12/3/2010

BUSINESS PLAN WITH A

PERSPECTIVE TO GROW
CITY AND EXPAND
PHARMACY
PHARAMACEUTICALS
of
KAMPALA
DISTRIBUTION/RETAIL
(U) AND PRODUCTION
LIMITED WITHIN THE EAC
COMMON MARKET
FRAMEWORK

[Type the document subtitle] | [Type the author name]

Contact Us:
CITY PHARMACY of KAMPALA (U) LIMITED,

Plot 23, Kampala Road,

P.O. Box 6690,

Kampala,

UGANDA.

Tel: +256-414-250115/255716/341508

Fax: +256-414-257024

Mob: +256-772-787668/772-594592
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TABLE OF CONTENTS

S/NO DESCRIPTION PAGE

EXECUTIVE SUMMARY 1

1.0 BACKGROUND 1

2.0 OPERATING MODEL 1

3.0 MARKET SIZE ANALYSIS & MARKETING PLAN 2

4.0 FINANCIAL ANALYSIS 4

5.0 ORGANIZATION PLAN & MANAGEMENT STRUCTURE 6

COMPREHENSIVE BUSINESS PLAN 7

6.0 UGANDA – INVESTMENT CLIMATE 7

7.0 THE UGANDA PHARMACEUTICAL & MEDICAL PRODUCTS SECTOR 9

7.1 Overview 9

7.2 Government Policy 9

7.3 Changes in Industrial Production 12

7.4 Performance of the Sector 12

7.5 Availability of Special Skills 14

7.6 Key Strengths (Competitive Factors) 14

8.0 THE KENYA PHARMACEUTICALS INDUSTRY 14

8.1 Industry Overview 14

8.2 National Policies on Healthcare and Pharmaceuticals 16

8.3 Industry Structure 18

8.4 Production of Pharmaceutical Products 21

8.5 Market Conditions 23

9.0 THE PHARMACEUTICALS SECTOR OF TANZANIA 24

9.1 The Pharmaceutical Market in Tanzania 24

9.2 Regulatory and Legislative Environment 27

9.3 International Agreements 28

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10.0 WIDER EAST AFRICAN MARKET ENTRY STRATEGY 29

11.0 CITY PHARMACY’S VALUE PROPOSITION AND BRAND POSITIONING 30

12.0 MARKETING STRATEGY 30

13.0 EAST AFRICAN MARKET SEGMENTATION & IDENTIFYING THE MARKET

SEGMENT 31

14.0 MARKETING PLAN 32

14.1 Product 32

14.2 Pricing 33

14.3 Promotion 34

14.4 Distribution 36

15.0 ORGANIZATION PLAN & MANAGEMENT STRUCTURE 36

15.1 Mission, Vision & Values 36

15.2 City Pharmacy Ltd.’s Mission Statement 37

15.3 City Pharmacy Ltd.’s Vision 37

15.4 Legal description of the company 39

15.5 City Pharmacy Ltd.’s Organisation Structure 39

15.6 Managerial Autonomy & Reward System 40

15.7 Hiring Plan (Kenya & Tanzania) 40

16.0 HUMAN RESOURCES 41

16.1 Our Culture 41

16.2 Staff Training and Development 41

16.3 Staff Retention and Innovation 41

17.0 OPERATIONAL STRATEGY 43

17.1 Operating Model 43

17.2 Rationale behind the Choice of Operating Model 43

17.3 Challenges Associated with the Chosen Operating Model 43

17.4 Applicable Statutory Requirements 44

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17.5 Short Term Project Implementation Plan 45

17.6 Operating Expenses 45

18.0 OPERATIONS PLAN 45

18.1 Trading 45

18.2 Lease/Regulatory Issues 45

18.3 Quality Assurance 46

18.4 IT Component 46

18.5 Technology 46

19.0 FINANCIAL ANALYSIS 46

19.1 Source of Funds 46

19.2 Application of Funds 47

19.3 Structure of New Loans 47

19.4 Financial Risks & Challenges 47

20.0 BUSINESS RISKS 48

20.1 Regulatory Risks 48

20.2 Competitive Risks 48

20.3 Litigation Risks 48

20.4 City Pharmacy Ltd.’s Lack of Business Experience in Rest of East Africa 49

LIST OF EXHIBITS

E/NO DESCRIPTION PAGE

1 The Five Forces Analysis for Industry Attractiveness 50

2 Evaluation of EAC Common Market Entry Strategies 51

3 City Pharmacy Ltd.’s 3-Pronged Value Proposition to Customers 52

4 City Pharmacy Product Positioning 53

5 Marketing Budget Allocation for 2011 54

6 Management Structure 56
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7 Head Count in Different Departments 56

8 Operating Model 57

9 Evaluation of Manufacturing Alternatives 57

10 Evaluation of Distribution Alternatives 58

11 Evaluation of Retail Alternatives 58

12 Project Implementation Gantt Chart 59

13 Responsibilities for Project Implementation Activities 60

14 Operating Expenses 61

15 City Pharmacy Kampala (U) Ltd.’s Forecasted Income Statements 62

16 Sensitivity Analysis of Income from City Pharmacy Kampala (U) Ltd –

Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo, and South
Sudan 63

17 Operating Cash Flow for Kenya, Tanzania, Rwanda, Burundi, Eastern DR

Congo, and South Sudan Operations 63

18 Net Cash Flow Projections for Kenyan, Tanzanian, Rwandan, Burundian,

Eastern DR Congo, and South Sudan Operations 64

19 Net Present Value of City Pharmacy of Kampala (U) Ltd – Kenya, Tanzania,
Rwanda, Burundi, Eastern DR Congo, and South Sudan Plan 65

20 NPV Sensitivity and ROI Calculations 66

21 Net Profit trend of City Pharmacy of Kampala (U) Ltd – Kenya, Tanzania,
Rwanda, Burundi, Eastern DR Congo, and South Sudan 66

22 Cash Flow from Operations of City Pharmacy – Kenya, Tanzania,

Rwanda, Burundi, Eastern DR Congo, and South Sudan 67

23 Cumulative Cash Flow from Operations of City Pharmacy – Kenya,

Tanzania, Rwanda, Burundi, Eastern DR Congo, and South Sudan
Operations 68

24 Forecasted Income Statements of City Pharmacy Kampala Ltd.’s –

Uganda Operations 69

25 Forecasted Consolidated Income Statements 69

26 Forecasted Consolidated Balance Sheet 70

27 Ratio Analysis for City Pharmacy Kampala Uganda Ltd. 71

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28 Consolidated Cash Flow Statements 71

