Integrated Diagnostics Holdings plc

Hello, everyone. This is Ahmed Moataz from EFG Hermes, and welcome to IDH's first half of '25 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, Director of Investor Relations.

As usual, the company will start with a brief presentation, and then we'll open for Q&A. IDH, please go ahead.

Good afternoon, ladies and gentlemen, and thank you, Ahmed, and thank you, everyone, for joining us for IDH second quarter analyst call. My name is Tarek Yehia, am I am HR -- IDH Investor Relations Director.

Joining me today, we have Dr. Hend El Sherbini, our CEO; Mr.

Sherif El Zeiny, our CFO. Dr.

Hend will begin the call with a summary of the latest period main highlights. After that, I will discuss in more details the main macroeconomic and geopolitical trends seen across our market.

Mr. Sherif will offer a deeper analysis for our financial performance.

We will then end the call with Q&A. I will hand over the good to Dr.

Hend.

Thank you very much, Tarek, and good afternoon, everyone. I'm Dr.

Hend El Sherbini, CEO of IDH. At the halfway point of what has so far been a very remarkable year, we are pleased to report another strong set of financial and operational results.

Our performance in the first 6 months of 2025 highlights once more the effectiveness of our growth and investment strategies, which are enabling us to capture broad-based growth across our markets while driving sustained margin improvement. Our results for the period have also been supported by improving operating conditions across our footprint.

We're particularly happy to see that our home and largest market of Egypt has remained on an improving trajectory in recent months, with the pound strengthening notably as investor confidence recovers further. In light of these results and the progress made on our strategic priorities, we are very pleased to announce that our Board of Directors has approved the distribution of the cash dividend for the year ended 31st of December 2024 of $0.017 per share to shareholders.

This decision, which, as you may remember, had been deferred earlier in the year follows a careful assessment of market conditions and the company's cash flow needs for strategic investments. The Board is confident that the company's strong financial performance in the first half of 2025 and its robust liquidity position now support this distribution, reflecting our continued commitment to delivering shareholder value.

Turning to our performance in more detail. In the first half of the year, we reported consolidated revenue of EGP 3.5 billion, an increase of 42% from the same period of last year.

Revenue growth for the period was dual driven as our test volumes increased 10% versus last year, and our average revenue per test was 29% compared to the first half of 2024. In the last 6 months, we performed just under 20 million tests, recording test volume growth across all 4 of our currently operational markets.

This is a particularly remarkable achievement considering the price adjustments rolled out at the start of the year across multiple markets to keep up with rising inflation. Meanwhile, we also succeeded in further expanding our average test per patient metric, which reached a new record high of 4.6 tests versus 4.3 tests this time last year.

In Egypt, we continue to invest significantly to maintain our leadership position and remain the go to provide for patients nationwide. During the first 6 months of the year, we opened up 49 new locations to better serve patients within and outside greater Cairo.

Our efforts have delivered immediate results with tests and patient volumes rising 9% and 3% year-on-year, respectively. And our top line, reaching EGP 3 billion, up 43% versus the same period of 2024.

While we continue to grow our physical footprint, which as of the 30th of June 2025, saw us operating 636 locations nationwide, we are also investing in strengthening other patient touch points. In particular, we were very happy to see our house call service contributes to 20% of our Egypt revenues, standing above its average contribution over the last several years.

The service continued growth has come as a direct result of our strategic investments over the last 4 years as part of our post-pandemic growth plans. Meanwhile, our radiology subsidiary Al-Borg Scan continued its steady growth with scan volumes returning to year-on-year growth in the second quarter of the year, following Ramadan related slowdown in March.

We expect to see an acceleration in scan volumes and revenues in the second half of 2025 supported by improving market conditions and Al-Borg Scan's growing popularity within its catchment areas. During the first -- the second quarter, we completed a landmark acquisition to further strengthen our radiology offering, more specifically in June, we acquired CAIRO RAY for Radiotherapy, an established radiotherapy service provider in East Cairo.

The transaction, which was completed for a total consideration of EGP 400 million will see IDH add radiotherapy to our patient offerings. Over the last 18 months, a key priority for all of us at IDH has been the launch and ramp up of our Saudi operations.

I'm pleased to report that our results coming out of the Kingdom remains strong and encouraging, fueling our optimism for what's to come. The second quarter of 2025 Biolab KSA revenue surpassed the SAR 1 million mark expanding by 31% versus the prior quarter.

