ifc.qxp 28/05/2020 10:48 Page 1
A
n n u a l R e p o r t
2 0 1 9
A Lead
Company
Co pa y
ding Consumer Healthcare
in the Middle East and Africa
CONTENTS
01
Strategic Report
Who We Are
Highlights of 2019
Chairman’s Message
Chief Executive’s Report
02
Performance
Financial & Operational Review
Corporate Social Responsibility
2
4
8
12
14
50
52
60
Our Markets
Our Brands
Our Services
Competitive Strengths & Growth Strategy
Principle Risks, Uncertainties & their Mitigation
20
30
34
38
42
03
Corporate Governance
Board of Directors
Corporate Governance Report
Audit Committee Report
Remuneration Committee Report
Directors’ Report
62
64
66
74
78
80
04
84
Financial Statements
86
Independent Auditor’s Report
Consolidated Financial Statements
92
Notes to the Consolidated Financial Statements 97
Strategic Report
With a track record of over four decades, IDH has
established a reputation as a trusted and quality
provider of diagnostic tests with internationally
recognised accreditations
2
ANNUAL REPORT | 2019
2019 |
ANNUAL REPORT
3
Strategic Report // Who We Are
Who We Are
Integrated Diagnostics Holdings (“IDH,” the
“Group,” or the “Company”) is a leading con-
sumer healthcare company in the Middle East
and Africa with operations in Egypt, Jordan,
Sudan and Nigeria. The Group has a 40-years
track record and is a trusted and quality
provider of pathology and radiology services
with
internationally recognised accredita-
tions, offering a suite of over 1,400 diagnostic
tests. As at 31 December 2019, IDH operated a
network of 452 branches across its geographic
footprint, deploying a CAPEX-light Hub, Spoke
and Spike business model to fuel its continued
expansion. In 2019, IDH established Wayak,
an Egypt-based subsidiary investing in data
mining and artificial intelligence with a view
to generating growth opportunities in the
healthcare management space.
Parallel to the Group’s continued investment
in organic growth, IDH also pursues strategic
acquisition opportunities
in new markets
where it can leverage its business model to
capitalise on similar healthcare and consumer
trends. IDH has been a Jersey-registered entity
with a Standard Listing on the Main Market of
the London Stock Exchange since May 2015.
+40 YEARS
track record at the
subsidiary levels
4
7
countries across the Middle
East & Africa
key brands with strong
awareness in underserved
markets
LSE
listed since May 2015
EGP2.2 bn
452
in revenue in 2019, up 16%
on 2018
operational branches as at
31 December 2019
OUR BRANDS
IDH’s core brands include Al Borg, Al Borg Scan and, Al Mokhtabar and Wayak in Egypt, Biolab in
Jordan, Ultralab and Al Mokhtabar Sudan in Sudan, and Echo-Lab in Nigeria.
4
ANNUAL REPORT | 2019
OUR SERVICES
Through IDH’s brands, the Group offers over 1,400 internationally accredited pathology tests rang-
ing from basic blood glucose tests for diabetes to advanced molecular testing for genetic disorders.
IDH also offers the full suite of radiology services through Al Borg Scan in Egypt and Echo-Lab in
Nigeria. Additionally, Wayak in Egypt leverages advanced data systems to provide patients with
highly tailored healthcare management services.
Immunology
Microbiology
Haematology
Endocrinology
Clinical Chemistry
Molecular Biology
Cytogenetics
Histopathology
Radiology
OUR MARKETS
IDH’s geographic presence includes four countries across the Middle East and Africa including
Egypt, Sudan, Jordan and Nigeria. These markets are underpinned by strong structural growth driv-
ers with under-penetrated and underserved diagnostic services demand.
Egypt
Jordan
Nigeria
Sudan
2019 |
ANNUAL REPORT
5
Strategic Report // Who We Are
Our Patients
IDH serves two principal types of clients:
contract (corporate) and walk-in (individuals).
Within each of these categories, the Group also
offers a house call service, and within the con-
tract segment, a lab-to-lab service.
IDH’s walk-in clients, also referred to as
“self-payers”, represented 40% of the Group’s
revenues, and include individuals who pay out
of pocket in advance of tests being completed.
IDH’s contract clients, who in 2019 represented
60% of the Group’s revenues, include institutions
such as unions, syndicates, private and public
insurance companies, banks and corporations
who enter into one-year renewable contracts at
agreed rates per-test and on a per-client basis.
An Asset-Light Business Model
IDH deploys an asset-light business model that
enables the Group to grow in a capital-efficient
manner. There are two strategic components
to the model, one of which is a “Hub, Spoke
and Spike” network of branch laboratories
that is easily scalable. The other is key supplier
relationships that also support rapid expan-
sion without the Company having to purchase
expensive medical diagnostic equipment.
Supplier Relationships
The operational strength awarded to IDH by
its business model is also illustrated by its
supplier relationships. The Group’s position as
the largest provider of diagnostics services in
the MENA region provides it with significant
bargaining power and has allowed it to success-
fully negotiate favourable contracts terms with
its medical equipment and test kits suppliers.
The Group’s contracts with its key suppliers of
medical testing kits include the provision of the
equipment to analyse the laboratory test results.
These agreements have minimum annual
Integrated Diagnostics Holdings
Suppliers
6
ANNUAL REPORT | 2019
commitment payments to cover the medical
diagnostic equipment, kits and chemicals to be
used for testing and ongoing maintenance and
support services.
Thanks to its increasing test volumes, the
Group’s business size easily covers these mini-
mum annual commitment payments, while its
high volume of kit consumption supports its
pricing power, thereby reducing the cost per
test while at the same time incurring no initial
capital outlay for the purchase of medical diag-
nostic equipment.
Hub, Spoke and Spike
The Group’s CAP-accredited Mega Lab functions
as its Hub and is equipped with state-of-the-art
equipment, advanced diagnostic tools and suf-
ficient capacity to process all tests and services
for samples collected by the B-Labs (Spokes)
and C-Labs (Spikes) across four countries. IDH
utilises its B-Labs to process routine test and
leverages their capacity to manage traffic to the
Group’s Mega Lab when needed. Meanwhile,
C-Labs or Spikes function primarily as collec-
tion centres and most importantly increase the
Group’s geographic reach to clients nationwide.
This “plug and play” business model forms the
operational backbone of the Group and pro-
vides it with significant leverage in extracting
favourable revenue and cost synergies.
MEGA LAB
2019 |
ANNUAL REPORT
7
Strategic Report // Highlights of 2019
Highlights of
2019
16%
Revenue growth in 2019
Financial Highlights
Egypt was the primary driver of
growth during the year, recording
an 18% year-on-year increase in
revenue to EGP 1,903 million
Revenues
Gross Profit
increased 16% year-on-year to EGP 2,226 million in 2019,
supported primarily by improved average pricing as well
as higher patient and test volumes. Egypt was the primary
driver of growth during the year, recording an 18% year-
on-year increase in revenue to EGP 1,903 million in 2019.
recorded EGP 1,084 million in 2019, up 14% year-on-year,
with a stable gross profit margin of 49%.
Operating Profit
EBITDA*
grew by 15% to EGP 791 million in 2019 with a 36%
margin, partly supported by the adoption of IFRS 16
along with the release of provision related to a training
fund amounting to EGP 11.8 million. Operating profit
margin remained stable versus the previous year. Oper-
ating profit was affected by losses recorded in Nigeria
and ramp-up costs related to Wayak.
recorded EGP 945 million for 2019, up 24% against the
EGP 762 million in 2018, with an EBITDA margin 42%
versus 40% in 2018. EBITDA strength was driven by rev-
enue growth and the effect of adopting IFRS 16, which
added EGP 68.2 million to EBITDA in 2019.
* Consolidated EBITDA is calculated as operating profit plus depreciation and amortisation. Consolidated EBITDA includes negative
contributions from its newly launched Nigerian operation which is still in the value-building phase
8
ANNUAL REPORT | 2019
Normalized EBITDA
Net Profit
which excludes the EGP 68.2 million related to the adoption
of IFRS 16, reached EGP 877 million, up 15% year-on-year
and with an EBITDA margin of 39%. Normalized EBITDA
growth came despite the negative contribution from Nige-
ria and pre-operating expenses related to Wayak.
recorded EGP 505 million in 2019, up 2% against 2018
and with a net profit margin of 23% versus 26% in 2018.
Bottom-line profitability was affected by higher interest
charges related to Al Borg Scan and IDH’s new head-
quarters, lower interest income due rate cuts, and the
effect of adopting of IFRS 16.
Normalized Net Profit
Earnings Per Share
Dividend
which excludes the effect of
IFRS 16 (EGP 15.3 million),
would reach EGP 520 million,
up 5% versus 2018 and with a
23% net profit margin.
of EGP 3.41 compared to EGP
3.35 in 2018.
Due to the Covid-19 pandemic and consequent
uncertainty regarding the macroeconomic envi-
ronment, the Board of Directors has deemed it
more appropriate to focus on retaining resources
and will thus suspend the dividend decision till
September 2020. At which point, further consid-
eration will be given to developments in the global
pandemic and confidence regarding the Group’s
future needs and financial outlook.
2019 |
ANNUAL REPORT
9
Strategic Report // Highlights of 2019
Operational Highlights
34
new branches added in 2019 bringing the
Group’s network to 452 branches across its
footprint.
30.5
million tests performed across the Group in
2019 compared to 28.8 million last year.
7.5
million patients served in across the Group
in 2019 compared to 7.0 million last year.
Radiology
services ramp-up at Al Borg Scan with
increasing contribution to revenue and EBITDA
and a second branch commencing operations
in early 2020.
Nigeria
expansion with three new Echo-Lab
branches established during 2019, bringing
the total number of branches in the country
to 13. Eight of the existing branches had
been renovated by year-end 2019.
Wayak
established as new Egyptian subsidiary in
September 2019 with the aim of offering its
patients healthcare management services
such as home-delivery of medications,
diagnostics testing reminders and referrals
to service providers.
Revenue by Geography
% of total revenue in 2018
% of total revenue in 2019
■ Egypt
■ Jordan
■ Sudan
Nigeria
84%
13%
2%
2%
■ Egypt
■ Jordan
■ Sudan
Nigeria
85%
12%
2%
1%
Revenue by Type
% of total revenue in 2018
% of total revenue in 2019
■ Walk in
■ Contract
41%
59%
■ Walk in
■ Contract
40%
60%
10
ANNUAL REPORT | 2019
Results Summary*
Indicator
Operational
Numbers of Tests
Number of Patients
Number of Branches
Tests per Patient
Financial
Revenues
Cost of Sales
Gross Profit
Gross Profit Margin
Operating Profit
Depreciation
Depreciation on Right of Use Assets
Amortization
EBITDA1
EBITDA Margin
Units
2019
2018
Change
mn
mn
#
#
EGP mn
EGP mn
EGP mn
%
EGP mn
EGP mn
EGP mn
EGP mn
EGP mn
30.5
7.5
452
4.1
2,226
(1,143)
1,084
48.7%
791
(99)
(48)
(7)
945
28.8
7.0
418
4.1
1,921
(973)
948
6%
6%
8%
-
16%
17%
14%
49.4%
(0.7 pts)
685
(71)
-
(6)
762
15%
39%
-
17%
24%
%
42.4%
39.7%
2.7 pts
IFRS 16 adjustment on EBITDA
Normalized EBITDA2
EGP mn
EGP mn
(68)
877
-
762
-
15%
Normalized EBITDA Margin
%
39.4%
39.7%
(0.3 pts)
Net Profit
Net Profit Margin
IFRS 16 adjustment on Net Profit
Normalized Net Profit3
Normalized Net Profit Margin
Earnings Per Share
EGP mn
505
497
2%
%
22.7%
25.9%%
(3.2 pts)
EGP mn
EGP mn
%
EGP
15
520
23.3%
3.41
-
497
-
5%
25.9%
(2.6 pts)
3.35
2%
* Decimals are rounded to the nearest whole number.
1 Consolidated EBITDA is calculated as operating profit plus depreciation and amortisation. Consolidated EBITDA includes negative
contributions from its Nigerian operation which is still in the value-building phase.
2 Normalised EBITDA is calculated as consolidated EBITDA adjusted for the effect of adopting IFRS 16.
3 Normalised Net Profit is calculated as Net Profit adjusted for the effect of adopting IFRS 16
2019 |
ANNUAL REPORT
11
Strategic Report // Chairman’s Message
Chairman’s
Message
Lord St John of Bletso
Chairman
12
ANNUAL REPORT | 2019
Dear Shareholders,
We live in unprecedented times. The full global
economic impact of Covid-19 will take several
quarters to analyse and digest. Your Company
fortunately has strong defensive qualities as
well as a strong and impressive track record.
I am pleased to report that we continued to
deliver impressive growth in 2019. Despite
increased competition in Egypt and challenging
market conditions in Sudan and Nigeria, IDH
maintained its competitive edge as the leading
healthcare provider with its scalable platform
and value-added diagnostic services.
In 2019, we achieved a 16% growth in revenue,
benefiting from our strong core business, and
we maintained encouraging gross margins.
The Company continued its organic expansion
with additional branches and expanding Al
Borg Scan. We also restructured the business
in Nigeria which will take time to mature. Your
management is confident in the strong funda-
mentals of IDH’s markets and we are commit-
ted to driving growth through these expansions.
A key development during 2019 was the open-
ing of IDH’s new headquarters in Smart Village
on the West side of Cairo. This brought the IDH
family together and has boosted productivity,
efficiency and morale.
IDH is growing its regional footprint and work-
ing to further strengthen its competitive advan-
tage by offering patients value propositions
Your Company is cognizant and committed to
our ESG policy and responsibilities promoting
gender equality, increased training programs
and following best practices on transparency,
accountability and good governance
IDH’s success relies on the dedication and hard
work of its senior management team, and we
constantly review our KPIs and remuneration
policy to retain and promote talent. We are also
cognizant of succession planning.
Your Company continues to enjoy strong
organic growth momentum and is constantly
evaluating potential M&A opportunities in the
Middle East and Africa to further accelerate this
trajectory.
We are grateful to the loyalty and support of
our shareholders. At a time of volatility in the
listed healthcare sector, your Company is well
positioned to maintain growth and profitability
in an increasingly competitive landscape.
Lord St John of Bletso
Chairman
that increase retention rates and safeguard our
Company’s leading market position.
Apart from the immediate challenges for
global businesses with the Covid-19 threat,
Egypt has experienced a more stable economic
and political environment in the last year with
a strengthening pound and a commitment by
the Government to promote proactive health-
care services.
We are also seeing a gradual improvement in
Sudan, where our business remains stable after
a year of significant political transition, and we
are particularly pleased with Jordan, which has
been a solid and growing business.
Your Company is cognizant and committed to
our ESG policy and responsibilities promoting
gender equality, increased training programs
and following best practices on transparency,
accountability and good governance.
Management regularly updates and monitors
our risk matrix and heat map to ensure we have
all the right checks and balances in place and
ensuring business continuity processes.
2019 |
ANNUAL REPORT
13
Strategic Report // Chief Executive’s Report
Chief Executive’s
Report
Before unpacking our performance in 2019, I note
that as of this writing, the novel coronavirus that
causes the covid-19 illness continued to spread
across the globe including in our markets. This
pandemic has pushed governments, businesses
and communities to adopt unprecedented mitiga-
tion efforts to control the spread of the disease. As
a healthcare business, IDH has a role to play in our
community — and an equally important role to
play in keeping our staff safe as we navigate this
new normal and ensure business continuity.
We have thus prepared a Crisis Management Plan
(CMP) outlining measures to mitigate the risks
posed by the pandemic, with a focus on strength-
ening our health and safety protocols, maintaining
compliance and efficient stakeholder communica-
tion, assessing business strengths and financial
resilience and running stress tests to better ascer-
tain the financial impact on IDH under rapidly
evolving scenarios. Our primary goal is to ensure
safe continuity of business activities and keeping
critical functions running. The CMP is regularly
reviewed and updated by a specialized crisis com-
mittee that is responsible for daily monitoring of
the situation across our footprint and ensuring our
organization is prepared for any eventualities.
As of date, the health ministry in Egypt has made
testing for the SARS CoV-2 the exclusive responsi-
bility of state-owned laboratories. Were we to be
called by the national health authority to assist
with testing, we stand ready with the necessary
systems and having reviewed our risk matrix and
our staff are trained on how to safely administer
the test. Whilst there is a nationwide nighttime
curfew in Egypt, our branches continue to operate
and we are offering free house visits by phleboto-
mist to encourage patients to stay home.
Dr. Hend El-Sherbini
Chief Executive Officer
As a healthcare business, IDH has a
role to play in our community — and
an equally important role to play in
keeping our staff safe as we navigate
this new normal and ensure business
continuity
14
ANNUAL REPORT | 2019
In Jordan, a complete nationwide lockdown had
initially seen 17 of our 19 Biolab branches shut-
down, however, as of date 17 of our branches are
fully operational, with only two branches located
within shopping centres remaining closed. We are
also currently conducting testing for SARS CoV-2
at one location in Jordan. In Nigeria, covid-19
cases remain few according to official numbers
and all our branches continue to operate despite
the complete lockdown in the country. Finally, in
Sudan, the government has imposed a curfew and
we are currently operating with four branches.
As we continue to operate across our footprint,
our primary focus is to ensure staff and patient
safety and to mitigate the risk of disease spread.
Key health and safety measures include:
• All of our staff use appropriate protective equip-
ment when interacting with patients, including
those suspected of having covid-19 or any other
infectious disease. We maintain a robust stock
of protective equipment to ward against supply-
chain risk.
• All of our frontline staff are trained on proce-
dures for interacting with patients suspected
of carrying covid-19 or any other communi-
cable disease. Managers regularly review these
procedures with their teams and a refresher
has been disseminated to all employees. These
procedures include steps that are taken to (a)
protect our staff and (b) protect other patients
presenting at our clinics for testing.
• Daily temperature check conducted for all
employees and visitors at the headquarters and
the Mega Lab.
• The Mega Lab and branch employees are split
into two alternating groups for two continu-
ous weeks. In case of infection, the Mega Lab/
branch will undergo a complete sterilization,
and the off duty group will be called on to re-
sume work the following day.
• Our team have a protocol for referring patients
they suspect may carry covid-19 to the nearest
state lab for testing.
• We are prepared with standard operating pro-
cedures for SARS CoV-2 testing in the event that
we are asked by a competent health authority to
participate in testing efforts.
• All staff who may come into contact with a
covid-19 patient are given a 14-day home leave
and are monitored carefully.
• All members of our team are subject to regular
messages reminding them that they may not
report to work if they have symptoms of a co-
vid-19 infection.
• Headquarters employees have alternating at-
tendance, meetings are conducted virtually,
and remote work is encourage where possible.
• Weekly attendance plan is prepared and imple-
mented by each department for all employees,
ensuring a minimum labor force and separate
teams to limit interactions.
On the business continuity front, we have out-
lined measures to ensure preparedness in the
case of a complete lockdown in Egypt which
would require headquarter employees to work
from home. Currently, our headquarters is oper-
ating with a 50% employee capacity and we have
tested the tools and IT infrastructure – including
Customer Relationship Management, Labora-
tory Management Systems and SAP – to allow for
stable and remote day-to-day operations. These
measures extend across all functions, including
our marketing activities and relevant digital
media campaigns to maintain and strengthen
customer relationships.
2019 |
ANNUAL REPORT
15
Strategic Report // Chief Executive’s Report
IDH is also in constant communication with all
its key suppliers to mitigate against supply chain
disruptions, with daily monitoring of kit use and
raw materials. As at 31 March 2020, our average
testing kit stock covers three months of operation
(with the exception of short shelf life kits which
constitute c.10% of total number of kits). We are
therefore covered through to July 2020 and we have
placed a new order for a further three-month sup-
ply, which is expected to be delivered in April 2020
and would extend coverage to September 2020.
Most importantly, we are ensuring prudent cash
management and preparing for changes in our
cash conversion cycle. Management is continu-
ously monitoring our short-term liquidity position,
including daily revenue, debt retirement schedules
and covenants. IDH’s strong liquidity position and
underleverage balance sheet places us in a very
resilient position, and we are actively working to
preserve this position through cost discipline and
a reduction of non-critical uses of cash such as in
training, CAPEX and marketing.
The strength of our position in the face of these
unprecedent challenges is thanks to IDH’s long track
record of growth and prudent financial policies, and
I am pleased to report that our performance in 2019
was no different. The Group’s results for the year
reflect the defensive nature of our business and the
strength of our market position.
Resilient Growth and Operational
Performance
Against a backdrop of sluggish consumer spend-
ing in our primary market of Egypt, along with
political and economic challenges in Sudan, IDH
delivered 16% growth in its top line while main-
taining a normalized EBITDA1 margin at 39%.
IDH’s strong brand equity and its comprehensive
suite of diagnostic services allowed us to attract
a growing number of patients in 2019, with con-
sumer loyalty remaining intact amidst a multitude
of forces weighing down on their purchasing
power, including the cumulative impact of subsidy
cuts, higher energy prices, erosion of disposable
income, higher taxes and runaway inflation since
the float of Egyptian pound in late 2016.
Alongside strong organic growth of our business,
our Group in 2019 also continued to make head-
way on its strategic initiatives. We have ramped-up
operations at Al-Borg Scan, our new radiology unit
in Egypt, which is increasingly contributing to
revenue and EBITDA; and we are witnessing good
momentum in volumes in Nigeria as we continue
renovating and expanding our branch network
while deploying new state-of-the-art equipment.
While these expansions have weighed down the
Group’s consolidated net profit, we expect Al Borg
Scan and Nigeria to turn to bottom-line profitabil-
ity in the near term.
IDH recorded revenue of EGP 2,226 million in
2019, a 16% increase over the EGP 1,921 million
recorded in the previous year, with growth being
primarily driven by improved pricing and test
mix as well as higher volumes during the year.
Stronger pricing delivered 11 percentage points
of the Group’s growth in 2019, in step with average
inflation rates, while higher volumes contributed
6 percentage points. IDH recorded a 6% increase
in both number of patients served, and tests per-
formed, closing the year with 7.5 million patients
and over 30.5 million completed tests. Meanwhile,
one percentage point of the Group’s local-currency
growth was lost to currency translation on account
of the Egyptian pound’s appreciation.
Our contract segment reported a 17% year-on-
year increase in revenue in 2019, making up 60%
of the Group’s top-line and contributing circa 10
percentage points to total growth. The segment’s
performance was driven by a higher number of
patients served (+7% compared to 2018) as well
as improved pricing, which drove average revenue
per patient up 9%. On the other hand, walk-in
revenues grew 15% in 2019, similarly driven by
growing number of patients during the year (+4%)
along with better pricing leading to a 10% increase
in average revenue per patient.
Our ability to absorb higher volumes and capture
resilient demand for our services is underpinned by
IDH’s continued investment in its geographic foot-
print. In 2019, our Group has opened 33 labs in Egypt
and three in Nigeria, while closing two unprofitable
1 Normalised EBITDA is calculated as consolidated EBITDA adjusted for the effect of adopting IFRS 16.
16
ANNUAL REPORT | 2019
branches in Sudan, leaving us with a branch net-
work of 452 locations as at year-end, up from the
418 branches operated as at 31 December 2018.
IDH’s Egyptian expansion drive continues to be sup-
ported by its state-of-the-art, College of American
Pathology-accredited Mega Lab, which is the back-
bone of our “Hub, Spoke and Spike” business model.
IDH’s Mega Lab is the sole CAP-accredited facility in
Egypt, deploying the most advanced technology to
run more than 20,000 tests per hour. The facility also
provides a leading clinical trials laboratory service,
helping biopharmaceutical and diagnostics custom-
ers develop new medical insights.
Regionally, our Group witnessed strong and
improving performance in 2019 across our core
businesses in Egypt, Jordan and Sudan.
In Egypt, revenue grew 18% year-on-year to EGP
1,903 million and continued to make up the largest
share of both the Group’s consolidated revenue
and total revenue growth for the year. Egypt’s per-
formance continued to be driven by the market’s
strong fundamentals and rising healthcare aware-
ness. In that regard, I am particularly pleased
with our subsidiaries’ participation in the state-
sponsored 100 Million Healthy Lives campaign,
which ran from November 2018 through June 2019
with the aim of eradicating Hepatitis C in Egypt
through testing of asymptomatic people. Our par-
ticipation in national health awareness campaigns
is a natural outgrowth of our responsibilities as
a healthcare provider and we are proud to have
helped the 250,000 people who walked through
our doors under the campaign’s umbrella to lead
better and healthier lives.
I am also pleased with the Group’s performance in
Jordan, where we delivered growth despite exog-
enous factors including austerity measures and a
decade-long price freeze maintained by the regula-
tor. Biolab was successful in growing patient and
test volumes to deliver a 6% increase in revenue to
EGP 257 million for the year (+12% in JOD terms),
while cost efficiencies are yielding substantial
improvements in profitability. Jordan’s EBITDA
grew by a sharp 74% year-on-year in 2019 to EGP
90 million, and its EBITDA margin expanded 6
percentage points to 27% when normalizing for
the positive impact of IFRS 16.
In Sudan, despite nationwide protests last year that
culminated in significant political change and the
continued impact of a sharp currency devaluation
that began in 2018, we were successful in growing
patient numbers and passing on price increases
in step with inflationary pressures. The results are
clear with revenue in local-currency (SDG) terms
recording a strong 64% increase, while in EGP
terms the geography delivered a 4% increase in the
top-line to EGP 37 million, the first year-on-year
growth since 2017. Moreover, Sudan’s profitability
improved at the gross profit and EBITDA levels
owing to a turnaround in revenue and following
staff localization efforts to lower foreign currency-
denominated salaries.
At the holding level, the Group’s gross profitability
remained intact with gross profit for the year
increasing 14% over 2018; we also maintained a
healthy gross profit margin of 49%. This is a direct
consequence of management’s focus on increasing
operational efficiency and on cost-reduction initia-
tives throughout the year. As such, our raw materi-
als cost as a percentage of sales has decreased to
18.3% in 2019, down from last year’s 19.3%. EBITDA
grew 24% to EGP 945 million with an EBITDA
margin of 42% (2018: 40%), partly owing to the
adoption of IFRS 16 which added EGP 68.2 mil-
lion to EBITDA in 2019. Nonetheless, normalized
EBITDA1 increased 15% year-on-year, and normal-
ized EBITDA margin was largely stable year-on-
year despite the negative contribution for Nigeria,
which incurred increased ramp-up costs and lower
capacity as branch renovations took place.
The Group recorded a 2% year-on-year increase
in net profit to EGP 505 million in 2019, with
net profit margin at 23%, partly affected by the
adoption of IFRS 16. When excluding the effect of
applying IFRS 16, normalised net profit for the year
would reach EGP 520 million, up 5% year-on-year.
A detailed breakdown of the effects of adopting
IFRS 16 is provided in the Performance section of
this report on pages 50 – 61. Our bottom-line prof-
itability was affected by higher net interest charges
2019 |
ANNUAL REPORT
17
Strategic Report // Chief Executive’s Report
related to Al Borg Scan and IDH’s new headquar-
ters and lower interest income due to rate cuts.
Growth in Nigeria
IDH pressed on with its value-building program
in Nigeria during 2019, including refurbishment
of existing Echo-Lab branches and the rollout of
new locations. As of year-end, we had completed
renovations at eight out of our current 13 branches
in the geography, as well as inaugurating two new
locations in Victoria Island and Akowonjo.
Despite rotating downtime during the upgrade
period, we are witnessing strong volume growth:
number of tests was up by 38% in 2019 compared
to the previous year, and patient numbers rose 8%
year-on-year. This growth is being driven by Echo-
Lab’s strengthening position in the market with a
growing reputation as a quality provider of diag-
nostic services with new state-of-the-art radiology
equipment. IDH recently installed new radiology
equipment at Echo-Lab, including magnetic reso-
nance imaging (MRI) and computed tomography
scan (CT) that started operation in the second half
of 2019. Echo-Lab is also implementing market-
ing and business development activities to drive
higher volumes, with a key focus on engaging
with corporate clients as well as targeting doctor
forums to build referral networks.
We have also completed the deployment at Echo-
Lab of the Group’s Laboratory Information Sys-
tems (LIS) and its System Application and Product
(SAP) platform and expanded our Nigerian subsid-
iary’s range of diagnostic testing by sending select
samples to our Mega Lab in Egypt. Most impor-
tantly, IDH continues to train Echo-Lab staff on
quality standards and procedures, supported by
strong commitments to training and development
of operational staff as well as the recruitment of
new management to help deliver on its strategic
goals for the geography.
Our efforts to ramp up operations in Nigeria and
improve Echo-Lab’s service offering are beginning
to reflect on the geography’s performance, with rev-
enues in NGN terms recording a 23% year-on-year
increase. However, the Egyptian pound’s apprecia-
tion during 2019 saw revenue remain flat year-on-
year at EGP 30 million when translated into our
consolidated financial statements.
Ramp up at Al Borg Scan
The Group’s first full-fledged radiology branch in
Egypt began operations in October 2018 under
the Al Borg Scan brand and has since been
delivering a promising growth trajectory with
strong profitability. The sole branch’s first full
year of operations saw it record EGP 14 million
in revenue for 2019, contributing one percentage
point to IDH’s 16% consolidated revenue growth
in 2019. I am also pleased to report that with only
one operational branch thus far, Al Borg Scan is
an EBITDA positive operation having recorded
EGP 1.8 million in 2019.