29 Ending Cash Balance Projection for City Pharmacy of Kampala (U) Ltd. 72

30 Profit Contribution of City Pharmacy of Kampala Uganda Ltd. – Rest of East

Africa to overall performance of City Pharmacy of Kampala Uganda Ltd. 73

31 Break Even Sales Calculation 74

EXECUTIVE SUMMARY

1.0 BACKGROUND

City Pharmacy of Kampala Uganda Ltd. (CPK) is the oldest pharmacy in Uganda. It
has existed since 1961, with extensive experience in the pharmaceutical import and
wholesale/retail and distribution business. The pharmacy emphasizes the retailing
and distribution of quality pharmaceutical products mainly from European countries.
The pharmacy‘s annual sales turnover is currently estimated at 1.2 million dollars.

The vision of City Pharmacy of Kampala Uganda Ltd. Is to be the lead pharmacy in
the wholesaling/retailing and distribution of generic and branded prescription drugs,
over-the-counter (OTC) medicines, and vaccines to a wide range of customer
markets in Uganda as well as the wider East African market comprising of Kenya,
Tanzania, Rwanda, Burundi, Southern Sudan and the Democratic Republic of Congo
(DRC). Our key objective is to provide a broad range of prescription/OTC/vaccine
medications to our valued customers at the most affordable and competitive prices on
the market. We are able to sell our product range at reduced prices by carefully
maintaining efficiencies in our operations and by targeting the entire segments of the
market - those customers who pay for their medicines and those who take on credit
for not more than thirty days (especially the bulk-purchasing wholesale consumers).

City Pharmacy of Kampala Uganda Ltd. operates from long-established

wholesale/retail outlet within the Kampala city centre that has consistently and
continuously served both mail order customers and those who visit in person for all
the time that it has been in active business. We thrive by employing friendly and
knowledgeable personnel, which, along with our great prices, drive the repeat business
that we rely upon. We only expect that as the price of medication continues to sky-
rocket, CPK will continue to attract more customers basing on competitive market
pricing of its medicines and will appeal more and more to the customer's sense of
value and convenience. The customers who will be targeted are those who will be
looking to save money on a pricey but necessary and regular expense.
Our advertising, mainly through the news media, is targeted at those who are looking
to save money on a pricey but necessary and regular expense.
City Pharmacy of Kampala Uganda Ltd. is currently led by Ms. Goretti Sendyona
and a professional team of directors with a wealth of experience in the pharmaceutical
industry, business administration and market networking. Costs are minimized by
maintaining only one pharmacist. The business is in a profitable and robust trading
position and it expects to boost its periodical sales turnover by quite a substantial
volume when it expands its operational and marketing outreach to the other
neighbouring country markets in East Africa in 2011.

2.0 OPERATING MODEL

City Pharmacy of Kampala Uganda Ltd. Sources its pharmaceutical products

directly from branded pharmaceutical manufacturers in Western Europe, the US and
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Canada. City Pharmacy of Kampala Uganda Ltd. then break-bulks the
pharmaceutical imports through its established retail/wholesale and distribution
pharmaceutical value chain comprising of pharma-products distributors to reach the
smaller pharma-retailers and urban/up-country hospitals and ultimately the end
users.
Pharma-
retailers

City Pharmacy Pharma- Consumers

of Kampala distributors
Uganda Ltd

Hospitals/Health
Centres

3.0 MARKET SIZE ANALYSIS & MARKETING PLAN

Product

City Pharmacy of Kampala Uganda Ltd. has been in the business of distributing a
comprehensive inventory of branded and generic pharmaceutical products on the
Uganda market for the last 50 years that it has been active in the pharmaceutical
market. These pharmaceutical products include the whole range of
prescription/OTC/vaccine drugs that are detailed in the Essential Drug List for
Uganda 1996. City Pharmacy of Kampala Uganda Ltd. is intent on targeting the
same pharmaceutical brands thru which it has gained strong market recognition and
pharmaceutical distribution/wholesale prominence in Uganda to the projected wider
East African pharmaceutical product markets of Kenya and Tanzania in 2011 and
beyond.

The Uganda market has many different types of drugs – especially from India and
Pakistan. CPK deals mainly in medicines imported from Western Europe, US and
Canada.

Price

The rationale for the pricing strategy is ―Value Based Pricing‖ based on an analysis of
purchasing power of the target segment and the current customer spending on
pharmaceutical products. Concerns on health and need for good quality are on the
rise and correspondingly the willingness to spend on premium value medicine is
increasing.

Further, a high price will align with City Pharmacy of Kampala Uganda Ltd.’s
positioning of a premium brand and have a connotation of high quality associated with
it. Also, as per market research studies, demand is relatively less elastic for medicinal
products. Hence, the higher than average prices of City Pharmacy of Kampala
Uganda Ltd.’s products should not be a concern.
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Promotion

City Pharmacy of Kampala Uganda Ltd. has traditionally relied on a multi-pronged

approach for marketing its prescription and OTC pharmaceuticals and will also use a
similar technique in establishing its presence in Kenya and Tanzania. It will set aside
a budget of $470,650 for promotions in 2011. Advertising thru the established print
and electronic media as well as in health books and buzz marketing techniques will be
the main promotion vehicles. (Market research indicates health books (18%) and
family/friend referrals (36%) as being top influencers in buying decision for NHPs).

Advertising: Using health magazines for men/women, TV, radio, newspaper, bill
boards, and internet. The focus of the advertisements will be on product benefits, and
the established brand names of the imported quality pharmaceuticals imported by
City Pharmacy of Kampala Uganda Ltd. as well as competitive product pricing. This
approach will help build consumer confidence on the quality of health products
imported to East Africa.

Sales Promotions: Includes free samples, discount coupons, bundling products into
value packs, and bundling City Pharmacy of Kampala Uganda Ltd. goods (key
chains, coffee mugs, caps, T-shirts, etc.).

In-Store Promotions: Includes Trade Discounts and special In-Store campaigns.

Public Relationships: Includes participation in Trade Shows, sponsorship of social

causes (corporate social responsibility).

Direct Mail Campaigns: These campaigns will be used for selectively reaching potential
long term customers.

