Int Diag Hld Regulatory News (IDHC)

Integrated Diagnostics Holdings Plc

Final Results

Wednesday, 21 March 2018

Integrated Diagnostics Holdings Plc Results for the year ended 31 December 2017

(London) Integrated Diagnostics Holdings ("IDH" or "the Group"), IDHC on the London Stock Exchange, a leading consumer healthcare company with operations in Egypt, Jordan, Sudan and Nigeria, announced today its results for the year ended 31 December 2017.

Financial & Operational Highlights

● Revenues increased 29% to EGP 1,514 million in 2017 from EGP 1, 171 million in 2016, driven by a combination of better pricing, favourable currency translation and higher volumes.

● Gross profit gained 16% to EGP 730 million from EGP 628 million in 2016, despite ongoing inflationary pressures on raw material costs following the November 2016 floatation of the Egyptian pound. 

● Operating profit rose 16% to EGP 540 million compared with EGP 466 million in 2016, also constrained by post-devaluation inflationary pressures.

● EBITDA1 grew 18% to EGP 602 million from EGP 511 million in 2016, despite higher raw material costs as well as higher rent and utilities expenses.

● Interest income reached EGP 51 million versus EGP 21 million a year earlier, reflecting highly effective management of excess cash. 

● Net foreign exchange loss amounted to EGP 20 million, substantially lower than EGP 89 million in 2016. 

● Net profit grew 44% year-on-year to EGP 384 million in 2017 versus EGP 267 million in 2016, benefiting from increased interest income and a lower foreign exchange loss.

● Earnings per share of EGP 2.49 compared with EGP 1.74 in 2016.

● Recommended final dividend of US$ 0.16 (sixteen US$ cents) per share, equivalent to US$ 24 million in total, compared with US$ 0.14 (fourteen US$ cents) per share, equivalent to US$ 21 million in total in 2016.

● Expansion of branch network to 383 in 2017 from 354 in 2016 represented 8% annual unit growth.

[1] EBITDA is calculated as operating profit (EGP 540 million) plus depreciation (EGP 62 million) and amortisation (nil).

Commenting on the year's performance and the Company's outlook, IDH Chairman Lord St John of Bletso said:

"Your Company managed to deliver strong operational and financial results again in 2017. We remain committed to our growth strategies, aiming to further expand our geographic reach to other countries in Africa and the Middle East. I am especially pleased that in early 2018 we were able to close on a key strategic investment in Nigeria that provides us with an entry point into Africa's largest and most populous country."

IDH Chief Executive Officer Dr. Hend El-Sherbini added:

"IDH was able to successfully execute our proven business model under difficult operating conditions again in 2017. Supported by the fundamental strength of our brands and longstanding supplier relationships, we were able to drive patient and test volume growth; generate a 29% increase in revenues; and produce an EBITDA margin of 40%. By doing so, we managed to protect our profit margins and increase our market share last year.

"There is welcome evidence of macroeconomic progress in Egypt, our largest market, as the government continues to implement a bold programme of reforms. We are optimistic that the Egyptian economy will continue to gather strength in the coming year that translates into some easing of the pressure of high inflation that has persisted since the late 2016 devaluation of the Egyptian pound.

"In sync with our strategy to expand through strategic acquisitions as well as organic growth, we are pleased to begin the 2018 year with an investment in Nigeria-a very large, highly-fragmented and underpenetrated market that shares many similarities with Egypt's market in the 1980s and 1990s

"We enter 2018 in a strong financial position and well positioned as a leading consumer healthcare company in the Middle East and Africa. In the coming year, we will continue to focus on expanding our geographies as well as on the process of integrating our new Nigerian operations," El Sherbini concluded.

Outlook

IDH's growth strategy rests on leveraging its established business model to achieve four key strategic goals, 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.

About Integrated Diagnostics Holdings (IDH)

IDH is the largest fully integrated private-sector medical diagnostics services provider in Egypt, comprehensively offering pathology and molecular diagnostics, genetics testing and basic radiology. IDH's core brands include Al Borg and Al Mokhtabar in Egypt, as well as Biolab (Jordan), Ultralab and Al Mokhtabar Sudan (both in Sudan) and Echo-Scan (Nigeria) as of January 2018. IDH is listed on the London Stock Exchange (ticker: IDHC) and was founded in 2012 by the merger of Al Borg and Al Mokhtabar, the most established diagnostics services brands in Egypt. Learn more at idhcorp.com.

Shareholder Information

LSE: IDHC.L

Bloomberg: IDHC:LN

Listed: May 2015

Shares Outstanding: 150 million

Contact

Mr. Sherif El-GhamrawiInvestor Relations DirectorT: +20 (0)2 3345 5530 | M: +20 (0)10 0447 8699 | sherif.elghamrawi@idhcorp.com

Cautionary Statement

These Year-End Results have been prepared solely to provide additional information to shareholders to assess the Group's performance in relation to its operations and growth potential. These Year-End Results should not be relied upon by any other party or for any other reason. This communication contains certain forward-looking statements. A forward-looking statement is any statement that does not relate to historical facts and events, and can be identified by the use of such words and phrases as "according to estimates", "aims", "anticipates", "assumes", "believes", "could", "estimates", "expects", "forecasts", "intends", "is of the opinion", "may", "plans", "potential", "predicts", "projects", "should", "to the knowledge of", "will", "would" or, in each case their negatives or other similar expressions, which are intended to identify a statement as forward-looking. This applies, in particular, to statements containing information on future financial results, plans, or expectations regarding business and management, future growth or profitability and general economic and regulatory conditions and other matters affecting the Group.