Throughout the year, Al Borg Scan served more
than 19,000 patients and conducted over 27,000
tests, including 4,000 CT scans, 4.8 thousand MRIs
and 6.8 thousand x-rays. The branch is attracting
patients through various corporate accounts,
physicians and by leveraging the strong relation-
ship between the Al Borg brand and its millions of
customers. Our high-quality offering is delivered
by state-of-the-art technology supplied by global
brand names including Siemens, Hitachi and GE
Healthcare, and a highly trained staff of radiolo-
gists, technicians and front office personnel.
We anticipate significant growth at Al Borg Scan as
we continue with our branch rollout plan, starting
with a second location in Cairo set to commence
operations in early 2020. Our expansion into this
adjacent, high-value segment will continue to
be supported by strong marketing campaigns,
capitalizing on Al Borg’s strong brand equity and
in tune with the Group’s overarching strategy of
raising healthcare awareness.
Our Commitment to our
Stakeholders
As a woman-led business offering quality, afford-
able consumer healthcare solutions for millions
of people across Africa and the Middle East, IDH
18
ANNUAL REPORT | 2019
has long taken into account what it means to be
a good corporate citizen. This starts with our
prime motivator: To leave the communities in
which we do business healthier than we found
them by ensuring everyone has the tools they
need to take charge of their health.
Our team, more than 30% of which are women,
pride themselves on their support of national
healthcare campaigns that expand access to
affordable healthcare, including most recently
the c. 2.4 million tests we completed for the 100
Million Healthy Lives campaign in Egypt. And we
continue to run awareness campaigns for patients
suffering from treatable chronic conditions that
impact patients’ health and quality of life.
It is against this backdrop that I welcome the
growing calls in the investment community for
more reporting on environmental, social and
governance (ESG) issues — and for real-world
policies that drive improvement in key matrixes.
Since we went public on the London Stock
Exchange, we have been governed by a world-
class Board of Directors made of up majority
independent, non-executive directors and
backed up by a robust policy framework. And
by the nature of our business, IDH has both a
low environmental footprint compared to many
enterprises and a high social impact.
I am, however, very cognizant that there is
much more to do. Late in 2019, our manage-
ment team began laying the groundwork for an
ESG review that will result in both the creation
of our first ESG policy, in our establishing a
matrix of responsibility for key indicators, and
in our regular reporting on these indicators
before the end of 2020.
In doing so, we aim to tell a story that emphasizes
where we have room for improvement — and
that clearly outlines the benefits IDH delivers to
patients, to our employees and the communities
in which we are privileged to operate.
Proposed Dividend and Dividend
Policy
Whilst we maintain our long-term dividend
policy that sees us return to shareholders the
maximum amount of excess cash after taking
careful account of the cash needed to support
operations and expansions, our Board of Direc-
tors will postpone the dividend decision in
light of the current situation and uncertainty
surrounding the covid-19 pandemic. We will
review the situation in our upcoming Board
meeting in September and assess the Group’s
cash position at the time before a decision is
made and a distribution date is set.
2020 Outlook
We remain fundamentally optimistic about the
outlook for our businesses following the resolu-
tion of the covid-19 crisis. Egypt is (and for the
foreseeable future will remain) our largest busi-
ness, with key long-term growth drivers unaf-
fected by current events. Regionally, we expect
continued growth in Jordan, which enjoys some
of the most modern health care infrastructure in
the Middle East and where strong fundamentals
have allowed IDH to deliver growth despite strict
price regulation. I am also increasingly confident
in the growth prospects of our business in Sudan,
where increasing stability supports growth in
number of patients and test volumes and with
it improved financial performance. In Nigeria,
we will continue to focus on implementing our
value-building phase.
In short, we believe the business is well served by
strong market positions, supporting macroeco-
nomic and industry trends over the long-term, an
expanding services portfolio, and clearly defined
strategies that will allow us to deliver consistent
growth once the current global crisis resolves.
Dr. Hend El-Sherbini
Chief Executive Officer
2019 |
ANNUAL REPORT
19
Strategic Report // Our Markets
Our
Markets
Key Market Dynamics
IDH operates across emerging markets that
share key dynamics different from those in
Western healthcare sectors. General practitio-
ners (also referred to as family medicine prac-
titioners or primary care specialists) are rare in
these emerging markets and are, accordingly,
not the gatekeepers through which patients
access primary or specialist care.
In emerging markets, a patient may seek medical
care either through a hospital outpatient clinic
or emergency room, attending a polyclinic or
directly seeking the services of a specialist physi-
cian. Physicians ordering diagnostic testing may
recommend that the patient complete these
tests at a specific service provider, but patients
enjoy a high degree of freedom in choosing the
service provider they attend based on perceived
quality and pricing or on insurance or corporate
arrangements. Walk-in patients (also referred to
as “self-payers”) pay out of pocket in advance of
the tests being completed.
Patients then typically obtain test results in
person (often with an accompanying report
from a pathologist, geneticist, radiologist or
other specialist) and return with the results to
the physician who requested the tests in the first
instance. It is noteworthy that IDH has the ability
to deliver test results to patients on the same day
electronically as well as via a mobile app.
IDH accordingly engages in sales and marketing
activities that separately target:
• Physicians: through direct sales visits to
individual practitioners, periodic gatherings
for physicians within a speciality, promotional
giveaways as well as discount cards for physi-
cians and their families, incentive-based phy-
sician loyalty programs and the organisation
or sponsorship of conferences;
• Walk-in Patients: through social media
channels, mass-market and targeted health
awareness campaigns, outdoor advertising,
television, radio and online advertising; and;
• Corporate Patients: through direct outreach
to insurers and employers.
452
Branches as at
31 December 2019
4
Geographies where the Group
Operates
20
ANNUAL REPORT | 2019
Barriers to Market Entry
Accreditation of Facilities
Attracting contract clients requires
accredited, high-quality testing
capabilities.
Brand Equity and Reputation
Patients are loyal to leading brands with a
strong track record.
Market Reach
Fragmented market necessitates a wide
geographic presence to allow for broad
customer reach.
Relationship with Key Stakeholders
Building a scalable platform requires strong
relationship with stakeholders such as
physicians, patients and hospitals.
2019 |
ANNUAL REPORT
21
Strategic Report // Our Markets
Egypt
The Egyptian diagnostics industry enjoys pow-
erful structural growth drivers. With a popu-
lation of over 100 million, Egypt is the most
populous country in the Middle East North
Africa (“MENA”) region and hosts a significant
population of elderly people. The population
is marked by a rising prevalence of diseases,
including communicable and non-communi-
cable diseases, tropical diseases, and lifestyle
diseases such as diabetes. The government has
adopted a strategy to increase awareness on
the importance of diagnostic testing in pre-
ventative healthcare, supporting the growth
in laboratory diagnostics as a tool in clinical
practice. Most recently, the government spon-
sored the nationwide 100 Million Healthy Lives
campaign with the aim of eradicating hepatitis
C in Egypt. The campaign ran from November
2018 through June 2019 with diagnostic testing
targeting 50 million citizens. Following its suc-
cess, the government launched a new aware-
ness campaign in July 2019 targeting women
and the early detection of breast cancer with
diagnostic testing.
The Egyptian diagnostic market can be broadly
divided into public and private sector infrastruc-
ture, with the latter including both labs attached
to private hospitals and independent standalone
labs (chains and single labs). Most labs in Egypt
are concentrated in big cities, with substantial
room to increase accessibility across the country’s
27 governorates for greater coverage of the popu-
lation. The corporate market is emerging as a
driver for diagnostic services, as more companies
offer healthcare coverage to their employees.
Contribution to consolidated
revenues in 2019
85.5%
IDH is in a strong competitive position in the
Egyptian diagnostic industry, having created
formidable barriers to entry with its 40-year
track record, trusted brands, scalable business
model and network of 399 branch labs at year-
end 2019. According to the Boston Consulting
Group (BCG), IDH is the largest fully integrated
private sector diagnostics service provider, with
more than 50% share by revenue of the private
chain market in Egypt.
Operational Highlights
Revenues in Egypt increased 18% y-o-y to
EGP 1,903 million in 2019, with growth being
driven by favourable pricing across both the
walk in and contract segments and higher
test volumes. The number of total patients
served and of tests performed increased 6%
y-o-y, with the first reaching 6.9 million and
the latter recording 27.9 million for the year.
Egypt’s performance was further buoyed by
22
ANNUAL REPORT | 2019
EGP1,903mn
Revenues in 2019, up 18% y-o-y
the ramp up of operations at the new Al Borg
Scan branch – the Group’s radiology unit – with
the sole operational branch recording EGP 14
million in revenues in 2019, making up 1% of
Egypt’s total revenue for the year. Operations in
Egypt contributed 93% of the Group’s EBITDA,
with EBITDA margin remaining stable at 46%
in 2019 including the positive effect of adopting
IFRS 16. For a detailed breakdown of the effect
of adopting IFRS 16 on Egypt’s EBITDA please
refer to the Performance section of this report
on pages 50 – 61.
A key development in Egypt included the
launch of the government-sponsored 100 Mil-
lion Healthy Lives awareness campaign, which
ran from November 2018 through June 2019.
This was the largest health campaign under the
directive of the Egyptian President Abdel-Fat-
tah El-Sisi, which aims to eradicate hepatitis
C across Egypt as part of the administration’s
Egypt’s performance was
buoyed by the ramp up of
operations at the new Al
Borg Scan branch
strategic 2020 plan. The campaign also aims to
stymie the growth of chronic diseases such as
high blood pressure, diabetes and obesity. The
campaign contributed to higher volumes for
IDH during 2019, with 224 thousand patients
served and c.2.4 million tests performed.
2019 |
ANNUAL REPORT
23
Strategic Report // Our Markets
Jordan
Jordan has one of the most modern health
care infrastructures in the Middle East, with
services highly concentrated in Amman and c.
70% of Jordanians having medical insurance.
The strong fundamentals of the Jordanian
market have allowed IDH to deliver consis-
tent growth despite strict price regulation
on medical laboratories with a set price list
that has not changed since its issuance by the
Jordanian Ministry of Health in 2008. Biolab
has thus focused on driving volume growth in
the market, deploying strategies to expand its
services portfolio and packages that encour-
age increased testing per patient.
Unlike Al Borg and Al Mokhtabar in Egypt,
Biolab does not operate a Hub, Spoke and Spike
business model. Whilst Biolab’s 19 central labs
perform many of the 1,000+ pathology tests
offered, four that are considered specialty labs
perform particular types of tests including,
but not limited to, haematology, endocrinol-
ogy, immunochemistry, parasitology, oncology,
transfusion medicine, molecular genetics and
antenatal diagnostics and gene sequencing.
Furthermore, Biolab does not share purchasing,
supply and logistics, IT, marketing or sales func-
tions with its Egyptian parent company.
During 2019 Biolab followed through with its
agreement with Georgia Healthcare Group
PLC (GHG) to establish a Mega Laboratory
(Mega Lab) in the Georgian capital of Tbilisi.
The 7,500 square meter, multi-disciplinary
Mega Lab is the largest of its kind in Georgia.
Contribution to consolidated
revenues in 2019
11.5%
In exchange for providing information tech-
nology and management services, Biolab holds
an 8.025% equity stake in the Mega Lab project
and receives annual IT support services fees
for a period of 10 years and annual manage-
ment service fees for a period of two years.
The Mega Lab is integrating with GHG’s net-
work, with 49 locations installing the lab’s
Laboratory Information Managements Systems
(LIMS), and the facility currently serving 21
branches, 43 polyclinics and 6 hospitals. Ini-
tially serving GHG’s network, that is expected
to utilize one-third of the facility’s capacity,
the Mega Lab plans to develop a B2B network
of healthcare providers outside the Group to
reach full utilization.
24
ANNUAL REPORT | 2019
EGP257mn
Revenues in 2019, up 6% y-o-y
Operational Highlights
Consumers in Jordan continued to adjust to pres-
sures related to the government’s austerity mea-
sures, including an increase in income tax rates by
1%, with IDH recording revenues of EGP 257 mil-
lion in 2019, a 6% y-o-y rise (up 12% in JOD terms).
Biolab, the Group’s Jordanian subsidiary, served
311 thousand patients in 2019, a 12% increase
y-o-y, while the total number of tests performed
also increased 12% y-o-y during the year. Biolab
reported an impressive 74% increase in EBITDA to
EGP 90 million for 2019 on the back of raw material
cost optimization and cost saving efforts, along
with the returns from the Georgia investment.
EBITDA margin increased to 35% (27% when
excluding IFRS 16) compared to 21% recorded in
2018. Should we exclude the effect of IFRS 16, the
EBTDA margin of 2019 would have reached 27%.
For a detailed breakdown of the effect of adopting
IFRS 16 on Jordan’s EBITDA please refer to the
Performance section of this report on pages 50 – 61.
Biolab reported an impressive
74% increase in EBITDA to EGP
90 million for 2019
2019 |
ANNUAL REPORT
25
Strategic Report // Our Markets
Sudan
Sudan’s economic backdrop continued to be
affected by the social conflict and civil unrest
which has endured since the 2011 secession
of South Sudan, and subsequent loss of c.75%
of oil production. These events have hindered
the country’s economic growth, deprived it
of its major foreign currency sources which
culminated in a severe currency devaluation
in 2018 with the Sudanese Pound lose c.85%
of its value. During 2019, economic hardships
and political unrest led to month-long protests
early in the year and the removal of long-time
president Omar Al-Bashir in April 2019. While
the forging of a sovereign council of civilian
and military representative to manage a tran-
sitional period has brought fragile stability in
recent months, management is carefully moni-
toring the situation and developments on the
ground in relation to IDH’s business.
IDH operates under two brand names in
Sudan, Ultralab and Al Mokhtabar Sudan. Al
Borg acquired a majority interest in Ultralabs
in 2011, whilst Al Mokhtabar Sudan had been
established in 2010 prior to the Group’s acqui-
sition of Al Mokhtabar in Egypt.
Operational Highlights
Despite nationwide protest in Sudan and civil
unrest affecting patient and test volumes at IDH,
the diagnostic industry is relatively immune
Contribution to consolidated
revenues in 2019
1.7%
given the inelastic demand for healthcare ser-
vices. Additionally, IDH has been successful in
offsetting the effect of lower volumes due to pro-
test with higher pricing. Consequently, revenues
in Sudan recorded a 4% increase in 2019 to EGP
37 million, the first year-on-year increase in EGP
terms since 2017 and the sharp currency devalu-
ation. IDH’s repricing efforts are more evident
in SDG terms where revenue recorded a strong
64% increase, primarily driven by the walk-in
segment. It should also be noted that with
increased political stability, test volumes began
to recover starting September 2019. Sudan’s
EBITDA recorded EGP 7.5 million, up from the
negative EGP 2.6 million figure recorded last
year. EBITDA margin stood at 20% (15% when
26
ANNUAL REPORT | 2019
EGP37mn
Revenues in 2019, up 4% y-o-y
excluding IFRS 16) compared to the negative 7%
margin recorded in 2018. Improved profitability
was driven by strong revenue growth toward the
second half of the year as well lower salaries after
IDH replaced Egyptian expatriates with Suda-
nese employees. For a detailed breakdown of the
effect of adopting IFRS 16 on Sudan’s EBITDA
please refer to the Performance section of this
report on pages 50 – 61.
Sudan recorded the first year-
on-year revenue increase in EGP
terms since 2017 and the sharp
currency devaluation
2019 |
ANNUAL REPORT
27
Strategic Report // Our Markets
Nigeria
IDH’s operations in Nigeria commenced in
February 2018 following its acquisition of
Eagle Eye Echo-Scan Limited (“Echo-Scan”)
through a strategic alliance with Man Capi-
tal LLC (“Man Capital”), the London-based
investment arm of the Mansour Group, called
Dynasty Holding Group (“Dynasty”), which
is 51% owned and controlled by IDH. In turn,
Dynasty partnered with the International
Finance Corporation (“IFC”) and invested in
Echo-Scan (since rebranded as Echo-Lab) to
capture the opportunity present in the coun-
try’s large medical diagnostics industry, valued
at c. US$ 140 million in 2017 and projected to
reach US$ 1 billion by 2025* .
Whilst also highly fragmented, the industry
can be broadly divided into three groups. The
largest is independent standalone labs (chains
and single labs), followed by public and private
hospitals.
Since acquisition, the Group rolled out an inte-
gration and value-building plan for the expan-
sion of Echo-Lab’s branch network, renovating
existing branches, procuring state-of-the-art
equipment and growing the lab’s service offer-
ings and enhancing its quality standards.
Operational Highlights
During 2019, the Group’s value-building phase
saw it continue with refurbishment works on
existing branches, with eight out of 13 branches
* Source: Boston Consulting Group
Contribution to consolidated
revenues in 2019
1.4%
renovated, including inaugurating three new
branches as well as the closure of two non-
performing branches during the year. Alongside
installed
network expansion Echo-Lab also
new state-of-the-art radiology equipment from
General Electric, including Magnetic resonance
imaging (“MRI”) and computed tomography scan
(“CT”), that have commenced operation in the
second half of 2019. The Group had also deployed
its Laboratory Information Systems (LIS) and its
System Application and Product (SAP) platform
in 2018 and expanded its range of diagnostic test-
ing by sending samples to its Mega Lab in Egypt.
Most importantly, IDH continues to indoctrinate
its quality standards and procedures and is invest-
ing heavily in training of operational staff and has
hired a new management to help deliver on its
strategic goals for the geography.
28
ANNUAL REPORT | 2019
EGP30 mn
Revenues in 2019, flat y-o-y
Echo-Lab’s revenues in NGN terms recorded
a 23% y-o-y rise for 2019, driven by growing
volumes. However, in EGP terms, following an
appreciation of the Egyptian pound over the
course of the year, revenues in Nigeria remained
stable year-on-year at EGP 30 million for 2019.
Meanwhile, increased restructuring costs and
delayed branch openings led to a negative
EBITDA of EGP 30 million in 2019. With branch
renovations progressing and with the installa-
tion of new state-of-the-art radiology equipment
expected to increase patient volumes, manage-
ment expects the Group’s Nigerian operations to
turn EBITDA positive during 2020.
Echo-Lab’s revenues in NGN
terms recorded a 23% y-o-y
rise for 2019, driven by growing
volumes
2019 |
ANNUAL REPORT
29
Strategic Report // Our Brands
Our
Brands
IDH’s core brands include Al Mokhtabar, Al Borg
and Al Borg Scan in Egypt, Biolab in Jordan,
Ultralab and Al Mokhtabar Sudan in Sudan, and
Echo-Lab in Nigeria. An Egypt-based subsidiary,
Wayak, was launched in 2019 to build electronic
medical records and offer patients healthcare
management services.
Wayak was launched in
2019 to build electronic
medical records and
offer patients healthcare
management services
Al Mokhtabar – Egypt
Al Borg Laboratories – Egypt
Al Mokhtabar originates in 1979, when Dr.
Moamena Kamel, Professor of Immunology
at Cairo University’s, founded MK Lab, which
merged with Al Mokhtabar in 2004. The combined
care provider has since built a strong reputa-
tion for quality, with a portfolio of over 1,200
clinical analysis tests encompassing immunol-
ogy, hematology/coagulation, clinical chemistry,
parasitology, microbiology/infectious diseases,
toxicology, cytology, surgical pathology, flowcy-
tometry, molecular biology and cytogenetics. As
at 31 December 2019, Al Mokhtabar operated a
network of 214 branches across Egypt. Over 3.8
million patients were served in 2019, with 15.4
million tests performed.
Founded in 1991, Al Borg Laboratories is the
first Middle Eastern medical-laboratory opera-
tion to successfully implement a Hub, Spoke
and Spike business model. Al Borg is now the
largest privately owned laboratory group in the
region, offering more than 2,000 test categories.
This extensive product offering covers the whole
spectrum of conventional and non-conventional
medical-testing solutions. Through a network of
183 branches, Al Borg served more than 3 million
clients in 2019, handling 12.5 million tests per
annum. The company caters to outpatient walk-in
customers in addition to corporate, insurance and
lab-to-lab clients.
30
ANNUAL REPORT | 2019
Al Borg Scan – Egypt
Wayak – Egypt
IDH established Al Borg Scan in 2018 with eye to
capturing a share of Egypt’s high-value radiology
space. Offering a full range of radiology services,
Al Borg Scan leverages Al Borg’s brand equity
and its large customer base to consolidate its
position as the Egyptian market’s premium
provider of medical imaging. As at 31 December
2019, the company operated one state-of-the
art facility in Egypt. Al Borg Scan draws on the
latest technology to offer the highest quality in
MRI, CT, ultrasound, x-ray, mammogram and
cath lab services. Led by some of the Egypt’s
most capable and recognized radiologists, Al
Borg Scan is a key component of IDH’s strategy
to build a national brand in Egypt.
Wayak was launched in 2019 to invest in data
mining and artificial intelligence platforms and
capitalise on IDH’s patient database to capture
new growth opportunities in the healthcare
management space. With a database covering
more than 13 million patients, of which 10% suf-
fer from chronic diseases, Wayak will allow IDH
to build electronic medical records of patients
and better cater to their needs with innovative
patient healthcare profiles, home-delivery of
medications, diagnostics testing reminders,
referrals to service providers under the IDH
network with discounted prices as well as
follow-up services.
2019 |
ANNUAL REPORT
31
Strategic Report // Our Brands
UltraLab – Sudan
Al Mokhtabar Sudan – Sudan
Founded in 2008, Ultralab has rapidly developed
into Sudan’s largest and most respected labora-
tory chain. Ultralab operated 13 laboratories at
year-end 2019, including 10 independent labs
and 3 hospital / clinical centre-based labs. The
company enjoys broad geographic exposure in
Sudan, with Khartoum, Om Dorman and Port
Sudan. 2019 saw Ultralab serve 154 thousand
patients in 2019, performing a total of 522 thou-
sand tests.
Established in 2010 prior to IDH’s acquisition
of Al Mokhtabar in Egypt, Al Mokhtabar Sudan
offers a similar suite of diagnostic services
as that provided by UltraLab. Both of IDH’s
Sudanese subsidiaries organise their opera-
tions using a Hub, Spoke and Spike model, mir-
roring those implemented by Al Borg and Al
Mokhtabar in Egypt. As at 31 December 2019,
Al Mokhtabar Sudan operated a network of 8
branches, serving 26 thousand patients and
performing 75 thousand tests.
32
ANNUAL REPORT | 2019
Biolab – Jordan
Echo-Lab – Nigeria
IDH established Biolab in 2001 with the aim
of leading Jordan’s private medical laboratory
space. Using state-of-the-art medical technol-
ogy and a nationwide network of 19 branches,
Biolab offers a suite of over 1,000 diagnostic
tests to a customer base including patients,
physicians, hospitals and referring clinical labo-
ratories. Biolab is accredited by the Jordanian
Ministry of Health (“MOH”), with two branches
accredited with ISO 15189 and Joint Commis-
sion International ( JCI) and one branch receiv-
ing CAP accreditation in 2018. Biolab served
over 311 thousand patients in 2019, performing
more than 1.8 million tests.
IDH acquired Nigerian medical diagnostics
firm Echo-Lab (previously Echo-Scan) in 2018.
The acquisition follows on the Group’s strategy
of broadening its exposure to fragmented and
underpenetrated African and Middle Eastern
markets, where it can leverage advantageous
market conditions similar to those prevail-
ing in its core geographies. Echo-Lab offers a
comprehensive suite of pathology and radiology
diagnostic testing, consolidating different test
categories under the same roof. The company
operated a network of 13 branches as at 31
December 2019, serving 109 thousand patients
and performing 179 thousand tests.
2019 |
ANNUAL REPORT
33
Strategic Report // Our Services
Our
Services
Through IDH’s brands, the Group covers the full
spectrum of diagnostic testing services with
over 1,400 internationally accredited pathology
tests ranging from basic blood glucose tests
for diabetes to advanced molecular testing for
genetic disorders, and a full suite of radiology
services. IDH also leverages its patient database
and wide geographic reach to build electronic
medical records and offer its patients tailored
services – home-delivery of medications,
diagnostics testing reminders and referrals to
service providers – under its subsidiary Wayak.
Pathology
IDH’s comprehensive pathology product portfolio covers immunology, haematology, endocrinol-
ogy, clinical chemistry, molecular biology, cytogenetics, histopathology and microbiology.
Immunology
Microbiology
Haematology
Endocrinology
Clinical Chemistry
Molecular Biology
Cytogenetics
Histopathology
Radiology
Radiology
DH offers the full suite of radiology services through Al Borg Scan in Egypt and Echo-Lab in Nigeria,
including but not limited to magnetic resonance imaging (MRI), computed tomography (CT), ultra-
sound, x-ray, mammograms and cath lab facilities.
Healthcare Management Services
In 2019, IDH launched its new Egypt-based subsidiary “Wayak” to capitalize on the Group’s patient database
and capture new growth opportunities in the healthcare management space and offer targeted services to
its customers. With a database covering more than 13 million patients, of which c.10% suffer from chronic
diseases, Wayak invests in data mining and artificial intelligence platforms to build electronic medical
records of patients and better cater to their needs with new value propositions. These include buil ing
patient healthcare profiles, home-delivery of medications, diagnostics testing reminders, refe rals to service
providers under IDH’s network with discounted prices as well as follow-up services, amongst others.
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35
Strategic Report // Our Services
CAP
Accredited since 2018
Internationally-Accredited Test Portfolio
Across its brand portfolio, IDH maintains international-quality accreditations with a stringent
internal audit process to ensure best-in-class service.
ISO
ISO accreditation requires an initial inspection of laboratory
practices, calibration and medical analysis by an accreditation
body. For Al Mokhtabar and for Al Borg, it was URS Certification
(accredited internationally by the United Kingdom Accredita-
tion Service); and for Biolab, it was the Jordanian Accreditation
System ( JAS). The inspection involves the clinical chemistry
area, the virology unit, the haematology unit and the general
laboratory management practice. The accreditation’s standards
include both management and technical requirements. The
Company’s ISO 9001:2008 accreditations for both Al Mokhtabar
and Al Borg passed year end accreditation reviews in 2018 and
will next be renewed in 2019.
College of American Pathologists (CAP)
Unlike ISO accreditation, CAP certification is awarded to indi-
vidual labs, rather than the Group’s operations as a whole and
is widely considered the leader in laboratory quality assurance
globally. The Group’s central Mega Lab in Cairo, inaugurated
in 2015, received its CAP certification In February 2018, and
replaced two smaller, independent “A-labs” one of which was
also CAP certified. IDH operates the only laboratory in Egypt
to receive this distinguished certification, which is subject to
renewal every two years.
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ANNUAL REPORT | 2019
300
Employees trained per month
Quality Assurance
IDH’s quality assurance programme ensures that all internal
diagnostic processes, lab testing procedures and results analyses
are accurate. The quality assurance program ensures that all the
standards of the CAP and ISO accreditations are met by inspecting
hardware and equipment, ensuring compliance with procedure
manuals, inspecting the accuracy of results and administering com-
petency assessments for employees. The internal audit team also
maintains a specific audit checklist for the basic and routine tests
conducted in the Group’s C-labs, including conformity of process;
testing the competency of employees through oral, observational,
practical and written tests; and conducting managerial audits to
assess the labs’ management and administrative efficiency.
Employee Training
The Group views education as an essential means of ensur-
ing quality across its laboratories. To help develop the skills
of employees, IDH has a dedicated training facility in Cairo
with four training laboratories. The centre provides training to
around 300 employees per month, including doctors, chemists,
receptionists, branch and area managers, sales personnel and
administrators. The training curriculum is determined based on
performance KPIs, internal audit reports, management reviews,
competency assessment reports and analysis of customer feed-
back and complaints. IDH’s employee training is structured
along four modules: new employee training, competency-based,
need-based and practical re-training.
2019 |
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37
Strategic Report // Competitive Strengths & Growth Strategy
Competitive Strengths
& Growth Strategy
IDH is implementing an ambitious growth strategy which leverages the scalability of
its business model and the broad experience of its management team.
Competitive Strengths
Exposure to resilient markets with favourable dynamics
IDH’s markets enjoy favourable structural characteristics, with diagnostic
services demand relatively underserved. Given the counter-cyclical nature
of the diagnostic and healthcare industries, the Group is well insulated
against economic and other instability across its geographic footprint,
illustrated by its maintenance of double-digit rates of top-line growth.
Strong market position with over three decades
of industry experience
IDH enjoys strong barriers to entry in the markets where it operates
(as detailed in Our Markets on page 20). Players with an established market
position enjoy a significant advantage. With nearly four decades of industry
experience, IDH’s subsidiaries have earned patients’ trust and loyalty, strength-
ening their brand equity. IDH leverages its internationally-accredited facilities
to attract contract clients, while its scalable business model and relationships
with key stakeholders extend its reach in a fragmented market.
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ANNUAL REPORT | 2019
Scalable asset-light business model
A Hub, Spoke and Spike business model allows IDH to efficiently and organi-
cally expand its geographic footprint through a capital-light platform. IDH’s
centralised Mega Lab is equipped with modern, high-capacity facilities.