Distribution

The main distribution channel(s) for City Pharmacy of Kampala Uganda Ltd. in
Uganda and elsewhere in East Africa is(will be) its wholesale/retail outlet(s) in
Kampala and ultimately in Nairobi, Dar-es-Salaam, Kigali, Bujumbura,
Goma/Butembo, and Juba. In Uganda, City Pharmacy of Kampala Uganda Ltd. the
location of the main pharma-distribution outlets right in the centre of the city accords
the company a significant marketing/sales advantage as it makes it easy for
consumers to purchase and collect pharmaceutical consignments at will and the
excellent customer-service offered by company staff has been unrivalled and peerless
in Uganda for decades. City Pharmacy of Kampala Uganda Ltd. plans to replicate
the same pharma-distribution strategy and quality of customer service in its expanded
regional pharma-distribution outlets in Nairobi (Kenya) and Dar-es-Salaam (Tanzania).

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 4.0 FINANCIAL ANALYSIS

(Note: All figures are in ‗000s USD)

Table 1: City Pharmacy of Kampala Uganda Ltd. Forecasted Income Statements

Yearly Sales
Growth up to 75% Sales Growth in 2016 35%
2016
% of 2011E 2012E 2013E 2014E 2015E 2016E Remarks &
Sales Assumptions
Sales 100% 2,580 4,515 7,900 13,825 24,194 32,660
COGS 6% 154.8 270.9 474 829.5 1,451.625 1,959.6
Gross Margin 94% 2,425 4,244 7,426 12,996 22,742 30,700 Sales Price is
adjusted to
accommodate part of
transportation cost
Transportation $ marketing expense
4% 103.2 180.6 316 553 967.75 1.306.40 in 2011
Cost
SGA 80% 2,064 3,612 6,320 11,060 19,355 26,128
EBITDA 10% 258 452 790 1,383 2,419 3,266
Depreciation 4% 103.2 180.6 316 553 967.75 1,306.40 4% of Sales based on
assumption that
Depex is 10% of
Fixed Assets
EBIT 155 271 474 830 1,452 1,960
Interest 100 80 60 40 20 0 Interest Rate of 10%
on a Medium Term
Loan of US$ 1
million (i.e. payable
in 5 years)
PBT & Minority
55 151 414 790 1,432 1,960
Interests
Minority
33.78 27 20.27 13.5 6.76 0
Interests
PBT 21.22 124 393.73 776.5 1,425 1,960
Taxes Payable Taxes = 30% for EAC
6.366 37.2 118.119 232.95 427.572 588 Common Market
on Profit
states
Tax Cover from
0 0 0 0 0 0
previous Year
Actual Taxes
6.366 37.2 118.119 232.95 427.572 588
Paid
Tax Cover
0 0 0 0 0 0
Carried Over
PAT 14.854 86.8 275.611 543.55 998 1,372
NOTE: 1) Sales are based on City Pharmacy of Kampala Uganda Ltd.’s price to retailers.
Retailer margins are above this price. 2) Fixed Assets/Sales is assumed to remain at current
level of 0.29 (It has been in the range of 0.3 for the past 4 years).

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Table 2: Net Cash Flow Projections
2011E 2012E 2013E 2014E 2015E
Net Cash Flow from
Operations 51.36 107.61 314.63 472.45 987.60
Net Cash Flow from
Investments -66.67 -50 -87.5 -153.13 -125.05
Net Cash Flow from
Financing 66.67 50 87.5 153.13 125.05
NET CASH FLOW 51.36 107.61 314.63 472.45 987.60
NOTE: Cash flow in investments in future years will be low due to slower average growth of
around 5-10%. Hence, cash flows from operations in future years will be steady and sufficient
to cover any future investment requirements. Growth will slow down because City Kampala
Pharmacy Limited will have completed its geographic and product line expansion in the EAC
market by 2015.

5- Year Return on Initial Investment: 40.18% (Refer Exhibit 20 for details)

Net Present Value of Project: 2.882 Million USD (Refer Exhibits 19 & 20)

Initial Investment Required: $3.513 million in 2011-12.

Profitable in 2016. 81.72% of City Pharmacy of Kampala Uganda Ltd.’s net

profits in 2016 will be from Kenyan, Tanzanian, Rwandan, Burundian, Southern
Sudanese, and Eastern Congolese operations. 81.94% of City Pharmacy of Kampala
Uganda Ltd.’s sales in 2016 will be from Kenyan, Tanzanian, Rwandan, Burundian,
Southern Sudanese, and Eastern Congolese operations.

Positive cash flows from operations in 2011.

Breakeven Sales Volume: $ 1,080.25 million/year in 2012 (Refer Exhibit 31 for

details).

Breakeven Market Share: 1.39% (Refer Exhibit 31 for details).

Interest Coverage Ratio: Healthy (> 4) Refer Exhibit 27 for other ratios.

Refer Exhibits 15 to 31 for projected financial statements (Kenyan, Tanzanian,

Rwandan, Burundian, Southern Sudanese, and Eastern Congolese operations and
Consolidated), ratios, cash flows, sensitivities and assumptions.

Source of Funds: City Pharmacy of Kampala Uganda Ltd. should secure long term
loans from its current bank in Uganda to fund capacity expansion in its Kenyan,
Tanzanian, Rwandan, Burundian, Southern Sudanese, and Eastern Congolese
facilities and its own excess cash for funding initial working capital requirements. In
later years the Kenyan & Tanzanian divisions can source working capital requirements
from Kenyan & Tanzanian banks.

Risks: a) High working capital requirements in future years to meet growth.

Mitigation steps – Supply chain efficiency improvement.

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 b) Foreign exchange risks. Risk level – Medium. Mitigation Steps – Hedging.

5.0 ORGANIZATION PLAN & MANAGEMENT STRUCTURE

City Pharmacy of Kampala Uganda Ltd.’s Mission Statement:

The City Pharmacy of Kampala Uganda Ltd.’s mission is to provide our valued
customers with the best prices and quality generic and branded prescription/OTC
medications. We would like to use our convenience and services to exceed the
expectations of our customers.

Organization Structure:

The organizational structure of City Pharmacy of Kampala Uganda Ltd. is indicated

in the diagram below. There are six levels of hierarchical authority in the company
with the Board of Directors at the apex of the organization. The next level is the
Executive Director who is assisted by the General Manager – Operations in the third
tier. The GM - Operations is also supported by the respective departmental managers
comprising of Finance, Materials/Logistics, Marketing, Administration and Human
Resources and Research and Development departments in the fourth tier.