Forward-looking statements reflect the current views of the Group's management ("Management") on future events, which are based on the assumptions of the Management and involve known and unknown risks, uncertainties and other factors that may cause the Group's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The occurrence or non-occurrence of an assumption could cause the Group's actual financial condition and results of operations to differ materially from, or fail to meet expectations expressed or implied by, such forward-looking statements.

The Group's business is subject to a number of risks and uncertainties that could also cause a forward-looking statement, estimate or prediction to differ materially from those expressed or implied by the forward-looking statements contained in this prospectus. The information, opinions and forward-looking statements contained in this communication speak only as at its date and are subject to change without notice. The Group does not undertake any obligation to review, update, confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of this communication.

Chairman's Statement

In 2017, your Company delivered very encouraging operational and financial performance despite the ongoing macroeconomic challenges in our primary market. We also expanded our footprint in Africa in early 2018 with a key strategic investment in Nigeria that will broaden our diagnostic services suite beyond pathology to include radiology.

We have seen more sustainable macroeconomic stability in Egypt. Whilst inflationary pressures persist, the Government has been implementing a robust programme of reforms that has resulted in stronger economic growth and led to increased foreign direct investment with the improvement in general confidence. The Central Bank of Egypt (CBE)'s floatation of the Egyptian pound in November 2016, with the ensuing lifting of capital controls, has freed up the foreign exchange market, thus improving the ease of doing business in the country.

Despite the ongoing inflationary headwinds, IDH maintained both our profit margins and market share. The well-entrenched strength of our brands and supplier relationships enabled our management to successfully execute our business model. We are naturally delighted by the recovery in our stock price. Your management are constantly seeking to consolidate and maintain the profitability of the business with the provision of additional value-added services. With our long-established presence in Egypt, together with our loyal patient base, we have built a considerable base of patient data whilst at all times maintaining strict confidentiality and privacy.

We remain committed to fulfilling our business strategy through expanding our geographical footprint in other countries, both in Africa and in the Middle East. We are delighted by the growth and strength of our subsidiaries in Jordan and Sudan, which have successfully implemented our business model. With the lifting of longstanding US sanctions on Sudan, the outlook for that country has improved markedly.

With Nigeria having by far the largest population in Africa, we are keen to expand our presence in that country. We shall be building on our recent investment in Echo-Scan, a network of radiology and diagnostic laboratories that has provided us with an attractive entry point into the country. With its fragmented and largely unestablished healthcare services market, we see huge potential for future growth to match our successful track record in Egypt. We are proud to be investing in Nigeria alongside Man Capital LLC and the IFC.

We are very cognisant that as we expand the geographical reach of our emerging market platform, we must maintain our high standards of operational excellence and ensure that our balance sheet remains strong and resilient. In 2017, we also focused on strengthening our senior financial management team, and this year we will undertake a comprehensive review of all aspects of our human resources management so as to entrench and ensure sustainable performance at all levels of the organisation.

We are at an advanced stage in building and completing our new corporate headquarters in Cairo, where consolidating our offices will greatly facility the daily interaction of our staff.

In conclusion, your Board and management are committed to maintaining strong corporate governance and promoting corporate social responsibility whilst underpinning our business model with the highest standards of accountability and transparency, thus fulfilling the expectations of our shareholders.

Lord St John of BletsoChairman

A Note from Our CEO

In 2017, IDH again delivered superior operational and financial performance despite ongoing macroeconomic challenges in Egypt, our largest market. We have also expanded our geographic reach with an investment in Nigeria in early 2018, adding a fourth country to our platform.

We close the year as a leading consumer healthcare company in the Middle East and Africa. Our proven business model allowed us to deliver revenue growth of 29% in 2017, reflecting our ability to deliver high-quality medical diagnostic services to more than six million patients as measured by 26 million tests. We now look to sustain that performance thanks to our presence in Egypt and Nigeria - two of Africa's largest and most populous countries - as well as our operations in Jordan and Sudan.

STRONG OPERATIONAL AND FINANCIAL PERFORMANCE

Our revenues were very strong throughout the 2017 year, increasing 29% year-on-year to EGP 1,514 million. Whilst patient and test volumes gained 9% and 7%, respectively, the power of the Group's brands and the favourable impact of our tactical marketing campaigns can be seen most clearly in the recovery in volumes that is under way in our higher-margin walk-in patient category. Walk-in patient revenues grew 29% period-on-period as patient volumes rose 2% compared with a year-earlier decrease of 4%; and test volumes rose 7% versus a 2% year-ago decline.

Understanding that protracted high inflation in Egypt has had the most significant impact on our patients who pay for their own healthcare, we have developed our marketing programs to target them with a strong health awareness message in combination with a compelling value component. This includes offering bundled diagnostic test packages for lifestyle-related diseases and chronic health conditions; an in-house point redemption system; and bank partnerships for more affordable payment plans. Moreover, in recognition of the pressures being felt by all our patients, our price increases have been significantly below the high rates of inflation caused by the November 2016 devaluation of the Egyptian pound. The brand equity we have built over many years has translated into strong loyalty among the millions of patients who came to know and trust us long before facing the current inflationary pressures.