Significant throughput facilitates the rapid launch throughout the Group’s
markets of asset-light, plug and play C labs for sample collection and simple
testing. Safety and testing procedures are continuously enhanced as more
tests are performed using the advanced diagnostic tools and state-of-the-
art technology installed at IDH’s Mega Lab.
Strong balance sheet and cash generation capacity
An asset-light business model allows IDH to maintain a low-debt funding
mix, offering significant strategic flexibility. Core profitability is consis-
tently strong, with the Group delivering EBITDA margins exceeding 40%
and maintaining healthy cash balances despite the prevalence of adverse
macroeconomic and political headwinds.
Experienced and entrepreneurial management
IDH enjoys a management team with several decades of healthcare expe-
rience, while its world-class Board of Directors is composed of experts in
healthcare, investing and the MENA region.
2019 |
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39
Strategic Report // Competitive Strengths & Growth Strategy
Long Term Growth Strategy
IDH leverages its competitive strengthens to
capture substantial opportunities and deliver
on a four-pillar growth, namely 1) continue
to expand customer reach; (2) increase tests
per patient by expanding the Group’s services
portfolio; (3) expand into new geographic
markets
through selective, value-accretive
acquisitions; and (4) introduce new medical
services by leveraging the Group’s network and
reputable brand position.
Expand Customer Reach
IDH works to increase patient accessibility and expand its customer base,
capitalising on the favourable market dynamics prevailing across its geo-
graphic footprint. Its scalable, asset-light business model allows IDH to
rapidly and efficiently launch new labs and deepen its exposure to Middle
Eastern and African markets. Besides its core offerings, IDH provides a suite
of add-on services, including house calls, e-services and results delivery, offer-
ing a frictionless customer experience to current and prospective patients.
Increase Tests per Patient
The Group’s state-of-the-art Mega Lab enhances its ability to perform
specialized and advanced tests not offered in other labs, driving volumes.
IDH bundles testing services into discounted health packages offered to
existing customers, further driving volume growth and revenue per patient.
Awareness campaigns targeting certain diseases are frequently mounted
both by IDH and as part of government-led initiatives, which highlight the
importance of preventative healthcare with diagnostic testing especially
for people with lifestyle diseases like diabetes and high cholesterol. Such
efforts have successfully driven volume growth in IDH, bolstering average
test and revenue per patient.
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ANNUAL REPORT | 2019
30.5 mn
Tests performed in 2019
Geographic Expansion
Highly fragmented and underpenetrated markets in the Middle East and
Africa are the primary target of IDH’s strategic expansion efforts. IDH’s
business model is well-suited to capitalise on healthcare and consumer
trends prevalent in these regions. Leveraging the strength of its balance
sheet, IDH delivers on this strategic objective through value-accretive
acquisitions, including that of Echo-Lab of Nigeria in 2018.
Diversify into New Medical Services
As Egypt’s medical testing space evolves from a single-doctor model
towards branded chains, IDH recognises an opportunity to offer services
not currently provided at large scale by any private healthcare provider.
The Group believes that its brand equity, experience and patient following
ideally position it to pursue opportunities in adjacent markets. To this end,
the Group marked its expansion into the high-value radiology segment in
October 2018 through Al Borg Scan. Additionally, the Company’s newly
launched Egypt-based subsidiary Wayak, which aims invest in artificial
intelligence and data-mining to provide tailored healthcare management
services to its patients and increase loyalty and retention rates.
2019 |
ANNUAL REPORT
41
Strategic Report // Principle Risks, Uncertainties & Their Mitigation
Principle Risks, Uncertainties
& Their Mitigation
As in any corporation, IDH has exposure to
risks and uncertainties that may adversely
affect its performance. IDH Chairman Lord St
John of Bletso has emphasised that ownership
of the risk matrix is sufficiently important to
the Group’s long-term success that it must
be equally shared by the Board and senior
management.
While no system can mitigate every risk — and
some risks, as at the country level, are largely
without potential mitigants — the Group has
in place processes, procedures and baseline
assumptions that provide mitigation. The Board
and senior management agree that the principal
risks and uncertainties facing the Group include:
Specific Risk
Mitigation
Country risk — Political & Security
Egypt and the wider MENA region, where the Group
operates, have experienced political volatility and there
remains a risk of occasional civil disorder.
Sudan continued to face political unrest during 2019,
with protests leading to the removal of long-time
president Omar Al-Bashir in April 2019 by the military.
Protest continued throughout the year demanding the
military hand over power to a civilian government,
which culminated in a power-sharing agreement signed
between the military and an opposition coalition in
July 2019. While relative stability has been restored, the
situation remains volatile and a return to civil unrest
could adversely affect IDH’s business.
Nigeria is facing security challenges on several fronts,
including re-emerging ethnic tensions and resurgent
attacks by Islamist militants in the northeast. Against
the backdrop of a sluggish economy and the slow
implementation of reforms, mounting discontent could
translate into further social unrest.
See mitigants for “Country/regional risk — Economic,”
below.
While nationwide protests do affect patient and test vol-
umes at IDH, the diagnostic industry is relatively immune
given the inelastic demand for healthcare services. Addi-
tionally, IDH has been successful in offsetting the effect of
lower volumes due to protest with higher pricing, and in
2019 the geography recorded its first year-on-year revenue
growth in EGP terms since 2017.
The current power-sharing agreement and subsequent
formation of a sovereign council composed of civilian and
military representatives will see the country through a three-
year transitional period after which elections are to be held.
Echo-Lab’s laboratories are located primarily in Lagos,
Abuja and Benin, far from the current unrest occurring
in the northeast part of Nigeria.
Regarding other operating risks, including but not lim-
ited to legal and compliance risks, IDH will apply the
same rigorous standards to evaluating all aspects of its
business processes in Nigeria as it has implemented in
all of the emerging markets in which it operates.
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ANNUAL REPORT | 2019
Specific Risk
Mitigation
Country/regional risk — Economic
The Group is subject to the economic conditions of
Egypt specifically and, to a lesser extent, those of the
wider MENA region. Egypt accounted for c. 85% of our
revenues in 2019 (2018: 84%).
High inflation in Egypt: According to the Central Bank
of Egypt, headline inflation recorded 7.1% in Decem-
ber 2019, continuing a declining trend from 11.97% in
December 2018, 21.6% in January 2018 and a record
high of c.35% in July 2017 following the November 2016
devaluation of the Egyptian Pound and subsequent
energy subsidy cuts. Meanwhile core inflation that
strips out volatile items dropped to 2.37%% in Decem-
ber 2019 from 8.3% in December 2018.
High Inflation in Sudan: Following substantial currency
devaluation in Sudan during 2018 that saw the currency
lose 85% of its value, the Sudanese Pound’s official rate ver-
sus the US Dollar remained relatively stable during 2019 at
45.11 as of 31 December as per the Central Bank of Sudan.
However, the currency continued to devalue on the parallel
market, leading to sustained high inflation rates of 57.01%
as of December 2019 according to Trading Economics.
Nigeria: Capital controls could make profit repatriation
difficult in the short term.
As with country risk, this is largely not subject to miti-
gation. In both political/security and economic risk,
management notes that IDH operates in a defensive
industry and that the business continued to grow
year-on-year through two revolutions, as well as under
extremely difficult operating conditions in 2016.
High inflation is one consequence of Egypt’s policy-
restructuring cycle. The structural change underway in
government spending and general repricing of goods
and services represents a reversal of 50 years of compre-
hensive government support. Whilst it will take time,
the reform program is designed to put the country on
a more sustainable path to growth and fiscal consoli-
dation. According to Egypt’s Ministry of Planning and
Administrative Reform, as of the fiscal year ended June
2019 Egypt recorded GDP growth of 5.6%, while the bud-
get deficit as a percentage of GDP had declined to 8.4%
compared to 9.8% in the fiscal year ended June 2018.
The Group’s contemplated acquisitions outside of
Egypt would also mitigate the Egypt-specific country
risk over time.
The Group is closely monitoring the economic and
political situation in Sudan and has implemented sev-
eral price increase to keep instep with inflationary pres-
sures. IDH is also working to limit expatriate salaries
and foreign currency needs by increasing dependence
on local hires.
In Nigeria, until currency exchange policy is clarified
and there is greater visibility regarding profit repatria-
tion, IDH expects to reinvest early profits into its Nige-
rian business. Dividend payments are not expected to
be repatriated in the first four years of operation.
2019 |
ANNUAL REPORT
43
Strategic Report // Principle Risks, Uncertainties & Their Mitigation
Specific Risk
Mitigation
Nigeria: Depreciation of the naira would make imported
products and raw materials more expensive and would
reduce Nigeria’s contribution to consolidated Company
revenues. Whilst capital controls have helped the offi-
cial exchange converge with the black-market rate, the
central bank has yet to allow the naira to float freely.
Country Risk – COVID-19
The global spread of COVID-19 presents business conti-
nuity risks to IDH including, but not limited to, supply-
chain disruptions and their effect on the delivery of
business-critical materials such as test kits, govern-
ment enforced quarantines and their effect IDH busi-
ness operations including patient volumes and staff
mobility and risk of infection among IDH employees.
IDH will capitalise on its regional agreements with sup-
pliers to procure kits at competitive prices.
IDH is in continual dialogue with key suppliers to
gauge the risk associated with a shortage of materi-
als and is yet to identify a weakness. The Group will
aim to build inventory of key test kits as necessary,
should supply disruptions begin to emerge. IDH is
also preparing new standard operating procedures
for SARS CoV-2 testing in the event that the Group’s
subsidiaries are asked by a competent health author-
ity to participate in testing efforts. All of IDH staff use
appropriate protective equipment when interacting
with patients, including those suspected of having
covid-19 or any other infectious disease.
All of the Group’s employees are subject to regular mes-
sages reminding them that they may not report to work
if they have symptoms of a covid-19 infection.
IDH has identified head-office functions that can be
performed from home and is reviewing its disaster
recovery and business continuity policies to ensure
that the Group is prepared for any eventuality.
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ANNUAL REPORT | 2019
Specific Risk
Mitigation
Foreign currency and banking regulation risk
Foreign currency risk: The Group is exposed to foreign
currency risk on the cost side of the business. The major-
ity of supplies it acquires are paid in Egyptian pounds
(EGP), but given they are imported, their price will vary
with the rate of exchange between the EGP and foreign
currencies. In addition, a portion of supplies are priced
and paid in foreign currencies.
The CBE moved to a fully floating foreign exchange
regime on 3 November 2016, since which time the value
of the Egyptian pound against the US dollar has been
set by the interbank market. After losing more than 50%
of its value in 2016, the Egyptian pound closed 2019
at mid-market CBE rate of 16.04 per US$1 against an
opening rate of EGP 17.91.
The Egyptian pound was valued at 15.69 to US$ 1.00 as
of 13 February 2020.
Banking regulation risk: A priority list and alloca-
tion mechanism imposed by the CBE was in effect
throughout 2016 to prioritise essential imports. This
mechanism was in place in response to an active paral-
lel market for foreign exchange.
Whilst foreign exchange is increasingly available fol-
lowing the November 2016 float of the Egyptian pound
and prices set by the interbank mechanism, IDH faces
the risk of variability in the exchange rate as a result of
economic and other factors.
Only 13% of IDH’s cost of supplies (c.2% of revenues) are
payable in US dollars, minimising the Group’s exposure
to foreign exchange (FX) scarcity and in part, the vola-
tility of the Egyptian pound.
In 2019, IDH recorded a net foreign exchange loss/gain
of EGP 15.5 million, largely stable compared to a net
foreign exchange loss of EGP 15.7 million in 2018.
The Egyptian Pound’s appreciation during 2019 was
driven by multiple factors, most notable of which
include the elimination of the foreign investment repa-
triation mechanism; an improving net oil balance as
production from the mega Zohr gas field commenced;
rising tourism revenues, rate cuts by the US Federal
Reserve and continued capital inflow to Egyptian trea-
sury bills due to their attractive yields.
Foreign currency also continued to be available in the
market throughout 2019 whether from the banks or
exchange companies; and the with CBE foreign cur-
rency reserves maintained at record-highs during 2019
to close the year at US$ 45 billion, the return of capital
controls previously implemented following the pound’s
devaluation is unlikely.
2019 |
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Strategic Report // Principle Risks, Uncertainties & Their Mitigation
Specific Risk
Mitigation
Supplier risk
IDH faces the risk of suppliers re-opening negotiations
in the face of cost pressure owing to the prevailing infla-
tionary environment and/or a possible albeit limited
devaluation risk in 2020.
IDH’s supplier risk is concentrated amongst three key
suppliers — Siemens, Roche and BM (Sysmex)— who
provide it with kits representing 45% of the total value
of total raw materials in 2019 (2018: 42%).
IDH has strong, longstanding relationships with its sup-
pliers, to whom it is a significant regional client. Due
to the volumes of kits the Company purchases, IDH is
able to negotiate favourable pricing and maintain raw
material costs increases at a rate slower than inflation.
In 2019, average raw material cost per test increased
only 4%.
Total raw materials costs as a percentage of sales were
18.3% in 2019 compared with 19.3% in 2018.
Remittance of dividend regulations and
repatriation of profit risk
The Group’s ability to remit dividends abroad may be
adversely affected by the imposition of remittance
restrictions where, under Egyptian law, companies
must obtain government clearance to transfer divi-
dends overseas and are subject to higher taxation on
payment of dividends.
As a foreign investor in Egypt, IDH does not have issues
with the repatriation of dividends, but is exposed to risk
in the form of cost of foreign exchange in the markets in
which the Group operates, particularly Egypt and Sudan.
As a provider of medical diagnostic services, IDH’s oper-
ations in Sudan are not subject to sanctions. Notably, in
October 2017 the US lifted a host of sanctions imposed 20
years ago that included a comprehensive trade embargo,
a freeze on government assets and tight restrictions on
financial institutions dealing with the country.
Legal and regulatory risk to the business
The Group’s business is subject to, and affected by,
extensive, stringent and frequently changing laws and
regulations, as well as frequently changing enforce-
ment regimes, in each of the countries in which it oper-
ates. Moreover, as a significant player in the Egyptian
private clinical laboratory market, the Group is subject
to antitrust and competition-related restrictions, as
well as the possibility of investigation by the Egyptian
Competition Authority.
The Group’s general counsel and the quality assurance
team work together to keep IDH abreast of, and in com-
pliance with, both legislative and regulatory changes.
On the antitrust front, the private laboratory segment
(of which IDH is a part) accounts for a small proportion
of the total market, which consists of small private labs,
private chain labs and large governmental and quasi-
governmental institutions.
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ANNUAL REPORT | 2019
Specific Risk
Mitigation
Quality control risks
Failure to establish and comply with appropriate qual-
ity standards when performing testing and diagnostics
services could result in litigation and liability for the
Group and could materially and adversely affect its
reputation and results of operations. This is particu-
larly key as the Group depends heavily on maintaining
good relationships with healthcare professionals who
prescribe and recommend the Group’s services.
Risk from contract clients
Contract clients including private insurers, unions
and corporations, account for c. 60% of the Group’s
revenue in 2019. Should IDH’s relationship with these
clients deteriorate, for example if the Group was unable
to negotiate and retain similar fee arrangements or
should these clients be unable to make payments to
the Group, IDH’s business could be materially and
adversely affected.
Pricing pressure in a competitive, regulated
environment
The Group faces pricing pressure from various third-
party payers that could materially and adversely affect
its revenue. Pricing may be restrained in cases by
recommended or mandatory fees set by government
ministries and other authorities.
This risk may be more pronounced in the context of
headline monthly inflation in Egypt, which as of Decem-
ber 2019 stood at 7.1% as per the Central Bank of Egypt.
The Group’s quality assurance (QA) function ensures
compliance with best practices across all medical
diagnostic functions. All laboratory staff participate in
ongoing professional education with quality assurance
emphasised at each juncture.
The head of quality assurance for the Group is a member
of the senior management team at the IDH level, which
meets weekly to review recent developments, plan strat-
egy and discuss issues of concern to the Group as a whole.
IDH diligently works to maintain sound relation-
ships with contract clients. All changes to pricing and
contracts are arrived at through discussion rather
than blanket imposition by IDH. Relations are further
enhanced by regular visits to contract clients by the
Group’s sales staff.
IDH’s attractiveness to contract clients is enhanced by
the extent of its national network.
No single client contract currently accounts for more
than 1% of total revenues or 1.4% of Corporate revenues.
This is an external risk for which there exist few mitigants.
In the event there is escalation of price competition
between market players, the Group sees its wide national
footprint as a mitigant; c. 60% of our revenue is gener-
ated by servicing contract clients (private insurer, unions
and corporations) who prefer IDH’s national network to
patchworks of local players.
IDH has a limited ability to influence changes to manda-
tory pricing policies imposed by government agencies,
as is the case in Jordan, where basic tests that account
for the majority of IDH’s business in that nation are
subject to price controls.
2019 |
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Strategic Report // Principle Risks, Uncertainties & Their Mitigation
Specific Risk
Mitigation
Carrying value of goodwill and other intan-
gible assets
A decline in financial performance could lead to an
impairment risk over the carrying value of IDH’s
goodwill and other intangible assets. Goodwill and
intangible assets have arisen from historic acquisitions
made by the Group and include the brand names used
in the business.
Business continuity risks
Management concentration risk: IDH is dependent on
the unique skills and experience of a talented manage-
ment team. The loss of the services of key members
of that team could materially and adversely affect the
Company’s operations and business.
Business interruption: IT systems are used extensively
in virtually all aspects of the Group’s business and
across each of its lines of business, including test and
exam results reporting, billing, customer service,
logistics and management of medical data. Similarly,
business interruption at one of the Group’s larger labo-
ratory facilities could result in significant losses and
reputational damage to the Group’s business as a result
of external factors such as natural disasters, fire, riots
or extended power failures. The Group’s operations
therefore depend on the continued and uninterrupted
performance of its systems.
IDH carries out an annual impairment test on goodwill
and other intangible assets in line with IAS 36.
The results of the annual impairment test show head-
room between the recoverable amount (based on value
in use) and the carrying value of each of the identified
Cash Generating Units and no impairment is deemed
to be required. For more detail see note (12) of the
Financial Statements.
IDH understands the need to support its future growth
plans by strengthening its human capital and engaging
in appropriate succession planning. The Company is
committed to expanding the senior management team,
led by its CEO Dr. Hend El Sherbini, to include the tal-
ent needed for a larger footprint. The Group has con-
stituted an Executive Committee led by Dr. El Sherbini
and composed of heads of departments. The Executive
Committee meets every second week.
The Group has in place a full disaster recovery plan,
with procedures and provisions for spares, redundant
power systems and the use of mobile data systems as
alternatives to landlines, among multiple other factors.
IDH tests its disaster recovery plans on a regular basis.
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ANNUAL REPORT | 2019
Specific Risk
Mitigation
Loss of talent
IDH depends on the skills, knowledge, experience and
expertise of its senior managers to run its business and
implement its strategies. The Group’s senior manage-
ment has an average of 15 years of industry experience
and the majority are medical doctors. Furthermore,
IDH is reliant on its ability to recruit and retain labo-
ratory professionals. Loss of senior managers could
materially and adversely affect the Group’s results of
operations and business.
In Nigeria, IDH will face a more limited talent pool of
healthcare workers due to a weak education system and
the tendency for trained professionals to move abroad.
Loss of certifications and accreditations
Many of IDH’s facilities have received internationally
accreditations for high-quality standards. The failure
to renew these certifications, including the College
of American Pathologists (CAP) accreditation for the
Mega Lab or the International Organization for Stan-
dards (IOS) for other facilities, would call into ques-
tion the Group’s quality standards and competitive
differentiators.
Cybersecurity risk
The company controls a vast amount of confidential
data for its patients’ records; to this end, there is a
cybersecurity risk emerged as for both data confidenti-
ality and data security.
In addition to competitive compensation packages,
the Group also ensures it has access to a broad pool
of trained laboratory professionals through its own
in-house recruitment and training program. We fur-
thermore have in place a program to monitor the per-
formance of graduates of the training program.
Egypt is a net exporter of trained healthcare profession-
als as there is surplus staff in the market. IDH’s efforts
are accordingly focused on retention of qualified staff
as opposed to recruitment of new personnel.
In Nigeria, IDH intends to offer a strong value proposi-
tion for staff that includes opportunity for both com-
pensation and training. The Group will seek to bring
in expatriates to fill key leadership roles whilst local
teams are being trained and developed.
In October 2017, IDH’s central Mega Lab in Cairo was
accredited by CAP which is subject to renewal every
two years. The accreditation was renewed in October
2019 with the next renewal date in October 2021. The
Company also renewed its ISO certifications in 2019,
with the next renewal due in three years. In Jordan, Bio-
lab has received Joint Commission International ( JCI)
accreditation, as well as ISO 150189, HCAC and CAP
certifications in 2018. Branches in Sudan and Nigeria
are not accredited.
IDH’s ability to keep current its certifications and
accreditation are supported by ongoing QA, training
and internal audit procedures.
The company has stringent control over its security and
regularly does stress tests over its IT infrastructure, and
is currently commissioning an independent leading
international service provider to perform independent
stress tests and to diagnose its IT infrastructure con-
trols, in order to ensure the confidentiality of all data.
2019 |
ANNUAL REPORT
49
Performance
IDH delivered a strong financial
performance in 2019, despite operational
challenges in its markets
16%
revenue growth in 2019 to EGP 2.2 bn
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ANNUAL REPORT | 2019
2019 |
ANNUAL REPORT
51
Performance // Financial and Operational Review
Financial and
Operational Review
Results*
)EGP million(
Revenues
Cost of Sales
Gross Profit
Gross Profit Margin
Operating Profit
EBITDA1
EBITDA Margin
Net Profit
Net Profit Margin
Cash Balance
2019
2,226
(1,143)
1,084
49%
791
945
42%
505
23%
631
2018
1,921
(973)
948
49%
685
762
40%
497
26%
664
change
16%
17%
14%
-
15%
24%
2 pts
2%
(3 pts)
-5%
IDH revenues came in at EGP 2,226 million in
2019, 16% above last year’s figure on the back
of both higher volumes and favourable pricing.
Top-line growth for the year was supported by
both the company’s walk in and contract seg-
ments with the first recording a 15% year-on-
year rise in revenues and the latter reporting a
17% year-on-year top-line expansion.
Revenue Growth Drivers
Volume
Price & Mix
Foreign Currency Translation
Total
Revenue Growth Drivers by Geography
Egypt
Jordan
Sudan
Nigeria
Total
2019
6%
11%
(1%)
16%
2019
15%
0.7%
0.1%
-
16%
2018
12%
16%
(1%)
27%
2018
24%
2%
(1%)
2%
27%
*Decimals are rounded to the nearest whole number
1 EBITDA is calculated as operating profit plus depreciation and amortization.
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ANNUAL REPORT | 2019
The company’s cost of sales recorded a 17%
year-on-year increase in 2019 to EGP 1,143
million with IDH’s gross profit margin for the
year unchanged at 49%. EBITDA margin grew
two percentage points year-on-year to 42% in
2019 following the implementation of IFRS 16
(stable at 40% when the application of IFRS 16
and Wayak’s results are excluded). Profitability
for the year was further supported by a strong
improvement in Jordan where EBITDA grew
74% year-on-year in 2019 and EBITDA margin
expanded 14 percentage points to 35%. On a
similar note, operations in Sudan generated a
positive EBITDA of EGP 7 million (margin of
20%) for the year, compared to the negative
EGP 3 million EBITDA in 2018.
On the operational front, IDH expanded its
branch network to 452 branches as at year-end
2019. This is up from the 418 branches operated
as at 31 December 2018. The Group’s network
expansion drive continues to be supported by its
state-of-the-art Mega Lab which allows IDH to
deploy its Hub, Spoke and Spike business model
in Egypt to roll out capital-efficient “C” labs more
rapidly. Over the last year, IDH has opened 33
labs in Egypt, three in Nigeria, and closed two
unprofitable branches in Sudan.
Branches by Country
Egypt
Jordan
Sudan
Nigeria
Total Branches
31-Dec-2019
31-Dec-2018
Change
399
19
21
13
452
366
19
23
10
418
9%
-
(9%)
30%
8%
Our Customers
IDH serves two principal types of clients: con-
tract (corporate), including institutions such
as unions, private insurance companies and
corporations who enter into one-year renew-
able contracts at agreed rates per-test and on
a per-client basis, and walk-in (individuals).
Within each of these categories, the Group
also offers a house call service, and within the
contract segment, a lab-to-lab service.
IDH served a total of 7.5 million patients
between both segments during 2019, 6% above
last year’s figure. During the year, the total
number of tests performed reached 30.5 mil-
lion, up 6% year-on-year. The ratio of contract
to walk-in patients during the year was 73:27
largely unchanged from last year’s ratio.
2019 |
ANNUAL REPORT
53
Performance // Financial and Operational Review
Key Performance Indicators* )Excluding Wayak(**
Contract Segment
Walk-in Segment
Total
2018
2019 Change
2018
2019 Change
2018
2019
Change
Revenue (EGP ‘000)
1,141,483 1,331,160
17%
779,969
894,703
15%
1,921,452 2,225,863
16%
% of Revenue
Patients ('000)
% of Patients
Revenue per Patient (EGP)
Tests ('000)
% of Tests
Revenue per Test (EGP)
Test per Patient
59%
60%
41%
40%
5,078
5,433
7%
1,970
2,048
4%
7,048
7,481
6%
72%
225
73%
245
22,206
23,553
77%
77%
51
4.4
57
4.3
9%
6%
10%
(1%)
28%
396
27%
437
6,560
6,918
23%
119
3.3
23%
129
3.4
10%
5%
9%
1%
273
298
28,766
30,471
67
4.1
73
4.1
9%
6%
9%
-
* Percent changes are calculated based on exact decimal numbers which are rounded to the nearest whole number in the table
** KPIs exclude Wayak’s top-line figure amounting to EGP 632 thousand in 2019, inclusion of which would distort the KPIs with an unrelated
line of business.
Revenue Analysis: Contribution by
Patient Segment
The Group’s contract segment reported a 17%
y-o-y rise in revenues during 2019, making up
60% of the company’s total revenues and con-
tributing to 62% of IDH’s total revenue growth
for the year. During 2019, IDH served 5.4 million
contract patients (up 7% y-o-y) and performed
23.6 million tests (up 6% y-o-y).
Average revenue per contract test witnessed a
10% y-o-y rise to EGP 57 in 2019, while average
revenue per contract patient was up 9% to EGP
245 in 2019 from EGP 225 recorded last year.
Within the Group’s walk-in segment, revenues
recorded a 15% y-o-y increase to EGP 895 million,
making up 40% of the Group’s total revenues for
the year and contributing to 38% of the Group’s
total revenue growth in 2019. The segment’s rev-
enue growth for the year was both volume and
price driven as average revenues per walk-in test
increased 9% y-o-y to EGP 129, while the total
number of walk-in tests increased 5% y-o-y for
the period to 6.9 million tests.
IDH’s overall average revenue per test rose 9%
y-o-y to EGP 73 in 2019. The Group’s combined
average revenue per patients also reported a 9%
y-o-y to EGP 298.
Revenue Analysis: Contribution by Geography
2018
■ Egypt
■ Jordan
■ Sudan
Nigeria
84%
13%
2%
2%
2019
■ Egypt
■ Jordan
■ Sudan
Nigeria
85%
12%
2%
1%
54
ANNUAL REPORT | 2019
IDH’s Egyptian operations,
At
revenues
expanded 18% y-o-y to EGP 1,903 million in
2019. Growth for the year came on the back of
both higher volumes and favourable pricing.
Both the number of total patients served and
of tests performed increased 6% y-o-y, with the
first reaching 6.9 million and the latter record-
ing 27.9 million for the year.
On a segment basis, contract patients served by
IDH in Egypt reached 5.1 million, up 6% y-o-y,
while walk in patients increased 5% y-o-y to 1.7
million in 2019. Test performed at the company’s
contract segment reached 22.1 million in 2019,
up 5% y-o-y. At the walk-in segment, tests per-
formed were up 7% y-o-y to 5.7 million. Egypt’s
contract segment recorded revenues of EGP
1,197 million in the year, a 17% y-o-y increase,
while at the walk-in segment revenues reached
EGP 705 million, up 20% y-o-y. Wayak recorded
revenues of EGP 632 thousand in 2019.
In Jordan, where consumers continued to adjust
to the government’s austerity measures, includ-
ing an increase in income tax rates, IDH reported
revenues of EGP 257 million in 2019, a 6% y-o-y
rise (up 12% in JOD terms). Biolab, the Group’s
Jordanian subsidiary, served 311 thousand
patients in 2019, a 12% increase y-o-y, while the
total number of tests performed also increased
12% y-o-y during the year reaching 1.8 million.
In Sudan, revenues came in 4% above last year’s
figure at EGP 37 million as results continued
to be impacted by the devaluation of the Suda-
nese pound. However, in SDG terms, revenues
increased 64% y-o-y as increasingly favourable
pricing more than offset the lower test volumes
on account of political unrest in the early part of
2019. Growth in SDG terms came on the back of
a strong rise in revenue per test at the Group’s
walk-in segment as the company passed on price
increases in step with currency devaluation.
At the Group’s Nigerian subsidiary, revenues
came in flat at EGP 30 million for the year as
results continued to be impacted by ongoing
restructuring works and delays in new branch
openings. As of year-end 2019 the Group has
renovated a total of 8 out of 13 branches in the
country and rolled out its new Victoria Island
and Akowonjo branches which came online in
June and October of 2019, respectively. In NGN
terms, the division’s top-line increased by a 23%
y-o-y in 2019 driven by rising volumes.
