Integrated Diagnostics Holdings PLC

LSE:IDHC

Q1-2025 Earnings Call

[Ahmed Moataz, analyst]

Hello, everyone. This is had Ahmed Moataz from EFG Hermes, and welcome to IDH's First Quarter of '25 Results Conference Call. I'm pleased to be joined with Dr. Hend El Sherbini, Chief Executive Officer; Sherif El Zeiny, Vice President and Group CFO; and Tarek Yehia, Investor Relations Director. The company, as usual, will start with a brief presentation, and then we'll open the floor for Q&A. IDH, please go ahead.

[Hend El Sherbini, executive]

Thank you very much, everyone, and good afternoon. I'm Dr. Hend Sherbini, CEO of IDH. Since we last spoke just over a month ago, the company has remained on a robust growth trajectory, delivering impressive first quarter results, which set the tone for the year ahead. Our results for the first 3 months of the year built on a record-breaking 2024, which saw us deliver record highs across most of our operational and financial KPIs.

Before diving deeper into our performance for the period, it's worth mentioning that across several of our markets, particularly Egypt and Nigeria, we have seen stabilizing macroeconomic conditions after a turbulent couple of years. In our home and largest market of Egypt, inflation has slowed substantially to around 13% in recent months with the Central Bank of Egypt cutting rates twice in April and May.

We've also seen relative stability in the Egyptian pound, which depreciated marginally following Trump's tariff announcements, but which has strengthened again in recent weeks to reach multi-month flows. We expect a relatively stable Egyptian pound and lower inflation to support the gradual recovery in patients purchasing power, translating in increased volumes as the year progresses. I leave Tarek to discuss our macroeconomic backdrop a little later in our presentation.

Turning to our results. During the quarter, we recorded revenue of EGP 1.6 billion, up 35% year-on-year. Revenue growth was supported by 37% rise in average revenue per test, which more than offset the temporary decline in patient traffic. It's worth noting that lower patient test volumes for the quarter mostly captured the impact of Ramadan on traffic at our branches. Ramadan, which is typically associated with lower volumes, started on March 1 this year as opposed to March 11 last year, in turn, weighing on results for the full month of March.

We expect volumes to pick up starting in the spring and summer months, supported by our expanded offering and geographic reach. During the quarter, we once again succeeded in growing our average test per patient metric, signaling the rising attractiveness of our offering. More specifically, average test per patient reached a new record high of 4.5 tests during the quarter, up from 4.3 this time last year and 4.1 in the first quarter of 2023.

On the volumes front, it's important to mention that in Jordan, we saw an impressive 16% increase in test volumes versus last year. This reflects the success of a newly launched promotional campaign aimed at boosting test volumes in the country. In a market where volume-driven growth is at the heart of our strategy, we are very pleased to know the effectiveness of Biolab's growth initiatives, which translated in year-on-year growth in both Jordanian Dinars and Egyptian Pound terms. As with the previous quarters, Egypt remained a standout performer, delivering year-on-year revenue growth of 32%. Revenue growth was supported by our strategic price hikes, which helped offset the temporary decline in volumes associated with Ramadan.

During the quarter, we continued to invest in growing our customer touch points across the markets. Our branch network reached the historic 600 benchmark during the quarter, up 54 branches since the 31st of March 2024. Meanwhile, our house call services contributed an impressive 21% to revenue in the country, nearing the contributions made during 2020 and 2021 when COVID-19 had boosted demand for the service.

Finally, Al-Borg Scan continued to grow despite witnessing a temporary slowdown linked to Ramadan. We anticipate that the venture will return to its normal growth rates starting in the current quarter.

Looking at our radiology segment in more detail, during the first quarter, revenue growth stood at 12% on the back of the 34% rise in average revenue per scan. This helped offset an anticipated decline in patient scan volume, which we see normalizing heading into the spring.

