New United Pharmaceutical Distributors (UPD)

“UPD has grown turnover from both its independent pharmacy
base and group companies.”

Financial highlights and statistics         2003  Sales R’000  1 431 304  Operating profit before interest and after allocation of net costs of support structures R’000  54 304  Inventory turn   10.9  Debtors’ days   30.4  Number of full-time permanent employees   576  Introduction The acquisition of UPD with effect from January 2003 forms a strategic component of the group’s healthcare plans, as it provides the distribution capability for the integrated channel to market.

UPD is the largest national wholesaler in the country. Its customer base includes retail pharmacies, private hospitals, dispensing doctors and health stores.

UPD has expertise in fine distribution and it would have taken the group several years to convert the current bulk distribution centres to manage fine distribution for the implementation of pharmacy.

Review of the year
The business has been successfully integrated into the group and is already extracting synergies across the various healthcare interests.

UPD posted sales of R1.4 billion for the eight-month period and contributed R54.3 million to the group’s earnings. The stock turn of 11 times reflects the efficient management of the business.

It is encouraging that UPD has grown turnover from both the PM&A group and its independent pharmacy base. There were initial concerns that UPD could lose independent customers as a result of being acquired by New Clicks.

It has been necessary to demonstrate the benefit of the association with the group to the independent pharmacies and UPD has passed on the Clicks pricing on top FMCG lines to its entire customer base.

UPD operates an innovative black empowerment programme, with the bulk of its distribution being handled by self-employed drivers from disadvantaged backgrounds with their own vehicles. The drivers are assisted in obtaining finance and guaranteed a minimum workload. The programme has been operating successfully for seven years.

Strategy
UPD has taken over responsibility for the group’s pharmacy franchise interests. A major challenge is to increase turnover from Link pharmacies and UPD is developing key value differentials for Link franchisees to enhance loyalty to UPD. Service levels remain key in this area.

UPD’s distribution capacity through its five warehouses around the country will be critical to the group’s pharmacy strategy, as it is currently able to deliver at least twice a day to the pharmacies that it services. This will allow the Clicks pharmacies to carry less stock.

The changing legislative environment will have a major impact on UPD.

Original source procurement will ensure ethical standards and transparency throughout the industry and, as UPD has a strict policy of only buying goods from original source, this is likely to have a beneficial impact on turnover.

There is still general uncertainty around the implementation of single exit pricing, which is due to be considered early in 2004.

Prospects
UPD is a cash generative business, with efficient working capital management. The expansion of the Clicks pharmacy offering, the prospect of increased turnover from Link franchisees and the opportunity to provide group pricing benefits to independent customers should see UPD grow turnover and profit strongly in the year ahead.