We continued to expand our geographic footprint in 2017, bringing our total network of laboratories to 383 with 8% annual unit growth. We opened 23 new branches in Egypt, four in Jordan and two in Sudan. It is noteworthy that our subsidiaries in both Jordan and Sudan continued their steady growth last year, together contributing 17% of consolidated sales and 9% of consolidated EBITDA last year. In Sudan, the recent lifting of longstanding US sanctions marked an important milestone, signaling an end to the country's economic isolation and paving the way for a brighter economic future.

IDH delivered EBITDA growth of 18% year-on-year to EGP 602 million - despite shouldering additional corporate expense burdens that accompanied the implementation of Egypt's much-needed macroeconomic reforms. Beyond the lingering inflationary impact of the devaluation of the Egyptian pound, the higher costs of rent, transportation and utilities were all pressure points, as was the value-added tax imposed in July 2016 and increased to 14% from 13% in July 2017. The effect of higher interest rates has been double-edged, as higher interest income on the large cash balances we carry on our balance sheet was partially offset by rising interest expenses on our medium-term debt. Our bottom line did benefit from a substantially lower foreign exchange loss this year than last, helping net profit to rise 44% period-on-period to EGP 384 million.

As IDH maintains international-quality accreditations to ensure best-in-class service, we are honoured to have been awarded the certification for our Cairo Mega Lab from the College of American Pathologists (CAP), widely considered the leader in laboratory quality assurance globally. The international accreditation of our Mega Lab constructs a competitive barrier to entry to our markets and, as importantly, imparts an assurance of quality and safety that engenders strong loyalty among our valued corporate as well as individual customers. IDH operates the only laboratory in Egypt with the distinguished CAP accreditation.

In sum, our Company stayed the course last year, relying on the fundamental strength of our brands and sharply focused on deploying our asset-light model. We have successfully managed to contain our costs whilst at the same time upholding our high-quality standards Company-wide and maintaining our high patient and physician satisfaction levels. By doing so, we were able to both protect our margins and increase our market share in 2017.

In marked contrast to many consumer names in Egypt, IDH has been able to successfully drive volumes and pass on selected price increases post-devaluation. Beyond the insulation provided by the inherently defensive nature of the healthcare industry, I believe it is also very much a testament of our trusted brands. We enter 2018 in a strong financial position with an under-leveraged and highly cash-generative balance sheet that provides us with strategic flexibility.

MACROECONOMIC PROGRESS IN OUR LARGEST MARKET

There is welcome evidence that Egypt, representing 83% of our 2017 revenues, is turning the economic corner. Last year, demonstrable progress was seen regarding the implementation of reforms to stabilise the country's finances as well as promote growth and employment.

With the floatation of the Egyptian pound in November 2016, the foreign exchange market has normalised and the parallel market has been eliminated. After losing more than 50% of its value in 2016, the Egyptian pound closed the 2017 year at 17.67 per US$ 1.00, down only slightly from $18.00 at 2016 year end. Among other reforms, the government also began a gradual reduction of energy subsidies with some of the resources reallocated to strengthening the social safety net.

As a consequence of the sharp devaluation of the currency as well as the new energy policy, however, inflation has remained high. In December 2017, headline inflation stood at 21.9% after peaking at 33% in July. To address this extreme inflationary pressure, the Central Bank of Egypt (CBE) has adopted tight monetary policy, with aggressive interest rate hikes in May and July of 2017. The Government of Egypt expects headline inflation to fall to 10-13% by the end of 2018, whilst the consensus forecast among analysts appears to be 13-14% at mid-year.

EXPANDING OUR GEOGRAPHIC FOOTPRINT IN AFRICA

I am also pleased to report that in early 2018 we added Nigeria to our geographic footprint as a "one-stop shop" diagnostics services provider. We have accomplished this by forming a joint venture with Man Capital LLC, the London-based investment arm of the Mansour Group, called Dynasty Holding Group. Dynasty is 51% owned and controlled by IDH, and together with Man Capital we are very pleased to have partnered with the International Finance Corporation to invest in Eagle Eye Echo-Scan Limited. Echo-Scan is a leading medical diagnostics business in Nigeria with all of the licenses it requires to operate and expand on a national scale in Africa's most populous country.

The strategic rationale for making Nigeria the fourth country on our regional platform is compelling. Nigeria's diagnostic services market is very large, highly fragmented and underpenetrated, offering significant opportunities for growth and economies of scale. As importantly, it shares many similarities with Egypt's market in the 1980s and 1990s in terms of structure, pace of development, and the emerging disease profile of patients.

Dynasty and the IFC have committed to invest significant capital in Echo-Scan over the next four years. Dynasty has acquired a majority stake in Echo-Scan and assumed management control of the company, whilst both Dynasty and the IFC will invest US$ 25 million to expand Echo-Scan's diagnostics network, service offerings, and quality standards. I am especially pleased that we will be joining forces with Man Capital, an organisation that matches our more than four decades of operating experience in the industry with similarly long experience working on the ground in West Africa.