Before looking at our profitability, I would like to take a moment to update you on our Saudi ramp-up. During the first quarter, we continued to see encouraging quarter-on-quarter progress despite this period's results, including the impact of Ramadan. More specifically, we saw revenue rising 33% versus the previous quarter, supported by increased test and patient volume, which reached 28,000 and 5,000, respectively.

Over the coming year, we are looking to capitalize on the growing momentum enjoyed in the Kingdom to further establish Biolab's KSA brand in the local market. We are exploring additional growth avenues through strategic partnerships with hospital operators, and we will be disclosing any updates as soon as they become available.

Our efforts to expand our footprint are complemented by strategic marketing and advertising campaign aimed at raising awareness of our brand and services. We remain optimistic about the prospects offered by Biolab KSE and the Saudi diagnostic market and are excited to push forward with the ramp-up in the coming months.

Turning to our profitability. I was very pleased with the progress made during the quarter. Effective cost control measures continue to support steady improvements in our profitability with both our gross and EBITDA margins expanding 3 percentage points year-on-year. With regards to our bottom line performance, despite both our net profit and its associated margin declining substantially versus the previous year, it's important to note that this wholly captured the high base effect from last year's FX gains. Controlling for FX gains in both periods, our bottom line showed a very healthy improvement with our adjusted net profit more than doubling versus last year and with this associated margin up 5 percentage points. A highlight of the quarter was without a doubt the performance of Echo-Lab in Nigeria, which turned EBITDA positive, in line with our expectations. This reflects the effectiveness of our revamp strategy in the country, which has been supporting systematic improvements over the last year.

Before handing the call over to Tarek, I would like to reiterate that our first quarter results point to a very encouraging start of the year. With this in mind and given the relatively stable market conditions enjoyed up to this point, we see our full year revenue growth coming in at around 30% for 2025. Meanwhile, on the profitability front, we see EBITDA margins coming in the 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 it back over to Tarek and Sherif, who will delve deeper into key trends across our chosen market and our financial results for the quarter. Thank you very much, everyone.

[Tarek Yehia, executive]

Thank you very much, Dr. Hend. And I will start with Slide 8. As Dr. Hend indicated, 2025 has been marked by relatively stable in our chosen market despite rising global uncertainty. In Egypt, as anticipated, we have seen a sharp decline in inflation starting in February, partially reflecting a high base effect on [ quarter ] supported by the relative stable of the EGP. On the exchange rate front, we have continued to see encouraging signs that the pound float remains [indiscernible]. The currency depreciated through the first quarter to average EGP 50.4 to the dollar. This compares to an average exchange rate of EGP 45.5 to the dollar throughout 2024.

Since the end of the quarter, we have seen more movement in pounds, which depreciated to trade above EGP 51 following Trump's tariff announce. In recent weeks, we have seen a gradual strengthening of our currency as foreign investors look to capitalize on Egypt's attractive returns. The country outlook remains relatively positive despite rising global and regional uncertainty.

In line with this, we have seen Central Bank of Egypt cut interest rates twice since April, making the rate first decline since November 2020.

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

Slide 9, please, Ahmed. Over in Jordan and Saudi Arabia, the economic situation remains largely stable despite both country remaining exposed to external risk. While Saudi Arabia economy would be tested by ongoing global trade tensions, we remain confident that the excellent work done by the Saudi government to build resilience in the economy will help save the country from ongoing turbulence.

Slide 10. As Dr. Hend explained, Egypt continued to lead the way during the quarter, posting strong financial results. Similarly, we also recorded remarkable results in our markets. Starting with Jordan, we show Biolab deliver growth in both JOD and EGP terms, supported by higher test volume, higher volume to be supported by dedicated campaign launched by Biolab as part of wider growth strategy. In a market where prices are highly regulated by the government, volume-driven growth remain Biolab's #1 objective. And as Dr. Hend mentioned, we are very pleased to see the company efforts paying off.

