Lynda van Niekerk
Managing director

B Com (Acc) (Hons), CA (SA)

Five years’ service with New Clicks group

Appointed managing director in 2005

Previously financial director of UPD

“UPD strives to maintain its operating margin and expense management at its current world class levels”

operational review

UPD is the country’s leading national full-line pharmaceutical wholesaler and provides the distribution capability for New Clicks’ integrated healthcare strategy. The business services retail and chain store pharmacies, hospital pharmacies, dispensing doctors, veterinarians, health shops and other wholesalers. An average of 18 500 product lines (12 500 FMCG and 6 000 scheduled medicines) are held to service customer needs.

Review of the year

UPD’s strategy of diversifying its client base and building sales volumes has seen the business increase its share of the competitive pharmaceutical distribution market from 24.9% to 25.6%.

Hospital sales have grown to 26% of UPD’s total sales and Clicks to 18%, with the contribution from independent pharmacies declining to 47%. Dispensing doctors, retail health stores and third-party distribution accounts for the balance of 9%. UPD supplies the majority of the pharmaceutical product to the Life Healthcare and Medi-Clinic private hospital groups.

UPD’s new pharmaceutical distribution centre was opened in June 2007. Built at a cost of R43 million, this automated system has replaced the manual inventory picking method and will result in a more accurate, time-efficient and compliant distribution process for ethical products. Security has been enhanced through the elimination of manual interventions.

The viability of independent pharmacy is critical to the long-term success of the business. UPD will in future offer its value-added services to community pharmacies under the Link banner group and during the year enrolled 250 retail pharmacies onto the programme. The Link brand initiative is a means of increasing loyalty to UPD and enabling these pharmacies to be more competitive. UPD offers training for pharmacists and pharmacy assistants, front shop marketing support, volume discounts on front shop purchases and business skills development.

UPD also markets value-adding services to its suppliers, including the provision of contract sales forces for new product launches, in-store promotions, telesales and training.

Extended supplier terms negotiated with several leading suppliers resulted in improved working capital management.

The executive team of UPD has been restructured to ensure clear accountability and responsibility across functional and support roles, including the external appointment of finance and operations executives.

Medical inflation for the year is estimated to be 2.0%, arising mainly from the 5.2% price increase afforded to selected manufacturers by the Department of Health in January 2007.

Market share (%) 2007 2006
Total private pharmaceutical market (value)* 25.6 24.9
Total private pharmaceutical market (unit volume)* 22.6 22.5

* IMS

Strategic focus for 2008

The Link programme will be a key focus in the new financial year as UPD plans to attract many more community pharmacies into its fold.

UPD has identified medical practitioners as a growth market and aims to target the 4 100 dispensing doctors with a range of personalised and value-adding services, including in-practice stock management and order taking.

Third party distribution is an area of growth as UPD seeks opportunities to expand and diversify its income base. UPD has been awarded the distribution contract for pharmaceutical supplier, Pharmaplan.

The regulatory uncertainty of the past few years continues. While the impasse over the dispensing fees for retail pharmacy remains unresolved, it is anticipated that draft regulations on international benchmark pricing will be released before the end of 2007. Logistics fee capping is expected to be introduced within six months of the benchmarking regulations being promulgated. UPD will continue to engage with the health authorities on logistics fees, the licensing of wholesalers and other regulatory issues which could potentially impact the business.

UPD strives to maintain its operating margin and expense management at its current world class levels and continues to focus on working capital and cash improvement strategies, as well as extracting operational efficiencies from the new distribution centre and other UPD facilities.