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 expansion without the Company having to purchase expensive medical diagnostic equipment.
Hub, Spoke and Spike Expansion
IDH deploys an asset-light, scalable “Hub, Spoke and Spike” business model that enables capital-efficient growth. Supported by the operational backbone of the Mega Lab, the Group is able to offer a broad range of tests and can easily “plug and play” new “C-labs” to extend its geographic reach. It is noteworthy that across its brand portfolio, IDH maintains international-quality accreditations with a stringent internal audit process to ensure best-in-class service. In February 2018, IDH’s central Mega Lab in Cairo earned certification from the College of American Pathologists (CAP). The College of American Pathologists is widely considered the leader in laboratory quality assurance globally.
Mega Lab (Hub)
- The Mega Lab, the largest automated lab in Egypt, serves as IDH’s diagnostic hub, equipped with the latest technology and providing a full suite of diagnostic tests.
- A majority of equipment is provided at no upfront cash cost in return for IDH agreeing to purchase minimum volumes of kits from equipment suppliers.
- Specialty tests from IDH subsidiaries are shipped to the Mega Lab in Egypt, and results are retrieved electronically.
- Significant cost synergies are realised on kits, logistics and quality control; after the introduction of Mega Lab in 2015, the Group’s contribution margin witnessed improvement on higher volumes.
B Labs (Spokes)
- B-labs serve as IDH’s spokes that work to reduce traffic to Mega Lab by processing routine tests on-site including chemistry, parasitology, and haematology.
- They are higher in capacity and larger in size than the C-labs.
C Labs (Spikes)
- C-labs are collection centers that allow for expansion of reach.
- They conduct basic tests including urine, stool, semen, ESR and pregnancy tests.
Key Business Partnerships
IDH’s asset-light business model is also illustrated by its relationships with its business partners. The Group’s contracts with its key suppliers for medical diagnostic testing kits also include the provision of the equipment to analyse the laboratory test results. The company’s main suppliers of kits are all certified by the US Food and Drug Administration.
IDH is fundamentally a COGS “economy of scale” business. Medical diagnostic equipment is typically provided by key suppliers with no associated capital expenditures, but rather in exchange for minimum volumes of laboratory test kits. Laboratory test kits are purchased on contract with volume-lined pricing. Thus, the Group’s balance sheet is both under-leveraged and highly cash-generative for strategic flexibility.
Over the years, the Group has developed strong and long-standing relationships with its business partners, which include Siemens, Roche, and BM Sysmex. As one of the largest providers of diagnostic services in the Middle East and Africa regions, thus one of the largest volume purchasers of test kits, IDH has been able to successfully negotiate favourable contract terms, thus manage its costs effectively, most notably under the recent challenging macroeconomic conditions in its primary market of Egypt.
