Business review: UPD

UPD continued to increase its market share and gained four new distribution contracts to maintain its market-leading positions in both the pharmaceutical wholesale and bulk distribution markets.

Turnover increased by 4.0% and UPD grew its operating margin by 60 basis points to 3.3%, benefiting from new distribution contracts secured over the past two years.

UPD’s total managed turnover, combining fine wholesale turnover with the turnover managed on behalf of bulk distribution clients, increased by 17.6% to R21.1 billion.

Wholesale turnover by channel

Wholesale turnover increased by 6.8%. Sales to Clicks pharmacies increased by 8.4% and Clicks remains UPD’s largest single customer, accounting for 55.3% of wholesale turnover.

Sales to private hospital groups, including Life Healthcare, Mediclinic and Netcare, showed muted growth of 1.6%.

UPD services approximately 1 200 independent pharmacies and sales to this channel grew by 13.9% and accounted for 15.9% of turnover. The business benefited from the addition of a new buying group, improved purchases from the Link brand and the preference of independent pharmacies for UPD’s excellent service levels.

The strong performance from UPD’s customer base contributed to wholesale market share increasing from 26.0% to 27.0%.

UPD faces ongoing margin pressure from the faster growth in lower-priced generic medication, with sales of generics increasing by 11.0% and now accounting for 68% of wholesale turnover volume.

As UPD has a relatively high fixed cost base management continuously seeks ways to off-set margin pressure by extracting efficiencies across all aspects of the operations, including inventory management, labour productivity and transport optimisation. UPD expenses, which include the costs related to the new distribution contracts, grew by 10.2%, well below the growth in total managed turnover of 17.6%.

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 its third-party distribution business, UPD will be increasing its capacity by renting an additional warehouse facility in Gauteng.

Product availability, which is core to offering superior range and service to customers, averaged 96% for the year while on-time deliveries were at 98.5%.

Outlook for 2020

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 in Clicks, purchases from Link pharmacies and service to the private hospital groups.

The business will continue to prospect for new distribution contracts and one new contract commenced in the first quarter of the 2020 financial year.

Capital expenditure of R83 million has been committed for warehouse equipment and information technology in the year ahead.

UPD remains committed to its long-term strategic objective of growing market share in wholesale to 30% and bulk distribution to 35%.

Vikash Singh

Managing director

Performance against objectives in 2019 and plans for 2020