Business review: UPD
UPD continued to gain market share after securing new wholesale and bulk distribution contracts, maintaining its market-leading positions in both the pharmaceutical wholesale and bulk distribution markets.
Turnover increased by 11.2% as the business benefited from new contracts and the higher annual increase in the single exit price (SEP) of medicines of 4.53% in February 2020 (March 2019: 3.78%). This growth was achieved despite the absence of the traditional winter cold and flu season and many patients deferring elective surgical procedures at private hospitals during lockdown.
Operating profit increased by 13% to exceed R500 million for the first time.
Total managed turnover, combining fine wholesale turnover with the turnover managed on behalf of bulk distribution clients, increased by 11.7% to R23.6 billion as the business gained two bulk distribution contracts.
“The strong performance from UPD’s customer base contributed to wholesale market share increasing from 27.0% to 29.4%.”
WHOLESALE TURNOVER BY CHANNEL
Wholesale turnover increased by 17.0%, with UPD gaining new private hospital and buying group contracts.
UPD’s business to the private hospital and independent pharmacy channels grew strongly due to increased demand for medicines and healthcare products during the pandemic. Front shop sales were particularly strong as customers bought more hand sanitisers, surgical aids, vitamins and supplements.
Sales to private hospital groups increased by 44.4%.
The independent pharmacy channel benefited from the shift in lockdown shopping trends with consumers choosing to shop closer to home at convenience and neighbourhood centres rather than visiting major malls. UPD’s superior service levels and stock availability enabled the business to capitalise on this trend and increased sales to the independent pharmacy channel by 16.1%, accounting for 17.3% of turnover. UPD services over 1 250 independent pharmacies.
Clicks remains UPD’s largest single customer and increased sales by 3.8%, comprising 49.0% of wholesale turnover.
The strong performance from UPD’s customer base contributed to wholesale market share increasing from 27.0% to 29.4% (source IQVIA).
UPD faces ongoing margin pressure from the faster growth in lower-priced generic medicines, with sales of generics increasing by 16.3% and now accounting for 70% of wholesale turnover volume.
Product availability, which is core to offering superior range and service to customers, averaged 96.2% for the year, while on-time deliveries were at 96.0%.
UPD owns distribution centres located in Gauteng (Lea Glen), Cape Town, Durban, Bloemfontein and Port Elizabeth. All the distribution centres are ISO9001:2015 certified. Owing to the increasing scale and size of the third-party distribution business, UPD has rented an additional distribution warehouse facility in Gauteng.
During the year UPD took a strategic decision to divest of its wholesale business in Botswana and sold Kalahari Medical Distributors which had been acquired in 2008.
Growth plans for 2021
UPD aims to increase wholesale market share through the growth of the Clicks pharmacy channel, benefiting from the planned opening of 30 to 35 new pharmacies, purchases from independent pharmacies and service to the private hospital groups. The business will continue to prospect for new distribution contracts.
Capital expenditure of R123 million has been committed for warehouse equipment and information technology in the year ahead. This includes a new enterprise resource planning (ERP) system which will go live in 2021 and enable UPD to extract further efficiencies and provide world-class reporting to distribution clients.
UPD remains committed to its strategic objective of growing market share in wholesale and bulk distribution to 35%.
Performance against objectives in 2020 and plans for 2021
Growing market share
Plans and targets for 2020 |
Achieved in 2020 |
Plans and targets for 2021 |
|
Increase market share to 28.0% |
Market share increased to 29.4% |
Increase market share to 30.5% |
|
Grow volume of business with private hospital groups |
Sales to hospital groups grew by 44.4%, owing to market share gains and increased demand during Covid‑19 pandemic |
Grow volume of business with private hospital groups |
|
Clicks’ buying levels from UPD at 99% |
Clicks’ buying levels from UPD at 98.4% |
Clicks’ buying levels from UPD at 99% |
|
Tender for new agency distribution contracts |
Two new agency distribution contracts secured; 30 distribution clients managed at year-end |
Tender for new agency distribution contracts |
Protecting income
Plans and targets for 2020 |
Achieved in 2020 |
Plans and targets for 2021 |
|
Maintain licences |
Licences maintained |
Maintain licences |
Optimising efficiency
Plans and targets for 2020 |
Achieved in 2020 |
Plans and targets for 2021 |
|
Target 99% on-time deliveries |
96.0% on-time deliveries |
Target 98% on-time deliveries |
|
Drive further productivity initiatives across the business |
Tight shrinkage control, improved labour productivity, delivery vehicle utilisation and packaging utilisation |
Drive further productivity initiatives across the business |
|
Achieve order fulfilment to 98% |
Order fulfilment of 98.9% achieved |
Achieve order fulfilment of 98% |
Building capacity
Plans and targets for 2020 |
Achieved in 2020 |
Plans and targets for 2021 |
|
Reduce employee turnover to 8% |
Employee turnover 5.8% |
Reduce employee turnover to 5% |
|
Maintain Transported Asset Protection Association (TAPA) certification for transport fleet |
Achieved TAPA Level 1 accreditation |
Maintain accreditation |
|
Expand learners through UPD training academy to 60 |
59 learners enrolled |
Expand learners to 70 |
|
Design IT system solution and prepare roll-out |
Design phase completed |
Complete build phase and commence roll-out |