We will continue to look beyond Egypt to accelerate our long-term growth through strategic acquisitions. Consistent with our aim to make modern medical diagnostics more accessible to the most resource-poor populations, we are eager to begin our work in Nigeria. Diagnostic testing is becoming even more essential to quality healthcare, and we want to play a central role in improving health outcomes in all of our emerging markets. In particular, I believe we have a unique long-term opportunity to replicate our historical growth in Egypt by applying our extensive knowledge and experience to unlock the same potential in Nigeria.

PROPOSED DIVIDEND AND DIVIDEND POLICY

IDH is pleased to propose paying a final dividend of US$ 0.16 (sixteen US$ cents) per share, or US$ 24 million in aggregate, to shareholders in respect of the financial year ended 31 December 2017. This represents an increase of 14% compared to a final dividend of US$ 0.14 (fourteen US$ cents), or US$ 21 million in aggregate the previous financial year.

In view of the strong cash-generative nature of our business and its asset-light strategy, our dividend policy is to return to shareholders the maximum amount of excess cash after taking careful account of the cash needed to support operations, capital expenditure plans, organic expansion opportunities, and potential acquisitions.

2018 OUTLOOK

The fundamentals of our inherently counter-cyclical healthcare industry remain sound. We are well positioned with our strong brands and geographic positioning to capitalise on the structural drivers that support future growth in medical diagnostic services including large, rapidly-growing populations; a high prevalence of lifestyle-related medical conditions; and a growing health consciousness in our emerging markets.

We are looking forward to moving to our new corporate headquarters in 2018, which is located in Smart Village, a corporate office park in the city of Sixth of October, slightly west of Cairo. Our new headquarters will consolidate all of the offices we have been occupying in the city core into one building with sufficient space for the entire organisation, making day-to-day interaction much more efficient.

We are keen to begin the process of integrating our new Nigerian operations, having determined our first priorities. We will implement the policies and procedures that underpin the strong IDH corporate organisation starting with the establishment of an IT infrastructure that fully connects and controls all Echo-Scan branches, as well as a Human Resource structure that taps into the Group's highly-qualified and experienced staff to apply the Group's standards of efficiency to the Nigerian operations.

We look to the coming year with optimism that in our largest market of Egypt, the economy will continue to gather strength characterised by an easing in inflation and some appreciation in the currency. The fundamental strength of our brands and our solid relationships with our suppliers make it possible for us to successfully execute our scalable asset-light business model - even under difficult operating conditions such as those we faced in 2016 and 2017. Accordingly, we guide our valued shareholders to once again expect annual revenue growth of 20% and an EBITDA margin of c. 40%.

I would like to thank our Board, management team and employees for their dedication and commitment, and our shareholders for their continued support. I am honoured to have you with us on this journey as a rapidly-growing consumer healthcare company across the Middle East and Africa.

Dr. Hend El-Sherbini Chief Executive Officer

Operational and Financial Review

IDH delivered strong operational and financial results in the year ended 31 December 2017, despite macroeconomic challenges, in particular high inflation, that continued in the aftermath of the November 2016 floatation of the Egyptian pound. This is noteworthy as it stands in sharp contrast to many consumer names in Egypt. Whilst the healthcare industry is inherently defensive, this performance also reflects the customer loyalty that has been earned by the Company's trusted brands over many years. On a 29% year-on-year revenue increase in 2017, EBITDA gained 18%, constrained somewhat by ongoing pressure from higher raw material costs. Net profits, however, surged by 44% year-on-year, helped by higher interest income and a sharp year-on-year decline in foreign exchange losses given what has been relative stability in exchange rates.

The Group continued to invest in expanding its geographic footprint in 2017, and notably through a transaction that closed in January 2018 entered the Nigerian market. Supported by its state-of-the-art Mega Lab with additional capacity, the Company is able to deploy its Hub, Spoke and Spike business model to open capital efficient "C" labs more rapidly. During 2017, the Group added 29 new labs in total, including 19 new branches for Al Mokhtabar in Egypt; four for Al Borg in Egypt; four for Biolab in Jordan; and two for MK Sudan. Total IDH branches reached 383 as of 31 December 2017 versus 354 at 2016 year end, for 8% total unit expansion.

The results for the year are summarised below:

*EBITDA is calculated as operating profit (EGP 540 million) plus depreciation (EGP 62 million) and amortisation (nil).

Our Customers

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 contract segment, a lab-to-lab service.

Contract Clients

IDH's contract clients, who in 2017 represented 61% 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. During 2017, IDH served 4.7 million patients under these contracts and performed a total of 19.7 million tests, with no single contract client accounting for more than 0.8% of total revenues. Within the contract segment, IDH also provides lab-to-lab services for hospitals and other laboratories not able to process certain tests in house.

Walk-in Clients

IDH derived 39% of its revenues in 2017 from walk-in clients. Walk-in clients numbered 1.7 million in 2017, representing 26% of total patients served. As IDH's markets develop and become more institutionally oriented, more patients will be performing pathology tests under corporate agreements, a trend that plays to the Group's strength with the best economies of scale in the Egyptian diagnostics industry.