Similarly, on a year-to-date basis, we saw revenue reached SAR 1.9 million, supported by rising test volumes. This growth continues to highlight the effectiveness of our ramp-up strategy in the market, which aims to accelerate revenue growth and establish Biolab KSA as a key player in the large, but highly fragmented Saudi diagnostics market.

On this front, in early July, we inaugurated our third branch in the country located in Al Hamra District in Riyadh. Meanwhile, we continue to press forward with our other growth initiatives as part of our ramp-up plans.

These have included an aggressive on-the-ground marketing campaign to raise brand awareness, strategic discounts to build momentum as well as exploring potential partnerships with health care operators. As always, a key focus for IDH remains driving profitable growth with our first half results pointing to widespread improvements across all key metrics.

More specifically, during the current reporting period, we saw our gross profit margin expand 5 percentage points versus last year, and our adjusted EBITDA margin expanded 7 percentage points compared to last year. These remarkable improvements come as we continue to press ahead with our cost optimization efforts, which have seen our cost of goods sold and our SG&A outplayed as the share of revenue declined by combined 9 percentage points versus the first half of last year.

Our bottom line profitability has also displayed sustained improvements when controlling for the substantial FX gains recorded in the comparable period of last year. In fact, during the period, we saw our adjusted net profit more than doubling year-on-year and yielding an associated margin of 16% versus 7% last year.

As with the last quarter on the profitability front, a key highlight of 2025 so far has been our Nigeria operations during -- turning EBITDA positive. We expect Echo-Lab's profitability to continue improving as operating conditions stabilize and our revamped strategy in the country deliver results.

Before handing the call over to Tarek, I would like to quickly touch upon our full year guidance in light of our most recent results. As previously stated, given the relatively stable market conditions enjoyed up to this point, in our first half results, we see our full year revenue growth coming in at around 30% for 2025.

Meanwhile, on the profitability front, we see EBITDA margin coming in north of 30% for the year as our proactive cost control efforts continue to mitigate against inflationary pressures in Egypt and Nigeria. With that, I'll hand the call over to Tarek and Sherif, who will dive deeper into key trends across our chosen markets and our financial results for the period.

Tarek? Thank you, very much.

Thank you, Dr. Hend.

As Dr. Hend mentioned during her presentation, the first 8 months of 2025 has been characterized by relative stability and positive in our chosen markets.

In Egypt, we are continuing to see slower inflation compared to prior years, with the [ last trading ] for July coming in a low of 13.9%. Decreasing inflation pressure has been supported by relative strengthening of the EGP versus dollar as well as increased ForEx inflows into Egypt as investment confidence recovers and remittance continuing to rise.

In fact, in recent weeks, we have seen the EGP trading constantly below the EGP 49 to the dollars, values foreseen last year. Following rate cuts in April, May and in August for accumulative of 5.5 basis points, the main operating rate in Egypt currently stands at 22.5%.

Improving macroeconomic conditions are set to be combined by further interest rate cuts in the coming months. This has undoubtedly helped prop up local investment activity and drive further recovery in consumer spending.

Similar to Egypt, Nigeria has also seen relatively stable in the first part of 2025. Inflation has come down from last year highs, and this is expected to support the gradual recovery in consumer spending.

Over in Jordan and Saudi, the economic situation remains largely stable despite increased regional uncertainty in the final weeks of the second quarter. Turning quickly to our latest results.

Egypt continued to post strong growth in line with recent trends. Meanwhile, in Jordan, revenue posted solid year-on-year growth in both EGP and local currency terms, supported by a promotional campaign organized by Biolab, which saw test volume grew an impressive 21% versus last year.

In a market where volume-driven growth is the key for long-term sustainability, we were very pleased to see Biolab's strategy pay off so successfully. In our third largest market of Nigeria, Echo-Lab is now firmly EBITDA positive, a direct result of our revamped turnover strategy kicked off last year.

We are excited for our Nigerian subsidiary to build on the progress made thus far and fully capture the vast upside offered by local radiology markets. Finally, as Dr.

Hend already mentioned, our newest market of Saudi Arabia is ramping up very encouraging as we had hoped at the start of the year. In the coming months, we expect to see further acceleration in the revenue growth, fueled by the launch of new locations, starting with Biolab KSA branch, which was started in early July.

Finally, in Sudan, operations continue to be significantly impacted by ongoing conflict with no notable updates to report. I will now hand the call over to Mr.

Sherif who will provide a more detailed overview of our cost profitability for the 6 months period. Thank you.

Thank you, Tarek. Good afternoon, ladies and gentlemen, and thank you for your time today.