Board of Directors

Executive Director

GM – Operations

Materials/
Finance Marketing Manager – Research &
Logistics Admin. & HR Development
Manager Manager
Manager Coordinator

Finance Logistics Dept

Department

Customer Marketing Dept

Relationship (Wholesale and
Management Dept Retail)
6
COMPREHENSIVE BUSINESS PLAN

6.0 UGANDA – INVESTMENT CLIMATE

Strategic Location
Few countries in Africa provide the sort of strategic location that Uganda offers to
investors. Located at the heart of East and Central Africa, it shares borders with some
of Africa‘s most economically important and resource rich countries, from the mineral
rich DR Congo to the rapidly expanding Southern Sudan economy. Uganda boarders
the Sudan to the north, the Democratic Republic of Congo to the west, Kenya to the
east and Tanzania and Rwanda to the south.
Though landlocked, the many borders it shares with her neighbors, give her a
commanding importance as a base for regional trade and investment.

Predictability is possible because of macro-economic stability with inflation

maintained at single digit level for over 10 years from a record high of 240% in 1988.
The country has also had an annual and fairly stable economic growth averaging 6%
per annum, a result of good macroeconomic policies and political stability.

A liberal economic regime is another consistent characteristic of the Uganda

Economy. There is free inflow and outflow of capital (both current and capital
accounts), 100% foreign ownership of investment is permitted and exchange rates are
freely determined by the market.

Market Access
Uganda has been secured and guaranteed by membership in various free trade and
market access preferences offered to the country. The Common Market for Eastern
and Southern African states (COMESA), a region with a market of over 380 million
people in 20 countries is one of the groupings in which Uganda is a member,
guaranteeing the business community more than 80% tariff reduction in this regional
market.

Strong Natural Resource Base

The country has got great physical endowments. The location in the heart of Sub-
Saharan Africa and astride the Equator, gives Uganda one of the best climates in the
world. With rainfall all year round, fertile soils and favorable temperature range, one
can grow any crops in the country in the most natural conditions any country can
have. The country takes pride in being the leader in organic agriculture in Africa.
Many food stuffs are produced, in an environment free of harmful chemical inputs.
There are plenty of unexploited mineral deposits (over 117 minerals). Confirmed
deposits include: gold, zinc, wolfram, petroleum, diamonds, vermiculite, silica,
uranium and iron ore.

Government Commitment to Private Sector

Government and private sector dialogue in policy formulation are at the highest level
and at the center of business development processes in the country. A Presidential
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Investor‘s Roundtable chaired by the Country‘s President is in place to ensure that
government policies keep the private sector at the center. Business Development
Strategies including the Investment Climate Strategy (CICS), the National Export
Strategy (NES) and other regulatory frameworks have all been put in place under
Public - Private Sector Partnerships. As a result, many vibrant private sector
associations have come up to advance their members‘ concerns.
Cost and Trainable Labour
Uganda presently produces over 20,000 University graduates per year. The quality of
this labour is one of the biggest attractions, being a product of an education system
with strong links with the British Education System inherited at independence. The
World Bank Doing Business Report (2006) ranks Uganda among the top 25 countries
where hiring labour is simplest. The country is also a regional base for training the
labour force from the East African region. Being among World Bank‘s low income
economy classification, one of the key advantages of such an economy is low labor
costs. Using the GDP per capita as a proxy to gauge possible wage competitiveness, an
evaluation of Uganda with her immediate neighbours shows her in the fifth lowest per
capita income bracket based on Purchasing Power Parity. Using the conventional per
capita measure, Uganda has the third lowest as illustrated in the figure across.
English Speaking Labour Force
Although English is an official language in most of the countries in East and Southern
Africa, it is not the primary language spoken by the majority of the population in any
of them. Uganda is however the only Country in East Africa where English is the sole
official language. Using the Test of English as a Foreign Language (TOEFL) as an
indicator of English language skills, studies in the region have shown that Uganda
ranks second in mean TOEFL score among the six neighboring Countries
Based on the scores, it would appear that presently only Kenya and Uganda labour
might have the requisite English language skills that are today vital for managing the
rapidly changing global business, where transactions are largely conducted in
English.
Protecting Investors
The country‘s investors have complete international protection made possible by the
local laws and international conventions to which the country is signatory. The
Ugandan constitution (1995) and the Investment Code Act 2000, stipulate sufficient
laws to protect investors rights and property. The International Conventions and
institutions to which Uganda is signatory include the Multi lateral Investment
Guarantee Agency (MIGA); Overseas Private Investment Corporation (OPIC) of US;
Convention on the recognition and enforcement of foreign arbitral award (CREFAA)
and several others.

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7.0 THE UGANDA PHARMACEUTICAL & MEDICAL PRODUCTS SECTOR

7.1 Overview

Over 90 per cent of Uganda‘s drug needs is imported leaving only 10 per cent which is
produced locally. Imports of pharmaceutical and health products account for over 6%
of total imports. Pharmaceutical companies in Uganda are categorized into 2 groups
the manufacturers and distributors. The National Medical Stores imports most of the
pharmaceutical and health products.

Uganda‘s Pharmaceutical and Medical products sector has witnessed steady growth
trends since the 1990s. There are currently 12 manufacturers1 engaged in the
production of medicinal products and supplies such as tablets, hard gelatin capsules,
injectables, liquid mixtures and surgical gauze among others. The number of
pharmacies and drug shops has grown from 216 and 2,700 in 2004 to 425 and 4,370
respectively in 2008.

Table 3: Pharmacies & Drug Shops in Uganda, 2004 to 2008

2004 2005 2006 2007 2008
Pharmacies 216 263 326 336 425
Drug shops 2,700 3,000 3,500 3,900 4,370
Source: National Drug Authority

7.2 Government Policy

The National Drug Policy relates to the regulation of the importation, production,
distribution, marketing, exportation, and use of pharmaceuticals in the public as well
as in the private sector and to any matter related to the above. The National Drug
Authority (NDA) is charged with the implementation of the National Drug Policy.