Meanwhile, in Nigeria, we also saw growth in local currency and EGP terms. As mentioned earlier, the highlight coming out of Nigeria with Echo-Lab turning EBITDA positive and validating the effectiveness of our revamp turnaround strategy in the country.

In Saudi, we reported revenue growth versus previous quarter despite the anticipated Ramadan slowdown, leaving us optimistic about KSA going forward. Finally, in Sudan, operation continued to be significantly impacted by the 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 and profitability for the 3 months period. Slide 11, please.

[Sherif Mohamed El Zeiny, executive]

Thank you, Tarek. Good afternoon, ladies and gentlemen, and thank you for having joined us today. As Tarek mentioned, during my presentation, I will focus on cost and profitability before opening up the floor to your questions.

In line with our guidance, profitability for the quarter continued to improve, supported by our comprehensive strategic focused on boosting operational efficiency while keeping spending down. On the efficiencies front, the theme, since the start of 2024, has been digitalization as we work to integrate new tools and solutions across all aspects of our operations. Through these tools, we are enhancing the effectiveness of our decision-making and reporting processes, helping to improve both the quality of our services and the way they are delivered.

Meanwhile, on the cost front, we were particularly pleased to note that the sharp decline in our raw materials to revenue ratio, which reached 19.5% in Q1 '25 versus 21.1% this time last year. At the same time, our work to optimize headcount over the course of 2024 continue to bear fruit, with our salaries and wages to revenue ratio rising only marginally despite annual compensation increase as part of our staff retention strategy.

All in all, as you can see in the bottom right chart, these improvements translated in notable expansions in both our gross and EBITDA margins for the 3 months period. More specifically, we saw our gross profit margin reach 40% versus 37% in Q1 2024, while our EBITDA margin stood at 31% this year versus 28% in the corresponding period of 2024.

[Tarek Yehia, executive]

Slide 12, please.

[Sherif Mohamed El Zeiny, executive]

Beyond this, it's worth mentioning that advertising expenses rose 74% 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 important to remember that despite our cost base remaining largely EGP dominated, some costs are dominated in dollars, and therefore, increased year-on-year following the pound's float in March '25.

[Tarek Yehia, executive]

Slide 13.

[Sherif Mohamed El Zeiny, executive]

As Dr. Hend explained, the contraction recorded at our bottom line reflects the significant boost to the net profit from ForEx gains during the first quarter of last year. Controlling for this, our adjusted net profit expanded 114% year-on-year with an adjusted net profit margin of 14% versus 9% last year.

[Tarek Yehia, executive]

Slide 14.

[Sherif Mohamed El Zeiny, executive]

Throughout the quarter, we maintained a healthy working capital position supporting our operational efficiency. As mentioned in last quarter call, our working capital management remains a key area of focus for us going forward. Similarly, we saw our cash conversion cycle improve further to reach 123 days in March '25 versus 155 days at the end of '24.

During the quarters, we also saw provision charges for doubtful accounts declined significantly to just EGP 7 million from last year's EGP 17 million. The decrease reflects an improvement in overall economic conditions in our markets and was also supported by the rollout of new incentives for incentive scheme for IDH staff to boost collection risk. It is also important to note that the uptick in days inventory outstanding exceeds the quarter reflects mostly lower volumes due to Ramadan and expect this to normalize heading forward.

Finally, as at 31st March '25, our total cash reserves stood at EGP 1.7 billion with a net cash balance of EGP 385 million.

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

[Ahmed Moataz, analyst]

[Operator Instructions] We'll take our first question from John Smith.

John, we are not able to hear you.

All right, John. Either try to get into the Q&A again or you can send your question in the chat, I will read it out. We'll move on to questions from Darren Smith.

[Darren K. Smith, analyst]

Two questions. What are the losses currently in Saudi? And what's the time to break even, if you have any figures that you can share there? And then secondly and probably more important is what is the outlook for dividends given the significant cash balance and expectations for a dividend from shareholder? It looks like there are no FX issues in Egypt for now. It's certainly something that we would expect to shareholders, so any update on dividend, please.