As Tarek mentioned, during my presentation, our focus will be on cost and profitability before opening up the floor to your questions. In line with guidance -- with our guidance, profitability for the first half of the year has continued to improve, supported by our group-wide efforts to boost operational efficiency and keep spending at bay.

On the efficiency front, the single biggest focus areas since the start of last year has been digitalization as we work to integrate new solutions into all aspects of our business. By successful leveraging these tools, we are supporting our group-wide decision-making process, ensuring that everyone across the organization is taking data-backed decisions to drive IDH forward.

In parallel, we are also keenly focused on keeping costs down. Our efforts here have translated in a 9-percentage-point drop in our total cost to revenue ratio for the period compared to last year.

This is a very impressive result, especially when considering the continued inflation pressure faced across some of our largest markets. The most notable decline was seen in our raw material expenses as the share of revenue, which stood at 19.6% in the first half of 2025 down from 21.5% last year.

The decline reflects our proactive inventory management strategy, which sees the company leverage its scale to secure advantageous price for its testing kits. Meanwhile, total wage and salaries as a share of revenue stood unchanged at 26.5% in Half 1, '25.

This reflects the successful introduction of salary adjustments to retain key staff and to -- and the continuation of our efforts to optimize headcount. As you can see in the bottom right chart, increased efficiencies have translated in notable expansion in both our gross and adjusted EBITDA margins for the 6 months period.

More specifically, we saw our gross profit margin reached 42% versus 37% in Half 1 '24, where our adjusted EBITDA margin stood at 34% in the current period versus 27% in '24. Beyond this, it's worth mentioning that advertising expense rose 23% year-on-year as we continue to invest in supporting our ramp-up in Saudi Arabia, while doubling down on advertising efforts in Egypt.

Finally, it's worth remembering that while our cost base is largely EGP denominated, some costs are linked to the dollar, and therefore, have increased year-on-year following the pound's float in March '24. As Dr.

Hend already outlined, the contractions recorded at our bottom line margin reflects the high base effect from the substantial ForEx gains recorded last year. Controlling for this, our adjusted net profit expanded 214% year-on-year with an adjusted net profit margin of 16% versus 7% last year.

Throughout the first 6 months of the year, we kept a healthy working capital position, supporting our operational efficiency. As mentioned in previous calls, our working capital management has been and will continue to be a key area of focus for us.

Similarly, we saw our cash conversion cycle improve further to reach 138 days in June '25 versus 155 days at the end of '24. During the 6-month period, we saw provisional charges for doubtful accounts came in relatively unchanged at EGP 14 million.

On the one hand, this reflects increased revenue, while on the other hand it reflects -- increased revenues, while on the other hand, it reflects improving economics conditions as the rollout of new incentives for IDH staff boost collection rates. It is also important to mention that as expected, we saw a decline in days inventory outstanding, reflecting accelerating sales during the second quarter of the year following the seasonal Ramadan slowdown in March.

Finally, as June '25. Our total cash reserves stood at EGP 1.7 billion with a net cash balance of EGP 337 million.

Thank you for your attention. We now welcome any questions you may have.

Thank you.

[Operator Instructions] We'll take the first line of questions from Matthew.

Can you hear me fine?

Yes. Please, go ahead.

So Matthew from Confluence investors. We've been an impact fund focusing on Africa and the emerging markets.

Long-time follower of the company and very good results. I've got 2 questions and 1 comment.

The first question is about the -- about Saudi Arabia that in the numbers of tests these seem to be flat Q1 to Q2, while the number of patients seem to have a significant increase. Could you explain that discrepancy?

So yes, you're right. I mean, we've seen an increase in number of patients and a flat number of tests, and this is because of the corporate side.

So we've been working on the B2B there. And the B2B, the number of tests per patient is much lower than when you're working with the B2C, like what we've been doing before.

Got it. Okay.

And then second question is around Egypt and around the cost base. So you alluded to this before, but some of your costs are, if not dollars, then certainly dollar linked.

Are you able to, for Egypt, give us some more guidance around what proportion of the COGS and what proportion of the SG&A are USD linked?

So when we're talking about the linking to the dollar, it's -- we're only talking about the raw materials that we -- that is linked to the dollar, which is around 20% of our COGS.

Right. And none of the overheads, you think?

I mean, obviously, there's a bit of flow through, but...

No. So 20% of revenue is linked to the dollar because these are the raw material costs.

And my final one, sorry, taking a lot of the floor, is a comment, which is, as the scans get to be larger and larger portion of Egypt, will you consider splitting out the financials of the pathology side to the scans?