Cost of Sales
IDH’s cost of sales increased 17% y-o-y to EGP
1,143 million in FY 2019. The Group’s gross profit
reached EGP 1,084 million in FY 2019, up 14%
y-o-y. Gross profit margin for the year came in
unchanged at 49%.
COGS Breakdown as a Percentage of Revenue
Raw Materials including cost of tests sent
abroad
Wages & Salaries
Depreciation
Other Expenses
Total
2019
2018
18.3%
17.2%
6.0%
9.8%
51.3%
19.3%
16.3%
3.7%
11.3%
50.6%
2019 |
ANNUAL REPORT
55
Performance // Financial and Operational Review
Raw materials costs, increased 10% y-o-y to
EGP 408 million in FY 2019, continuing to con-
tribute the largest share of total consolidated
COGS at 35.7%. The average raw material cost
per test performed during the year stood at
EGP 13.4, up from the EGP 12.9 with a modest
increase of 4%. Raw materials as a percentage of
sales decreased to 18.3% from last year’s 19.3%
in line with management’s efficiency and cost-
reduction initiatives, and EGP appreciation.
Direct salaries and wages continued to make up
the second largest share of total COGS during
the year at 33.5% in FY 2019, as they reached
EGP 383 million for the period, 22% above last
year’s figure. Direct salaries and wages as a per-
centage of sales increased almost one percent-
age point to 17.2% for the year.
Direct depreciation and amortisation rose 87%
y-o-y to EGP 133 million, on the back of capital-
ised leases amounting to EGP 265 million (gross)
related to the implementation of IFRS 16 (noting
that related depreciation amounts to EGP 48 mil-
lion). Growth in depreciation was also driven by
the addition of new equipment at Al Borg-Scan
and Nigeria, with their depreciation recording
EGP 7.6 million and EGP 7.8 million respectively.
As such, direct depreciation and amortisation as
a percentage of revenues increased to 6.0% in FY
2019 from the 3.7% figure last year.
EBITDA
IDH’s consolidated EBITDA in FY 2019 stood at
EGP 945 million, up 24% y-o-y. EBITDA margin
for the year was 42%, up two percentage points
versus the 40% EBITDA margin recorded in FY
2018 supported by the positive impact of adopt-
ing IFRS 16. When normalising for the impacts
of IFRS 16, normalized EBITDA records EGP
877 million, up 15% y-o-y, with a normalized
EBITDA margin of 39% despite the negative
contributions from Nigeria and pre-operating
expenses related to Wayak.
Operating Profit to Normalised EBITDA Reconciliation
)EGP million(
Operating Profit
Depreciation
Depreciation on Right of Use Assets
Amortisation
EBITDA
EBITDA Margin
Rent Expenses Related to the Adoption of IFRS 16
Normalised EBITDA
2019
791
99
48
7
945
42.4%
(68)
877
2018
Change
685
71
-
6
762
15%
39%
-
17%
24%
39.7%
2.7 pts
-
762
-
15%
Normalised EBITDA Margin
39.4%
39.7%
(0.3 pts)
56
ANNUAL REPORT | 2019
IFRS 16 Effect on 2019 EBITDA by Region*
)EGP million(
EBITDA
Margin
Rent Expense Related to the
Normalised
Adoption of IFRS 16
EBITDA
Margin
Egypt
Jordan
Sudan
Nigeria
Total
877
90
8
(30)
945
46%
35%
20%
(99%)
42%
* Decimals are rounded to the nearest whole number
(44)
(20)
(2)
(2)
(68)
833
70
5
(32)
877
44%
27%
15%
(107%)
39%
Egypt’s EBITDA recorded EGP 877 million in
2019, up 19% y-o-y. EBITDA margin stood at 46%
during the year (44% when controlling for IFRS
16), down 2% from last year’s figure, which is
mainly attributable to the recognition of EGP 27
million related to employees’ profit share as well
as pre-operating expenses related to Wayak.
In Jordan, IDH’s operations reported an impres-
sive 74% y-o-y rise in EBITDA for 2019, with
the associated margin rising to 35% (27% when
excluding IFRS 16) compared to 21% recorded
in 2018. The significant rise came on the back
of raw material cost optimization along with
further cost savings attributable to salaries and
the decrease in rent related to the training cen-
tre. In it is important to note that 2019 EBITDA
figure includes a USD 400 thousand related to
the IT & Technology purchase agreement with
Mega Lab in Georgia.
Sudan’s EBITDA for the year recorded EGP 7.5
million, up from the negative EGP 2.6 million
figure recorded last year. EBITDA margin stood
at 20% (15% when excluding IFRS 16) compared
to the negative 7% margin recorded in FY 2018.
Stronger EBITDA results were supported by a sig-
nificant increase in 3Q 2019 revenues due to con-
tinued price increases in addition to the decrease
in salaries expense as the Company replaced
Egyptian expats with Sudanese employees.
In Nigeria, EBITDA losses increased to EGP 30
million from negative EGP 25 million EBITDA
recorded last year. The loss was largely related
to delays in new branch openings along with
the large amount of salaries as a percentage of
revenue. As branch renovations are completed
along with the installation of new state-of-the-
art radiology equipment, management expects
the Group’s Nigerian operations to turn EBITDA
positive during 2020.
Interest Income / Expense
IDH recorded interest income of EGP 44 million
in 2019, 27% below last year’s EGP 59 million fig-
ure. The fall is largely attributable to the multiple
rate cuts by the Central Bank of Egypt during the
course of 2019 (a cumulative 450 bps cut) com-
bined with the decrease in cash balances during
the first half of the year to secure the dividends’
payment in June 2019.
Interest expenses came in at EGP 65 million
for the year versus the EGP 15 million recorded
in 2018. The increase came on the back of the
implementation of IFRS 16 which added EGP
35 million to the period’s interest expense. As at
2019 |
ANNUAL REPORT
57
Performance // Financial and Operational Review
year-end 2019, IDH’s borrowing costs stood at
EGP 20 million for the year related to medium
term loans for the Al Borg Scan expansion (EGP
6.5 million) and the Group’s new headquarters in
Cairo’s Smart Village (EGP 13.5 million).
Foreign Exchange
IDH recorded net forex losses of EGP 15.5 million
in FY 2019.
Taxation
Tax expenses for the year stood at EGP 254 mil-
lion up from the EGP 220 million tax expense
recorded in 2018. The effective tax rate was 33%
in 2019 compared to 31% last year. The increase
in the Group’s effective tax rate recorded during
the year is largely attributable to:
• EGP 6.25 million related to the new healthcare
tax law imposed by the Egyptian Government
(0.25% of revenues);
• Starting January 2019, the Jordanian corpo-
rate tax rate increased 1% to reach 21% with
a net effect amounting to EGP 552 thousand.
• The increase in Sudan tax rate from 15% to
30% with a net effect amounting to EGP 221
thousand.
There is no tax payable for IDH’s two companies
at the holding level. Tax was paid on profits gen-
erated by operating companies in Egypt, Jordan
and Sudan.
Net Profit
IDH’s consolidated net profit increased 2% y-o-y
in 2019 to reach EGP 505 million. Net profit
margin stood at 23% for the year compared to
26% in 2018. Declined net profitability was due
to net losses sustained at Nigeria, higher borrow-
ing costs related to Al Borg Scan and IDH’s new
headquarters, a decrease in interest income and
the adoption of IFRS 16 (negative EGP15.3 mil-
lion). When excluding the effect of IFRS 16, net
profit records EGP 520 million, up 5% y-o-y with
a net profit margin of 23%.
Net Effect of IFRS 16 on Net Profit*
)EGP million(
Depreciation
Interest
Rent
Net Effect
Egypt
Jordan
Sudan
Nigeria
Total
(29.9)
(15.5)
(1.1)
(1.8)
(48.4)
(28.4)
(5.2)
(1.4)
-
(35.1)
44.0
19.7
2.0
2.5
68.2
(14.3)
(1.0)
(0.6)
0.6
(15.3)
* Decimals are rounded to the nearest whole number
Balance Sheet
On the assets side of the balance sheet, IDH
held gross property, plant and equipment (PPE)
of EGP 1,131 million as at year-end 2019, up
from the EGP 973 million as at 31 December
2018. The rise came largely on the back of
CAPEX outlays for the addition and renovation
of branches totalling EGP 146 million (EGP 71
million in Egypt, EGP 64 million in Nigeria and
EGP 11 million in Jordan), and reflects foreign
currency translation adjustments of negative
EGP 48 million.
As at 31 December 2019, accounts receivable
stood at EGP 261 million compared to EGP 220
58
ANNUAL REPORT | 2019
million at year-end 2018. Accounts receivables’
days-on-hand (DOH) normalised at 129 days
(based on credit revenues of EGP 726 million) fol-
lowing the increase witnessed at year-end 2018.
The Group’s “days inventory outstanding” came in
unchanged from last year at 82 days for 2019.
IDH’s cash balances stood at to EGP 631 million
as at year-end 2019 compared to EGP 664 million
as at 31 December 2018, remaining relatively
stable despite the distribution of EGP 451 million
(US$ 26.4 million) in dividends for 2018 paid in
June 2019. It should be noted that cash balances
include cash on hand, current accounts, time
deposits, treasury bills and restricted cash.
On the liabilities side, accounts payable as at year-
end 2019 stood at EGP 145 million compared to
the EGP 158 million as at 31 December 2018. The
Group’s days payable outstanding (DPO) decreased
to 141 days from 145 days as at 31 December 2018.
The adoption of IFRS 16 led to the addition of
EGP 37 million in short-term lease liabilities and
EGP 232 million in long-term lease liabilities as
at 31 December 2019.
Cash Flow
Net cash flow from operating activities recorded
EGP 704 million in 2019 compared to EGP 556
million in the previous year, demonstrating the
company’s strong cash generation ability. Net
cash used in investing activities totalled EGP
143 million in 2019, driven by acquisition of
property, plant and equipment which recorded
EGP 213 million during the year. Finally, net
cash used in financing activities reached EGP
549 million in 2019, driven primarily by the EGP
451 dividend payment in June 2019.
Dividend
Due to the Covid-19 pandemic and consequent
uncertainty regarding the macroeconomic envi-
ronment, the Board of Directors has deemed
it more appropriate to focus on retaining
resources and will thus suspend the dividend
decision till September 2020. At which point,
further consideration will be given to develop-
ments in the global pandemic and confidence
regarding the Group’s future needs and finan-
cial outlook.
2019 |
ANNUAL REPORT
59
Performance // Corporate Social Responsibility
Corporate Social
Responsibility
Founded on the principle of providing quality
medical assistance and services to better the
lives of individuals and the community at large,
IDH views corporate responsibility initiatives
as an extension of its core purpose, with the
aim of improving the communities in which it
does business.
IDH commits up to 1% of the net after-tax profit
of the subsidiaries Al Borg and Al Mokhtabar to
the Moamena Kamel Foundation for Training
and Skill Development, which in 2019 amounted
to EGP 5.3 million compared with EGP 5.0 mil-
lion in 2018. The Foundation was established
in 2006 by Dr. Moamena Kamel, a Professor of
Pathology at Cairo University, founder of IDH
subsidiary Al-Mokhtabar Labs, and mother of
the CEO, Dr. Hend El Sherbini.
The Foundation allocates sums received from IDH to
organisations and groups in need of assistance, with
a particular focus on making a difference in the lives
of residents of Cairo’s Al Duweiqa community along
with several other villages across Egypt. The Foun-
dation deploys an integrated program and vision
for the communities it helps that include economic,
social and healthcare development initiatives.
AThe Foundation’s primary services include:
• Free healthcare clinics
• Loans for entrepreneurial women
• Educational services for the children of Al
Duweiqa community
IDH commits up to 1% of
the net after-tax profit of
the subsidiaries Al Borg
and Al Mokhtabar to the
Moamena Kamel Foundation
for Training and Skill
Development
• Providing food for families in need of such
assistance
• Coverage of running costs for the ICU at
Cairo’s public-sector Kasr El Aini Hospital
• IDH has also been expanding the reach of its
Corporate Responsibility initiatives in recent
years to include:
• Additional services to Kasr El Aini Hospital
that include providing medical supplies to the
ICU and other units; monthly incentives for
nurses in the ICU; and 12-20 hospital beds
• Financial and in-kind support to El Manial
Hospital
• Financial and in-kind support to the Egyptian
people during natural disasters
• Ramadan Iftar ( feast) meals to underprivi-
leged Egyptians during the holy month of
Ramadan
• Free medical tests to underprivileged Egyp-
tian children
• Sponsorship of medical convoys to the city of
Fayoum
60
ANNUAL REPORT | 2019
2019 |
ANNUAL REPORT
61
Corporate
Governance
Best industry practices in governance to build
a profitable and sustainable business as well as
safeguarding shareholder interests
62
ANNUAL REPORT | 2019
2019 |
ANNUAL REPORT
63
Corporate Governance // Board of Directors
Board of
Directors
IDH’s Board of Directors is comprised of four independent members, one non-executive member
and one executive director, all of whom offer significant experience in the healthcare market, MENA
region and investment activities.
Lord St John of Blesto (Age 62)
Independent Non-Executive
Chairman
Prof. Dr. Hend El Sherbini (Age 51)
Group Chief Executive Officer
Dr. El Sherbini is a professor of
clinical pathology at the Faculty of
Medicine, Cairo University and cur-
rently sits on the board of American
Society of Clinical Pathology (Egypt)
and consults on the international
certification process. She received
her MBBCh, Masters in Clinical and
Chemical pathology, PhD in Immu-
nology from Cairo University, and
MBA from London Business School.
Dr. El Sherbini served as CEO of Al
Mokhtabar since 2004, until becom-
ing CEO of the Group in 2012
Lord St John has been a member of
the House of Lords of the U.K. Par-
liament since 1978 and is currently
Deputy Chairman of Strand Hanson
Ltd., Non-Executive Chairman of
Global Resources Investment Trust,
a member of the Advisory Board of
Silicon Valley Bank, Non-Executive
Director of Albion Ventures LLP,
Chairman of the Governing Board
of Certification International and
holds advisory roles with Milio
International, Alliance Media Group
USA, Sapinda and ABN Corporation.
Lord St John received a BA and a
BSocSc in Psychology from Cape
Town University, a BProc in Law
from the University of South Africa
and an LLM from the London School
of Economics.
64
ANNUAL REPORT | 2019
Hussein Choucri (Age 69)
Independent Non-Executive
Director and Chairman of the
Remuneration Committee
Mr. Choucri is Chairman and Man-
aging Director of HC Securities &
Investment, which he established in
May 1996. He currently sits on the
boards of EDITA Food Industries
S.A.E and SODIC (Sixth of October
Development & Investment Com-
pany), as well as the Egyptian British
Business Council and the Egyptian
Greek Business Council. Mr. Choucri
served as a Managing Director of
Morgan Stanley from 1987 to 1993
and served as Advisory Director at
Morgan Stanley from 1993-2007. He
received his Management Diploma
from the American University in
Cairo in 1978.
James Patrick Nolan (Age 60)
Independent Non-Executive
Director and Chairman of the Audit
Committee
Dan Olsson (Age 54)
Independent Non-Executive
Director
Richard Henry Phillips (Age 55)
Non-Executive Director
Mr. Olsson has long and extensive
international experience
in the
diagnostic and healthcare ser-
vices sector, where he has served
in a range of executive positions.
Among others as head of diagnos-
tics in the pan-European health-
care group Capio, CEO of Unilabs, a
pan-European diagnostic provider,
CEO of Helsa, a Swedish health-
care group as well as CEO of Team
Olivia Group, a Nordic care services
group. Mr. Olsson has worked in the
healthcare sector since 1999. Mr.
Olsson studied economics at the
University of Lund in Sweden.
Mr. Phillips is a founding partner
of Actis LLP, the emerging markets
private equity group. As Actis LLP
is one of the Company’s major
shareholders, Mr. Phillips is not con-
sidered by the Board as being inde-
pendent. He is the Head of Private
Equity for Actis and is is a member
of the Actis Investment Committee.
Mr. Phillips is a director on the board
of a number of companies including
Emerging Markets Knowledge Hold-
ings (Mauritius) Limited, Les Labo-
ratoires Medis SA, and others. Mr.
Phillips holds a degree in Economics
from the University of Exeter.
Mr. Nolan is an Independent Direc-
tor. He recently joined Intertrust
as Head of Strategy and Mergers &
Acquisitions. Prior to that he spent
15 years with Royal Philips NV, lat-
terly as Head of Mergers & Acquisi-
tions, and has also served as Head
of Mergers & Acquisitions at Veon
Inc., a major mobile telecoms opera-
tor in Emerging Markets. During
his time at Philips, he led a series
of acquisitions in diagnostic imag-
ing, an area in which Philips is now
a global leader. He has extensive
quoted-company board experience
having served on the boards of
M*Modal Inc., Navteq Inc and SHL
Telemedicine Ltd. Mr. Nolan gradu-
ated from Oxford University in Law
in 1983 and is a qualified barrister in
England and Wales. He also holds an
MBA from INSEAD.
2019 |
ANNUAL REPORT
65
Corporate Governance // Corporate Governance Report
Corporate Governance
Report
Your Board of Directors (“the Board”) is
responsible for providing strong leadership
and effective decision making, safeguarding
in the process the interests of all sharehold-
ers of Integrated Diagnostics Holdings. Under
my chairmanship, the Board has maintained
an unwavering commitment to provide over-
sight and guidance to senior management as
the Group continues to execute its regional
growth strategy.
IDH has a standard listing on the London Stock
Exchange and is thus not required to comply
with the requirements of the 2018 U.K. Corpo-
rate Governance Code (“the Code”) as issued by
the Financial Reporting Council, nor does IDH
voluntarily comply with the Code. That said, it
is the view of your Board that we continue our
path of improving our corporate governance
structure. We strongly believe that the gradual
adoption of best industry practices in gover-
nance will assist us in building a profitable and
sustainable business as well as safeguarding
shareholder interests.
We are compliant with Financial Conduct
Authority Disclosure Guidance and Transpar-
ency Rules (DTR) subchapters 7.1 and 7.2, which
set out certain mandatory disclosures: 7.1 con-
cerns audit committees and bodies carrying out
equivalent functions; 7.2 concerns corporate
governance standards that are included in the
Directors Report or, in this case, as part of the
Strategic Review (DTR 7.2.1).
To that end, we have an Audit Committee as well
as Remuneration and Nomination Committees.
The Board may establish additional commit-
tees as appropriate going forward. This Annual
Report includes reports from both the Audit
and Remuneration Committees.
Your Board aims to work towards implementing
best practices in corporate governance, calling
on both the expertise of individual Directors as
well as that of outside parties, including legal
counsel and global professional services firms.
Functioning of the Board
We met five times as a Board during the course
of 2019 and have invested significant time
discussing and evaluating the Group’s strategy
and prospects for future growth, the outcome
of which is presented in our statement of strat-
egy on page 38. We are confident that we have
in place the right strategy and the right man-
agement team to deliver shareholder returns
going forward.
Composition of the Board
Under its Articles of Association, the Group
must have a minimum of two Directors. While
there is no maximum number of Directors, the
Board presently includes six Board members
and has no intention at present of appointing
additional members. Notably, Directors have no
share qualification, meaning they do not need to
be shareholders of the Group in order to serve.
I am pleased to report that we have four Inde-
pendent Non-Executive Directors. Together,
the Directors offer IDH a world standard mix
of expertise in areas including strategy, finance
and medical diagnostics — as well as diverse
66
ANNUAL REPORT | 2019
experience in Europe, the Middle East and
Africa. We have relevant commercial and tech-
nical experience to help direct the Group as it
delivers on its strategy in a very technical field
and across rapidly changing geographies.
Your Board in 2019 and their biographies are set
out on pages 64 and 65 of this Annual Report
and are summarised in the following table.
Board of Directors of Integrated Diagnostics Holdings Plc
Name
Position (Date of Appointment)
Lord St John of Blesto
Independent Non-Executive Chairman (12 January 2015)
Prof. Dr. Hend El Sherbini
Group Chief Executive Officer ( 23 December 2014)
Hussein Choucri
Independent Non-Executive Director ( 12 January 2015)
James Patrick Nolan
Independent Non-Executive Director (8 April 2015)
Dan Olsson
Independent Non-Executive Director (12 January 2015)
Richard Henry Phillips
Non-Executive Director (23 December 2014)
Leadership
We continue to operate on the basis of a clear
division of responsibilities between the role
of the Chairman and that of the Group Chief
Executive. This segregation of roles was agreed
at the Board meeting held 12 January 2015. The
Board continues to believe that this segrega-
tion of roles remains appropriate, taking into
account the size and structure of the Group.
As Chairman, I ensure the Board is effective in
the execution of all aspects of its role. The Group
Chief Executive Officer, meanwhile, is responsi-
ble for managing the day-to-day running of the
business. In this, she is supported by a senior
management team. The Group Chief Executive
and I have a good working relationship and
discuss matters of Group strategy and perfor-
mance on a regular basis.
We also work together to ensure that Board
meetings cover relevant matters, including a
quarterly review of financial and operational
(including key performance
performance
indicators), and in partnership with the Group
secretary ensure that all Directors:
• are kept advised of key developments;
• receive accurate, timely and clear information
upon which to call in the execution of their
duties; and
• actively participate in the decision-making
process.
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Corporate Governance // Corporate Governance Report
Agendas for meetings of the Board are reviewed
and agreed in advance to ensure each Board
meeting is efficiently run, allowing all Direc-
tors to openly and constructively challenge the
proposals made by the Group’s senior manage-
ment. I am pleased to report that throughout the
year, each Director has properly exercised those
powers with which they have been vested by the
Group’s Articles of Association and relevant laws.
The Board operates under a Schedule of Matters
Reserved, the details of which are unchanged
since our last Annual Report. Matters reserved
to the Board means any decision that may affect
the overall direction, supervision and manage-
ment of the Group, including, but not limited to:
• approving annually a strategic plan and objec-
tives for the following year for the Group;
• approving any decision to cease to operate all
or any material part of the Group’s business or
to enter into any new business or geographic
areas;
• monitoring the delivery of the Group’s strat-
egy, objectives, business plan and budget;
• adopting or amending the Group’s business
plan or annual budget;
• approving the Group’s annual report and ac-
counts and half-yearly financial statements
and/or any change in the accounting prin-
ciples or tax policies of any member of the
IDH group and/or any change in the end of
the financial year of any member of the IDH
group except as contemplated by the business
plan or annual budget, as required by law or to
comply with a new accounting standard;
• any member of the IDH group declaring or
paying any dividend or distribution;
• approving the issue of all circulars, prospec-
tuses, listing particulars and general meeting
notices to shareholders of the Group;
The Board has the skills,
talent and industry
knowledge it needs to
effectively deliver the
Group’s agreed strategy
• ensuring the Group has effective systems
of internal control and risk management in
place by (i) approving the Group’s risk appe-
tite statements and (ii) approving policies and
procedures for the detection of fraud, the pre-
vention of bribery and other areas considered
by the Board to be material;
• undertaking an annual review of the effective-
ness of the Group’s risk management and
internal control and reporting on that review
in the Group’s annual report. The review
should cover all controls, including financial,
operational and compliance controls and risk
management;
• carrying out a robust assessment of the prin-
cipal risks facing the Group, including those
that threaten its business, future performance,
solvency or liquidity and to report on such as-
sessment in the Group’s annual report; and
• reviewing the Group’s overall corporate gov-
ernance arrangements and approving any
changes thereto.
Apart from these Reserved matters, the Board
delegates specific items to its principal commit-
tees, namely the committees on Audit, Remu-
neration and Nomination. Each Committee is
authorised to seek any information it requires
from senior management.
68
ANNUAL REPORT | 2019
Below are brief recaps on each of these committees. Reports from the Chairmen of the Audit and
Remuneration Committees appear starting pages 74 and 78 of this Annual Report, respectively.
Board Meetings During 2019
Your Board of Directors held five meetings in 2019:
Meeting Date
Meeting Location
28 January 2019
Conference call (annual budget approval)
20 March 2019
14 May 2019
9 September 2019
London
Egypt
London
24 November 2019
Bahamas
The following standing items are considered at
each meeting:
• Determines that notice was given and that a
quorum for the meeting has been obtained;
• Hears declarations of interest and considers
any conflicts of interest that may arise;
• Establishes the purpose of the meeting; and
• Reviews and approves minutes of the previous
meeting of the Board.
Details of our Directors’ attendance at Board
and Committee meetings are shown in the table
on page 71. In the event that any Director is
unable to attend a meeting of the Board or Com-
mittee of which they are a member, he or she
receives the necessary papers, including agen-
das, meeting outcomes and any documents pre-
sented for review or information. Furthermore,
I endeavour to discuss with them in advance of
the meeting to obtain their views and decisions
on the proposals to be considered.
of our Directors one on one — and drawing
on my past experience as a Director — I am
confident that the Board has the skills, talent
and industry knowledge it needs to effectively
deliver the Group’s agreed strategy. In addition,
the Board has undertaken a formal evaluation
process, facilitated by the Company Secretary,
with involved self-evaluation by each Director,
an assessment of the Chairman, the Board as
a whole and the Committees with particular
focus on:
• strategic matters;
• stakeholder considerations;
• succession planning;
•
• environmental, social and governance policies.
corporate culture; and
The results of the evaluation are being carefully
considered and the actions for prioritisation
will be determined by the Board to implement
during the next 12 months.
Effectiveness
Having spent considerable time in both for-
mal meetings and in learning about the skills
It is my considered judgement that the Board
receives from senior management sufficiently
detailed budgets, forecasts, strategy proposals,
2019 |
ANNUAL REPORT
69
Corporate Governance // Corporate Governance Report
reviews of the Group’s financial position and
operating performance, and annual and half
yearly reports to ensure that it may be effective.
This enables us to effectively ask questions of
senior management and to hold discussions
on the Group’s strategy and performance. In
2019, senior management delivered regular
reports to the Board ahead of regularly sched-
uled Board meetings.
All meetings of the Board and its Committees are
minuted by the Group Secretary or a designated
alternate. Any concerns raised by Directors are
clearly recorded in the minutes of each meet-
ing. I review Board minutes in my capacity as
Chairman before these minutes are circulated to
all Directors in attendance and then tabled for
approval at the next meeting, at which time any
necessary amendments are made.
The Group has obtained customary directors’
and officers’ indemnity insurance covering the
Chairman and the Non-Executive Directors.
Overview of the Nomination Committee
The Nomination Committee assists the Board in reviewing the structure, size and composition
of the Board. It is also responsible for reviewing succession plans for the Directors, including the
Chairman and Chief Executive and other senior management.
I note in this instance that all members of the Nomination Committee are Non-Executive Directors
Name
Position
Lord St John of Blesto
Chairman of the Committee
Hussein Choucri
Committee Member
Dan Olsson
Committee Member
Overview of the Remuneration Committee
The Remuneration Committee recommends the Group’s policy on executive remuneration deter-
mines the levels of remuneration for Executive Directors and the Chairman and other senior man-
agement and prepares an annual remuneration report.
The full report of the Remuneration Committee for 2019 appears starting on page 78 of this Annual
Report.
Name
Position
Hussein Choucri
Chairman of the Committee
James Patrick Nolan
Committee Member
Dan Olsson
Committee Member
70
ANNUAL REPORT | 2019
Overview of the Audit Committee
The Audit Committee’s role is to assist the
Board with the discharge of its responsibilities
in relation to financial reporting, including:
reviewing the Group’s annual and half-year
financial statements and accounting policies
and internal and external audits and controls;
reviewing and monitoring the independence
and scope of the annual audit and the extent
of the non-audit work undertaken by external
auditors; advising on the appointment of
external auditors; and reviewing the effective-
ness of the internal audit, internal controls,
whistleblowing and fraud systems in place
within the Group. The Audit Committee will
meet not less than three times a year.
The Audit Committee comprises three Independent
Non-Executive Directors who hold the necessary
competence in accounting and /or auditing, recent
financial experience and have competence relevant
to the sector in which the Group is operating.
The full report of the Audit Committee for 2019
appears starting on page 74 of this Annual Report
Name
Position
James Patrick Nolan
Chairman of the Committee
Hussein Choucri
Committee Member
Dan Olsson
Committee Member
Table of Director Attendance at 2019 Meetings
Name
Board
Audit
Remuneration
Nomination
Number of Meetings
Directors:
Lord St John of Blesto
Prof. Dr. Hend El Sherbini
Hussein Choucri
James Patrick Nolan
Dan Olsson
Richard Henry Phillips
5
5
5
3
4
5
5
2
-
-
1
1
2
-
1
-
-
1
1
1
-
0
-
-
-
-
-
-
2019 |
ANNUAL REPORT
71
Corporate Governance // Corporate Governance Report
Internal Control and Risk
Management
Given the business and geographies in which the
Group operates, I believe as Chairman that risk
mitigation will be key not just to the creation
and preservation of shareholder value, but in the
Group’s growth going forward. The Company’s
risk matrix, outlined on pages 42-49, is suffi-
ciently vital that it must be owned equally by the
management team and members of the Board.
