Business review:
UPD
UPD continued to gain share and maintained its market-leading positions in both the pharmaceutical wholesale and bulk distribution markets over the past year.
Turnover increased by 12.3% as UPD benefited from the strong growth in medicines related to Covid-19. 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 11.0% to R569 million and the operating margin was maintained at a world-class level of 3.3%.
Total managed turnover, combining fine wholesale turnover with the turnover managed on behalf of bulk distribution clients, increased by 20.6% to R28.4 billion.
“UPD remains committed to its strategic objective of growing market share in fine wholesale to 35% and bulk distribution to 40%.”
WHOLESALE TURNOVER BY CHANNEL
Wholesale turnover increased by 15.1% as UPD generated strong growth in sales to private hospital groups in the second and third waves of the Covid-19 pandemic.
Private hospitals was the fastest-growing channel and increased sales by 37.5%, accounting for 40.2% of wholesale turnover.
Both Clicks and the independent pharmacy channel experienced slower growth rates as the use of masks, social distancing and lack of social interaction over the past year reduced acute infections. However, this trend is expected to reverse as increasing numbers of South Africans are vaccinated and lifestyles normalise with the relaxation of lockdown restrictions.
Clicks remains UPD’s largest single customer and increased sales by 6.3%, comprising 45.3% of wholesale turnover.
UPD services over 1 350 independent pharmacies which account for 14.5% of turnover.
The strong performance from UPD’s core customer base contributed to wholesale market share increasing from 28.9% to 31.2% (source IQVIA).
UPD faces ongoing margin pressure from the faster growth in lower-priced generic medicines, with sales of generics increasing by 17.3% and now accounting for 71% of wholesale turnover volume.
Product availability, which is core to offering superior range and service to customers, averaged 96.8% for the year, while on-time deliveries were at 95.8%.
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, the additional rented distribution warehouse in Gauteng is being extended and an additional facility is being rented in Cape Town.
The UPD distribution facility in Durban was severely damaged and looted in the civil unrest in KwaZulu-Natal (KZN) in July 2021. Business continuity plans were implemented to ensure continued supply to customers in KZN through the UPD distribution facilities in Johannesburg and Port Elizabeth. Owing to the initial disruption to road transport networks, medicines were flown from Johannesburg to Durban to supply the hospital groups across KZN. The damaged facility was restored and reopened within two weeks.
Growth plans for 2022
UPD has secured two new bulk distribution contracts which commence in the first half of the new financial year. The business 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.
Capital expenditure of R74 million has been committed for warehouse equipment and information technology (IT) in the year ahead. This includes the implementation of the new ERP system which will go live in the first facility in October 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 fine wholesale to 35% and bulk distribution to 40%.
Performance against objectives in 2021 and plans for 2022
Growing market share
Plans and targets for 2021 |
Achieved in 2021 |
Plans and targets for 2022 |
|
Increase market share to 30.5% |
Market share increased to 31.2% |
Increase market share to 33.4% |
|
Grow volume of business with private hospital groups |
Sales to hospital groups grew by 37.5% owing to increased demand during the second and third waves of the 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 for 2022 financial year; 26 distribution clients managed at year‑end |
Tender for new agency distribution contracts |
Protecting income
Plans and targets for 2021 |
Achieved in 2021 |
Plans and targets for 2022 |
|
Maintain licences |
Licences maintained |
Maintain licences |
Optimising efficiency
Plans and targets for 2021 |
Achieved in 2021 |
Plans and targets for 2022 |
|
Target 98% on-time deliveries |
95.8% on-time deliveries |
Target 98% on-time deliveries |
|
Drive further productivity initiatives across the business |
Improved labour productivity with expanded distribution warehouse footprint |
Drive further productivity initiatives across the business |
|
Achieve order fulfilment to 98% |
Order fulfilment of 98.8% achieved |
Achieve order fulfilment of 98% |
Building capacity
Plans and targets for 2021 |
Achieved in 2021 |
Plans and targets for 2022 |
|
Reduce employee turnover to 5% |
Employee turnover 6.0% |
Employee turnover below 5.0% |
|
Maintain Transported Asset Protection Association (TAPA) certification for transport fleet |
Achieved TAPA Level 1 accreditation |
Maintain accreditation |
|
Expand learners through UPD training academy to 70 |
155 learners enrolled |
68 new learners |
|
Design IT system solution and prepare roll-out |
New IT system ready for implementation at Durban distribution centre in October 2021 |
New system to go live on a phased basis at all facilities by May 2022 |