Yes, we want to do that, and we're working on doing this, yes.

Okay. I realize you already do a lot of disclosure, but that would be great.

Congratulations on great results.

Thank you very much.

Okay. [ Fawad ] has a couple of questions on the chat.

I'll read them one by one. Could you please explain the rationale for opting to return capital to shareholders through dividends rather than payback?

The former are tax inefficient for most shareholders and those who want to can manufacture their own tech? Yes, that's the question.

I mean this has been a requested by many shareholders, including Actis. So given the situation in Egypt now and the stability of the Egyptian pound, we -- the Board has taken the decision to distribute the dividends away from the money that is needed for investments, and this was the rationale behind that.

Understood. The second question, could you elaborate on the initiatives taken to improve results in Nigeria since last year?

Specifically, what was the driver of decreasing patient numbers, but increasing tests per patient?

Yes. It's -- the improvements cames in Nigeria because we worked on everything.

But in the revenue side, we increased the revenue and also in some brands who were not working properly, we already made the renovations and now we are getting much better results than before. Also the cost each one and we enhanced the headcount.

And we did a lot of things that eased the consumption and everything. But for the number of tests, we already made much more contracts like before, like Saudi Arabia B2B, we have now -- they were counting on walk-in patients, but now we have lots of contracts working and it will increase more after that.

Understood. There's a final question on the chat is, could you please provide more color on the promotional push in Jordan?

So yes, the Biolab in Jordan has been conducting the promotional campaigns with discounts in order to increase the tests -- the number of tests. And this has definitely improved the revenue and the number of tests done in Jordan.

Understood. We'll move on to 3 questions from the line of [ Farooq Maya ].

The first one, there has been a ramp-up in branch openings, plus 80 year-on-year, but branch efficiency, which is calculating it based on patients per branch is being held back as a consequence. How do you ensure that each branch meets the minimum return on investment and/or payback, and is cannibalization a concern?

So this year, I mean, we've been focusing on opening branches in hospitals. So this is hospital management and clinics.

We're managing clinics, labs in clinics and labs in hospitals. And this is why you can see the increased number of branches opened this year.

I think you got muted. I'm not sure if you finished answering the question or not.

Excuse me?

No worries. I thought you got muted in the middle of the question, but yes.

So maybe I can repeat that. So we opened 85 hospitals and clinics that we manage.

I mean, we did -- we are managing branches inside hospitals and clinics of a total of 85 this year. So this is why there is an increased number of branches opened this year rather than opening our own branches with our own CapEx.

Good. And for the other part of the question, is cannibalization a concern, and have the new branches being opened more or less been meeting the minimum return on investment that you internally target?

Yes, sure. I mean you can see this from the results in the top line and in the bottom line, which explains -- which answers this question.

Okay. Second question, has radiology business kept up with the business plan 5 years ago when it was launched?

What contribution can this make in the coming 3 to 5 years? And what learnings from this new business is useful for the new Saudi business?

So the radiology -- the Al-Borg Scan, the 5-year plan that was put for the Al-Borg Scan is to have it 5% of the total revenue of Egypt, which is the case right now. So we've reached the -- our target of 5%.

And we're still aiming at increasing the percentage of revenue coming from the Al-Borg Scan where we're opening a new branch in New Cairo where we're increasing efficiency, increasing utilization and so on. But this has nothing to do with Saudi Arabia because Saudi Arabia, here, we're talking about pathology business rather than radiology.

Understood. And last part of this question, what was the rationale of the recent acquisitions that you've done?

There is a shortage of radiotherapy in Egypt. So this comes that there is an increased demand and shortage of radiotherapy machines.

We were looking at having a new branch for Al-Borg Scan in New Cairo. So this recent acquisition will encompass both, Al-Borg Scan branch in New Cairo as well as 2 radiotherapy machines with a very attractive price.

So when we looked at the price offered, or the price for this new branch, it was the same price as if we were doing a new Al-Borg Scan alone -- stand-alone branch. So I mean, it complements what we're doing.

There is a high demand for it and as well as the geographical place, which we were looking for.

There's a follow-up on, if you can share any KPIs on the CAIRO RAY acquisition, specifically revenue, operating income, EBITDA? And if you can also share some info on their balance sheet health, and lastly, the growth outlook of the business?

I can definitely send you the business plan that we have for CAIRO RAY. We're not going to be able to share it now, but we can -- Tarek can definitely share it with Farooq.

