and by thanking all of you for having joined us during our call today. As Tarek mentioned, during my presentation today, I will focus on cost and profitability before opening up the floor to your questions. In my first year at the company, primary area of focus for me and the team was improving efficiency and cost management across all our operations. Looking at our full year results, you can see that our work on this front has paid off with profitability improving at the gross profit, EBITDA and net profit levels. I would like to take this opportunity to highlight some of the most important achievements of this past year. On the raw materials front, we were very happy to see that despite rising inflationary pressure as the share of revenue of raw materials declined to 22% in 2024 from [ 20%, 22% ] in 2023. This result is directly attributable to our proactive inventory management strategy, coupled with the strong suppliers relationship with the group has been cultivating over the decades. Our efforts on this front saw our days inventory outstanding decreased to 105 days for 2024 comparing to 133 days in last year. Meanwhile, by optimizing our headcount, we successfully reduced direct salaries to revenue to 18.6% of revenue versus 18.8% in 2023. At the same time, in line with our retention strategy, we continue to reward our top performers to ensure we remain competitive in the market. Overall, we see both COGS and SG&A as a share of revenue decline versus last year, once more highlighting the effectiveness of our strategies. We maintain a healthy working capital position throughout the year, supporting our operational efficiency. Our working capital management will remain a key area of focus for us heading into 2025. Similarly, during 2024, we saw our cash conversion cycle notably to reach 99 days in December 2024 versus 129 days a year prior. This [ primarily ] reflects improved inventory management through the year and also the accounts receivables, the DSO. Beyond this, it's worth mentioning that 2024, we saw advertising expenses rise by 54% year-on-year as we invested in the ramp-up of operations in Saudi Arabia. In fact, advertisement costs booked in Saudi Arabia throughout 2024 represented 27% of the company's total advertising costs for the year. Finally, it's important to remember that while our cost base remains largely EGP dominated, certain fees are dominated in dollars and therefore, increased year-on-year following the pound's float. As Dr. Hend mentioned, in 2024, we reported an impressive 7 percentage points rise in our bottom line margin. Of course, this figure partially captured the increased ForEx gain from intercompany transactions. [ Nonetheless ] even when removing ForEx gain booked in both years, we still saw our net profit margin improving by 3 percentage points versus the previous year, supported by our cost control and optimizing efforts. Finally, as at year-end 2024, we boosted total cash reserve of EGP 1.7 billion, up substantially from the EGP 835 million at the close of 2023. Thank you for your attention. And now welcome for any questions you may have. Thank you very much.

[Operator Instructions] We have questions from the line of Johannes.

Congratulations on what looks like an excellent set of numbers and especially the fourth quarter. I have just 2 questions. One, can you just unpack the rationale for deferring the dividend? That's, I think, probably the most disappointing thing coming out of these results. Your net cash, you are very cash generative and the balance sheet looks pretty lazy as it is. There has been many times in the past and certainly in our conversations with you, a commitment to pay dividends. And I would just like to understand, what you are seeing in terms of how much capital you are looking to deploy? And what are the risks there are that preventing you from paying a dividend sooner? The second question is around the timing of these results. I mean we're come into -- we're already passed the first quarter this year. I think in conversations before, you mentioned that the fact that you had to audit in Egypt and in the U.K., delayed the results. That should not be the case anymore. So I would expect these results to come out a lot sooner. And also just in terms of the cost of the audit, I also understood that not having a listing in Egypt would not only save you time, but also audit expenses. But I see in these numbers, the audit expenses are actually higher and the results are still very late. I know the LSE allows you 4 months, but that's certainly -- it's unusual that these results should be so late. Wondering if you could just comment on that. Is that something that is out of your control? Is it going to continue like that? And to what extent can you save audit expenses going forward?

Thank you. Let me just answer the first question about the dividends. So yes, you're absolutely right. We've been able to pay dividends since IPO and until 2 years ago with the problems of financial issues that we faced in Egypt. And we continue to be committed on paying dividends. However, this year, we're looking at growth, especially after we acquired the stake of our Saudi partner in the KSA. So we already paid $25 million in this venture. And we see that we really need to look at potential growth, and this will acquire capital. And this is why we were a bit cautious in taking the decision to distribute dividends until we see what lies ahead in terms of investment and also because of what we're seeing of the instability that we're seeing also in the markets. So we thought we'd just wait until we look at the investment that we need to do and then distribute dividends afterwards.