All Statutory requirements are contained in: -

 The National Drug Policy and Authority Statute, 1993;
 The National Drug Policy and Authority (issue of licenses) Regulations, 1993;
 The National Drug Policy and Authority (Certificate of Suitability of Premises)
Regulations, 1995;
 A number of guidelines and sops (standard operating procedures) which are
obtainable from the National Drug Authority, Head Office.

National Drug Authority

The National Drug Authority (NDA) is an autonomous body set up by the government
by statute No. 13 of 1993, to implement the National Drug Policy based on the concept
of Essential Drugs. The importation of a drug requires the submission of a request to
NDA, which is examined and verified before permission to import is granted. On
arrival at specified ports of entry the medicines are checked for Quality Assurance.

1
8 are large scale whilst 4 are small scale.
9
Where need arises samples are taken for analysis at Quality Control Laboratories
locally or abroad.

 Control of Medicines
In Uganda, medicines are classified into three categories:-
- Class A – Narcotics;
- Class B – Restricted medicines – prescription only drugs/medicines + pharmacy
only medicines; and
- Class C – Over-the-counter (OTC) drugs/medicines.

Class A and B are drugs which must be dispensed only on prescription by a registered
medical Practitioner, Dental Surgeon and Veterinary Surgeon.

Drug Registration
NDA registers drug products for use in the country after full details about the product
and the research that has been carried out on it to assess its safety, efficacy and
quality is studied. NDA examines all the research and test results in detail before a
decision is made on whether the product should be granted registration in Uganda.
This process is expected to weed out substandard products and reduce the number of
medicines circulating in the country to a manageable number which can be monitored
effectively.

Monitoring of Medicines
Even after medicines have been imported into the country or granted license to be
manufactured in the country, NDA, through its inspectors, monitors them while they
are being used. NDA inspectors carry out regular inspections of manufacturing plants,
pharmacies and drug shops.

Requirements and Procedures to be followed by an Investor Setting Up a

Pharmaceutical Manufacturing Plants and/or Pharmacies in Uganda

� Suitable Premises
• To avoid congestion and ensure equitable distribution of the services to the people
national Drug Authority advises investors about the location of premises;
• The actual premises/building must have all the appropriate compartments,
decorations and facilities for which a ―Certificate of Suitability of Premise‖ is issued by
the National Drug Authority after inspection and recommendation by the Drug
Inspectorate;

� Pharmacist
• It is both a legal and professional requirement that all pharmacies and
pharmaceutical industries must engage the services of a qualified pharmacist.
Pharmaceutical Industries may require more than one pharmacist; and
• The pharmacist must be registered and resident in Uganda, in case of a body
cooperate or partnership, at least one of the directors must be a pharmacist resident
in Uganda.
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� Licenses
• Application forms can be obtained from the National Drug Authority, Head office and
the licenses are obtained from the Secretary, National Drug Authority;
• The licenses that can be applied for include:-
- License to operate a pharmaceutical manufacturing business;
- License to operate a whole sale pharmacy;
- License to operate a retail pharmacy;
- Certificate of suitability of premises (Retail Pharmacy);
- Certificate of suitability of premises (Whole Sale Pharmacy);
- Certificate of suitability of premises (Manufacturing business); and
- Import/Export permit.

� Procedures
• Manufacturing must be under the direct supervision of a registered named
production pharmacist. In a large factory, the deputy production pharmacist must be
employed. This pharmacist (and deputy where possible) must not supervise any other
pharmaceutical business whether on the same or any other premises;
• The production pharmacist must be supported by suitably qualified personnel such
as pharmacists, pharmacy technicians or approved technicians;
• Quality control of manufactured products must be supervised by a registered named
quality control pharmacist or chemist. In a large factory, a deputy quality control
pharmacist must be employed;
• The Quality control Pharmacist (deputy where possible), must not supervise any
other pharmaceutical business whether on the same or any other premises; and
• Suitably qualified personnel such as pharmacists, pharmacy technicians or
approved chemists must support the Quality Control Pharmacist.

Licensing Requirements:
To be licensed, the following must be submitted: -
• A certificate of practice of the production pharmacist;
• The certificate of the head of Quality Control/Assurance; and
A complete list of the products to be manufactured and their registration status.

� Import/Export
• An Import/Export permit (Annual/Temporary) must be obtained from the National
Drug Authority;
• At least 3 copies of the proforma invoices are presented to the verification committee
of the NDA for verification and endorsement;
• Note: an importer must obtain the proforma invoice and apply for verification before
dispatch of medicines from supplier;
• Only medicines registered and verified by NDA will be allowed entry into the country;
• On arrival of the drugs in the country, inspection must be carried out at the port of
entry and a National Drug Authority authorisation/rejection report is issued by an
Inspector of Drugs or Assistant Inspector of Drugs;

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 � Drug Registration and Product License
• All Pharmaceuticals to be imported or manufactured in Uganda must first be
registered with the national Drug Authority; and
• All manufacturers of pharmaceuticals in Uganda are required to apply for product
license from the National Drug Authority.

7.3 Changes in Industrial Production

The Annual Index of production for the Chemical and Pharmaceutical sector indicates
general positive growth trends in the sector with a slight decline (4.7%) from 190 in
2007 to 181 in 2008.

Figure 1: Chemical & Pharmaceutical Production, 2004 – 2008

200

150

100

50

0
2004 2005 2006 2007 2008
Index of Chemical and 119 132 149 190 181
Industrial Production

Source: UBOS

7.4 Performance of the Sector

The percentage growth in the Chemical sector (Comprising Pharmaceuticals among
others), has been 5.1%, 8.6% and -4.5% in the Financial Years 2005/06, 2006/07 and
2007/08 respectively. Projected Investment and Employment in the sector is estimated
at US $ 68 million and 1,778 jobs respectively (UIA Database).

Volume of exports by September 2008 stood at 357,321 kgs, translating into US$ 3.2
million in export revenues. Main export markets for Uganda‘ pharmaceutical products
are Rwanda, Democratic Republic of Congo, Tanzania and Southern Sudan.

Table 4: Pharmaceutical and Medical Products Exports by quantity, 2003 – Sept.

2008
Year 2003 2004 2005 2006 2007 Sep-08
Exports (Kg) 459.059 361,171 344,516 188,366 30,564,610 357,321
Source: UBOS, 2008

12
Figure 2: Pharmaceutical & Medical Products Exports by Value (US$), 2003 - Sept
2008

3,500,000
3,000,000
2,500,000
2,000,000
1,500,000 Value (US$)

1,000,000
500,000
0
2003 2004 2005 2006 2007 8-Sep

Source: UBOS

90 percent of the pharmaceuticals, sundries and medical products are imported

accounting for 5.4 percent of Uganda‘s total imports. By 2008 imports in the sector
stood at an estimated US$ 246 million (Figure 3), an increase from approximately US$
176 million in 2007.