Our view as a Board is that the Group must be
proactive on risk in order to meet shareholder
expectations, and I have advised that I expect
the IDH management team to be ahead of the
curve in this area. You may expect risk and its
mitigation will be a theme to which your Board
returns repeatedly in 2020, as we did in 2019.
The Board has ultimate responsibility for the
Group’s internal controls; however, they have del-
egated oversight of the Group’s system of internal
controls to the Audit Committee so as to safeguard
the assets of the Group and the interests of share-
holders. The Audit Committee thus reviews the
effectiveness of the Group’s internal controls on
an ongoing basis to ensure the keeping of proper
accounting records, safeguarding the assets of
the Group and detecting fraud and other irregu-
larities. The Audit Committee reports back to the
Board with their findings and recommendations.
The Board has accordingly established that
the Group has in place internal controls to
manage risk including:
• the identification and management of risk
at the level of operating departments by the
heads of those departments; and
• regular Board level discussion of the major
business risks of the Group, together with
measures being taken to contain and mitigate
those risks.
The Group’s principal risks and uncertainties
and mitigation for them are set out on pages
42-49 of this Annual Report.
Your Board has furthermore put in place a con-
trol framework at the Group level that applies
to all subsidiaries, including:
• Board approval of the overall Group budget
and strategic plans;
• a clear organisational structure delineating
lines of responsibility, authorities and report-
ing requirements;
• defined expenditure authorisation levels;
• a regular process for operational reviews at
the senior management level on a weekly,
monthly and quarterly basis covering all as-
pects of the business;
• a strategic planning process that defines the
key steps senior management must take to
deliver on the Group’s long term strategy;
• a comprehensive system of financial reporting
including weekly flash reports to manage-
ment, monthly reporting to management
and an annual budget process involving both
senior management and the Board; the Board
received reports on a quarterly basis in 2019.
• as part of the reporting process in 2019,
management reviewed monthly and year-to-
date actual results against prior year, against
budget and against forecast; these reports
were circulated to the Board; any significant
changes and adverse variances are reviewed
by the Group Chief Executive and by senior
management and remedial action is taken
where appropriate.
Investor Relations
Engagement with shareholders continues to be
a key function at both the senior management
and the Board level. Our investor relations
function held numerous meetings with current
and potential investors during the course of
the year. Management met investors at several
investor conferences in New York, London,
Dubai and Cape Town; welcomed potential
and current investors to meetings in Cairo; and
handled queries, whether delivered verbally or
in writing, from more than 100 investors.
72
ANNUAL REPORT | 2019
We published both half- and full-year results
and
further released trading updates on
performance at the three- and nine-month
periods. We intend to continue publishing
trading updates at the first- and third-quarter
marks in 2020, while simultaneously meeting the
minimum regulatory disclosure as required of a
UK Standard listed entity.
The Board communicates with shareholders
through public announcements disseminated
via the London Stock Exchange, analyst brief-
ings, roadshows and press interviews. Copies
of public announcements and financial results
are published on the Group’s website, along with
a number of other investor relations tools. It is
worth highlighting that the Group launched new
corporate and investor relations websites in 2018,
offering more comprehensive and better struc-
tured information on the Group along with addi-
tional shareholder tools and a richer interface.
IDH also retained the services of outside con-
sultants to help enhance its public relations
outfit Hudson Sandler in London to advise the
company, increase media traction and widen our
audience as well as organize results meetings
to better communicate IDH’s on-the-ground
performance. Hudson Sandler are working in
partnership with IDH’s Cairo-based investor
relations advisors Inktank Communications.
The Board receives regular updates from the
senior management team on the views of major
shareholders and on milestones in the investor
relations program. We will continue throughout
2020 to grow our investor relations program to
ensure that our shareholders and stakeholders
remain informed of the Group’s strategy and
ongoing financial and business performance.
Where possible we follow corporate governance
best practice to send a Notice of Meeting of an
Annual General Meeting (AGM) and related
papers to shareholders at least 20 working days
prior to the meeting.
The Group’s fifth Annual General Meeting as a
listed company will be held virtually on 23 June
2020. Shareholders are encouraged to attend the
AGM and to ask questions about the business, its
financial performance and its strategy. All Board
members are scheduled to attend the upcoming
AGM. Details of the AGM are included in the
Notice of Meeting that accompanies this Annual
Report and which is available on our website.
At the AGM, all of the Group’s Directors will retire
and submit themselves for re-election.
The outcome of the voting at the AGM will be
announced by way of a London Stock Exchange
announcement and full details will be published
on the Group’s website shortly after the AGM.
Limitations of this Report
As I noted earlier, the Group is not bound to
adhere to the requirements of the 2018 U.K. Code
of Corporate Governance. Nevertheless, we have
endeavoured to ensure that this Annual Report
is, as a whole, fair, balanced and understandable.
In formulating this Annual Report, we have called
on the Group Chief Executive and her senior
management staff to provide us with clear docu-
mentary evidence of the Group’s performance
and policies for 2019. The Audit Committee has
confirmed to us that the financial statements
as contained in the 2019 Annual Report are true
and fair and that the work of the external auditor
has been accurate and effective.
Annual Reporting and Annual
General Meeting of Shareholders
We typically publish our Annual Report in March
in respect of the prior year ended 31 December.
Lord St John of Bletso
Chairman
27 April 2020
2019 |
ANNUAL REPORT
73
Corporate Governance // Audit Committee Report
Audit Committee
Report
The Audit Committee is
responsible for overseeing
IDH’s internal financial
reporting and ensuring
the integrity of the Group’s
financial statements
James Nolan
Chairman, Audit Committee
The Audit Committee is responsible for over-
seeing IDH’s internal financial reporting and
ensuring the integrity of the Group’s financial
statements. The Committee is also responsible
for reviewing and monitoring the effectiveness
of the Group’s risk management processes and
internal controls, as well as for ensuring that
audit processes are robust.
At the date of this report, the Audit Committee
comprises three Non-Executive Directors, all of
whom are considered independent. In addition
to myself, the members are Dan Olsson and
Hussein Choucri.
2019 marked my fifth year as Chairman of the
Audit Committee, having been appointed to that
role owing to my relevant financial experience as
required by the Code. I have served on the audit
committees of three publicly quoted companies
in the past. I have held the positions of Global
Head of Mergers & Acquisitions both at Veon and
at Royal Philips. I hold an MBA from INSEAD and
studied law at university. The other members of
the Committee have a broad range of appropri-
ate skills and experience covering financial and
healthcare industry matters and their biogra-
phies are summarised on pages 64 and 65. I am
very grateful for their valuable contributions and
am happy that we work well together as a team.
During 2019, the Audit Committee convened
twice, once in March and once in September. We
provided governance of external financial report-
ing, risk management and internal controls and
reported our findings and recommendations to
the Board. Outside of scheduled committee meet-
ings, the Audit Committee also communicated
throughout 2019 on an as-needed basis with the
Group Chief Financial Officer and with KPMG as
our external auditors. Going forward, the Audit
Committee would aim to meet three time per year.
74
ANNUAL REPORT | 2019
The audit partner and audit manager from the
Group’s external auditor, KPMG, are invited to attend
meetings of the Committee on a regular basis. Dur-
ing 2019, they attended meetings in whole or in part,
both in person and by telephone. The Vice-President
Finance and Strategy, who is not a member of the
executive board, attends our meetings by invitation,
and other members of the senior management
team attend as required; these include the Director
of Investor Relations and the Group Secretary.
There are also private meetings between the Audit
Committee and the external auditor outside the
half-year and year end timetable at which senior
management is not present. The Committee will
continue with the practice of meeting in private
with the external auditor in the future.
FRC Audit Quality Review
The FRC is the UK’s independent regulator
responsible for promoting high-quality corporate
governance and reporting to foster investment.
The FRC’s responsibilities include independent
monitoring of audits of listed and certain other
public interest entities performed by firms regis-
tered to conduct audits in the UK by a Recognised
Supervisory Body ( further details are set out on
the FRC’s website). This monitoring is performed
by the FRC’s Audit Quality Review (‘AQR’) team.
The reviews of individual audit engagements
are intended to contribute to safeguarding and
promoting improvement in the overall quality of
auditing in the UK. The Group’s previous accounts
have not been subject to a review in the period.
Roles and Duties of the Audit
Committee
The Audit Committee’s role is to assist the Board
with the discharge of its responsibilities in rela-
tion to financial reporting, including:
• reviewing the Group’s annual and half-year
financial statements;
• reviewing the Group’s accounting policies,
internal and external audits and controls;
• reviewing and monitoring the scope of the
annual audit and the extent of the non-audit
work undertaken by external auditors; and
• advising on the appointment of external audi-
tors and reviewing the effectiveness of the in-
ternal audit, internal controls, whistleblowing
and fraud systems in place within the Group.
During its scheduled meetings, the Committee
also considers the following matters:
• confirm compliance with Directors’ duties
and consider any new conflicts of interest;
• review minutes of previous meetings;
• review actions from previous meetings; and
• review progress against current year objectives.
Audit Committee Meetings
During 2019
During 2019 the Audit Committee had two sched-
uled meetings, one in March and one in September.
At each scheduled meeting, the Committee consid-
ers the matters outlined above under the subhead-
ing “Roles and Duties of the Audit Committee.”
Meeting Dates
20 March 2019
9 September 2019
Significant Issues
The Committee considered several significant
accounting issues, matters and judgements
in relation to the Group’s financial statements
and disclosures for the year ended 31 Decem-
ber 2019. As part of the half-year and full-year
2019 |
ANNUAL REPORT
75
Corporate Governance // Audit Committee Report
reporting process, management communicates
key accounting issues to the Committee, and
the external auditor is asked to comment on the
key significant areas of accounting judgement
and disclosure. The information presented is
used by the Committee to critically review and
assess the key policies and judgements that
have been applied, the consistency of policy
application from year to year and the appropri-
ateness of key disclosures made, together with
compliance with the applicable accounting
standards. The significant issue arising and a
description of how it was addressed is shown in
the following table:
Issue
How it is being addressed
During 2019, management has mitigated the
risk through manual reconciliation and has
purchased IFRS 16 software from SAP with
the aim of having it operational in 2H 2020.
IDH adopted IFRS 16 for annual reporting
periods beginning on 1 January 2019.
IFRS 16 introduces a single lessee accounting
model and requires a lessee to recognize assets
and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is
of low value. A lessee is required to recognize a
right-of-use asset representing its right to use the
underlying leased asset and a lease liability rep-
resenting its obligation to make lease payments.
Giving that IDH has more than 500 contracts,
and that the calculation is currently con-
ducted manually on excel sheets, there were a
number of manual errors in the lease calcula-
tions resulting from human error on entering
contractual information.
Issue
How it is being addressed
The Group has considered the impact of
COVID-19 on the adoption of the going con-
cern basis of preparation.
The Group has considered several downside
scenarios and stress tests. One of the stress tests
considered the following key assumptions: a
complete lockdown with a substantial loss of
revenue by more than 75% for a period of eight
months ( from May to December), no fixed
costs reductions, forecasted capital expenditure
(mainly the yearly expansionary plan of open-
ing new branches that are not required for the
current operation) reduced in 2020 by 86%, and
cessation of dividend payments. The conducted
stress test displayed the ability of full repayment
of the existing loans balances. The downside
scenarios showed that the Group’s current finan-
cial position and cash balance will alleviate any
potential downside risk in the Group’s cash flow
generated from its operational activities, thus the
Directors continue to adopt the going concern
basis in preparing the financial information.
76
ANNUAL REPORT | 2019
determine that, taken as a whole, the Annual
Report
is balanced, understandable and
provides the information necessary for share-
holders to assess the Group’s position and per-
formance, business model and strategy. It is the
Audit Committee’s role to assist the Board in
discharging its responsibilities with regards to
financial reporting, external and internal audits
and controls. Following a review of the process
around the annual audit and the content of
the financial statements, the Audit Committee
advised the Board at its meeting on 25 March
2020 that is was their opinion that the financial
statements as at 31 December 2019 provide a
true and fair view of the financial performance
of the Group and recommend that it be adopted
by the Board and recommended to sharehold-
ers for approval at the forthcoming Annual
General Meeting.
The Audit Committee has recommended to
the Board that the Auditors be put forward for
re-election at the forthcoming Annual General
Meeting. The Committee arrived at this recom-
mendation after having: met with the Audit
partner and Audit team; reviewed the quality
of the Auditors’ reports and the quality of the
work undertaken in respect of the half-yearly
and Annual Report; considered the Audit fees of
both Audit and Non-Audit work; and reviewed
the Auditors’ independence.
James Nolan
Chairman, Audit Committee
27 April 2020
External Auditor
KPMG has acted as the Group’s external
auditor since appointment in July 2015, with
Mr. David Neale serving as audit partner on
behalf of KPMG since August 2017.The Audi-
tors’ independence was considered by the
Committee during the year and following
careful consideration, it was agreed that the
Auditors remained independent. We aim to
comply with the requirement to rotate the
audit partner every five years, and thus the
term of appointment of our audit partner is
expected to end in 2022.
In acknowledgment of the Competition and
Markets Authority’s proposal that companies
must put their statutory audit engagement out
to tender at least every ten years, it is possible
that we will tender the audit process in 2025, or
earlier if KPMG’s performance falls short of the
Audit Committee’s expectations.
Provision of Non-Audit Services
IDH may, on occasion, retain the external audi-
tor for non-audit services on matters including
accounting advice in relation to acquisitions
and divestments, corporate governance and
risk management advice, among other services.
The Audit Committee reviewed the work com-
pleted by the external auditor, as well as the
provision of non-audit services to ensure that
the auditor maintained its independence. The
Audit Committee confirms that during 2019,
EGP 164,000 was paid to KPMG in respect of
non-audit work compared to the audit fee for the
Group financial statements for the year ended
31 December 2019 of EGP 14,211,000 (audit fee
for the Group financial statements for the year
ended 31 December 2018: EGP 8,972,000). This
non-audit work was related to the review of the
half year financial statements and tax services.
Recommendation
Ultimately, it is the Board’s responsibility to
review and approve the Group’s full-year and
half-year financial statements, as well as to
2019 |
ANNUAL REPORT
77
Corporate Governance // Remuneration Committee Report
Remuneration Committee
Report
Hussein Choucri
Chairman, Remuneration Committee
In this report from the Remuneration Committee,
I outline on behalf of my colleagues and myself the
basis on which Directors and select members of
senior management will be remunerated for their
service in 2019. A detailed discussion of the basis
on which the aforementioned (as well as one key
member of senior management) were remuner-
ated for their service in 2019 appears below and is
summarised in tabular form on page 79.
Chairman: Lord St John of Bletso is entitled to
receive an annual salary of US$ 75,000. He is entitled
to the reimbursement of reasonable expenses.
Independent Non-Executive Directors: Hussein
Choucri, James Patrick Nolan and Dan Olsson
have been engaged by the Group as Indepen-
dent Non-Executive Directors under letters
of appointment. Hussein Choucri and Dan
Remuneration Committee
Meetings During 2019
Meeting Dates
25 February 2019 (Conference Call)
Olsson are each entitled to an annual fee of US$
55,000, while James Patrick Nolan is entitled to
an annual fee of US$ 60,000. The Independent
Non-Executive Directors are all entitled to the
reimbursement of reasonable expenses.
Non-Executive Directors: Richard Henry Phil-
lips has been engaged by the Group as a Non-
Executive Director under letter of appointment.
He will not be entitled to receive any fee from
the Group for this role. The Non-Executive
Directors are all entitled to the reimbursement
of reasonable expenses
78
ANNUAL REPORT | 2019
Remuneration of Directors in 2019*
Name**
Base Salary /
Base Salary /
Annual Bonus
Annual Bonus
Total 2019
Total 2018
fees 2019
fees 2018
2019
2018
Executive Director
Dr. Hend El Sherbini1
9,025,201
7,942,500
450,000
450,000
9,475,201
8,392,500
Non-Executive Director
Lord St John of Blesto
1,226,813
1,323,563
Hussein Choucri
462,078
974,279
James Patrick Nolan
981,450
1,062,850
Dan Olsson
899,663
974,279
Richard Henry Phillips2
-
-
-
-
-
-
-
-
-
-
-
-
1,226,813
1,323,563
462,078
974,279
981,450
1,062,850
899,663
974,279
-
-
* There are no taxable benefits, corporate pensions or long-term incentive plans for the Company’s directors.
** Average USD:EGP exchange rate was 17.71 in 2018 and 16.68 in 2019
Hussein Choucri
Chairman, Remuneration Committee
27 April 2020
1 Dr. Hend El Sherbini receives part of her annual bonus in the form of an annual award amounting to EGP 450,000.
2 Mr. Philips is the board representative of a major shareholder, Actis, and is therefore not remunerated
2019 |
ANNUAL REPORT
79
Corporate Governance // Directors’ Report
Directors’
Report
The statements and reviews on pages 2 to 49
comprise the Strategic Report, which contains
certain information that is incorporated into
this Directors’ Report by reference, including
indications as to the Group’s likely future busi-
ness developments.
Directors
The Directors who held office at 31 December
2019 and up to the date of this report are set
out on pages 64 and 65 along with their photo-
graphs and biographies. The remuneration of
the Directors (including their respective share-
holdings in the Group, where applicable) is set
out in the Remuneration Report on page 78.
Directors’ and Officers’ Liability Insurance and
Indemnification of Directors
Subject to the conditions set out in the Com-
panies ( Jersey) Law 1991 (as amended), the
Group has arranged appropriate Directors’ and
Officers’ liability insurance to indemnify the
Directors against liability in respect of proceed-
ings brought by third parties. Such provisions
remain in force at the date of this report.
Principal Activities
The Group’s principal activity is the provision
of medical diagnostics services. An overview
of the Group’s principal activities is an integral
component of the Strategic Review included in
this Annual Report beginning on page 34.
Message (page 12), Chief Executive’s Report (pages
14 to 19), Strategic Report (beginning page 2) and
particularly the Performance section (beginning on
page 50). Financial statements for 2019 appear in the
Audited Financial Statements (starting on page 84).
Results and Dividends
The Group’s Results for 2019 are set out in the
Audited Financial Statements starting on page 84.
Due to the Covid-19 pandemic and consequent
uncertainty regarding the macroeconomic envi-
ronment, the Board of Directors has deemed it
more appropriate to focus on retaining resources
and will thus suspend the dividend decision till
September 2020. At which point, further consid-
eration will be given to developments in the global
pandemic and confidence regarding the Group’s
future needs and financial outlook.
Principal Risks and Uncertainties
The principal risks and uncertainties that may
affect IDH’s business, as well as their potential
mitigants, are outlined on pages 42 to 49 of this
Annual Report.
Share Capital
The Group has 150,000,000 ordinary shares each
with a nominal value of US$ 1.00. There are no
other shares in issue, other than ordinary shares.
Note 20 to the consolidated financial statements
on page 133 summarises the rights of the ordinary
shares as well as the number issued during 2019.
Business Review and Future
Developments
A review of the development and performance of
the Group’s business forms an integral part of this
Annual Report in sections including the Chairman’s
Substantial Share Holdings
As at 28 February 2020, the Company ascer-
tained from its own analysis that the following
held interests of 3% or more of the voting rights
of its issued share capital:
80
ANNUAL REPORT | 2019
Shareholder
Number of Voting Rights
of Voting Rights %
Hena Holdings Ltd.
Actis IDH Limited
HSBC Global Asset Mgmt (UK)
Fidelity Management & Research (Boston)
T Rowe Price International (London)
38,245,589
31,500,000
12,771,933
6,527,469
6,013,635
25.50
21.00
8.51
4.35
4.01
The Directors certify that there are no issued
securities that carry special rights with regard
to control of the Company. There are similarly
no restrictions on voting rights. Chief Executive
Officer Dr. Hend El-Sherbini jointly holds voting
rights to shares held by Hena Holdings Ltd. with
her mother, Dr. Moamena Kamel.
Committees of the Board
The Board has established Audit, Nominations
and Remuneration Committees. Details of these
Committees, including membership and their
activities during 2019, are contained in the Cor-
porate Governance section of this Annual Report
and in the Remuneration and Audit Reports.
Corporate Responsibility
The Group’s report on Corporate Responsibility
is set out on page 60.
Corporate Governance
The Group’s report on Corporate Governance is
on pages 62 to 83.
Articles of Association
The Company’s Articles of Association set out the
rights of shareholders including voting rights, dis-
tribution rights, attendance at general meetings,
powers of Directors, proceedings of Directors as
well as borrowing limits and other governance
controls. A copy of the Articles of Association can
be requested from the Group Company Secretary.
The Articles of Association may be amended by
members of the Company via special resolution
at a General Meeting of the Company.
Rules on the Appointment and
Replacement of Directors
Rules on the appointment and replacement of
Directors are set out in the Group’s Articles of
Association, a copy of which may be requested
from the Group Company Secretary.
Agreements Related to Change of
Control of the Group
No such agreements exist.
Conflicts of Interest
During the year, no Director held any beneficial
interest in any contract significant to the Group’s
business, other than a contract of employment.
The Company has procedures set out in the
Articles of Association for managing conflicts of
interest. Should a Director become aware that
they, or their connected parties, have an interest
in an existing or proposed transaction with the
Group, they are required to notify the Board as
soon as reasonably practicable.
Political Donations
The Group made no political donations in 2019
(2018: nil).
Financial Instruments
The Group’s principal financial instruments
comprise cash balances, balances with related
parties, trade receivables and payables and other
payables and receivables that arise in the normal
course of business. The Group’s financial instru-
ments risk management objectives and policies
are set out in Note 2 to the Financial Statements.
2019 |
ANNUAL REPORT
81
Corporate Governance // Directors’ Report
Employees
The Group has one (1) Executive Director, namely
Group Chief Executive Dr. Hend El Sherbini, as
identified in the Corporate Governance section.
Her biographical information appears on page 64
of this Annual Report, and her compensation is
reported in the Remuneration Committee Report
on page 79. IDH has service agreements with
the Group Chief Executive and with the Group
Chief Financial Officer, Mr. Omar Bedewy, who
is not a Company Director. Dr. Hend El Sherbini
leads the Company’s Executive Committee,
which also includes all heads of departments and
meets every second week to review and discuss
performance, priorities and upcoming events in
light of the Group’s strategic plan. In view of the
Company’s regional growth plans, IDH is commit-
ted to building out its senior management team
in preparation for a larger footprint. The Group
and its subsidiaries had total of 5,440 employees
as at 31 December 2019 (2018: 4,942) employed in
Egypt, Jordan, Sudan and Nigeria.
Creditor Payment Policy
Individual subsidiaries of the Group are respon-
sible for agreeing on the terms and conditions
under which business transactions with their
suppliers are conducted. It is the Group’s policy
that payments to suppliers are made in accor-
dance with all relevant terms and conditions.
Going Concern
The uncertainty as to the future impact on the
Group of the recent COVID-19 outbreak has been
considered as part of the Group’s adoption of the
going concern basis. The Board has considered the
potential impact of the COVID-19 outbreak on the
Group’s financial position and liquidity, but given
the unknown magnitude of COVID-19, Manage-
ment has considered several downside scenarios
and stress tests. One of the stress tests considered
the following key assumptions: a complete lock-
down with a substantial loss of revenue by more
than 75% for a period of eight months ( from May
to December), no fixed costs reductions, forecasted
capital expenditure (mainly the yearly expansionary
plan of opening new branches that are not required
for the current operation) reduced in 2020 by 86%,
and cessation of dividend payments . Reducing
revenues by more than 75% will negatively impact
EBITDA and consequently will affect the Group’s
ability to meet financial covenants such as Debt
service Coverage Ratio. The conducted stress
test displayed the ability of full repayment of the
existing loans balances. The downside scenarios
showed that the Group’s current financial position
and cash balance will alleviate any potential down-
side risk in the Group’s cash flow generated from its
operational activities, thus the Directors continue
to adopt the going concern basis in preparing
the financial information. The Group’s business
activities, together with the factors likely to affect
its future development, performance and position,
are set out in the Strategic Review on pages 2 to
49. The financial position of the Group, its cash
flows, liquidity position and borrowing facilities
are described in the financial statements and notes
thereon on pages 84 to 143.
Statement of Directors’
Responsibilities
The directors are responsible for preparing the
financial statements in accordance with appli-
cable law and International Financial Report-
ing Standards as adopted by the EU (“IFRS as
adopted by the EU”). Company law requires the
directors to prepare Group financial statements
for each financial year which give a true and fair
view of the state of affairs of the Group and of the
profit or loss of the Group for that year.
In preparing those financial statements, the direc-
tors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and estimates that are rea-
sonable, relevant and reliable;
• state whether applicable accounting standards
have been followed, subject to any material
departures disclosed and explained in the fi-
nancial statements;
• assess the Group’s ability to continue as a go-
ing concern, disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of accounting
82
ANNUAL REPORT | 2019
unless they either intend to liquidate the Group
or to cease operations, or have no realistic al-
ternative but to do so.
The directors are responsible for keeping proper
accounting records that disclose with reasonable
accuracy at any time the financial position of
the Company and to enable them to ensure that
the financial statements comply with the Com-
panies (Jersey) Law 1991. They are responsible
for such internal control as they determine is
necessary to enable the preparation of financial
statements that are free from material misstate-
ment, whether due to fraud or error, and have
general responsibility for taking such steps as are
reasonably open to them to safeguard the assets
of the Group and the Company and to prevent
and detect fraud and other irregularities.
The directors are responsible for the mainte-
nance and integrity of the corporate and financial
information included on the company’s website.
The Directors of the Group confirm that to the
best of their knowledge that:
• The Group is in compliance with the Jersey
code in relation to all applicable corporate law
and tax filing requirements;
• The consolidated financial statements have
been prepared in accordance with Internation-
al Financial Reporting Standards as adopted
by the EU, including International Accounting
Standards; and Interpretations adopted by the
International Accounting Standards Board
give a true and fair view of the assets, liabili-
ties, financial position and profit or loss of the
Group and the undertakings included in the
consolidation taken as a whole; and
• The sections of this Report, including the Stra-
tegic Report, Performance Review and Principal
Risks and Uncertainties, which constitute the
management report, include a fair review of the
development and performance of the business
and the position of the issuer and the undertak-
ings included in the consolidation taken as a
whole, together with a description of the princi-
pal risks and uncertainties that they face.
We consider the annual report and accounts,
taken as a whole, is fair, balanced and understand-
able and provides the information necessary for
shareholders to assess the Group’s position and
performance, business model and strategy.
Disclosure of Information to
the Auditor
So far as each person who was a Director at the
date of approving this report is aware, there is no
relevant audit information, being information
needed by the auditor in connection with prepar-
ing its report, of which the auditor is unaware.
Having made enquiries of fellow Directors and
the Group’s auditors, each Director has taken all
the steps that he/she is obliged to take as a Direc-
tor in order to have made himself/herself aware
of any relevant audit information and to establish
that the auditor is aware of that information.
Annual General Meeting )AGM(
The 2020 AGM will be held virtually on 23 June
2020.
The Chairman of the Board and of each of the
Board’s Committees as well as all company
Directors will be in attendance virtually at the
AGM to answer questions from shareholders.
During the AGM, all of the Group’s Directors will
retire and submit themselves for re-election.
Auditor
KPMG LLP has expressed its willingness to
continue in office as auditor and separate resolu-
tions will be proposed at the forthcoming AGM
concerning their reappointment and to autho-
rise the Board to agree their remuneration.
By order of the Board
Dr. Hend El Sherbini
Executive Director
27 April 2020
2019 |
ANNUAL REPORT
83
Financial
Statements
84
ANNUAL REPORT | 2019
2019 |
ANNUAL REPORT
85
Financial Statements // Independent Auditor's Report
Independent Auditor’s Report
1.
Our opinion is unmodified
Overview
Materiality:
group financial
statements as a
whole
EGP32m (2018:EGP29m)
4.2% (2018: 4.5%) of Group profit
before tax
100% (2018: 99%) of Group profit
before tax
Coverage
Key audit
matters
New risk
Going Concern
New risk
Application of IFRS 16 lease
accounting
We have audited the consolidated financial statements
of Integrated Diagnostics Holdings plc (“the Com-
pany”) for the year ended 31 December 2019 which
comprise the Consolidated Statement of Financial
Position, Consolidated Income Statement, Consoli-
dated Statement of Other Comprehensive Income, the
Consolidated Statement of Changes in Equity and the
Consolidated Statement of Cash Flows, and the related
notes, including the accounting policies in note 2.
In our opinion the consolidated financial
statements:
• give a true and fair view, in accordance with
International Financial Reporting Standards as
adopted by the European Union, of the state of
the Group’s affairs as at 31 December 2019 and of
its profit for the year then ended; and
• have been properly prepared in accordance with
the Companies ( Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with Interna-
tional Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities
under, and are independent of the Group in accord-
ance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed entities. We
believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion.
86
ANNUAL REPORT | 2019
2.
Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the
financial statements and include the most significant assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. In arriving at our opinion above, the key audit matter was as follows:
Going Concern
The risk
Our response
Disclosure quality
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the Group.
That judgement is based on an evaluation
of the inherent risks to the Group’s busi-
ness model and how those risks might
affect the Group’s financial resources
or ability to continue operations over a
period of at least a year from the date of
approval of the financial statements.