[Sherif Mohamed El Zeiny, executive]

For Saudi, we are expecting breakeven on EBITDA on next year, full year 2026, and to have a positive net profit starting from 2027. Gross profit margin will start to ramp up since 2026 in the range of 30%.

[Tarek Yehia, executive]

For the dividends, we agreed with the Board that we can postpone it after half 1 result to decide whether we will make dividends or not taking into consideration that some investments in the pipeline, especially outside Egypt, which can -- as our strategy to grow outside Egypt. So by end of Q2, we will decide about the dividends.

[Ahmed Moataz, analyst]

Right. We'll take a couple of questions from the chat. Apart from dividends, can you kind of outlay other options that you would utilize the cash in? And secondly, do you have any particular guidance for Saudi in just 2025? And I think this would mean in terms of revenue and lab expansions.

[Tarek Yehia, executive]

For Saudi, what we can say now that for 2025, currently, we are operating with 3 branches, and we can -- looking to open another 1 by end of this year to reach 4 for the current year. And as we said before, we'll breakeven on EBITDA on 2026.

[Sherif Mohamed El Zeiny, executive]

Still, it's Saudi and as we say, it's in ramp-up position. We have already -- the budget is 8 branches. Now we finish 3, and we can finish another 1. Also, we are using lots of new lab-to-lab virtual lab management and hospitals. So we have lots of -- we are trying to knock all the doors. And still, it's in the beginning so we are trying to get any more revenue from any kind of channels. Thank you.

[Ahmed Moataz, analyst]

Another question...

[Sherif Mohamed El Zeiny, executive]

[indiscernible] the investments, of course, this is the only part. We have investments, of course, as we said, in Saudi Arabia. We are -- in the pipeline, we have very strong opportunities. We are studying in other countries. And also in Egypt, we have some opportunities we are working on them.

[Ahmed Moataz, analyst]

All right. Another question, is the reduction in raw material costs sustainable? And what is the volume growth you're expecting for 2025 for the entire company, not just the country-specific volume growth?

[Sherif Mohamed El Zeiny, executive]

Actually, yes, 100%. The inventory already, we have very strong inventory management, and we are following the inventory, and we are targeting always to not exceed 100 days. Even this quarter, we have increased a little bit. Because of Ramadan we couldn't sell all this quantity, but we will go back for our normal number of days for the inventory.

[Tarek Yehia, executive]

Regarding the growth in 2025, we're expecting revenue growth 32% to 33% 2025 over 2024 blended for the group.

[Ahmed Moataz, analyst]

Sure. And just a clarification, the reduction was on raw material costs, not just inventory in terms of the cover that you have right now?

[Tarek Yehia, executive]

Yes, Ahmed. We were talking about the raw material percentage to COGS, which we saw reduction in Q1 versus last year.

[Ahmed Moataz, analyst]

Okay. Another one is, would you be able -- I think you already answered this, but I'll just repeat it in case you have something additional to add. Would you be able to provide any further metrics on Saudi like the number of tests, patients, revenue per patient, service mix that you generally target?

All right. Another one is from Marina from M&G. Could you please give an indication of your targeted debt to EBITDA levels? And what type of investments are you looking into? You answered the second point, but the first one, not so much.

[Tarek Yehia, executive]

I will go back to last question before going to Marina question. Regarding the volume, if we are comparing with last year, which is a very low base, we can see around a 200% increase in volume expected in Saudi. And also we are expecting the price per test to increase significantly versus last year. So the number will be [indiscernible] will not be giving the reflecting due to the low base of last year, but we're seeing a lot of ramp-up in volumes and in price per test.

[Ahmed Moataz, analyst]

Understood. And the last one, we have received so far [Operator Instructions] is if you have a targeted net debt to -- or debt-to-EBITDA?

