Vikash Singh
Managing director

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UPD delivered double-digit sales and profit growth for the year, driven by good growth in the wholesale business. Reported turnover increased by 11.4% and UPD maintained its market-leading positions in both the pharmaceutical wholesale and bulk distribution markets.

The business benefited from the two increases granted in the regulated single exit price (SEP) of medicines in November 2016 (2.9%) and March 2017 (7.5%). The SEP increase in the previous year was 4.8%.

UPD’s total managed turnover, combining fine wholesaling turnover with the turnover managed on behalf of bulk distribution agency clients, increased by 8.8% to R16.5 billion.

Wholesale turnover increased by 12.1% with strong growth of 23.4% in sales to Clicks pharmacies. Clicks remains UPD’s largest single customer and accounts for 52.2% of wholesale turnover.

Growth in sales to the private hospital groups, including Life Healthcare, Mediclinic and Netcare, was slower at 4.7%. This was partly due to sales to Medicross pharmacies moving from the hospital channel to the Clicks channel following the outsourcing agreement with the Netcare Group when Clicks took over the management of 37 Medicross pharmacies.

UPD services approximately 1 200 independent pharmacies and sales to this channel contracted by 2.6% and account for 14.3% of turnover.

UPD’s strong growth resulted in wholesale market share increasing from 24.1% to 25.6%.

The business continues to face ongoing margin pressure from the faster growth in lower-priced generics, which have increased from 47.2% to 49.1% of wholesale turnover.

Wholesale turnover by channel

As UPD has a high fixed cost base management is constantly seeking ways to off-set the margin pressure by increasing efficiency and scale of the business.

UPD owns its five distribution centres located in Gauteng (Lea Glen), Cape Town, Durban, Bloemfontein and Port Elizabeth. The new distribution centre in Port Elizabeth was completed early in the financial year at a cost of R27 million. The expansion of the Cape Town distribution centre commenced during the year and is scheduled for completion in December 2017.

Product availability, which is core to offering superior range and service to customers, was 95.2% and UPD increased on-time deliveries to 98.8% (2016: 98.5%).

Through its distribution business UPD offers local and international generic and originator pharma manufacturers an efficient and cost-effective supply chain solution. The business managed a portfolio of 20 distribution clients
at year-end.

Outlook for 2018

UPD aims to increase wholesale market share to 26% through the growth of the Clicks pharmacy channel, benefiting from the planned opening of 30 to 35 new pharmacies in Clicks, and maintain volumes from the private hospital groups.

Management plans to increase Clicks’ buying levels from UPD to 98.8% from the current 98.7%.

The annual SEP increase for 2018 is expected to be much lower than the increase granted in 2017.

Capital expenditure of R74 million has been committed for warehousing, IT and infrastructure, including the completion of the expansion of the Cape Town distribution facility.

Following the building of the new facility in Port Elizabeth, the expansion of the Cape Town warehouse and the planned reorganisation of the Johannesburg facility, bulk distribution warehouse capacity will be increased by approximately 30%. This will enable UPD to attract new distribution clients and grow business from existing clients.

In the current environment UPD will focus on further productivity initiatives across the business and maintaining its high levels of service to clients. This will enable the business to make progress towards achieving its long-term strategic objective of growing market share in both wholesale and bulk distribution to 30%.

Vikash Singh
Managing director

Performance against objectives in 2017 and plans for 2018

Plans and targets for 2017	Achieved in 2017	Plans and targets for 2018
Grow market share
Increase market share to 24.5%	Market share increased to 25.6%	Increase market share to 26%
Maintain volume of business with private hospital groups	Sales to hospital groups increased 4.7% with volumes maintained	Maintain volume of business with private hospital groups
Increase Clicks’ buying levels from UPD to 98.5%	Clicks’ buying levels from UPD at 98.7%	Increase Clicks’ buying levels from UPD to 98.8%
Tender for new agency distribution contracts	One new agency distribution contract secured; 20 contracts managed at year-end	Tender for new agency distribution contracts
Protect income
Maintain licences	Licences maintained	Maintain licences
Optimise efficiency
Target 98.5% on-time deliveries	98.8% on-time deliveries	Target 98.9% on-time deliveries
Reduce labour and transport costs	Labour and transport costs as a percentage of turnover improved 96.1% order fulfilment	Drive further productivity initiatives across the business Improve order fulfilment to 96.2%
Build capacity
Target employee turnover of 14%	Employee turnover 12%	Maintain employee turnover at 12% or below
Extend cold chain capabilities	Planning for implementation of temperature-controlled fleet	Temperature-controlled fleet to be rolled out Establish UPD learning academy

Upd operating management