UPD business review

UPD remains committed to its strategic objective of growing market share in fine wholesale to 35%.

UPD increased total managed turnover across the pharmaceutical wholesale and bulk distribution businesses by 7.6% to R30.6 billion.

Distribution turnover declined by 2.6% off the high base set in the 2021 financial year due to the strong demand for medicines during the severe waves of Covid-19.

The operating margin (excluding the impact of the civil unrest) was maintained at a world class level of 3.3%, with operating profit declining by 1.2% owing to ongoing cost pressure and lower wholesale sales, particularly in the hospital and independent pharmacy channels.

UPD  performance review

Wholesale turnover by channel

Wholesale turnover declined by 5.2%, impacted by lower sales to private hospitals post the Covid-19 pandemic and the consolidation of independent pharmacies.

A high turnover base was set for the private hospital channel in the prior year when UPD experienced strong demand for pharmaceutical products during the Beta and Delta waves of Covid-19 which led to high levels of hospitalisation and extended hospital stays due to the severity of the variants, which contributed to turnover growth of 37.5%. Despite the 8.5% decline in turnover, UPD maintained its market share of private hospital business and acquired new customers in this channel.

The continued consolidation of the independent pharmacy market contributed to sales in this channel reducing by 32.4%. UPD currently services 1 200 (2021: over 1 350) independent pharmacies.

Clicks remains UPD’s largest single customer and increased sales by 6.5%, comprising 50.8% of wholesale turnover.

The lower turnover contributed to wholesale market share declining from 31.1% to 28.8% (source IQVIA).

UPD faces ongoing margin pressure from the faster growth in lower priced generic medicines, with sales of generics increasing by 11.2% and now accounting for 73% (2021: 71%) of wholesale turnover volume.

Product availability, which is core to offering superior range and service to customers, averaged 93.8% (2021: 96.8%) for the year, while on-time deliveries were at 97.9% (2021: 95.8%).

Three new bulk distribution contracts were secured in the period and UPD continued to grow its distribution market share, with 31 distribution clients at year end.

UPD owns distribution centres located in Gauteng (Roodepoort), 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, additional distribution warehouse facilities are rented in Gauteng and Cape Town.

Solar installations have been completed at all of UPD’s own distribution centres which increases the use of renewable energy sources and partially mitigates against rising energy costs and the impact of loadshedding.

Growth plans for 2023

UPD has secured an additional bulk distribution contract which will commence in the first half of the new financial year.

The business aims to regain wholesale market share through the growth of the Clicks pharmacy channel, with the rate of new pharmacy openings being accelerated to 40 to 50 each year, service to the private hospital groups and purchases from independent pharmacies.

Capital expenditure of R189 million has been committed for warehouse equipment and information technology in the year ahead. This includes the roll out of the new ERP/WMS system to the two largest distribution centres to extract further efficiencies and provide world class reporting to distribution clients.

UPD remains committed to its strategic objective of growing market share in fine wholesale to 35% and bulk distribution to 40%.