The risks most likely to adversely affect the
Group’s available financial resources over
this period arose as a result of the global
pandemic caused by the emergence of a
novel coronavirus, COVID-19. The princi-
ple risks were:
• Demand for the Group’s services declines
significantly during extended periods of
curfew or lockdown in the geographies
in which the Group operates;
• Covenants in loan agreements are likely
to be breached should a significant de-
cline in operations be experienced;
• The Group’s supply chain may be
disrupted due to temporary closures
or business failures of key suppliers or
logistics operators in geographies im-
pacted by COVID-19.
The risk for our audit was whether or not
those risks were such that they amounted
to a material uncertainty that may have
cast significant doubt about the ability to
continue as a going concern. Had they
been such, then that fact would have been
required to have been disclosed.
Our procedures included:
Funding assessment:
Assessed the Group’s ability to comply with loan
covenants and make any necessary repayments of
capital and interest in the event of a covenant breach.
Historical comparisons:
Assessed the directors’ historical forecasting accu-
racy by comparing previous forecasts with the actual
cashflows achieved in the respective periods.
Key dependency assessment:
Identified the critical factors in determining whether
there is a risk of failure by identifying the material
drivers of cashflows that are most exposed to the
economic uncertainty that COVID-19 presents.
Sensitivity analysis:
Considered sensitivities over the level of available
financial resources indicated by the Group’s financial
forecasts taking account of reasonably possible (but
not unrealistic) adverse effects that could arise from
these risks individually and collectively;
Challenged the directors’ assessment of forecast
revenue with reference to the most recent actual
cashflows achieved and also assessed the Group’s
loan covenants by stress testing the critical factors
and considering the impact on the forecasts and cash
outflows.
Evaluating directors’ intent:
Evaluated the achievability of the actions the Direc-
tors consider they would take to improve the posi-
tion should the risks materialise;
Assessed that the Directors took the decision to post-
pone the declaration of a dividend in respect of the
financial year until the economic situation is clearer.
Considered the ability of the Group to halt planned
capital expenditure that they are not committed to
undertake.
Assessing transparency:
Assessed the completeness and accuracy of the mat-
ters covered in the going concern disclosure in light
of critical factors arising from COVID-19 and the as-
sessments performed.
2019 |
ANNUAL REPORT
87
Financial Statements // Independent Auditor's Report
2.
Key audit matters: our assessment of risks of material
misstatement (cont'd)
The risk
Our response
Application of IFRS 16
lease accounting on
transition
(EGP260 million; 2018:
EGP Nil)
Refer to page 74 (Audit
Committee Report), page
98 (accounting policy)
and page 138 ( financial
disclosures)
Accounting Application
The Group is required to adopt IFRS 16
Leases as at 1 January 2019. There is a high
volume of leases relating to the branch
network. The majority of the leases in
the portfolio have a term of 5 to 10 years.
There are different payment terms and
contractual clauses between leases.
The recognition of these leases will
generate new, material balances within
non-current assets, current and non-
current liabilities.
Data Capture and Calculation Error
The manual input and collation of data,
the completeness of the lease popula-
tion and varying contractual terms
gives rise to the risk of error over the
calculations
Our procedures included:
• Methodology implementation: As-
sessed whether the methodology of the
lease calculation was in line with the
requirements of the standard.
• Evaluated the appropriateness of the
selection of accounting policies based on
the requirements of IFRS 16, our business
understanding and industry practice.
• Considered the appropriateness of the
transition approach and that the practi-
cal expedients applied were in line with
the standard.
• Tests of details: Assessed the com-
pleteness of the IFRS 16 lease population
by reconciling the leases included within
the model prepared by management to
the revenue generating branches held by
the Group.
• Selected a sample of leases included
within the model to check the calculation
by inspecting the relevant contracts and
ensuring the contractual terms had been
appropriately captured and recorded in
the model and checking the lease pay-
ments made.
• Extended scope: Increased substan-
tive testing in sampling of lease con-
tracts due to the identification of lease
payment methods within contracts that
differed to those recorded in the model.
• Where calculation errors were identi-
fied by our testing assessed that similar
errors were not pervasive throughout
the model.
We continue to perform procedures over recoverability of goodwill and indefinite life brand intangible assets. However,
we have observed a continued trend of strong financial performance of those cash generating units to which the major-
ity of the goodwill and indefinite life brand intangibles relate. Therefore, we have not assessed this as one of the most
significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
88
ANNUAL REPORT | 2019
3.
Our application of Group materiality and an overview of
the scope of our audit
Materiality for the group financial statements as a whole
was set at EGP32m (2018: EGP 29m), determined with
reference to a benchmark of Group profit before tax, of
which it represents 4.2% (2018: 4.0%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding EGP1.6m
(2017: EGP1.45m), in addition to other identified misstate-
ments that warranted reporting on qualitative grounds.
Of the group's 13 (2018: 13) reporting components, we
subjected 5 (2018: 6) to full scope audits for Group report-
ing purposes and 5 (2018: 5) to specified risk-focused audit
procedures over cash and cash equivalents. The latter were
not individually financially significant enough to require full
scope audit for Group reporting purposes, but did present
specific individual risk that needed to be addressed. The
components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 0.4% (2018: 0.6%) of total Group revenue, 0.2%
(2018: 0.5%) of Group profit before tax and 1.2% (2018: 0.2%)
of total Group assets is represented by 3 (2018: 2) reporting
components, none of which individually represented more
than 0.6% of any of total Group revenue, Group profit before
tax or total Group assets. For these residual components,
we performed analysis at an aggregated Group level to re-
examine our assessment that there were no significant risks
of material misstatement within these.
The Group team instructed the component auditors as to
the significant areas to be covered, including the relevant
risks detailed above and the information to be reported
back. The Group team approved component materialities
which ranged from EGP6.4m to EGP22.4m (2018: EGP3.2m to
EGP10.4m), having regard to the mix of size and risk profile
of the Group across the components. The work on 5 of the 10
components (2018: 7 of the 11 components) was performed
by component auditors and the rest was performed by the
Group team.
The Group team visited 5 (2018: 5) components, all based in
the same location, in Egypt, including to assess the audit risk
and strategy. Telephone conference meetings were also held
with these component auditors and with the component
auditors of the Jordanian and Nigerian components that
were not physically visited. At these visits and meetings, the
findings reported to the Group team were discussed in more
detail, and any further work required by the Group team was
then performed by the component auditor.
Profit before tax
EGP758m (2018:EGP717m)
Group Materiality
EGP32m (2018:EGP29m)
EGP 32 m
Whole financialstate-
ments material-
ity(2018: EGP29m)
EGP 22.4 m
Range of material-
ity at 5 components
(EGP6.4m to 22.4m)
(2018: EGP3.2m to
EGP10.4m)
EGP 1.6 m
Misstatements
reported to the audit
committee
(2018: EGP 1.45m)
Profit before tax
Group materiality
Group revenue
Group profit before tax
3
3
100%
(2018: 99%)
96
97
Group total assets
14
27
99%
(2018: 100%)
86
72
5
4
100%
(2018: 99%)
95
95
Full scope for group
audit purposes 2019
Specified risk-focused
audit procedures 2019
Full scope for group
audit purposes 2018
Specified risk-focused
audit procedures 2018
Residual components
2019 |
ANNUAL REPORT
89
Financial Statements // Independent Auditor's Report
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate
the Group or to cease its operations, and as they have concluded that the Group’s financial position means that this is
realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over
its ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the
going concern period”).
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's
report is not a guarantee that the Group will continue in operation.
We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our
response to that key audit matter, we are required to report to you if we have concluded that the use of the going
concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant
doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements.
We have nothing to report in these respects.
5.
We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial state-
ments audit work, the information therein is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
6.
We have nothing to report on the other matters on which
we are required to report by exception
Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion:
• proper accounting records have not been kept by the Company, or
• proper returns adequate for our audit have not been received from branches not visited by us; or
• The Company’s consolidated financial statements are not in agreement with the accounting records and returns; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
90
ANNUAL REPORT | 2019
7.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 82, the Directors are responsible for: the preparation of the fi-
nancial statements including being satisfied that they give a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error; assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error and to issue our opinion in an auditor’s report. Reasonable as-
surance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8.
The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies
(Jersey) Law 1991.Our audit work has been undertaken so that we might state to the Company’s members those mat-
ters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a
body, for our audit work, for this report, or for the opinions we have formed.
David Neale
for and on behalf of KPMG LLP
Chartered Accountants and Recognised Auditor
15 Canada Square
London
E14 5GL
27 April 2020
2019 |
ANNUAL REPORT
91
Financial Statements // Consolidated Financial Statements
Consolidated Statement of Financial
Position
As at 31 December 2019
Notes
2019
2018
EGP’000
EGP’000
Assets
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Right-Of-Use Asset
Other investments
Total non-current assets
Current assets
Inventories
Trade and other receivables
Restricted cash
Other investments
Cash and cash equivalents
Total current assets
Total assets
Equity
Share capital
Share premium reserve
Capital reserves
Legal reserve
Put option reserve
Translation reserve
Retained earnings
Equity attributable to the owners of the Company
Non-controlling interests
Total equity
Non-current liabilities
Deferred tax liabilities
Other provisions
Loans and borrowings
Long-term financial obligations
Total non-current liabilities
Current liabilities
Trade and other payables
Short-term financial obligations
Loans and borrowings
Current tax liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
10
11
27
13
15
16
18
19
17
20
20
20
20
20
20
6
8
22
25
26
23
24
25
785,546
1,660,836
264,763
6,391
2,717,536
84,339
322,805
247
221,617
408,892
1,037,900
3,755,436
1,072,500
1,027,706
(314,310)
46,330
(229,164)
155,823
456,661
2,215,546
144,710
2,360,256
174,000
5,273
81,305
306,384
566,962
320,083
260,853
25,416
221,866
828,218
1,395,180
3,755,436
705,779
1,672,463
-
-
2,378,242
91,079
299,991
11,965
239,905
412,607
1,055,547
3,433,789
1,072,500
1,027,706
(314,310)
37,959
(145,275)
194,764
396,706
2,270,050
130,588
2,400,638
168,361
14,842
101,439
79,191
363,833
287,367
156,665
25,416
199,870
669,318
1,033,151
3,433,789
The accompanying notes on pages 97- 143 form an integral part of these consolidated financial statements.
These consolidated financial statements were approved and authorised for issue by the Board of Directors and signed on their behalf on 27 April 2020 by:
Dr. Hend El Sherbini
Chief Executive Officer
Hussein Choucri
Independent Non-Executive Director
92
ANNUAL REPORT | 2019
Consolidated Income Statement
For the year ended 31 December 2019
Notes
2019
2018
Revenue
Cost of sales
Gross profit
Marketing and advertising expenses
Administrative expenses
Impairment loss on trade and other receivable
Other Income
Operating profit
Finance costs
Finance income
Net finance cost
Profit before tax
Income tax expense
Profit for the year
Profit attributed to:
Owners of the Company
Non-controlling interests
Earnings per share (expressed in EGP)
Basic and Diluted
3
16
7.2
8
6
9
EGP’000
2,226,495
(1,142,681)
1,083,814
(115,764)
(189,465)
(8,647)
20,902
790,840
(80,105)
47,409
(32,696)
758,144
EGP’000
1,921,452
(973,073)
948,379
(94,887)
(160,055)
(9,635)
1,141
684,943
(31,015)
63,430
32,415
717,358
(253,609)
504,535
(220,444)
496,914
510,931
(6,396)
504,535
502,092
(5,178)
496,914
3.41
3.35
The accompanying notes on pages 97- 143 form an integral part of these consolidated financial statements.
2019 |
ANNUAL REPORT
93
Financial Statements // Consolidated Financial Statements
Consolidated Statement of Other
Comprehensive Income
For the Year Ended 31 December 2019
Net profit
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss:
Currency translation losses on foreign currency subsidiaries
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the Company
Non-controlling interests
2019
2018
EGP’000
504,534
EGP’000
496,914
(59,402)
(59,402)
445,132
471,991
(26,859)
445,132
(2,566)
(2,566)
494,348
493,146
1,202
494,348
The accompanying notes on pages 97- 143 form an integral part of these consolidated financial statements.
94
ANNUAL REPORT | 2019
Consolidated Statement of Cash Flows
For the Year Ended 31 December 2019
Note
2019
2018
EGP’000
EGP’000
7
12
7
7
7
7
16
22
18
Cash flows from operating activities
Profit or loss for the year
Adjustments for:
Depreciation of property, plant and equipment
('PPE')
Amortisation of intangible assets
Unrealised foreign exchange gains and losses
Interest Income
Interest Expense
Gain/(Loss) on sale of PPE
Impairment in trade and other receivables
Reversal of impairment in trade and other
receivables
Equity settled share based payment receipt
Hyperinflation
Cash (used in)/generated from operating
activities
Income taxes paid
Change in Provisions
Change in Inventories
Change in Trade and other receivables
Change in Trade and other payables
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of PPE
Interest received
Acquisition of PPE
Acquisition of intangible assets
Decrease in restricted cash
Change in other investment "acquisition"
Change in other investment "sale"
Acquisition of subsidiary
Net cash from investing activities
Cash flows from financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Payment of finance lease liabilities
Dividends paid
Interest paid
Injection of cash by non controlling interest
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash
equivalents
Cash and cash equivalents at 31/12/2018
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31/12/2019
17
758,143
146,617
6,862
15,517
(43,544)
61,184
(926)
8,647
(1,155)
(6,391)
(3,836)
941,118
(184,856)
(9,314)
4,933
(78,167)
23,700
697,414
3,555
48,086
(213,310)
(4,688)
11,718
(282,781)
301,069
-
(136,351)
(25,416)
5,283
(64,451)
(450,502)
(63,192)
49,540
(548,738)
12,325
412,607
(16,040)
408,892
717,358
70,989
6,398
15,706
(59,305)
11,855
(138)
9,635
(1,056)
-
-
771,442
(140,537)
143
(21,144)
(118,042)
64,446
556,308
3,500
71,412
(331,550)
-
1,261
(448,155)
217,399
20,519
(465,614)
(20,514)
94,369
(27,668)
(434,953)
(8,647)
38,684
(358,729)
(268,035)
685,211
(4,569)
412,607
The accompanying notes on pages 97- 143 form an integral part of these consolidated financial statements.
2019 |
ANNUAL REPORT
95
Financial Statements // Consolidated Financial Statements
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96
ANNUAL REPORT | 2019
Notes to the Condensed Consolidated
Financial Statements
For the Year Ended 31 December 2019
(In the notes all amounts are shown in Egyptian Pounds “EGP’000” unless otherwise stated)
Corporate information
1.
The consolidated financial statements of Integrated Diagnostics Holdings plc and its subsidiaries (collectively, the
Group) for the year ended 31 December 2019 were authorised for issue in accordance with a resolution of the directors
on 27 April 2020. Integrated Diagnostics Holdings plc “IDH” or “the company” has been established according to the
provisions of the Companies (Jersey) law 1991 under No. 117257.
IDH’s purpose is not restricted and the Group has full authority to do any activity as long as it is not banned by the
Companies law unless amended from time to time or depending on the Companies (Jersey) law.
The Group’s financial year starts on 1 January and ends on 31 December each year. The Group’s main activity is concen-
trated in the field of medical diagnostics.
Basis of preparation
2.
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with International Financial Re-
porting Standards as adopted by the European Union (adopted IFRS) issued by the International Accounting Standards
Board (IASB) and the Jersey Law 1991 an amendment to which means separate company financial statements are not
required.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except where adopted IFRS man-
dates that fair value accounting is required.
Functional and presentation currency
Each of the Group’s entities is using the currency of the primary economic environment in which the entity operates
(‘the functional currency’). The Group’s consolidated financial statements are presented in Egyptian Pounds, being the
reporting currency of the main Egyptian trading subsidiaries within the Group and the primary economic environment
in which the Group operates. For each entity, the Group determines the functional currency and items included in the
financial statements of each entity are measured using that functional currency. The Group uses the direct method of
consolidation and on disposal of a foreign operation; the gain or loss that is reclassified to profit or loss reflects the
amount that arises from using this method.
Going concern
The uncertainty as to the future impact on the Group of the recent COVID-19 outbreak has been considered as part
of the Group’s adoption of the going concern basis. The Board has considered the potential impact of the COVID-19
outbreak on the Group’s financial position and liquidity, but given the unknown magnitude of COVID-19, Manage-
ment has considered several downside scenarios and stress tests. One of the stress tests considered the following key
assumptions: a complete lockdown with a substantial loss of revenue by more than 75% for a period of eight months
( from May to December), no fixed costs reductions, forecasted capital expenditure (mainly the yearly expansionary
plan of opening new branches that are not required for the current operation) reduced in 2020 by 86%, and cessation
2019 |
ANNUAL REPORT
97
of dividend payments*. Reducing revenues by more than 75% will negatively impact EBITDA and consequently will
affect the Group's ability to meet financial covenants such as Debt service Coverage Ratio. The conducted stress
test displayed the ability of full repayment of the existing loans balances. The downside scenarios showed that the
Group's current financial position and cash balance will alleviate any potential downside risk in the Group's cash
flow generated from its operational activities, thus the Directors continue to adopt the going concern basis in pre-
paring the financial information. At 31 December 2019, the Group had net assets amounting to EGP 2,360,256,000.
The Group is profitable and cash generative and the Directors have considered the Group’s cash forecasts for a period
of 12 months from the signing of the balance sheet. The Group’s business activities, together with the factors likely
to affect its future development, performance and position, are set out in the Strategic Review on pages 2 to 49.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the
financial statements and notes thereon on pages 86 to 143.
* Please refer to P.12 for more details
2.1. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31
December 2019. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee.
i. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over
the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable.
The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences until the date that control
ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests
even if doing so causes the non-controlling interests to have a deficit balance.
ii. Change in subsidiary ownership and loss of control
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transac-
tions. Where the group loses control of a subsidiary, the assets and liabilities are derecognised along with any related
NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in
the former subsidiary is measured at fair value when control is lost.
iii. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions,
are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the
investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence of impairment.
2.2. Changes in significant accounting policies
The Group has initially adopted IFRS 16 Leases from 1 January 2019. A number of other new standards are effective
from 1 January 2019, but they do not have a material effect on the Group’s financial statements.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has
recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its
obligation to make lease payments.
The Group has applied IFRS 16 using the Modified Retrospective Approach, under which the cumulative effect of initial
application is recognized in retained earnings at 1 January 2019.
Accordingly, the comparative information presented for 2018 has not been restated – i.e. it is presented, as previously
reported under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below.
98
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
A. Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC
4 Determining Whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains
a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease of the contract conveys
a right to control the use of an identified asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which
transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that
were not identified as leases under IAS 17 and IFRIC 4 were not reassessed.
B. As a lessee
The Group leases many assets, including properties, production equipment and IT equipment.
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the
lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-
use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet.
However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value
assets (e.g. IT equipment). The Group recognises the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
C. Significant accounting policies
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset
is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and
adjusted for certain remeasurements of the lease liability. When a right-of-use asset meets the definition of investment
property, it is presented in investment property. The right-of-use asset is initially measurement at cost, and subse-
quently measured at fair value, in accordance with the Group’s accounting policies.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commence-
ment date, discounted using the interest rate implicit in the lease or, of that rate cannot be readily determined, the
Group’s incremental borrowing rate. the Group uses the incremental borrowing rate as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment
made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate,
a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate,
changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termina-
tion option is reasonably certain not to be exercised.
D. Transition
Previously, the Group classified property leases as operating under IAS 17. These include warehouse and factory facili-
ties. The leases typically run for a period of 5 to 10 years.
At transition, for leases that were classified as operating leases under IAS 17, lease liabilities are measured at the present
value of the remaining lease payments, discounted at the Group’s incremental borrowing rates at 1 January 2019. Right-
of-use assets are measured at either:
• Their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the lessee’s
incremental borrowing rate at the date of initial application; or
• An amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
• The incremental borrowing rate (IBR) used by the Group was determined by region and the period of the lease
contract as follows:
2019 |
ANNUAL REPORT
99
Egypt
Jordan
Sudan
Nigeria
1-5 Years
5-10 Years
18.75%
9.00%
29.84%
23.86%
18.75%
9.50%
29.84%
24.73%
More than 10
Years
18.75%
10.00%
n/a
n/a
The IFRS 16 defines incremental borrowing rate (IBR) as “the rate of interest that causes the present value of (a) the
lease payments and (b) the unguaranteed residual value to equal the sum of (i) the fair value of the underlying asset and
(ii) any initial direct costs of the lessor.”
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating
leases under IAS 17.
• Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12 months of
lease term
• Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.
• Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
E. Impact of transition
On transition to IFRS 16, the Group recognized the addition of right-of-use assets, including investment property and
additional lease liabilities, recognizing the difference in retained earnings. The impact on transition is summarised below.
Right-of-use assets presented in financial statement
Lease liabilities
When measuring lease liabilities for leases that were classified as operating leases, the Group
discounted lease payments using its incremental borrowing rate at 1 January 2019. The
weighted average rates applied for each region are (Egypt 18.75% - Jordan 9.5% - Sudan 29.84%
- Nigeria 24.30%).
Operating lease commitment at 31 December 2018 as disclosed in the Group’s consolidated
financial statements
Discounted using the incremental borrowing rate at 1 January 2019
Finance lease liabilities recognized as at 31 December 2018
Recognition exemption for leases with less than 12 months
of lease term at transition
Lease liabilities recognized at 1 January 2019
1-Jan-19
EGP'000
213,870
213,870
1-Jan-19
EGP'000
440,978
216,518
90,581
(2,648)
304,451
F. Impacts for the period
As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group
recognized EGP 264,763K of net right-of-use assets and EGP 269,401K of net lease liabilities balance as at 31 December 2019.
100
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Also in relation to those leases under IFRS 16, the Group has recognized depreciation and interest expense, instead of
operating lease expense. During the year ended 31 December 2019, the Group recognized EGP 47,716K of depreciation
charges and EGP 35,136K of interest costs from these leases.
For the impact of IFRS 16 on segment information and EBITDA, see notes 3.
a) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any
non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the
non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net
assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group
acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designa-
tion in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition
date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition
date. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and
the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets
acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities
assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reas-
sessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing which it is done one an annual basis, goodwill acquired in a business combina-
tion is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit
from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is dis-
posed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when
determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative
values of the disposed operation and the portion of the cash-generating unit retained.
b) Fair value measurement
The Group measures financial instruments such as non-derivative financial instruments and contingent consideration
assumed in a business combination, at fair value at each balance sheet date.
When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair
value is categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques
as follows:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable
For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on
the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above.
2019 |
ANNUAL REPORT
101
The fair value less any estimated credit adjustments for financial assets and liabilities with maturity dates less than
one year is assumed to approximate their carrying value. The fair value of financial liabilities for disclosure purposes
is estimated by discounting the future contracted cash flows at the current market interest rate that is available to the
Group for similar transactions.
c) Revenue recognition
Revenue represents the value of medical diagnostic services rendered in the year, and is stated net of discounts. The
Group has two types of customers: Walk-in patients and patients served under contract. For patients under contract,
rates are agreed in advance on a per-test, client-by-client basis.
The following steps are considered for patients served under contracts:
1. Identification of the Contracts: written contracts are signed between IDH and customers. The contracts stipu-
late the duration, price per test, credit period.
2. Transaction price: Services provided by the Group are distinct in the contract, as the contract stipulates the
series of tests’ names/types to be conducted along with its distinct prices.
3. Allocation of price to performance obligations: Stand-alone selling price per test is stipulated in the contract. In
case of discounts, it is allocated proportionally to all of tests prices in the contract.
4. The performance obligations are the diagnostics tests within the pathology and radiology services. The perfor-
mance obligation is achieved when the customer receives their test results, and so are recognised at point in time.
5. That there are no other revenue streams other than those whose performance obligation occurs at a point in time.
d) Income Taxes
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
i. Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
ii. Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and li-
abilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements.
However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income
tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits
and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, and the carry forward of unused tax credits and unused
tax losses can be utilised. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively
enacted by the reporting date and are expected to apply when the related deferred income tax asset is realized or the
deferred income tax liability is settled.
e) Foreign currency
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency
spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in
foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences
arising on settlement or translation of monetary items are recognised in the income statement.
102
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the ex-
change rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is determined. On consolidation, the assets and
liabilities of foreign operations are translated into Egyptian Pounds at the rate of exchange prevailing at the report-
ing date and their statements of profit or loss are translated at average rate (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and
expenses are translated at the rate on the dates of the transactions). The exchange differences arising on translation
for consolidation are recognised in other comprehensive income and accumulated in the translation reserve or NCI
as the case may be. On disposal of a foreign operation, the component of other comprehensive income relating to that
particular foreign operation is recognised in profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts
of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and trans-
lated at the spot rate of exchange at the reporting date.
f) Hyperinflationary Economies
The financial statements of “SAMA Medical Laboratories Co. and AL-Mokhtabar Sudanese Egyptian Co.” report their
financial statements in the currency of a hyperinflationary economy. In accordance with IAS 29 financial reporting in
Hyperinflationary Economies, the financial statements of those subsidiaries were restated by applying the consumer
price index at closing rates in December 2019 2,321 (2018 December, 1,490) before they were included in the consolida-
tion financial statements. The comparative information as the financial information of SAMA Medical Laboratories
Co. and AL-Mokhtabar Sudanese Egyptian Co whose functional currency is hyperinflationary is translated into a dif-
ferent presentation currency (EGP), this is done in accordance with IAS 21 as follows. If the presentation currency is
not hyperinflationary, then comparative amounts are not restated for changes in either the general price level in the
functional currency (i.e. as otherwise required by IAS 29) or the exchange rate between the functional and presentation
currencies. As such, the comparative amounts remain those amounts reported as current for the previous reporting
period. When the functional currency of a foreign operation is the currency of a hyperinflationary economy, all assets,
liabilities, equity items, income and expenses are translated using an official exchange rate prevailing at the end of
each reporting period. Exchange differences arising, if any, are recognized on other comprehensive income and ac-
cumulated in equity (attributed to non-controlling interests as appropriate).
g) Property, plant and equipment
All property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes ex-
penditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s car-
rying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount
of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of
income during the financial period in which they are incurred. Land is not depreciated. Laboratory Equipment held to
perform the ‘Hub spoke’ at the Mega Lab and provided under finance lease arrangements are depreciated under a unit
of production method as this most closely reflects the consumption of benefits from the equipment.
Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to
their residual value over their estimated useful lives, as follows:
Buildings
Medical, electric and information systems equipment
Leasehold improvements
Fixtures, fittings & vehicles
50 years
4-10 years
4-5 years
4-16 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the
carrying amount and are recognised within ‘Other (losses)/gains – net’ in the consolidated statement of income.
2019 |
ANNUAL REPORT
103
h) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets
are carried at cost less any accumulated amortisation and accumulated impairment losses.
Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expendi-
ture is reflected in profit or loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method
for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the
expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are
considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss
in the expense category that is consistent with the function of the intangible assets. The Group amortises intangible
assets with finite lives using the straight-line method over the following periods:
•
IT development and software 4-5 years
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individu-
ally or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether
the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a
prospective basis.
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over inter-
est in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of
the non-controlling interest in the acquire.
Goodwill is stated at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill
acquired in a business combination is allocated to each of the cash-generating units (CGUs), or groups of CGUs, that is
expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated
represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. the
impairment assessment is done one an annual basis.
Brand
Brand names acquired in a business combination are recognised at fair value at the acquisition date and have an in-
definite useful life.
The Group brand names are considered to have indefinite useful life as the Egyptian brands have been established in the
market for more than 30 years and the health care industry is very stable and continues to grow.
The Brands are not expected to become obsolete and can expand into different countries and adjacent businesses,
in addition, there is a sufficient ongoing marketing efforts to support the brands and this level of marketing effort is
economically reasonable and maintainable for the foreseeable future.
J) Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
104
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
i. Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, as appropri-
ate. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value
through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales
of financial assets that require delivery of assets within a time frame established by regulation or convention in the
market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase
or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
• Financial assets at fair value through profit or loss
• Fair value through other comprehensive income
• Amortised cost
The Group did not hold financial assets classified as financial assets at fair value through the profit or loss at 31 Decem-
ber 2019 and 31 December 2018.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e. removed from the Group’s consolidated statement of financial position) when:
• The rights to receive cash flows from the asset have expired
Or
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a)
the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass- through ar-
rangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the
Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group
also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that
reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the origi-
nal carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
Disclosures for significant estimates and assumptions
Financial assets
Trade receivables
Note 2.3
Note 14
Note 16
The Group uses an allowance matrix to measure the ECLs of trade receivables from individual customers, which com-
prise a very large number of small balances.
Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through succes-
sive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different segments based on
credit risk characteristics, age of customer relationship.
2019 |
ANNUAL REPORT
105
Loss rates are based on actual credit loss experience over the past three years. These rates are multiplied by scalar
factors to reflect differences between economic conditions during the period over which the historical data has been
collected, current conditions and the Groups view of economic conditions over the expected lives of the receivables.
ii. Financial liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
All of the Group’s financial liabilities are classified as financial liabilities carried at amortised cost using the effective inter-
est method. The Group does not use derivative financial instruments or hedge account for any transactions. Unless other-
wise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair values.