IDH Revenue by Type and Key Performance Indicators

Breakdown of Contract Revenue

Revenue Analysis

Consolidated revenues increased 29% year-on-year to EGP 1,514 million, attributable to price and mix of tests, followed by currency translation and test volumes. The favourable impact of translating the revenues of IDH's Jordanian operations into Egyptian pounds more than offset the negative effect of translating the revenues of its Sudanese operations. In 2017, the Jordanian dinar (JOD) was translated at an average rate of 24.92 (2016: 14.573), the Sudanese pound (SDG) at an average rate of 1.04 (2016: 1.204). Whilst patient and test volumes gained 9% and 7%, respectively, selected price increases and a better mix of test types were also key drivers of top-line growth. This can be seen in the key metrics of average revenue-per-patient, up 18%, and average revenue-per-test, 21% higher.

Revenues from contract clients grew 29% year-on-year in 2017, supported by an overall trend toward corporate health insurance coverage, in particular in Egypt, IDH's largest market. Whilst the number of contract patients was 12% higher and the number of contract tests was up 7%, average revenue-per-patient increased 15% and average revenue-per-test gained 22% on better pricing and mix. IDH signed 311 new corporate contracts with insurers last year versus 456 in 2016.

Revenues from walk-in clients also rose 29% year-on-year, helped by improving patient volumes. The Group served 2% more walk-in patients in 2017 compared with a 4% decline in 2016. Consequently, the Company was able to achieve a 26% increase in revenue-per-patient; and on4% more tests-per-patient, a 21% gain in revenue per-test in the walk-in category.

In particular, it is the improvement seen in the walk-in patient category that highlights the loyalty consumers have to the Al Borg and Al Mokhtabar brands in Egypt, IDH's largest market. They have come to know and trust these names over the years, and they return to the laboratories they equate with quality and safety. Cognisant of the burden faced by its customers, IDH's price increases have been significantly below the high inflation rates caused by the November 2016 currency devaluation. The Group has also designed its tactical marketing programs with attractive features for them, such as discounts on chronic disease tests as well as partnerships with banks for affordable payment programs.

On a geographic basis, Egypt contributed 83% of total revenues in 2017 followed by Jordan at 14% and Sudan at 3%, in the same proportions as 2016.

Cost of Sales

Cost of sales increased 45% year-on-year to EGP 785 million in 2017 compared with EGP 543 million in 2016 primarily due to raw material cost pressures. Raw materials represented the largest component of cost of sales at 39% of total (2016: 34%) and rose 67%. Whilst IDH was able to negotiate favourable contract terms with its three main suppliers - Roche, Siemens and BM (Sysmex) - the prices of imported medical test kits continued to climb post-devaluation.

Wages and salaries, the second largest component of cost of sales in 2017, accounting for 30% of total (2016: 36%), were favourably leveraged on the strong revenues. The 22% year-on-year increase in these expenses is mainly attributable to the translation into Egyptian pounds of higher salaries for the Group's Jordanian subsidiary and Board of Directors caused by the exchange rate difference between the two reporting periods.

The depreciation expense accounted for in COGS increased 40% to EGP 57 million in 2017 (2016: EGP 41 million). This increase in direct depreciation is primarily attributable to increased kit consumption related to leased equipment.

Gross Profit

Gross profit increased 16% year-on-year to EGP 729 million compared with EGP 628 million in 2016, constrained by higher raw material costs. The associated gross margin decreased c. 600 basis points to 48% from 54% a year earlier. This pressure could also be seen in the decline in gross profit contribution percentage from Egypt, whose gross margin is higher than those of Jordan and Sudan. Egypt's contribution to total gross profit was 89% in 2017 compared with 92% in 2016.

Operating Expenses

Operating expenses gained 17% year-on-year to EGP 189 million in 2017 versus EGP 162 million in 2016. As a percentage of sales, however, operating expenses decreased to 12% from 14% a year ago. The favourable leverage of these largely fixed costs partially mitigated the negative impact of the higher raw material costs.

Operating Profit

Operating profit for 2017 was accordingly EGP 540 million compared with EGP 466 million in 2016.

EBITDA2

EBITDA rose 18% year-on-year to EGP 602 million versus EGP 511 in 2016. The associated EBITDA margin came under pressure from higher raw material costs, which was only partially offset by the favourable leverage of fixed costs. The ratio stood at 40% in 2017 compared with 44% in 2016. We consider EBITDA to be an appropriate alternative performance measure, as it is a metric commonly followed by the institutional investment community.

By region, Egypt contributed 91% of total EBITDA down from 94% in 2016, whilst Jordan and Sudan contributed 7% and 2%, respectively, compared with 5% and 1% a year earlier.

2 EBITDA is calculated as operating profit (EGP 540 million) plus depreciation (EGP 62 million) and amortisation (nil).

Foreign Exchange

In 2017, the Group's net foreign exchange loss amounted to EGP 19.9 million, as an FX loss of EGP 24.5 million was partially offset by an EGP 4.5 million FX gain. This was substantially below the net foreign exchange loss of EGP 89 million in 2016.