[Sherif Mohamed El Zeiny, executive]

Actually, we are very low now debt to EBITDA because of -- till now we [indiscernible] or we are having a very good percentage of our sales in cash, but this will be changed upon the opportunity we will face for the investments and it's 0.74 now, but it could reach higher than 1, but it depends upon the investment opportunities and where we will invest our money. So we can increase more to be 1:1 or even more, but this is our target. But definitely, it will never be changed before having a real investment opportunity, good one, especially in Saudi Arabia. This is our targeted market.

[Ahmed Moataz, analyst]

Understood. Tarek, may I ask 3 questions. I'll read them out one by one. The first one is on house visits. Will this remain stable at around 20%? And how do margins for this compare to non-house visits? And what's the main benefit of pushing for house visits in general?

[Tarek Yehia, executive]

For the all visits, it reached 21% of revenue of Egypt, and we are expecting to continue at this level. And it increased due to the demand from our customers since they try it, and we's have been enhancing the service after the COVID and now they can have the full service at their homes and the result is sent for same via mobile on the same day or next day. We see a lot of appetite from our clients in Egypt and it become -- been very popular in these days, and we do a lot of compings for promoting this. And to add, the margin is higher than -- slightly than what we are doing in the lab on normal tests.

[Hend El Sherbini, executive]

The margins [indiscernible] just because the people usually ask for more tests when they are at home. It's not really the [indiscernible].

[Tarek Yehia, executive]

Dr. Hend, could you please repeat your answer again because there was an echo in the sound.

[Hend El Sherbini, executive]

Yes. I was just saying that the revenues are higher. We have the same prices in house call as in the lab, but people tend to order more tests when they are at home. So we find more tests per patient and higher volumes in the house call segment.

[Tarek Yehia, executive]

Thank you. Clear. Thank you.

[Ahmed Moataz, analyst]

Understood. His second question, do you expect walk-in sales as a share of total to bounce back in the coming years or contracts will remain higher than before?

[Sherif Mohamed El Zeiny, executive]

I don't think so...

[Hend El Sherbini, executive]

We are actually working on both walk-ins and corporate, so we market for the walk-ins as well as the corporates. We have seen for several years now a shift between the walk-ins and the corporates due to these increased prices all over the country for the medical service. However, we are trying to also push the walk-ins to increase as well. So we're targeting the walk-ins with a lot of campaigns.

[Ahmed Moataz, analyst]

Understood. Anoop from Moon Capital is asking, can you provide more color on advertisement spending in Egypt? Where is that being spent and the outlook for it?

[Hend El Sherbini, executive]

So we are mostly targeting the patients on social media. We also have a lot of meetings [indiscernible] and we try and educate physicians about our new tests and our new techniques and machines and so on. So we do both educational campaigns, and we do also digital campaigns for the patients. We have some also marketing -- outdoor marketing to -- for our branches to show where they are like direction signs. So this is what is done in Egypt.

[Ahmed Moataz, analyst]

All right. One final question is, throughout the next couple of quarters, would you say that margins would improve sequentially given that there has been somewhat of pressure on volumes from Ramadan? Or you'll still see more or less the same levels given that you guided for a 30%-ish on EBITDA?

[Tarek Yehia, executive]

We already saw improvement in April and also at May, which is enhanced by more volumes and slightly increase in margins. We'll see a better margin in the rest of the year, which will be in line with our guidance on EBITDA margin for the full year in the upper 30s.

[Ahmed Moataz, analyst]

All right. I'll pass it back to you if you have any concluding remarks.

[Tarek Yehia, executive]

Thank you, Ahmed. Thank you so much for hosting the call. We have no remarks to give. We are very optimistic by the rest of the year. And you have our contacts. Whenever you have any follow-up questions, we are happy to have it. Thank you, everyone, for joining us today.

[Sherif Mohamed El Zeiny, executive]

Thank you.

[Hend El Sherbini, executive]

Thank you. Thank you, everyone.

[Sherif Mohamed El Zeiny, executive]

Thank you, very much.

[Ahmed Moataz, analyst]

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