The Group’s financial liabilities include trade and other payables, finance lease liabilities, put option and loans and
borrowings including bank overdrafts.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of
the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recog-
nised in the statement of profit or loss.
iii. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of
financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an inten-
tion to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
k) Impairment of non-financial assets
Further disclosures relating to impairment of non-financial assets are also provided in the following notes:
Disclosures for significant assumptions and estimates
Goodwill and intangible assets with indefinite lives
Note 2.3
Note 12
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indica-
tion exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable
amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value
in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or
CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determin-
ing fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be
identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted
share prices for publicly traded companies or other available fair value indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately
for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally
cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
106
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories consistent
with the function of the impaired asset, except for properties previously revalued with the revaluation taken to other compre-
hensive income (“OCI”). For such properties, the impairment is recognised in OCI up to the amount of any previous revaluation.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indica-
tion that previously recognised impairment losses no longer exist or have decreased.
If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impair-
ment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount
since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation,
had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit
or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.
Goodwill is tested for impairment annually as at 31 October and when circumstances indicate that the carrying value
may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which
the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is
recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
Intangible assets with indefinite useful lives are tested for impairment annually as at 31 October at the CGU level, as
appropriate, and when circumstances indicate that the carrying value may be impaired.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances in-
dicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less
costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for
which there are largely independent cash inflows (CGU). Prior impairments of non-financial assets (other than goodwill)
are reviewed for possible reversal at each reporting date.
Impairment of trade and notes receivables
The requirement for impairment of trade receivables is made through monitoring the debts aging and reviewing cus-
tomer’s credit position and their ability to make payment as they fall due. An impairment is recorded against receiva-
bles for the irrecoverable amount estimated by management. At the year end, the provision for impairment of trade
receivables was EGP 36,012K (31 December 2018: EGP 29,295K)
Inventories
l)
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average
method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated selling and
distribution expenses.
m) Cash and short-term deposits
Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-
term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits,
as defined above, net of outstanding bank overdrafts as they are considered an integral part of the Group’s cash management.
n) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be
reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only
2019 |
ANNUAL REPORT
107
when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit
or loss net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,
when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the
passage of time is recognised as a finance cost.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognised as a finance cost.
o) Pensions and other post-employment benefits
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity.
The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating to employee service in the current and prior periods. Obligations for
contributions to defined contribution pension plans are recognized as an expense in the income statement in the
periods during which services are rendered by employees.
p) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker who is responsible for allocating resources and assessing perfor-
mance of the operating segments, has been identified as the steering committee that makes strategic decisions.
The preparation of the Group’s consolidated financial statements in conformity with adopted IFRSs requires management to
make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future periods.
Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
Capital management
Financial instruments risk management and policies
Sensitivity analyses disclosures
Note 4
Notes 14
Notes 14
Judgments
In preparing these consolidated financial statements, management have made a material judgment, that affect the
application of the Group’s lease accounting policy and the reported amounts of assets, liabilities, and expenses. Infor-
mation about judgment, estimate and assumptions relating to finance leases are set out in note 27.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are described below.
The Group based its assumptions and estimates on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future developments, however, may change due to
market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
108
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Impairment of intangible assets
The Group tests annually whether goodwill and other intangibles with indefinite lives have suffered any impairment.
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is
the higher of its fair value less costs of disposal and its value in use.
The recoverable amounts of cash generating units have been determined based on value in use. The value
in use calculation is based on a discounted cash flow (“DCF”) model.
The cash flows are derived from the budget for the next five years and do not include restructuring activities that the
Group is not yet. committed to or significant future investments that will enhance the asset’s performance of the CGU
being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected
future cash-inflows and the growth rate used for extrapolation purposes.
Segment information
3.
The Group has four operating segments based on geographical location rather than two operating segments based on
service provided, as the Group’s Chief Operating Decision Maker (CODM) reviews the internal management reports
and KPIs of each geography.
The Group operates in four geographic areas, Egypt, Sudan, Jordan and Nigeria. The revenue split between the four
regions is set out below.
For the year ended
31-Dec-19
31-Dec-18
For the year ended
31-Dec-19
31-Dec-18
Walk-in
Corporate
Pathology
Radiology
Revenue by geographic location
Egypt region
1,902,788
1,613,484
Sudan
region
36,927
35,347
Jordan
region
256,700
242,489
Net profit by geographic location
Egypt region
499,745
505,769
Sudan
region
3,684
(6,241)
Jordan
region
44,162
26,193
Nigeria
region
30,080
30,132
Nigeria
region
(43,057)
(28,807)
Total
2,226,495
1,921,452
Total
504,534
496,914
Revenue by categories
2019
EGP'000
895,336
1,331,160
2,226,495
2018
EGP'000
779,969
1,141,483
1,921,452
Revenue by type
Net profit by type
2019
EGP'000
2,182,208
44,287
2,226,495
2018
EGP'000
1,889,418
32,034
1,921,452
2019
EGP'000
556,929
(52,395)
504,534
2018
EGP'000
524,248
(27,334)
496,914
2019 |
ANNUAL REPORT
109
The operating segment profit measure reported to the CODM is EBITDA, as follows:
Profit from operations
Property, plant and equipment depreciation
Amortization of Intangible assets
EBITDA
Non- current assets by geographic location are as follows:
2019
EGP'000
790,840
147,269
6,862
944,971
2018
EGP'000
684,943
70,989
6,398
762,330
Non-current assets by geographic location
For the year
ended
31-Dec-19
31-Dec-18
Egypt region
2,334,043
2,122,027
Sudan region
17,518
10,054
Jordan region Nigeria region
128,820
81,185
237,155
174,976
Total
2,717,536
2,378,242
Capital management
4.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in or-
der to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure
to reduce the cost of capital.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
The repatriation of a declared dividend from Egyptian group entities are subject to regulation by Egyptian authorities.
The outcome of an Ordinary General Meeting of Shareholders declaring a dividend is first certified by the General
Authority for Investment and Free Zones (GAFI).
Approval is subsequently transmitted to Misr for Central Clearing, Depository and Registry (MCDR) to distribute
dividends to all shareholders, regardless of their domicile, following notification of shareholders via publication in one
national newspapers.
The Group monitors capital on the basis of the net debt to equity ratio. This ratio is calculated as net debt divided by
total equity. Net debt is calculated as total liabilities (being total current liabilities plus long-term financial obligations)
less cash and cash equivalents.
As a provider of medical diagnostic services, IDH’s operations in Sudan are not subject to sanctions.
Total liabilities
Less: cash and short-term deposits (Note 17)
Net (cash)/debt
Total Equity
Net debt to equity ratio
2019
EGP (000)
1,215,907
(408,892)
807,015
2,360,256
34.2%
2018
EGP (000)
849,948
(412,607)
437,341
2,400,638
18.2%
No changes were made in the objectives, policies or processes for managing capital during the years ended 31 Decem-
ber 2019 and 2018.
110
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Group information
5.
Information about subsidiaries
The consolidated financial statements of the Group include:
Principal activities
Country of
Incorporation
Al Borg Laboratory
Company (“Al-Borg”)
Al Mokhtabar Com-
pany for Medical Labs (“Al
Mokhtabar”)
Molecular Diagnostic
Center*
Medical Genetic Center
Al Makhbariyoun Al
Arab Group (Hashemite
Kingdom of Jordan)
Golden Care for Medical
Services
Integrated Medical
Analysis Company (S.A.E)
SAMA Medical Laborato-
ries Co. ("Ultralab medical
laboratory ")
AL-Mokhtabar Sudanese
Egyptian Co.
Integrated Diagnostics
Holdings Limited
Dynasty Group Holdings
Limited
Eagle Eye
Echo-Scan
WAYAK Pharma**
Medical diagnostics
service
Medical diagnostics
service
Medical diagnostics
service
Medical diagnostics
service
Medical diagnostics
service
Holding company of
SAMA
Medical diagnostics
service
Medical diagnostics
service
Medical diagnostics
service
Intermediary holding
company
Intermediary holding
company
51.0%
Egypt
Egypt
Egypt
Egypt
Jordan
Egypt
Egypt
Sudan
Sudan
Caymans
Island
England and
Wales
51.0%
Intermediary holding
company
76.5%
Mauritius
73.6%
Medical diagnostics
service
100.0%
Medical services
Nigeria
100.0%
Egypt
% equity interest
2019
99.3%
99.9%
99.9%
55.0%
60.0%
100.0%
99.6%
80.0%
65.0%
100.0%
2018
99.3%
99.9%
99.9%
55.0%
60.0%
100.0%
99.6%
80.0%
65.0%
100.0%
99.99%
-
* Molecular Diagnostic Center” put under liquidation on 5 May 2016 following the start of liquidation proceedings by the liquidator (Abd EL Wahab
Kamal) under Egyptian Law. The liquidation processes were completed and finalized on 19 January 2020.
* * On 7 August 2019, AL-Mokhtabar; one of the IDH’ subsidiaries has established Wayak Company with Khaled Ismail for the purpose of creating an
Electronic Medical Record “EMR” platform .
Full details of the Group historical acquisitions can be found in the prospectus for the initial public offering by the
Company dated 6 May 2015 and available at www.idhcorp.com.
2019 |
ANNUAL REPORT
111
6.
Non-Controlling Interest is measured at the proportionate share basis.
Non-Controlling interest
Financial information of subsidiaries that have material non-controlling interests is provided below:
Proportion of equity interest held by non-controlling interests:
Medical Genetic Center
Al Makhbariyoun Al Arab Group (Hash-
emite Kingdom of Jordan)
SAMA Medical Laboratories Co. " Ultra lab
medical laboratory "
Al Borg Laboratory Company
Dynasty Group Holdings Limited
Eagle Eye
Country of
incorporation
Egypt
Jordan
Sudan
Egypt
England and Wales
Mauritius
2019
45.0%
40.0%
20.0%
0.7%
49%
23.53%
2018
45.0%
40.0%
20.0%
0.7%
49%
26.4%
112
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
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2019 |
ANNUAL REPORT
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i
Financial Statements // Notes to the Consolidated Financial Statements
7.
Included in profit and loss are the following:
Expenses and other income
Impairment on trade and other receivables
Charge for increase in provisions
Professional and advisory fees
Amortisation
Depreciation
Total
2019
EGP’000
8,647
3,521
9,499
6,862
146,617
175,146
2018
EGP’000
9,635
793
31,938
6,398
70,989
119,753
7.1 Auditor’s remuneration
The group paid or accrued the following amounts to its auditor and its associates in respect of the audit of the financial
statements and for other services provided to the group
Fees payable to the Company’s auditor for the audit of the Group’s
annual financial statements
The audit of the Company’s subsidiaries pursuant to legislation
Tax compliance and advisory services
7.2 Net finance costs
Interest expense
Net foreign exchange loss
Bank Charges
Total finance costs
Interest income
Gain on hyperinflationary net monetary position
Total finance income
Net finance income /(cost)
2019
EGP’000
2018
EGP’000
11,385
6,344
2,826
164
14,375
2,528
55
8,927
2019
EGP’000
(60,997)
(15,517)
(3,591)
(80,105)
2019
EGP’000
43,576
3,833
47,409
(32,696)
2018
EGP’000
(11,855)
(15,706)
(3,454)
(31,015)
2018
EGP’000
59,305
4,125
63,430
32,415
2019 |
ANNUAL REPORT
115
Employee numbers and costs
7.3
The average number of persons employed by the Group (including directors) during the year and the aggregate payroll
costs of these persons, analysed by category, were as follows:
2019
2018
Medical Administration
Total
Medical Administration
Total
4,168
1,272
5,440
3,672
1270
4,942
Average number of
employees
2019
EGP'000
2018
EGP'000
Medical Administration
Total
Medical Administration
Total
357,308
109,932
467,240
290,508
98162
388,670
20,082
4,647
24,729
17,958
4157
22,115
5,700
1,399
7,099
4,974
1334
6,308
383,090
115,978
499,068
313,440
103,653
417,093
Wages and salaries
Social security
costs
Contributions to
defined contribu-
tion plan
Total
Details of Directors’ and Key Management remuneration and share incentives are disclosed in the Remuneration Re-
port and note 28.
8.
a) Amounts recognised in profit or loss
Income tax
Current year tax
WHT suffered
Current tax
DT on undistributed reserves
DT on reversal of temporary differences
Total Deferred tax
Tax expense recognized in profit or loss
2019
EGP’000
(220,390)
(27,581)
(247,971)
(5,241)
(397)
(5,638)
(253,609)
2018
EGP’000
(196,477)
(21,587)
(218,064)
(6,761)
4,381
(2,380)
(220,444)
b) Reconciliation of effective tax rate
The Company is treated as a tax resident of Jersey for the purpose of Jersey tax laws and is subject to a tax rate of 0%. The
Company tax domicile in the UK. As a holding company for the IDH group, the Board concluded that the UK represents
the most effective and efficient jurisdiction from which to manage the Company. The current income tax charge for the
Group represents tax charges on profits arising in Egypt, Jordan and Sudan. The significant profits arising within the
Group subject to corporate income tax are generated from the Egyptian operations and subject to 22.5% (2018: 22.5%)
tax rate. The reconciliation of effective income tax rate has been performed using this rate.
116
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
In accordance with the Egyptian Law No. 991 of 2005, the employees' profit share are deducted from the retained earn-
ings of the company and are approved by the general association meeting.
In July 2018, the Egyptian Government imposed a new tax related to health care of 0.25% on total income. As result the
Group has recorded an additional EGP 6.3m in income tax expense.
Profit before tax
Profit before tax multiplied by rate of corporation tax in Egypt of 22.5%
(2018: 22.5%)
Effect of tax rate in Jersey of 0% (2018: 0%)
Effect of tax rates in Jordan, Sudan and Nigeria of 20%, 30% and 30%
respectively (2018: 20%, 15% and 30%)
Tax effect of:
Change in unrecognized deferred tax assets
Deferred tax arising on undistributed dividend
Non-deductible expenses for tax purposes - employee profit share
Current year losses for which no deferred tax asset was recognized
Non-deductible expenses for tax purposes - other
Tax expense recognised in profit or loss
Deferred tax
Deferred tax relates to the following:
2019
EGP’000
758,143
170,582
12,901
(3,705)
2,018
32,822
22,430
12,025
4,536
253,609
Property, plant and equipment
Intangible assets
Undistributed reserves from
group subsidiaries*
Provisions and finance lease
liabilities
Total deferred tax assets -
liability
2019
Assets
EGP’000
-
-
-
1,360
1,360
Liabilities
EGP’000
(17,460)
(108,365)
(49,534)
-
(175,359)
2018
Assets
EGP’000
-
-
-
2,619
2,619
2018
EGP’000
717,357
161,405
9,466
-1,154
1,823
28,348
14,314
-
6,242
220,444
Liabilities
EGP’000
(20,562)
(106,125)
(44,293)
-
(170,980)
-
(174,000)
-
(168,361)
2019 |
ANNUAL REPORT
117
The difference between net deferred tax balances recorded on the income statement is as follows:
2019
Property, plant and
equipment
Intangible assets
Undistributed dividend
from group subsidiaries
Provisions and finance
lease liabilities
Net Balance 1
January
Deferred tax
recognised in
profit or loss
(20,562)
(106,125)
(44,293)
3,102
(2,240)
(32,822)
2,619
(1,259)
Deferred
tax effect of
current tax
recognised in
profit and loss
on dividend
payment
-
-
27,581
-
(168,361)
(33,219)
27,581
Acquired
in business
combinations
Net Balance 31
December
-
-
-
-
-
(17,460)
(108,365)
(49,534)
1,360
(173,999)
Net balance at
1 January
Deferred tax
recognised in
profit or loss
Deferred
tax effect of
current tax
recognised in
profit and loss
on dividend
payment
Acquired
in business
combinations
Net balance 31
December
(17,159)
(106,651)
(37,532)
(3,403)
7,795
(28,348)
2,630
(11)
-
-
21,587
-
-
(20,562)
(7,269)
(106,125)
-
-
(44,293)
2,619
(158,712)
(23,967)
21,587
(7,269)
(168,361)
2018
Property, plant and
equipment
Intangible assets
Undistributed dividend
from group subsidiaries
Provisions and finance
lease liabilities
All movements in the deferred tax asset/liability in the year have been recognised in the profit or loss account.
Deferred tax liabilities and assets have been calculated based on the enacted tax rate at 31 December 2018 for the
country the liabilities and assets has arisen. The enacted tax rate in Egypt is 22.5% (2018: 22.5%), Jordan 21% (2018:
20%), Sudan 30% (2018: 15%) and Nigeria 30% (2018: 30%).
* Undistributed reserves from group subsidiaries
118
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
The Group’s dividend policy is to distribute any excess cash after taking into consideration all business cash require-
ments and potential acquisition considerations. The expectation is to distribute profits held within subsidiaries of the
Group in the near foreseeable future. During 2015 the Egyptian Government imposed a tax on dividends at a rate of
5% of dividends distributed from Egyptian entities. As a result a deferred tax liability has been recorded for the future
tax expected to be incurred from undistributed reserves held within the Group which will be taxed under the new
legislation imposed and were as follows:
Al Mokhtabar Company for Medical Labs
Alborg Laboratory Company
Integrated Medical Analysis Company
Molecular Diagnostic Center
Medical Genetics Center
Al Makhbariyoun Al Arab Group
2019
EGP’000
22,524
12,343
8,987
434
44
5,202
49,534
2018
EGP’000
19,694
12,216
7,997
383
58
3,947
44,295
Unrecognized deferred tax assets
The following deferred tax assets were not recognized due to the uncertainty that those items will have a future tax
benefit as the tax law does not recognize the balance of provisions except when it is used only. No deferred tax asset has
been recognised on tax losses due to uncertainty that future taxable profit will be available against which the Group
can use the benefits therefrom:
2019
Gross Amount
EGP'000
36,012
8,516
5,082
57,633
107,243
28,452
Impairment of trade
receivables (Note 16)
Impairment of other
receivables (Note 16)
Provision for legal
claims (Note 22)
Tax losses
Unrecognized
deferred tax asset
2019
Tax Effect
EGP'000
8,103
1,916
1,143
17,290
28,452
2018
Gross Amount
EGP'000
29,295
8,516
2,828
-
40,639
9,144
2018
Tax Effect
EGP'000
6,591
1,916
636
-
9,143
2019 |
ANNUAL REPORT
119
Earnings per share (EPS)
9.
Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year. There are no dilutive effects from ordinary
share and no adjustment required to weighted-average numbers of ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS computation:
Profit attributable to ordinary equity holders of the parent for basic
earnings
Weighted average number of ordinary shares for basic and dilutive EPS
Basic and dilutive earnings per share (expressed in EGP)
There is no dilutive effect from equity.
2019
EGP’000
510,931
150,000
3.41
2018
EGP’000
502,092
150,000
3.35
120
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
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2019 |
ANNUAL REPORT
121
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11.
Intangible assets
Brand Name
EGP’000
Software
EGP’000
Goodwill
EGP’000
1,260,453
15,077
(4,534)
1,270,996
(6,910)
1,264,086
1,849
-
-
1,849
-
-
1,849
Cost
At 1 January 2018
Additions
Effect of movements
in exchange rates
At 31 December 2018
Additions (note 6)
Effect of movements
in exchange rates
At 31 December 2019
Amortisation and
impairment
At 1 January 2018
Amortisation
Effect of movements
in exchange rates
At 31 December 2018
Amortisation
Effect of movements
in exchange rates
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
387,287
-
(530)
386,757
(2,343)
384,414
-
-
-
-
-
-
-
1,262,237
1,269,147
384,414
386,757
Total
EGP’000
1,692,309
25,659
(5,045)
1,712,923
4,688
(9,553)
1,708,058
34,057
6,398
5
40,460
6,862
(100)
47,222
1,660,836
1,672,463
44,569
10,582
19
55,170
4,688
(300)
59,558
32,208
6,398
5
38,611
6,862
(100)
45,373
14,185
16,559
122
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
12. Goodwill and intangible assets with indefinite lives (note 2.2-i)
Goodwill acquired through business combinations and intangible assets with indefinite lives are allocated to the
Group’s CGUs as follows:
Medical Genetics Center
Goodwill
Al Makhbariyoun Al Arab Group (“Biolab”)
Goodwill
Brand name
Golden Care for Medical Services (“Ultralab”)
Goodwill
Brand name
Alborg Laboratory Company (“Al-Borg”)
Goodwill
Brand name
Al Mokhtabar Company for Medical Labs (“Al-Mokhtabar”)
Goodwill
Brand name
Echo-Scan
Goodwill
Balance at 31 December
2019
EGP’000
2018
EGP’000
1,755
1,755
47,096
20,567
67,663
3,353
462
3,815
497,275
142,066
639,341
699,102
221,319
920,421
13,656
13,656
1,646,651
1,755
1,755
52,403
22,885
75,288
3,535
487
4,022
497,275
142,066
639,341
699,102
221,319
920,421
15,077
15,077
1,655,904
The Group performed its annual impairment test in October 2019. Nothing occurred between the impairment test
and the balance sheet date that would require the assumptions in the models to be updated. The Group considers the
relationship between its market capitalisation and its book value, among other factors, when reviewing for indicators
of impairment.
Management have considered the current effects of Corona virus and believe it represents a non-adjusting post balance
sheet event with respect to the impairment testing carried out in October 2019. The impairment calculations were
prepared for the purposes of the balance at the balance sheet date 31/12/2019. At this point in time there were no
indications of impact of COVID-19 and at that point in time the number of cases were few therefore it has been deemed
to be a non-adjusting event. However, the impact of corona virus on the business could have a resulting impact on the
headroom and need for impairment in the models should it significantly impact the business for an extended period of
time. It is currently too early to determine the full impact that the virus may have on the individual CGU’s.
Key assumptions used in value in use calculations and sensitivity to changes in assumptions
IDH instructed FinCorp Investment Holding (referred to hereafter as “Fincorp”) an independent financial advisor, to
prepare an independent impairment assessment of the Group’s CGUs. The assessment was carried out based on busi-
ness plans provided by IDH.
2019 |
ANNUAL REPORT
123
These plans have been prepared based on criteria set out below:
Average annual patient
growth rate from 2020 -2024
Average annual price per test
growth rate from 2020 -2024
Annual revenue growth rate
from 2020 -2024
Average gross margin from
2020 -2024
Terminal value growth rate
from 1 January 2025
Discount rate
Average annual patient
growth rate from 2019 -2023
Average annual price per test
growth rate from 2019 -2023
Annual revenue growth rate
from 2019 -2023
Average gross margin from
2019 -2023
Terminal value growth rate
from 1 January 2024
Discount rate
Ultra Lab
Bio Lab Al-Mokhtabar
Al-Borg
Echo-Scan
Year 2019
8%
4%
14%
36%
2%
5%
0%
5%
40%
2%
4%
8%
12%
52%
3%
4%
9%
13%
47%
3%
25%
13%
51%
46%
2%
27.20%
14.70%
16.60%
16.20%
22.20%
Ultra Lab
Bio Lab Al-Mokhtabar
Al-Borg
Echo-Scan
Year 2018
8%
11%
18%
42%
2%
5%
0%
5%
35%
2%
4%
11%
15%
51%
3%
3%
11%
19%
45%
3%
20%
9%
46%
54%
2%
28.60%
15.10%
19.30%
19.30%
23.70%
During year 2019, The management has conducted business plan projection with the help of an independent advisor
(Fincorp), using the key assumptions above to be able to calculate the net present value of the asset in use and deter-
mine the recoverable amount. The projected cash flows from 2020- 2024 have been based on detailed forecasts prepared
by management for each CGU and a terminal value thereafter. Management have used experience and historic trends
achieved in order to determine the key growth rate and margin assumptions set out above. The terminal value growth
rate applied is not considered to exceed the average growth rate for the industry and geographic locations of the CGUs.
Management also considered a change in the discount rates of 1-3%, increasing those rates to reflect additional risk
that could reasonably be foreseen in the marketplaces in which the Group operates. This did not result in an impair-
ment under any of these scenarios.
This recoverable amount is then compared to the carrying value of the asset as recorded in the books and records of
IDH plc. The WACC has been used considering the risks of each CGU.
These risks include country risk, currency risk as well as the beta factor relating to the CGU and how it performs relative
to the market.
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Financial Statements // Notes to the Consolidated Financial Statements
Moreover, the only CGU where a reasonably possible change in a key assumption which could cause the carrying
amount to exceed its recoverable amount is Echo Scan. The estimated recoverable amount of Echo Scan exceeded its
carrying amount by EGP 90 million. Management has identified that if the average annual revenue growth rate from
2020-2024 fell by 10.8% (a 25% fall of all revenues in the model) this would cause the recoverable amount to equal the
carrying amount. Management is satisfied that the sensitivity analysis doesn’t give rise to an impairment risk.
The conclusions from the impairment review were that there was headroom within the forecasts and therefore no
impairment is required.
13. Other investments
Equity investments*
Balance at 31 December
2019
EGP'000
6,391
6,391
2018
EGP'000
-
-
* Al Makhbaryoun Al Arab LLC (Biolab) received shares representing an 8.025% interest in JSC Mega-Lab in an agreement signed on 8 April 2019.
The shares represent payment for the purchase of IT technology (LIMS) from Biolab in relation to an agreement with EVEX Medical Corporation
to establish the biggest laboratory among the West Asia countries located in Tbilisi. This 4000-square-meters diagnostic medical laboratory will
connect more than 40 hospitals, and diagnostic centers that are part of EVEX group, utilizing the advanced technological systems that Biolab created
in Jordan. EVEX Medical Corporation is the largest chain of hospitals in Georgia, currently represented with 78 clinics in 6 regions of Georgia.
The agreement is based on two elements:
1. Implementation of the technological platforms and biolab LIMS at Evex labs.
2. Taking the Mega Lab through the journey of Joint Commission International accreditation (JCI), within two
years from the expected launch date of the central laboratory.
14.
The fair values of all financial assets and financial liabilities by class shown in the balance sheet are as follows:
Financial assets and financial liabilities
Cash and cash equivalent
Short term deposits - treasury bills
Trade and other receivables (Note 16)
Total financial assets
Trade and other payables
Put option liability
Lease liabilities
Loans and borrowings
Total other financial liabilities
Total financial instruments
2019
EGP'000
408,892
221,617
289,833
920,342
2019
EGP'000
315,054
229,164
338,073
111,750
994,040
(73,698)
2018
EGP'00
412,607
239,905
264,037
916,549
2018
EGP'00
281,183
145,275
90,581
133,039
650,078
266,471
The fair values measurements for all the Group companies has been categorized as Level 2, except Echo-Scan which
has been categorized as level 3.
2019 |
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125
Makhbariyoun Al Arab put option (note 24) has been categorized as Level 2.
Echo-Scan put option (note 26) has been categorized as Level 2.
Financial instruments risk management objectives and policies
The Group’s principal financial liabilities are trade and other payables, put option liability and finance lease liabilities.
The Group’s principal financial assets include trade and other receivables, and cash and short-term deposits that derive
directly from its operations.
The Group is exposed to market risk, credit risk and liquidity risk. The Group’s overall risk management program
focuses on the unpredictability of markets and seeks to minimize potential adverse effects on the Group’s financial
performance. The Group’s senior management oversees the management of these risks. The Board of Directors reviews
and agrees policies for managing each of these risks, which are summarised below.
The board provides written principles for overall risk management, as well as written policies covering specific areas,
such as foreign exchange risk, interest rate risk, and credit risk, use of derivative financial instruments and non-deriva-
tive financial instruments, and investment of excess liquidity.
• Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as
equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings and
deposits. The sensitivity analyses in the following sections relate to the position as at 31 December in 2019 and 2018. The
sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest
rates of the debt and the proportion of financial instruments in foreign currencies are all constant.
The analyses exclude the impact of movements in market variables on: the carrying values of pension and other post-
retirement obligations; provisions; and the non-financial assets and liabilities of foreign operations. The following as-
sumptions have been made in calculating the sensitivity analyses:
• The sensitivity of the relevant statement of profit or loss item is the effect of the assumed changes in respective
market risks. This is based on the financial assets and financial liabilities held at 31 December 2019 and 2018.
• The sensitivity of equity is calculated by considering the effect of any associated cash flow hedges and hedges
of a net investment in a foreign subsidiary at 31 December 2019 for the effects of the assumed changes of the
underlying risk.
Interest rate risk
•
The Group is trying to minimize its interest rate exposure, especially in Egypt region, characterized by decreasing inter-
est rate environment. This is achieved partially by entering into fixed-rate instrument and partly by borrowing at the
floating rate.
Exposure to interest rate risk
The interest rate profile of the Group’s interest-bearing financial instruments as reported to the management of the
group is as follow:
Fixed-rate instruments
Lease liabilities (note 27)
Variable-rate instruments
Loans and borrowings (note 25)
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ANNUAL REPORT | 2019
2019
EGP’000
338,073
106,721
2018
EGP’000
90,581
126,855
Financial Statements // Notes to the Consolidated Financial Statements
The Group does not account for any fixed-rate financial liabilities at FVTPL. Therefore, a change in interest rates at the
reporting date would not affect profit or loss.
Cash flow sensitivity analysis for variable-rate instruments
A reasonable possible change of 100 basis points in interest rates at the reporting date would have increased (decreased)
profit or loss by the amounts EGP 1,067K. This analysis assumes that all other variables, remain constant.
• Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes
in foreign exchange rates.