The EGP 24.5 million foreign exchange loss was attributable to revalued foreign denominated contracts with major suppliers as well as the revaluation of intercompany balances between IDH and its subsidiaries and with the different functional currencies within the group, including the Egyptian pound, the Sudanese pound, the Jordanian dinar and the US dollar. The EGP 4.5 million FX gain related to finance lease obligations resulting from appreciation of the Egyptian pound.

Taxation

In 2017, IDH recorded tax expense of EGP 174 million, with an effective tax rate of 31% (2016:31%). There is no tax payable in the two IDH holding companies (Jersey and Cayman); thus, costs incurred at the holding company level are not tax deductible. These would include, but are not limited to, KPMG UK fees and IDH administrative fees in London.

All tax is paid within the Group's operating companies. The corporate income tax rates in countries in which IDH operates are as follows: Egypt 22.5%, Jordan 20.0% and Sudan 15.0%.

The Group's dividend policy is to distribute any excess cash after taking into consideration all business cash requirements and potential acquisition considerations. As a result, a deferred tax liability is recognised for the 5% tax on dividends for the future expected distribution payable by Egyptian entities under Egyptian tax legislation. Deferred tax in 2017 amounted to EGP 56.9 million (loss) compared with EGP 14.1 million (gain) in 2016.

Net Profit

Net profit for the year increased 44% to EGP 384 million versus EGP 267 million recorded in 2016. This growth was spurred by effective cash management generating interest income that offset higher interest expense incurred due to the Central Bank of Egypt's rate hike policy and the adoption of International Accounting Standard (23) that capitalised interest on the Group's Medium-Term Loan for its new corporate headquarters building. The bottom line also benefited from a sharp year-on-year decline in foreign exchange losses, given what has been relative stability in exchange rates.

Balance Sheet

On the Assets side of the balance sheet, property, plant and equipment (PPE) rose to EGP 486 million at 31 December 2017 from EGP 391 million a year earlier primarily due to new investment in the Group's new corporate headquarters, slated for completion in 2018, as well as the opening of 29 new branches region-wide.

In 2015, IDH entered into equipment lease agreements with its major suppliers that became effective in May 2015. The agreement periods range from five to eight years, which is deemed to reflect the useful life of the equipment. The agreements include annual commitment payments to cover the supply of medical diagnostic equipment, test kits and chemicals to be used for testing and ongoing maintenance and support services over the term of the agreement. If the minimum annual commitment payments are met over the agreement period, ownership of the equipment supplied will legally transfer to IDH. On one side, the leased equipment is recorded in PPE, and the finance lease is recorded as a liability on the other side.

Trade and other receivables rose 36% to EGP 202 million compared with EGP 148 million in 2016. The difference was primarily related to an increase in the accounts receivable balance associated with the gain in contract revenues, together with higher accrued revenues related to time deposit interest.

The total bad debt provision balance amounted to EGP 21.7 million, out of which EGP 5.6 million was established in 2017: EGP 4.7 million for Egypt; EGP 0.4 million for Sudan; and the remaining balance for Jordan.

On the Liabilities side, trade and other payables decreased to EGP 333 million in 2017 from EGP 346 million in 2016 mainly due to the decline in put option liability related to the Jordanian operation given the spot rate as at 31 December 2016 stood at EGP:JOD 25.41 versus EGP:JOD 24.89 as at 31 December 2017.

Inventories at 2017 year end were EGP 70 million, up 36% versus a year earlier largely due to higher raw material prices in 2017 compared with 2016.

IDH managed to deliver strong operational cash flow, with an ending cash balance at 2017 year end of EGP 694 million (excluding restricted cash).

Dividend

Proposed dividends for ordinary shares are subject to the approval of the Annual General Meeting and are not recognised as a liability as at 31 December 2017. The Board of Directors has recommended that a final dividend of US$ 24 million, or US$ 0.16 per share, should be paid to shareholders who appear on the register as at 18 May 2018, with an ex-dividend date of 17 May 2018. The payment date for the dividend will be 8 June 2018.

Going Concern

Having made enquiries, the Directors have a reasonable expectation that the Group has adequate resources to meet its liabilities as they fall due for at least 12 months from the date of approval of these consolidated financial statements. Thus, they continue to adopt the going concern basis in preparing the financial information.

Principal Risks, Uncertainties and 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:

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS as adopted by the EU"), interpretations from the International Financial Reporting Interpretations Committee ("IFRIC") and Companies (Jersey) Law 1991 (as amended). Jersey Law requires the Directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Group and of the assets, liabilities, financial position and profit or loss of the Group for that year.

In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, comparable, understandable and prudent;

· ensure that the financial statements comply with IFRS as adopted by the EU; and

· prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for maintaining proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and to enable them to ensure that the financial statements comply with Jersey Law. The Directors are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for the maintenance and integrity of the Group's website on the internet. However, information is accessible in many different countries where legislation governing the preparation and dissemination of financial statements may differ from that applicable in the United Kingdom and Jersey.