Figure 3: Pharmaceutical and Medical Products Imports by Value, 2004– 2008

250,000

200,000

150,000

100,000

50,000

0
2004 2005 2006 2007 2008
Imports by value (000$) 80,137 85,721 123,065 175,778 246,202

Source: Uganda Bureau of Statistics, UBOS. Notes: 2008 Data is provisional

The major sources of Pharmaceuticals products are India, China, Pakistan, United
Kingdom, Switzerland, Germany and France among others. By December 2008, 431
foreign facilities had been licensed to export drugs to Uganda. The largest distributor

13
 of pharmaceuticals in Uganda is National Medical Stores (NMS)2 which supplies
majority of the medicines and equipment to government health units. The second
largest distributor is Joint Medical Stores whose functions are similar to those of NMS.

7.5 Availability of Special Skills

Uganda currently has three Universities that provide Bachelors‘ degrees in Pharmacy.
These include Mbarara University of Science & Technology (MUST), Makerere
University Kampala (MUK) and Kampala International University (KIU). In addition
there is a training institution for Pharmacy Technicians at the Mulago Paramedical
School in Kampala. MUK is now providing a degree course for Industrial Chemists.

7.6 Key Strengths (Competitive Factors)

 Quality Control: The Sector is regulated by the National Drug Policy and
Authority Act of Parliament 1993 which ensures that high quality, efficacious
and cost effective medicine (both human and veterinary) are availed to
consumers.
 Uganda‘s strategic location provides market access to neighboring countries
such as Rwanda, D.R. Congo and Sudan.
 Imports of Pharmaceuticals and Medical equipment are duty free.

Table 5: East Africa Pharmaceutical Market Overview

Country Market Size (US$ Market by Segment (%) Market by Source (%)
millions)
2007 2014 Branded Generic Domestic MNC
(projected)
Kenya 210 560 44% 56% 28% 72%
Tanzania 105 190 46% 54% 31% 69%
Uganda 85 150 20% 80% 10% 90%
Total 400 900

8.0 THE KENYA PHARMACEUTICALS INDUSTRY

8.1 Industry Overview

Introduction

Kenya spends about 8% of its GDP on health. Per capita expenditure per person stood
at about US$ 11 per person in 2003. Out of this, US$ 6 came from budgetary
resources, which also included donor contributions and the balance of about US $5
came mainly from out-of-pocket expenditure. This expenditure fell far below the
WHO's recommended US$34 per capita.

2
NMS is an autonomous government agency which procures, stores and distributes drugs and
supplies to the public sector.
14
Out-of-pocket expenditure thus accounted for 53% of the total cost of healthcare, with
the remainder being Government contributions from general taxation (25%), Social
Health Insurance (15%), private prepaid health plans (5%) and non-profit institutions
expenditure at 2%. The above scenario means the current healthcare financing system
depends mainly on out-of-pocket expenditure and therefore 75% privately financed.

The health system in Kenya is organized and implemented through a network of

facilities organized in a pyramidal pattern. The network starts from dispensaries and
health clinics/ posts at the bottom, up to the health centers, sub-district hospitals,
district hospitals, provincial general hospitals and at the apex there is the Kenyatta
National Hospital, and more recently the Moi Referral Hospital, Eldoret.

The Ministry of Health (MoH) is the major financier and provider of health care
services in Kenya. Out of all the health facilities in the country, the MoH controls and
runs about 52% while the private sector, the mission organizations and the Ministry of
Local government runs the remaining 48%.

The public sector controls about 79% of the health centers, 92% of the sub-health
centers, and 60% of the dispensaries. The NGO sector is dominant in health clinics,
maternity and nursing homes controlling 94% of the total while also controlling 86% of
the medical centers in the country.

In urban rural distribution, the health sector is faced with inequalities. 70% of urban
population has access to health facilities within 4 km, as opposed to 30% of the rural
population.

The health sector in Kenya is one of the sectors that has experienced remarkable
development in the recent years. The country has made great efforts in controlling
diseases like Malaria, TB and Cholera while actively fighting the AIDS/HIV pandemic.
Similar efforts have been made in controlling communicable diseases like
poliomyelitis, neonatal tetanus and measles. The targets for eradication of the guinea
worm disease and elimination of lymphatic filariasis and leprosy have been attained.
Other parasitic diseases of epidemiological concern such as schistosomiasis,
helminthiasis and leishmaniasis are seriously being addressed.

The efforts at different levels to control diseases have seen the adoption of the Directly
Observed Treatment Short-course (DOTS) as a national strategy in Kenya to contain
Tuberculosis. The treatment success rate had improved to about 80% by end of 2003.
During the same period, Kenya had attained a national zero-prevalence rate of 6.7%
for its population affected by HIV/AIDS.

In order to control Emerging diseases and epidemics the government has put into
place strategies that include the Participatory Hygiene and Sanitation Transformation
(PHAST), Healthy Cities initiative, Hazard Analysis Critical Control Points (HACCP),
water quality surveillance and occupational health strategies.
15
The Pharmaceutical sub sector

The pharmaceutical industry consists of three segments namely the manufacturers,

distributors and retailers. All these play a major role in supporting the country‘s
health sector, which is estimated to have about 4,557 health facilities countrywide.

Kenya is currently the largest producer of pharmaceutical products in the Common

Market for Eastern and Southern Africa (COMESA) region, supplying about 50% of the
regions‘ market. Out of the region‘s estimated of 50 recognised pharmaceutical
manufacturers; approximately 30 are based in Kenya.

It is approximated that about 9,000 pharmaceutical products have been registered for
sale in Kenya. These are categorized according to particular levels of outlet as
freesales/ OTC (Over The Counter), pharmacy technologist dispensable, or pharmacist
dispensable/ prescription only.

8.2 National Policies on Healthcare and Pharmaceuticals

National Health Sector Strategic Plan (NHSSP) 1999-2004

The Kenya Health Policy Framework (1994) sets out the policy agenda for the health
sector up to the year 2010. To operationalize this framework paper, the National
Health Sector Strategic Plan (NHSSP, 1999-2004) was developed in 1994.