Yes. For the second question, I totally agree with you that we are late. If you want just a small answer, maybe it's because of Ramadan. But totally, this is not the reason or -- I believe in 2025, we are supposed to be much better. I'm targeting to close in 2 months by end of February, maximum first week of March, and this is due to the digital transformation I'm leading these days. And we're already implementing [ SAC ], which is very strong analytical and consolidating reporting tools for us. So definitely, this will help us to generate our reports quickly as much better than now and with more accuracy. So things will be much better in the next year.

Regarding the fees, you asked about the fees, and this is due to the devaluation of the pound. So we actually removed the fees of the audit for the Egyptian listing. However, we faced the devaluation of the pound, which increased the fees of our auditor in the U.K. Thank you.

We'll take questions from the line of Sergey Dubin. Sergey, we are not able to here you. Yes, we're only hearing echo. So if you don't mind, can you please send your questions via the chat? And I'll read them out. I will take questions from the line of Farooq Junaid.

I have 3 questions. The first one is a bit related to the dividend question. You mentioned Saudi. If you could just confirm, you mentioned, I think, $25 million. But my question was more -- the progress in other markets, Jordan, Nigeria have been quite disappointing. So I think Jordan and Nigeria, patients are down, tests are down. Why will Saudi be different? And if you could remind us of the key numbers in Saudi, so the breakeven target, the CapEx plans and just confirm this $25 million number that you just gave. That's question one.

It's SAR 25 million. I'm sorry about that. It's just riyal, not dollars. Sorry.

So I'll just pause there for the first question. So if you could just remind us of Saudi breakeven target, CapEx plans and why will Saudi be different versus Nigeria or Sudan or even Jordan, which seems to be going sideways for quite a while.

For Saudi, our plan this year is to increase our branches from 2 to add 4 more branches. And we're looking for joint ventures with big players in Saudi in order to increase our footprint and capitalize on the CapEx that we already did. And our plan is to reach a breakeven starting from next year.

We have to start to be more profitable from the next year. And actually, we are looking to have -- we are seeking a growth in -- especially in the revenue to enhance our results. So we are focusing on this area. And hopefully, we will have something better soon.

Regarding Nigeria, actually, just to give you an update about Nigeria, Farooq, is that this quarter, actually, we broke even for the first time in Nigeria. So it's looking much better than before.

Is there a target IRR for Saudi?

We have a budget -- we have a 5-year budget that is put in place, and we can share it with you. So Tarek can send you all the details.

Okay. Second question is regarding the global macro, tariffs and so on. Do you have any exposure to imports, exports or any exposure to any change in tariffs versus the U.S. -- regarding the U.S.?

No. No. Because we don't import anything ourselves actually.

But could there be any exposure, [ fine ], someone else is importing from the U.S. and then they're the distributor to you in Egypt? But is there any -- from my understanding, it's mainly, I think, Siemens in Europe perhaps and other European players. But could there be any second order impact on you guys from the U.S. tariffs?

No. No effect on us.

And final question, something maybe quite small. I noticed that your employee count went down from 6,700 people to 6,300, so 400 people down. Is there anything to read into that? Is that just being more efficient? So despite the business growing, you're cutting employees.

Yes, we're trying to be more efficient, Farooq.

We'll take questions from the line of Karim [indiscernible].

The maintenance CapEx for this coming year or 2 and the growth CapEx, can you tell me sort of what the growth CapEx is? Obviously, Saudi is a market you're looking to expand and then the radiology opportunity in Egypt. If you can just talk about how you're thinking about spending in those 2 areas?

Karim, for the CapEx, we are expecting a CapEx for next year reaching 3.5% of our revenue compared with 3.3% what we did in 2024. We will be focusing on Saudi, as you said, to increase our footprint with 4 more branches and radiology in Egypt also.

Sorry, just as a follow-up. How much are you looking to spend on radiology? And I mean, I think the economics on the radiology business is very high, if my understanding is correct. But how much are you looking to incrementally spend there?

What we'll spend in the radiology in Egypt to increase what we have as an operational will increase our CapEx [ 4%, 5.8% ] as a percentage of sales, including Egypt, radiology.

We'll take a couple of questions from the chat, most of which have been already answered. One is if you can -- it's been asked several times. So again, if you can repeat some of the points. It's on guidance for 2025. If you can provide that for revenue and margins. Sorry, do you want me to repeat the question?