The Directors of the Group confirm that to the best of their knowledge that:

· The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards; and Interpretations adopted by the International Accounting Standards Board give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· The sections of this Report, including the Chairman's Statement, Strategic Report, Financial 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 undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Dr. Hend El Sherbini

Executive Director21 March 2018

Integrated Diagnostics Holdings plc - "IDH" and its subsidiaries

Annual Report and Consolidated

Financial Statements

for the year ended 31 December 2017

Consolidated Statement of Financial PositionAs at 31 December 2017

Consolidated Income StatementFor the year ended 31 December 2017

Consolidated Statement of Profit or Loss andOther Comprehensive Incomefor the year ended 31 December 2017

Consolidated Statement of Cash Flows

for the year ended 31 December 2017

Consolidated Statement of Changes in Equityfor the year ended 31 December 2017

1. Corporate information

The consolidated financial statements of Integrated Diagnostics Holdings plc and its subsidiaries (collectively, the Group) for the year ended 31 December 2017 were authorized for issue in accordance with a resolution of the directors on 20 March 2018. 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 concentrated in the field of medical diagnostics.

2. Basis of preparation

Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) 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 mandates 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

These consolidated financial statements have been prepared on the going concern basis. At 31 December 2017, the Group had net assets amounting to EGP 2,314,090. 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 Directors have a reasonable expectation that the Group has adequate resources to meet its liabilities as they fall due for at least 12 months from the date of approval of these condensed consolidated annual financial statements. Thus, they continue to adopt the going concern basis in preparing the financial information.

2.1. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2017. 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.

2.1. Basis of consolidation (continued)

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 transactions. 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. Significant accounting policies

Except for the changes below, the accounting policies set out below have been consistently applied to all the years presented in these consolidated financial statements.

The Group has adopted the following new standard, including any inconsequential amendments to other standards, with a date of initial application of 1 January 2017.

· Annual Improvements to IFRSs - 2014-2016 Cycle

· Disclosure initiative - amendment to IAS 7

· Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12  

This new standard had a non-material impact on these consolidated financial statements.

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

2.2. Significant accounting policies (continued)

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 designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

This includes the separation of embedded derivatives in host contracts by the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.

Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the statement of profit or loss. And when it is classified as equity it should not be remeasured and accounted for within equity.

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 reassessment 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 combination 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 disposed 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, available-for-sale financial assets 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

2.2. Significant accounting policies (continued)

used in the valuation techniques as follows:

Ø Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Ø Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

Ø 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.

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.

For both types of customers, revenue is recognized on completion of the services rendered. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received.

Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

d) Leases

i. Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Group separates out payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impractical to separate the payments reliably, then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group's incremental borrowing rate.

2.2. Significant accounting policies (continued)

ii. Leased assets

Assets held by the Group under leases that transfer to the Group substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group's statement of financial position.

iii. Lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

e) 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 liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax is recognized 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 recognized 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.

2.2. Significant accounting policies (continued)

f) 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.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange 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 reporting 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 translated at the spot rate of exchange at the reporting date.

g) Property, plant and equipment

All property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognized 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 50 years

Medical, electric and information systems equipment 4-10 years

Leasehold improvements 4-5 years

Fixtures, fittings & vehicles 4-16 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

2.2. Significant accounting policies (continued)

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 recognized within 'Other (losses)/gains - net' in the consolidated statement of income.

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 expenditure 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 individually 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 interest 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 acquiree.

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 recognized at fair value at the acquisition date and have an indefinite useful life.

2.2. Significant accounting policies (continued)

i) 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.

i. Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, AFS financial assets, as appropriate. 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:

Ø Financial assets at fair value through profit or loss

Ø Loans and receivables

Ø Available for sale ("AFS") financial assets

The Group did not hold financial assets classified as financial assets at fair value through the profit or loss or AFS financial assets at 31 December 2017 and 31 December 2016.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method ("EIR"), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of profit or loss. The losses arising from impairment are recognised in the statement of profit or loss in finance costs for loans and in cost of sales or other operating expenses for receivables.

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:

Ø The rights to receive cash flows from the asset have expired

Or

Ø 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.

2.2. Significant accounting policies (continued)

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass- through arrangement, 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 original 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:

Ø Disclosures for significant estimates and assumptions Note 2.3

Ø Financial assets Note 14

Ø Trade receivables Note 16

The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred 'loss event'), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

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 interest method. The Group does not use derivative financial instruments or hedge account for any transactions. Unless otherwise 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 and loans and borrowings including bank overdrafts.

2.2. Significant accounting policies (continued)

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 recognised 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 intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

j) Impairment of non-financial assets

Further disclosures relating to impairment of non-financial assets are also provided in the following notes:

Ø Disclosures for significant assumptions and estimates Note 2.3

Ø Goodwill and intangible assets with indefinite lives Note 13

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication 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 determining 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.

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 comprehensive income ("OCI"). For such properties, the impairment is recognised in OCI up to the amount of any previous revaluation.

2.2. Significant accounting policies (continued)

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication 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 impairment 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 indicate 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.

k) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less estimated selling and distribution expenses.

l) 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. 

2.2. Significant accounting policies (continued)

m) 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 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.

n) 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.

o) 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 performance of the operating segments, has been identified as the steering committee that makes strategic decisions.

New and amended standards and interpretations not yet adopted

The Group has not early adopted any other standard, interpretation or amendments that have been issued but not yet effective for the year ended 31 December 2017.

None of these are expected to have a material effect on these consolidated financial statements of the Group, except for the following which could change the classification and measurements of financial assets.

· IFRS 9 "Financial instruments" (expected effective date of January 2018).