The tasks specified in the plan include:

 Strengthening of the central public policy role of the Ministry of Health.

 Adoption of an explicit strategy to reduce the burden of disease.
 Definition of an essential cost effective health care package.
 Emphasis on decentralization of health care delivery through redistribution of
health services to rural areas.
 Special focus on essential key priority packages based on the burden of disease
and the required support systems to deliver these services to Kenyans.

Currently, medical care is a pre-requisite among employers; the law requires that
every employer ensure the provision of proper medicines and attendance to employees,
unless otherwise provided for by the government.

Policy on pharmaceuticals

The patent protection of pharmaceuticals in Kenya is based on the African Regional

Industrial Property Organization (ARIPO) patent system. Kenya‘s patent laws have
been revised from the traditional British based format to the ARIPO system, which was
created by the Lusaka agreement in 1976.

16
ARIPO is based in Harare, Zimbabwe; the organisation was mainly established to pool
the resources of its member countries in industrial property matters together in order
to avoid duplication of financial and human resources.

Additionally, the Kenyan government passed the Kenya Industrial Property Bill in
2001. This bill allows Kenya to import and to produce more affordable medicines for
HIV/AIDS and other diseases.

The National Social Health Insurance Fund (NSHIF)

The NSHIF is a proposed health scheme that seeks to waive charges at the district
hospitals. The scheme is part of a wider policy reform programme initiated by the
government to ensure all Kenyans have access to health care. It forms part of the
economic reform strategy operating under the theme: ‗Ensuring Provision of Basic
Health Package to All Kenyans and increasing Coverage of Quality Healthcare for the
Poor.‘ The scheme is approximated to cost Sh5 billion, targeting about 9 million poor
Kenyans.

The scheme is yet to be implemented, and is under review following implementation

procedure and funding concerns raised by several groups that included among others,
the National Nurses Association of Kenya (NNAK), the Kenya Medical Association
(KMA), the Kenya National Union of Teachers (KNUT), the Central Organisation of
Trade Unions (COTU) and the Federation of Kenya Employers (FKE), among others.

National Hospital Insurance Fund (NHIF)

The NHIF is Kenya's single largest financier of health services apart from the
Government. It was established by an act of parliament in 1966 as a department of
the MOH. In 1972, the NHIF Act was amended to incorporate voluntary membership.
In 1990, the Act was repealed to allow contribution on a graduated scale of income. In
1998, the old Act was repealed and in its place is NHIF Act of 1998, which also
transformed NHIF into a state corporation, delinking it from the Ministry of Health,
thus ceasing to be a government department.

The fund facilitates members' access to quality health services. It works closely with
public and private health care facilities countywide and professional medical
associations. Currently, about 400 hospitals and health providers that offer
generalized, specialised and emergency healthcare services are accredited by the
Fund. The NHIF Act gives the fund power to declare/accredit hospitals where
contributors can seek services.

NHIF membership is open to Kenyan residents aged 18 years and above from either
the formal or the informal sectors. The formal sector membership is drawn from the
government and NGOs, corporate firms etc. Members are required to pay a monthly
premium of KShs 30 – KShs 320 depending on one‘s basic salary.

17
Health Management Organizations (HMOs)

Health Management Organizations (HMOs) are health insurance agencies that provide
heath facilities and services to registered members at a fee. Kenya is estimated to have
about 10 large and medium sized HMOs, who between them support about 200,000
medically covered persons.

For registration, the capitalisation requirements of HMOs are Kshs 25 million for
organisations that conduct total business below Kshs 250 million annually. HMOs
whose annual business is over Kshs250 million need to top up their capital base at a
ratio of Kshs 1 million for every Kshs 10 million of business, maintaining
capitalisation at 10 per cent of collected premiums.

8.3 Industry Structure

The pharmaceutical industry in Kenya consists of manufacturers, distributors and

retailers, who all actively support the Ministry of Health and other key players in
developing the health sector.

Manufacturers

The pharmaceutical sector consists of about 30 licensed concerns include local

manufacturing companies and large Multi National Corporations (MNCs), subsidiaries
or joint ventures. Most are located within Nairobi and its environs. These firms
collectively employ over 2,000 people, about 65% of who work in direct production.

The industry compounds and packages medicines, repacking formulated drugs and
processing bulk drugs into doses using predominantly imported active ingredients and
excipients. The bulk of locally manufactured preparations are non-sterile, over-the-
counter (OTC) products.

The number of companies engaged in manufacturing and distribution of

pharmaceutical products in Kenya continue to expand, driven by the Government‘s
efforts to promote local and foreign investment in the sector. Table 6 below lists some
of the leading pharmaceutical manufacturing companies in Kenya.

18
Table 6: List of Companies and locations
Company Name Location
Alpha Medical Manufacturers Nairobi
Aventis Pasteur SA East Africa Nairobi
Bayer East Africa Limited Nairobi
Beta Healthcare (Shelys Pharmaceuticals) Nairobi
Cosmos Limited Nairobi
Dawa Pharmaceuticals Limited Nairobi
Didy Pharmaceutical Nairobi
Diversey Lever Nairobi
Eli-Lilly (Suisse) SA Nairobi
Elys Chemical Industries Ltd Nairobi
Glaxo SmithKline Nairobi
High Chem East Africa Ltd Nairobi
Ivee Aqua EPZ Limited Athi River
Mac‘s Pharmaceutical Ltd Nairobi
Manhar Brothers (Kenya) Ltd Nairobi
Novartis Rhone Poulenic Ltd Nairobi
Novelty Manufacturers Ltd Nairobi
Pfizer Corp (Agency) Nairobi
Pharmaceutical Manufacturing Co (K) Ltd Nairobi
Pharmaceutical Products Limited Nairobi
Phillips Pharmaceuticals Limited Nairobi
Regal Pharmaceutical Ltd Nairobi
Universal Pharmaceutical Limited Nairobi
Source: Kenya Factbook 16th Edition, 2001 & The Kenya Telephone Directory 2004.

Distributors

The Kenya Medical Suppliers Agency (KEMSA), a division of the Ministry of Health,
largely carries out the distribution of pharmaceutical products in Kenya. It distributes
drugs to government public health facilities and private health facilities.