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the US Dollar, Sudanese Pound, the Jordanian Dinar and Nigerian Naira. Foreign exchange
risk arises from to the Group’s operating activities (when revenue or expense is denominated in a foreign currency), rec-
ognized assets and liabilities and net investments in foreign operations. However, the management aims to minimize
open positions in foreign currencies to the extent that is necessary to conduct its activities.
Management has set up a policy to require group companies to manage their foreign exchange risk against their func-
tional currency. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are
denominated in a currency that is not the entity’s functional currency.
At year end, major financial assets / (liabilities) denominated in foreign currencies were as follows (the amounts pre-
sented are shown in the foreign currencies in thousands):
Cash
and cash
equivalents
3,715
9
4
986
13,608
237,189
Cash
and cash
equivalents
7,012
32
4
601
7,299
US Dollars
Euros
GBP
JOD
SDG
NGN
US Dollars
Euros
GBP
JOD
SDG
Assets
Liabilities
31-Dec-19
Other
assets
397
-
-
2,224
10,150
164,878
Total
assets
4,112
9
4
3,210
23,758
402,067
Put
option
-
-
-
(8,850)
-
(680,298)
Finance
(4,049)
-
-
(3,252)
(15,559)
(179,290)
Total
Trade
liability
payables
(5,379)
(1,330)
(14)
(14)
-
-
(13,996)
(1,894)
(20,253)
(35,812)
(518,718) (1,378,306)
Net
exposure
(1,267)
(5)
4
(10,786)
(12,054)
(976,239)
Assets
Liabilities
31-Dec-18
Other
assets
336
-
-
1,882
18,741
Total
assets
7,348
32
4
2,483
26,040
Put
option
-
-
-
(5,259)
-
Finance
(4,559)
-
-
(141)
-
Trade
payables
(2,405)
(31)
-
(1,259)
(14,754)
Total
liability
(6,964)
(31)
-
(6,659)
(14,754)
Net
exposure
384
1
4
(4,176)
11,286
2019 |
ANNUAL REPORT
127
The following is the exchange rates applied:
US Dollars
Euros
GBP
JOD
SAR
SDG
NGN
US Dollars
Euros
GBP
JOD
SAR
SDG
NGN
Average rate for the year ended
31-Dec-19
16.68
18.68
21.35
23.49
4.47
0.36
0.05
31-Dec-18
17.71
20.83
23.51
24.96
4.68
0.57
0.06
Spot rate for the year ended
31-Dec-19
31-Dec-18
15.98
17.94
21.09
22.50
4.26
0.35
0.04
17.78
20.31
22.55
25.04
4.76
0.37
0.06
At 31 December 2019, if the Egyptian Pounds had weakened / strengthened by 10% against the US Dollar with all other
variables held constant, pre-tax profit for the year would have increased / decreased by EGP (1.2m) (2018: EGP 0.7m),
mainly as a result of foreign exchange gains/losses on translation of US dollar-denominated financial assets and liabilities.
At 31 December 2019, if the Egyptian Pounds had weakened / strengthened by 10% against the Jordanian Dinar with all other
variables held constant, pre-tax profit for the year would have been increased / decreased by EGP 37m (2018: EGP (10.5m)),
mainly as a result of foreign exchange gains/losses on translation of JOD - denominated financial assets and liabilities.
At 31 December 2019, if the Egyptian Pounds had weakened / strengthened by 10% against the Sudanese Pound with all other
variables held constant, pre-tax profit for the year would have been increased / decreased by EGP 2.6m (2018: EGP 0.4m),
mainly as a result of foreign exchange gains/losses on translation of SDG -denominated financial assets and liabilities.
At 31 December 2019, if the Egyptian Pounds had weakened / strengthened by 10% against the Nigeria Naira with all
other variables held constant, pre-tax profit for the year would have been increased / decreased by EGP 8m (2018:
(0.8m)), mainly as a result of foreign exchange gains/losses on translation of SDG -denominated financial assets and
liabilities.
• Price risk
The group does not have investments in equity securities or bonds and accordingly is not exposed to price risk related
to the change in the fair value of the investments.
128
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
• Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer
contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade
receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange
transactions and other financial instruments.
Credit risk is managed on a group basis, except for credit risk relating to accounts receivable balances. Each local
entity is responsible for managing and analysing the credit risk for each of their new clients before standard payment
and delivery terms and conditions are offered. Credit risk arises from cash and cash equivalents, derivative financial
instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including
outstanding receivables and committed transactions.
For banks and financial institutions, the Group is only dealing with the banks which have a high independent rating
and a good reputation.
Trade receivables
Each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk
management manages customer credit risk. Credit quality of a customer is assessed based on an individual credit limits
are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and the
average general credit terms given to contract customers are 45 days.
An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a
large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively.
The calculation is based on actual incurred historical data and expected future credit losses. The Group does not hold
collateral as security.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets dis-
closed in Note 16.
Cash and cash equivalents
Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in ac-
cordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within
credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of Directors
on an annual basis and may be updated throughout the year subject to approval of the Group’s management. The limits
are set to minimise the concentration of risks and therefore mitigate financial loss through a counterparty’s potential
failure to make payments.
The maximum exposure to credit risk at the reporting date is the carrying value of cash and cash equivalents disclosed
in Note 17.
2019 |
ANNUAL REPORT
129
• Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of finance
leases and loans.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted
payments:
Year ended 31 December 2019
Lease liabilities
Put option liability
Loans and borrowings
Trade and other payables
Year ended 31 December 2018
Lease liabilities
Put option liability
Loans and borrowings
Trade and other payables
1 year or less
117,712
199,141
38,580
315,054
670,487
1 year or less
35,805
131,671
45,612
281,183
494,271
1 to 5 years
368,832
-
85,726
-
454,558
1 to 5 years
95,242
-
113,756
-
208,998
more than 5
years
87,558
41,732
23,834
-
153,124
more than 5
years
-
16,707
38,495
-
55,202
Total
574,102
240,873
148,140
315,054
1,278,169
Total
131,047
148,378
197,863
281,183
758,471
Cash flow forecasting is performed in the operating entities of the group and aggregated by group finance. Group finance
monitors rolling forecasts of the group’s liquidity requirements to ensure it has sufficient cash to meet operational
needs. Such forecasting takes into consideration the group’s compliance with internal financial position ratio targets
and, if applicable external regulatory or legal requirements – for example, currency restrictions.
The group’s management retain cash balances in order to allow repayment of obligations in due dates, without taking
into account any unusual effects which it cannot be predicted such as natural disasters. All suppliers and creditors will
be repaid over a period not less 30 days from the date of the invoice or the date of the commitment.
15.
Inventories
Chemicals and operating supplies
2019
EGP’000
84,339
84,339
2018
EGP’000
91,079
91,079
During 2019, EGP 391,574k (2018: EGP 353,789k) was recognised as an expense for inventories, this was recognised in
cost of sales.
130
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
16.
Trade and other receivables
Trade receivables
Prepaid expenses
Receivables due from related parties
Other receivables
Accrued revenue
2019
EGP’000
260,746
32,972
6,191
21,969
927
322,805
2018
EGP’000
220,396
35,954
6,588
31,584
5,469
299,991
For terms and conditions relating to related party receivables, refer to Note 28.
As at 31 December 2019, the expected credit loss related to trade and other receivables was EGP 44,528k (2018: EGP
37,811k). Below show the movements in the provision for impairment of trade and other receivables:
At 1 January
Charge for the year
Utilised
Unused amounts reversed
Exchange differences
At 31 December
2019
EGP'000
37,811
8,647
(493)
(1,155)
(282)
44,528
2018
EGP'000
29,852
9,635
(240)
(1,056)
(380)
37,811
No debts have met the group’s definition of default
The Group allocates each exposure to a credit risk grade based on data that is determined to be predictive of the risk
of loss (historical customer’s collection, Customers' contracts conditions) and applying experienced credit judgement.
Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default.
Expected credit loss assessment is based on the following:
1. The customer list was divided into 9 sectors
2. Each sector was divided according to customers aging
3. Each sector was studied according to the historical events of each sector. According to the study conducted, the
expected default rate was derived from each of the aforementioned period.
4. General economic conditions
Based on the expected credit loss assessment, additional provision was calculated for each period, yielding an ad-
ditional Expected Credit Losses (ECL) for IDH Group amounting to EGP 8.6 million. On quarterly basis, IDH revises
its forward-looking estimates and the general economic conditions to assess the expected credit loss, which will be
mainly based on current and expected inflation rates. The results of the quarterly assessment will increase/decrease the
percentage allocated to each period.
A reasonable possible change of 100 basis points in the expected credit loss at the reporting date would have increased
(decreased) profit or loss by the amount of EGP 1,957K. This analysis assumes that all other variables remain constant.
2019 |
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131
The following table provides information about the exposure to credit risk and ECLs for trade receivables and contract
assets from individual customers as at:
31-Dec-19
Current (not past due)
1–30 days past due
31–60 days past due
61–90 days past due
91–120 days past due
121–150 days past due
More than 150 days past due
31-Dec-18
Current (not past due)
1–30 days past due
31–60 days past due
61–90 days past due
91–120 days past due
121–150 days past due
More than 150 days past due
Weighted
average loss rate
EGP'000
Gross carrying
amount
EGP'000
0.06%
0.15%
0.24%
8.14%
11.09%
12.97%
41.17%
89,066
55,915
38,601
16,544
9,594
8,716
78,308
Weighted
average loss rate
EGP'000
Gross carrying
amount
EGP'000
0.16%
0.20%
1.10%
3.53%
5.60%
6.06%
60.13%
108,322
41,808
28,176
12,537
6,531
6,552
45,765
Loss allowance
EGP'000
(56)
(81)
(94)
(1,347)
(1,064)
(1,131)
(32,239)
Loss allowance
EGP'000
(173)
(85)
(311)
(443)
(366)
(397)
(27,520)
As at 31 December, the ageing analysis of trade receivables is as follows:
2019
2018
Total
< 30 days
30-60 days
61-90 days
> 90 days
260,746
220,396
144,856
149,873
38,508
27,866
15,197
12,094
62,185
30,563
17.
Cash and cash equivalent
Cash at banks and on hand
Treasury bills
Short-term deposits
2019
93,471
194,302
121,119
408,892
2018
81,721
20,475
310,411
412,607
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits and treasury bills are
made for varying periods of between one day and three months, depending on the immediate cash requirements of the
Group, and earn interest at the respective short-term deposit average rate 10.10% and Treasury bills 15.17% per annum.
132
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
18. Restricted cash
Restricted cash
2019
EGP'000
247
247
2018
EGP'000
11,965
11,965
The cash balance related to “Molecular Diagnostic Center” is not available for use by the Group as a liquidator has been
appointed. During the year 2019 EGP 11,571K has been returned to IDH, the liquidation process was completed and
finalized on 19 January 2020.
19.
Other investments
Fixed term deposits
Treasury bills
2019
EGP'000
2018
EGP'000
-
221,617
221,617
145,000
94,905
239,905
The maturity date of the fixed term deposit and treasury bills between 9–12 months and the effective interest rate on
the treasury bills is 16.65% and nil (2018: 18.34% and 14.76%).
Share capital and reserves
20.
The Company’s ordinary share capital is $150,000,000 equivalent to EGP 1,072,500,000.
All shares are authorised and fully paid and have a par value of $1.
In issue at beginning of the year
In issue at the end of the year
Ordinary shares
Ordinary shares
31-Dec-19
150,000,000
150,000,000
31-Dec-18
150,000,000
150,000,000
Capital reserve
The capital reserve was created when the Group’s previous parent company, Integrated Diagnostics Holdings LLC –
IDH (Caymans) arranged its own acquisition by Integrated Diagnostics Holdings PLC, a new legal parent. The balances
arising represent the difference between the value of the equity structure of the previous and new parent companies.
Legal reserves
Legal reserve was formed based on the legal requirements of the Egyptian law governing the Egyptian subsidiaries.
According to the Egyptian subsidiaries’ article of association 5% (at least) of the annual net profit is set aside to from
a legal reserve. The transfer to legal reserve ceases once this reserve reaches 50% of the entity’s issued capital. If the
reserve falls below the defined level, then the entity is required to resume forming it by setting aside 5% of the annual
net profits until it reaches 50% of the issued share capital.
Put option reserve
Through acquisitions made within the Group, put option arrangements have been entered into to purchase the remain-
ing equity interests in subsidiaries from the vendors at a subsequent date. At acquisition date an initial put option
liability is recognised and a corresponding entry recognised within the put option reserve. After initial recognition
the accounting policy for put options is to recognise all changes in the carrying value of the liability within put option
reserve. When the put option is exercised by the vendors the amount recognised within the reserve will be reversed.
2019 |
ANNUAL REPORT
133
Translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the finan-
cial statements of foreign subsidiaries.
21. Distributions made and proposed
Cash dividends on ordinary shares declared and paid:
US$ 0.18 per qualifying ordinary share (2018: US$ 0.16)
2019
EGP'000
442,116
442,116
2018
EGP'000
423,560
423,560
The dividend on ordinary shares are subject to approval at the annual general meeting.
22. Provision
At 1 January 2019
Provision made during the year
Provision used during the year
Provision reversed during the year*
At 31 December 2019
Current
Non- Current
At 1 January 2018
Provision made during the year
Provision used during the year
Provision reversed during the year
At 31 December 2018
Current
Non- Current
Egyptian
Government
Training Fund for
employees
EGP’000
12,014
-
-
(11,823)
191
Provision for
legal claims
EGP’000
2,828
3,521
(1,267)
5,082
Total
EGP’000
14,842
3,521
(1,267)
(11,823)
5,273
191
5,082
5,273
Egyptian
Government
Training Fund for
employees
EGP’000
-
-
-
12,014
Provision for
legal claims
EGP’000
793
(234)
(416)
2,828
Total
EGP’000
793
(234)
(416)
14,842
12,014
2,828
14,842
* During 2019 management reversed provisions for the employee’ training fund balance EGP 11.8m as it is no longer required. See Contingent Li-
abilities in Note 25.
134
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Legal claims provision
The amount comprises the gross provision in respect of legal claims brought against the Group. Management’s opinion,
after taking appropriate legal advice, is that the outcome of these legal claims will not give rise to any significant loss
beyond the amounts provided as at 31 December 2019.
23.
Trade and other payables
Trade payables
Accrued expenses
Other payables
Accrued interest
24. Short-term financial obligations
Put option liability
Finance lease liabilities
2019
EGP’000
145,195
129,357
40,502
5,029
320,083
2019
EGP’000
199,141
61,712
260,853
2018
EGP’000
157,891
95,497
27,795
6,184
287,367
2018
EGP’000
131,671
24,994
156,665
The accounting policy for put options after initial recognition is to recognise all changes in the carrying value of the put
liability within equity.
Through the historic acquisitions of Makhbariyoun Al Arab the Group entered into separate put option arrangements
to purchase the remaining equity interests from the vendors at a subsequent date. At acquisition a put option liability
has been recognised for the net present value for the exercise price of the option.
The options are exercisable in whole from the fifth anniversary of completion of the original purchase agreement, which
fell due in June 2016. The vendor has not exercised this right at 31 December 2019
Loan and borrowings
25.
A)
In April 2017 AL-Mokhtabar for medical lab, one of IDH subsidiaries, was granted a medium term loan amount-
ing to EGP 110m from Commercial international bank “CIB Egypt” to finance the purchase of the new administrative
building for the group. As at 31 December 2019 only EGP 110m had been drawn down from the total facility available.
The loan contains the following financial covenants which if breached will mean the loan is repayable on demand:
1. The financial leverage shall not exceed the following percentages
Year
%
2017
2.33
2018
1.71
2019
2.31
2020
1.95
2021
1.64
2022
1.47
“Financial leverage”: total liabilities divided by net equity
2019 |
ANNUAL REPORT
135
2. The debt service ratios (DSR) shall not be less than 1.
“Debt service ratios”: cash operating profit after tax plus Depreciation for the financial year less annual maintenance on
machinery and equipment divided by total distributions plus accrued interest and loan instalments.
3. The current ratios shall not be less than 1.
“Current ratios”: Current assets divided current liabilities.
4.
The capital expansions in AL Mokhtabar company shall not exceed EGP 50m per year, other than year 2017
which includes in addition the value of the building financed by EGP 110m loan facility. This condition is valid through-
out the term of the loan.
The agreement includes other non-financial covenants which relate to the impact of material events on the Company
and the consequential ability to repay the loan.
B)
In July 2018, AL-Borg lab, one of IDH subsidiaries, was granted a medium term loan amounting to EGP 130.5m
from Ahli united bank “AUB Egypt” to finance the investment cost related to the expansion into the radiology segment.
As at 31 December 2019 only EGP 43m had been drawn down from the total facility available. The loan contains the
following financial covenants which if breached will mean the loan is repayable on demand:
1. The financial leverage shall not exceed 0.7 throughout the period of the loan
“Financial leverage”: total bank debt divided by net equity
2. The debt service ratios (DSR) shall not be less than 1.35 starting 2019
“Debt service ratio”: cash operating profit after tax plus depreciation for the financial year less annual maintenance on
machinery and equipment adding cash balance divided by total financial payments.
“Cash operating profit”: Operating profit after tax, interest expense, depreciation and amortization, is calculated as
follows: Net income after tax and unusual items adding Interest expense, Depreciation, Amortisation and provisions
excluding tax related provisions less interest income and Investment income and gains from extraordinary items
“Financial payments”: current portion of long-term debt including finance lease payments, interest expense and fees
and dividends distributions.
3. The current ratios shall not be less than 1.
“Current ratios”: Current assets divided current liabilities.
The terms and conditions of outstanding loans are as follows:
CIB - BANK
AUB - BANK
Amount held as:
Current liability
Non- current
liability
Currency
EGP
EGP
Nominal
interest rate
CBE corridor
rate*+1%
CBE corridor
rate*+1%
Maturity
31 Dec 19
31 Dec 18
Apr-22
64,070
89,486
Apr-26
42,651
37,369
106,721
126,855
25,416
25,416
81,305
101,439
106,721
126,855
*As at 31 December 2019 corridor rate 13.25% (2018: 17.75%)
136
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Contingent liabilities
As required by article 134 of the labour law on Vocational Guidance and Training issued by the Egyptian Government in
2003, Al Borg Laboratory Company and Al Mokhtabar Company for Medical Labs are required to conform to the require-
ments set out by that law to provide 1% of net profits each year into a training fund. During the year, Integrated Diagnos-
tics Holdings plc have taken legal advice and considered market practice in Egypt relating to this and more specifically
whether the vocational training courses undertaken by Al Borg Laboratory Company and Al Mokhtabar Company for
Medical Labs suggest that obligations have been satisfied through training programmes undertaken in-house by those
entities. Since the issue of the law on Vocational Guidance and Training, Al Borg Laboratory Company and Al Mokhtabar
Company for Medical Labs have not been requested by the government to pay or have voluntarily paid any amounts into
the external training fund. The board of Integrated Diagnostics Holdings plc have concluded that an outflow of funds is
not probable and therefore a brought forward provision of EGP 11.8m has been released to the income statement. Should
a claim be brought against Al Borg Laboratory Company and Al Mokhtabar Company for Medical Labs, an amount of
between EGP 16.0m to EGP 34.3m could become payable, however this is not considered probable.
Accounting policies
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. Provisions are discounted using a current pre-tax rate if
the time value of money is significant.
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.
26.
Long-term financial obligations
Lease liabilities building (see note 27)
Lease liabilities Medical equipment (see note 27)
Put option liability*
2019
EGP’000
232,075
44,287
30,022
306,384
2018
EGP’000
-
65,587
13,604
79,191
*According to definitive agreements signed on 15 January 2018 between Dynasty Group Holdings Limited and Interna-
tional Finance Corporation (IFC) related to the Eagle Eye-Echo scan transaction, IFC has the option to put it is shares
to Dynasty in year 2024. The put option price will be calculated on the basis of the fair market value determined by an
independent valuer (one of the big four accounting firms).
According to the International Private Equity and Venture Capital Valuation Guidelines, there are multiple ways to calculate
the put option including Discounted Cash Flow, Multiples, Net assets. Multiple valuation was applied and EGP 30.0 million
was calculated as the valuation as at 31 December 2019 (2018; EGP 13.6m). In line with IAS 32 the entity has recognised a
liability for the present value of the exercise price of the option price. The ramp-up of Echo-Scan operations driven by the
new radiology equipment installed during Q4 2019 in Lago and Abuja will bolster the Company’s top line figure significantly
starting 2020 and the following years yielding a Compounded Annual Growth Rate of 49% from 2019 to 2024.
2019 |
ANNUAL REPORT
137
Leases as lessee (IFRS 16)
27.
The Group leases property and equipment. Property leases include branches, warehouse, parking and administration
buildings. The leases typically run for average period from 5-10 years, with an option to renew the lease after that date.
Lease payments are renegotiated with renovation after the end of the lease term to reflect market rentals. For certain
leases, the Group is restricted from entering into any sub-lease arrangements. The property leases were entered into as
combined leases of land and buildings and were previously, classified as operating leases under IAS 17.
The Group entered into 2 significant agreements during the year ended 31 December 2015 to service the Group’s state-
of-the-art Mega Lab. The agreement periods are 5 and 8 years which is deemed to reflect the useful life of the equip-
ment. If the minimum annual commitment payments are met over the agreement period ownership of the equipment
supplied will legally transfer to the IDH. The finance asset and liability has been recognised at an amount equal to the
fair value of the underlying equipment. This is based on the current cost price of the equipment supplied provided by
the suppliers of the agreement. The implicit interest rate of both finance leases has been estimated to be 11.5%. The
equipment is being depreciated based on units of production method as this most closely reflects the consumption of
the benefits from the equipment. Both agreements have been judged to be US$ denominated due to the future mini-
mum lease payments for the use of the equipment and corresponding finance lease liability being directly connected
to the US$. These contracts leases were previously identified as finance leases under IAS 17, with the assets held within
property planet and equipment (see note 10).
Information about leases for which the Group is lessee is presented below.
a)
2019
Balance at 1 January
Addition for the year
Depreciation charge for the year
Balance at 31 December
Right-of-use
assets
Buildings
EGP'000
213,870
98,609
(47,716)
264,763
b) Leases liabilities
Future minimum lease payments under leases and hire purchase contracts, together with the present value of the net
minimum lease payments are, as follows:
*Lease liability – laboratory equipment
*Lease liabilities building
Lease liability – other
2019
EGP’000
67,690
269,401
982
338,073
2018
EGP’000
88,279
-
2,302
90,581
138
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
*The lease liabilities for the laboratory equipment and building are payable as follows:
Minimum lease
payments
2019
EGP’000
106,436
381,378
87,972
575,786
Minimum lease
payments
2018
EGP’000
34,128
94,617
-
128,745
Interest
2019
EGP’000
45,706
169,803
23,186
238,695
Interest
2018
EGP’000
10,810
29,656
-
40,466
At 31 December 2019
Less than one year
Between one and five years
More than 5 years
Less than one year
Between one and five years
More than 5 years
c) Amounts recognised in profit or loss
Interest on lease liabilities
Expenses related to short-term lease
2018 - Operating leases under IAS 17
Leases expenses
Principal
2019
EGP’000
60,730
211,575
64,786
337,091
Principal
2018
EGP’000
23,318
64,961
-
88,279
2019
EGP'000
41,491
4,154
2018
EGP'000
67,197
2019 |
ANNUAL REPORT
139
28. Related party transactions disclosures
The significant transactions with related parties, their nature volumes and balance during the period 31 December 2019
and 2018 are as follows:
Related Party
Nature of
transaction
Nature of
relationship
31-Dec-19
Transaction
amount of the
year
EGP’000
Amount (due to
Related Party)/
due from Related
Party
EGP’000
Affiliate**
14
344
Affiliate**
(584)
5,216***
Life Scan (S.A.E)*
International Fertility
(IVF)**
Expenses paid on
behalf of related
party by the group
Equipment bought
from Related Party
H.C Security
Provide service
Integrated Treatment
for Kidney Diseases
(S.A.E)
Total
Rental income
Medical Test
analysis
Entity owned by
Company’s board
member
Entity owned by
Company’s CEO
268
(78)
344
631
377
6,113
31-Dec-18
Transaction
amount of the
year
EGP’000
Amount (due to
Related Party)/
due from Related
Party
EGP’000
Related Party
Nature of
transaction
Nature of
relationship
Life Scan (S.A.E)*
International Fertility
(IVF)**
Expenses paid on
behalf of related
party by the group
Equipment bought
from Related Party
H.C Security
Provide service
Integrated Treatment
for Kidney Diseases
(S.A.E)
Total
Rental income
Medical Test
analysis
Affiliate**
52
330
Affiliate**
(200)
5,800***
Entity owned by
Company’s board
member
Entity owned by
Company’s CEO
261
(91)
320
458
145
6,497
* Life Scan is a company whose shareholders include Dr. Moamena Kamel ( founder of IDH subsidiary Al-Mokhtabar Labs).
** International Fertility (IVF) is a company whose shareholders include Dr. Moamena Kamel ( founder of IDH subsidiary Al-Mokhtabar Labs).
*** The group made a loan to International Fertility (IVF) of EGP 5 million which may provide future business opportunities for the company and is
expected to be repaid in 2020.
140
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
Terms and conditions of transactions with related parties
The transactions with the related parties are not related to trading activities. However, they are related to expenses that
have been paid on behalf of those related companies. Outstanding balances at the year-end are unsecured and interest
free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables
or payables. For the year ended 31 December 2019, the Group has not recorded any impairment of receivables relating
to amounts owed by related parties (2018: nil). This assessment is undertaken each financial year through examining
the financial position of the related party and the market in which the related party operates.
IDH commits up to 1% of the net after-tax profit of the subsidiaries Al Borg and Al Mokhtabar to the Moamena Kamel
Foundation for Training and Skill Development. Established in 2006 by Dr. Moamena Kamel, a Professor of Pathology
at Cairo University and founder of IDH subsidiary Al-Mokhtabar Labs and mother to the CEO Dr. Hend El Sherbini. The
Foundation allocates this sum to organisations and groups in need of assistance. The foundation deploys an integrated
program and vision for the communities it helps that include economic, social, and healthcare development initiatives.
In 2019 EGP 5,259K (2018: EGP 3,733K) was paid to the foundation by the IDH Group.
Compensation of key management personnel of the Group
The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to
key management personnel.
Short-term employee benefits
Total compensation paid to key management personnel
2019
EGP’000
43,088
43,088
2018
EGP’000
36,662
36,662
2019 |
ANNUAL REPORT
141
29. Reconciliation of movements of liabilities to cash flows arising
from financing activities
Other loans and
borrowings
133,039
5,283
(25,416)
-
(21,165)
(41,298)
-
-
-
20,009
20,009
111,750
Other loans and
borrowings
60,763
94,369
(20,514)
-
73,855
13,544
2,359
(17,482)
(1,579)
133,039
Lease liabilities
90,581
-
(64,451)
(42,027)
(106,478)
-
213,870
98,609
41,491
353,970
338,073
Lease liabilities
117,714
-
-
(27,668)
(27,668)
-
9,182
(8,647)
535
90,581
EGP'000
Balance at 1 January 2019
Proceeds from loans and borrowings
Repayment of borrowings
Payment of finance lease liabilities
Interest paid
Total changes from financing cash flows
Capitalised borrowing costs
Implementation of IFRS 16
New leases signed in the period
Interest expense
Total liability-related other changes
Balance at 31 December 2019
EGP'000
Balance at 1 January 2018
Proceeds from loans and borrowings
Repayment of borrowings
Payment of finance lease liabilities
Total changes from financing cash flows
Capitalised borrowing costs
Interest expense
Interest paid
Total liability-related other changes
Balance at 31 December 2018
142
ANNUAL REPORT | 2019
Financial Statements // Notes to the Consolidated Financial Statements
30. Post balance sheet events
As a result of the COVID-19 pandemic, the Group has conducted an assessment of the potential financial and opera-
tional risks to the business. The Group has a duty of care towards all employees, and therefore we expect some of our
staff to be required to self-isolate and a lower level of branch visits to take place than anticipated for a limited period of
time. The Group has increased house visits by phlebotomists to encourage patients to stay at home.
The Group has experienced branch closures in both Jordan and Sudan* and reduced operating hours** across its geo-
graphical markets, which has impacted revenue in March and April 2020. If the situation continues or worsens further,
revenue, supply chain and operation are expected to be impacted. However, the Group has secured an ample level of
inventory to mitigate the risk; Currently, raw material and other supplies stock is sufficient to cover until September
2020.
* As of April 23, 2020, 17 branches have been closed in Jordan due to the complete lockdown, while the remaining two branches are open with a special
permit from the authority. One of the two branches is located inside a hospital and the other test COVID-19. In Sudan, 17 branches have closed due
to the lockdown of Khartoum city.
**As of April 23, 2020, the operating hours per geography are as follows:
• Egypt: from 8 am to 11 pm Two Shifts to 8 am to 7 pm Two Shift
•
Jordan: from 8 am to 7 pm Two shifts to 24h for the branch in the hospital, and 8 am to 6 pm for the second, only
to test COVID-19
• Nigeria: from 8 am to 6 pm Two shifts to 9 am to 5 pm One shift.
• Sudan: from 8 to 6 pm Two Shifts to 7.30 to 12.30 pm for three branches and the fourth branch from 8 to 5 pm.
2019 |
ANNUAL REPORT
143
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