· IFRS 16 'Leases' (effective date of January 2019) introduces an on balance sheet accounting model for operating leases. The Group has significant operating lease commitments through the lease of branches and is anticipated to have a material effect when these arrangements are required to be brought on balance sheet.

2.3. Significant accounting judgments, estimates and assumptions (continued)

Estimated impact of the adoption of IFRS 9 and IFRS 15

IFRS 15

The Group is required to adopt IFRS 15 Revenue From Contracts With Customers From 1 January 2018.

IFRS 15 'Revenue from Contracts with Customers' sets out the principles for the measurement and recognition of revenue and will replace IAS 18. The standard provides a five step model to determine when an entity should recognise revenue and at what amount, by allocation of the transaction price to separate performance obligations. The Group has two types of customer: walk-in patients and patients served under contract. For patients served under contract, rates are agreed in advance on a per-test, client-by-client basis. For both types of customer, revenue is recognized on completion of the services rendered.

The Group's services are provided a point in time rather than over a period of time and there are stand-alone sales prices per test stipulated in the contracts that exist with selected customers.

The Group considers the current basis of revenue recognition to remain appropriate as the only performance obligation, being completion of a test, reflects the current policy. Therefore the Group considers that the initial application IFRS 15 will have no impact on its consolidated financial statements based on the assessment undertaken to date, however the Group may enter into contracts in the near future that would be accounted for differently under IFRS 15 than the existing standards.

IFRS9

The Group is required to adopt IFRS 9 Financial Instruments from 1 January 2018.

IFRS 9 'Financial Instruments' sets out the requirements for recognizing, classifying and measuring financial assets and financial liabilities and includes guidance in respect of general hedge accounting. This standard replaces IAS 39 and sets out two key criteria for determining the classification and measurement of financial assets including the entity's business model for managing financial assets and the contractual cash flow characteristics. IFRS 9 also sets out a single impairment model to ensure expected credit losses on financial instruments are always recognized as soon as they are forecast. In relation to hedge accounting, IFRS 9 adopts a principles-based approach for testing hedge effectiveness instead of setting specific numerical thresholds.

The Group has made an initial assessment of the impact that the initial application of IFRS 9 will have on its consolidated financial statement by considering the level of loss experienced from customers across the portfolio at a macro level. The financial impact of this assessment is an adjustment (net of tax) to the opening balance of the Group's equity at 1 January 2018 of EGP 2.5 m due to the recognition of an impairment charge for the expected credit loss of trade receivables. The final impact of adopting the standard at 1 January 2018 may change because the Group is in the process of undertaking an extensive exercise to assess the credit loss on a customer basis, which has not been finalised. Additionally, the testing and assessment of controls over new IT systems has not been complete. It is not expected that the impact of the final assessment will be materially different.

2.3. Significant accounting judgments, estimates and assumptions (continued)

The total estimated adjustment (net of tax) to the opening balance of the Group's equity at 1 January 2018 is EGP 2.5 m due to the recognition of an impairment charge for the expected credit loss of trade receivables.

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:

Ø Capital management Note 4

Ø Financial instruments risk management and policies Note 14

Ø Sensitivity analyses disclosures 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. Information about judgment, estimate and assumptions relating to finance leases are set out in note 26.

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.

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.

Impairment of trade and notes receivables

The requirement for impairment of trade receivables is made through monitoring the debts aging and reviewing customer's credit position and their ability to make payment as they fall due. An impairment is recorded against receivables for the irrecoverable amount estimated by management. At the year end, the provision for impairment of trade receivables was EGP 21,784K (31 December 2016: EGP 19,154k).

3. Segment information

The Group is viewed as a single operating segment, as the Group's Chief Operating Decision Maker (CODM) reviews the internal management reports and KPIs of the Group as whole and not at a further aggregated level.

The Group operates in three geographic areas, Egypt, Sudan and Jordan. Each area offers similar services and the KPIs of each are viewed to be the same and they are not viewed as individual operating segments. The revenue split between the three regions is set out below.

The operating segment profit measure reported to the CODM is EBITDA, as follows:

The operating segment assets and liabilities measure reported to the CODM is in accordance with IFRS as shown in the Group's Consolidated Statement of Financial Position.

5. Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order 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 is 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.

4. Capital management (continued)

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.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2017 and 2016.

6. Group information

Information about subsidiaries

The consolidated financial statements of the Group include:

* "Molecular Diagnostic Center" is no longer treated as a subsidiary with effect from 5 May 2016 following the start of liquidation proceedings as control has been passed to the liquidator [ Abd EL Wahab Kamal] under Egyptian Law.

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.

7. Business combinations and acquisition of non-controlling interests

No change in business combinations and acquisition of non-controlling interests during the year.

8. 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:

The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.

8. Expenses and other income

Included in profit and loss are the following:

8.1. 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

8. Expenses and other income (continued)

8.

8.2. Net finance costs

8.3. Employee numbers and costs

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:

Details of Directors' and Key Management remuneration and share incentives are disclosed in the Remuneration Report and note 27.

10. Income tax

a) Amounts recognised in profit or loss

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%. And 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% (2016: 22.5%) tax rate. The reconciliation of effective income tax rate has been performed using this rate.