Is it Farooq who is asking this question?

This is actually, [ Zohaib ]. I can send you his e-mail after the call.

Okay.

Darren Smith is asking, could you please provide color on the 30% EBITDA margin guidance given that in the first half, you've already achieved 34%? Would that mean that you expect the second half to be much weaker?

And lastly, he is congratulating you on the results and the great -- and it's great to see dividends as well.

So we were planning -- we are looking at around -- in the first -- in the 30s up 32%, 33% EBITDA margin, and this is what we communicated to the market before. Does it mean that we are looking at slowing down the operation, but it's rather the investments and the money that is -- the cost that is being in the second half of the year.

But -- so it's more or less what we communicated before to the market, in the north of 30% EBITDA margin.

Understood. [ Fawad ] is asking, could you elaborate on the digitalization initiatives undertaken across the business?

Actually, we are doing lots of digitalization in all our business aspects. For the time being, we are implementing Salesforce, which is -- will, of course, help us a lot for the sales side, for the revenue sides.

Also, we are implementing this -- the tool of SAP, which is SAP advanced tool of reporting and analysis. And this is very important.

We are working in the data, having a very strong data warehouse, which will integrate all our business together from LMS, from SAP, S-A-P, ERP from the Salesforce, from all our business. And also, we are working on having a very online banking system with the banks and make reconciliation and so on.

We're already making -- a big part of it already implemented, and we are doing the reconciliation with the banks because it's a headache because we are having a huge number of branches, and we have to make sure that our cash is already deposited into our accounts or our banks on a daily basis. So this was really huge efforts, but now we are much better, and we are continuing.

So we have lots of projects. I have mentioned part of them.

But digitalization is part, of course, also for the business, we have AI. We are managing to make some -- we have some use cases for serving the reports on -- through our AI system and so on.

We've also implemented an app for the house call team. It's like the Uber experience where the patient, when he orders a house call, he can track the phlebotomist while coming to his house so that makes it easier for them to book an appointment and follow the appointment until you get the results online.

Very clear. For the time being, we received one more question in the chat.

[Operator Instructions] How many of your new branch openings in the first half of '25 were under the new management product, which is -- I think he's referring to the ones opened in clinics and hospitals. And within those, do you have a profit-sharing arrangement?

Or how does it work?

So we opened 85 hospital managed labs and clinics where we are managing the hospital labs and the labs inside clinics. And we do this through revenue sharing with the hospitals and the clinics.

Understood. Yes.

One more question. Are there any new markets that you're actively considering to enter?

We are always looking at new markets. So we're looking at other countries in the Middle East as well as in Africa, but there is nothing concrete for the moment.

Whenever we have something concrete, we'll definitely share it with the market.

Understood. We've actually received more questions from [ Farooq ].

I'll give it to you one by one. There has been very good OpEx controls recently.

How much more trimming is there still available within costs? And his second question is, what is the outlook and potential of home services?

How much bigger could it be as a percentage of revenue?

So we're always continuing -- we're always looking at optimization. One of the things that we're working on right now and the shared is the digitization of the business.

And this will definitely bring more cost optimization in terms of manpower, in terms of other efficiencies that we'll see one by one. So this is one initiative that we're working on.

Regarding, of course, the material, we're always also working with our suppliers, looking at new suppliers as well to try to decrease the cost of goods. So these are the 2 main components of our cost, the manpower and the kits or the kits and the consumables.

So both of them we're working to optimize them as we go on. Regarding -- your second question was?

Outlook for the households.

For the household outlook. So now it's around 20%.

And as you remember, during COVID when I was asked this -- if I think this will continue to be part of our -- a big part of our revenue pre-COVID, I was always telling people that I think it's going to be -- the house call is going to increase even pre-COVID, and this is what happened. So we're now at 20% of revenue.

I gave them actually a target of 40%. So I gave the house call team a target of 40%.

This is a bit aggressive. However, I think we can go up to 40% at a point of our revenue coming from house call.

We're working on improving the service. As I said, we digitize it.

We are optimizing it now. We're trying to make it even better so that people can use it more and more.

Understood. We haven't received any further questions.

So I don't know if you have any concluding remarks. Otherwise, I can end the call now.

No, there is no concluding remarks. I only thank everyone, and I thank the team here in IDH.

I thank everyone who is listening to us and game us questions. Thank you very much.

Thank you very much to IDH's management and to all participants. This concludes today's earnings call.

Have a good rest of the day, everyone.

Thank you, Ahmed.

Thank you very much.

Thank you.