Please. We didn't hear anything, please. Could you repeat?

Just if you can provide guidance -- granular guidance on revenue growth and margins in 2025. That's for the overall business.

We are expecting a revenue growth on a group level of 33% for next year versus 2024 with a gross profit margin same last year, 38% and with an EBITDA margin to increase to reach 31% with an increase of 1% versus last year. And we're keeping the same margin for the net profit margin.

Great. Follow-up on that is from Sergey, who couldn't ask questions earlier. How long do you think you can return to your historical 40% EBITDA margin?

We're trying to improve our margins. So as you can see, we have an improvement on a yearly basis. However, I cannot give you an exact date when we can return to the 40s, but we are on the right track.

Last question that we have for the time being is also from Sergey. There was a notable shift in the patient mix away from walk-ins to corporate patients. Walk-ins that used to account for 1/3 of the total patients now just make up almost 20%. How do you see this going forward? And can you go back to having walk-ins being 1/3 of the entire business?

Yes. I mean we've been seeing this shift between corporate and walk-in, especially with the high inflation in our geographies. And we continue to see it, I mean, on a yearly basis. I think it's going to continue to be the same thing, given the high inflation and the high prices of the healthcare service overall.

Yes. And due to the price increase, Karim, (sic) [ Sergey ] so definitely, everybody tried to go with insurance company for social security or something that to get a better price because the prices became very much for the [ treatment ]. And this will be a normal trend in the next year, I think it will continue by this devaluation.

Okay. We've actually received a couple of questions in the chat. Three of them are actually on the same point, which is how much of price increases have you implemented starting 2025?

We implemented 26% on a group level blended.

Understood. Johannes is asking what effect have you seen from the national healthcare insurance project in Egypt? And how will this affect your business going forward?

So I mean it's been very slowly in implementation. So we haven't seen much of a change.

Great. We'll take our final questions from the line of William from [indiscernible].

Can you hear me?

We can go ahead, please.

My question is, can you walk through how you intend to play the Saudi market strategically? My understanding is that the Saudi hospital chains are quite active in diagnostics and make good money from it. So is the plan to serve the hospitals and the doctors? Or is it to act on behalf of the insurers and disintermediate the hospitals from practitioners?

Yes, you're absolutely right. Regarding hospitals in Saudi Arabia, they provide the big hospitals, they provide all sorts of diagnostic testing. However, it is not very convenient to go to a hospital to get tested. However, this is the case in Saudi Arabia. What we've been doing there since last year is that we are -- first, we started by the B2C, looking at people who are -- who want to get tested without going to hospitals, without going into the trouble of going to a hospital to get tested. We also -- now we are targeting the B2B. So we are targeting the smaller hospitals, the labs and the polyclinics that need testing. So this is also another venue that we're looking at. We got the accreditation, the [ SEBI ] accreditation, which was an essential step before targeting insurance. So we got accredited and now we are able to also target insurance. So we are working on multiple fronts, trying to penetrate the market by different ways, B2C and B2B.

Okay. So in the long run, it's like with a market share play against the hospital -- the large hospitals. Is that a good way of looking at it?

It is a very big market, very fragmented and still not mature enough. So we think that we have a chance to penetrate this market and to give value to the market, especially with our lower prices compared to hospitals.

Got it. And then maybe just finally, you're saying 6 branches is the target for this year. Like how big can this get? Obviously, you have like a much, much larger network in Egypt. But what's the kind of midterm target for the branch rollout that could be reasonable in KSA?

We put a plan to open 30 branches for the coming few years, however -- coming 3 years. However, the strategy keeps on changing according to the dynamics in the country. So as I said, we've been looking at the -- also targeting the smaller hospitals, the polyclinics together with the B2C as well. So -- and we're also looking at the government because the government in Saudi is also working on privatizing the diagnostic sector. So we're working on all fronts. However, we put a plan to open 30 branches in the coming 3 years.

Thank you very much. I'll pass it back to you for any concluding remarks. Otherwise, we can end the call.

Thank you, everyone, to our attending today. And you have our contacts. If you need any follow-up questions, please send to us directly. Thank you, Ahmed, for hosting the call. Thank you, everyone.

Thank you.

Thank you.

Thank you, everyone. This concludes today's earnings call. Have a good rest of the day.