KEMSA has been an autonomous body since 1st July 2003. Its policy is to make
available essential drugs and equipment primarily but not exclusively, to public
facilities. KEMSA competes with other suppliers, e.g. the mission based medical
supply facility (MEDS) and private wholesalers.

Retailers

Pharmaceutical products in Kenya are channelled through pharmacies, chemists,

health facilities and shops. There are about 700 registered wholesale and 1,300 retail
dealers in Kenya, manned by registered pharmacists and pharmaceutical
technologists.

19
The drugs on sale in Kenya are sold according to the outlet categorization, which can
be described as free-sales/OTC, pharmacy technologist dispensable, or pharmacist
dispensable/prescription only.

Health institutions

The country continues to have remarkable expansion in the number of health facilities
in all provinces. This is in line with the government‘s effort to avail accessible health
facilities and services to all Kenyans.

The number of health institutions grew from 4,499 in 2002 to 4,557 in 2003, a
marginal increase of 1.3%. Rift valley reported the highest number of health facilities,
with a total of 1,267 (27.8%), while North Eastern province, with 88 health facilities
had the least number, accounting for 1.9% of the total. Table 7 below illustrates the
distribution of health facilities in the country by province.

Table 7: Health Institutions in Kenya 2002-2003

Province Hospitals, H/Centers and H/Sub Centers & Dispensary
2002 2003
Nairobi 485 493
Central 517 526
Coast 435 440
Eastern 831 837
North Eastern 83 88
Nyanza 539 548
Rift Valley 1259 1267
Western 350 358
Total 4,499 4,557
Source: Economic Survey 2004 by Central Bureau of Statistics, Ministry of Planning
and National Development

Medical Personnel

The country continues to lay emphasis on continuous training of more medical

personnel to compliment the growth in the health sector. The number of registered
medical personnel rose by 2.6% from 59,049 in 2002 to 60,603 in 2003. Enrolled
nurses accounted for half of the registered medical personnel. Table 8 below gives an
overview of the registered medical personnel in Kenya.

20
Table 8: Number of registered medical personnel in Kenya, 2002-2003
2002 2003
Type of Personnel Number Number per Number Number per
100,000 100,000
population population
Doctors 4,740 15.1 4,813 15.3
Dentists 761 2.6 772 2.7
Pharmacists 1,866 5.9 1,881 5.8
Pharmaceutical Technologists 1,399 4.3 1,405 4.3
Registered Nurses 9,753 31 9,869 33.1
Enrolled Nurses 29,094 94.6 30,212 100.2
Clinical Officers 4,778 15.2 4,808 15.7
Public Health Officers 1,174 3.3 1,216 3.6
Public Health Technicians 5,484 17.3 5,627 19.4
Total 59,049 189.3 60,603 200.1
Source: Health Management Information System, Ministry of Health, 2004

8.4 Production of Pharmaceutical Products

The products manufactured by the pharmaceutical companies in the country for both
local and international markets include Antibiotics, Antimalarials, Antiamoebics,
Analgesics, Antidiarrheals, Antacids, Tranquillisers, Antispasmodics, Vitamins and
Antiulcers. These drugs are used in various medical areas including Anti-Infective,
Gastrointestinal, Analgesic/Anti-inflammatory, Cardiovascular and Respiratory
therapeutic segments

The pharmaceutical sector in Kenya is also engaged in assembling capsules,

disposable syringes, paracetamol, and surgical gauze amongst others.

Development in production of pharmaceuticals has been enhanced by the decision by

Glaxo SmithKline PLC (GSK) to license Cosmos Ltd, a Kenyan company to produce
generic versions of two of its life-prolonging AIDS drugs Zidovudine and Larnivudine,
as well as a combination of the two, for sale in Burundi, Kenya, Rwanda, Tanzania
and Uganda. Kenya becomes the second African country after South Africa to start
producing generic antiretroviral drugs in the continent. Production of these drugs by
Cosmos Ltd. will start in the course of October 2004 although Glaxo SmithKline will
also continue manufacturing Zidovudine and Larnivudine in Kenya

Table 4 below gives a breakdown of the market share approximations for the various
pharmaceutical products in therapeutic categories. 40% of all the pharmaceutical
products are anti-infectives, while central nervous system category has a share of
30%. Respiratory system products, gastrointestinal and metabolic organ products, and
other pharmaceutical products have a share of 10% each.

21
Table 9: Approximate market shares for pharmaceutical products by therapeutic
category in Kenya.
Therapeutic Pharmaceutical product Market
Category Share
Anti-infectives Antibiotics, antimalarials, sulphonamides,
antituberculosis preparations, antiamoebics,
antivirals, antifungals, vaccines, sera and 40%
immunogolbulins.
Products acting on Analgesics and antipyretics, anti-inflammatory
the central nervous agents, hypnotics, sedatives and tranquilizers,
system (CNS) anticonvulsants, CNS stimulants, muscle
relaxants, antihistamines, antidepressants,
30%
anaesthetics, etc.
Products acting on Expectorants and cough suppressants,
the respiratory inhalations, bronchial spasm relaxants, 10%
system respiratory stimulants, etc.
Products acting on Stomatological preparations, antacids, tonics,
gastrointestinal hepatic preparations, laxatives, antidiarrheals,
and metabolic insulin preparations, vitamins, mineral
disorders supplements, anabolic agents for systemic use,
10%
etc.
Other Products acting on the cardiovascular and
pharmaceutical genitourinary systems, cytotoxins, vaccines,
products dermatological preparations, ophthalmic drugs,
hormonal products, diagnostic and contraceptive
10%
agents, etc
Source: Industrial Sector Analysis Report, Ministry of Health, 2001

Raw material availability & Locations

Kenya has minimal raw materials for pharmaceutical products and relies a lot on
imported sources. The industry imports over 95% of the raw materials. The availability
of raw materials locally is limited to only about 5% of the total industrial
requirements. The locally sourced raw materials include:

 Maize starch
 Refined sugar
 Glucose syrup
 Rectified spirit and ethanol
 Sodium chloride
 Packaging materials

In efforts to increase supply, the Government has embarked on specific growth

measures, which include:

 Drug development from natural sources for the local industry

22
  Continued research by institutions like Kenya Medical Research Institute
(KEMRI) and the University of Nairobi on extracts from medicinal and aromatic
plants.
 Supplementing mainstream research with herbal medicine by involving local
traditional health practitioners and biomedical researchers in research
processes.

NGOs and AIDS/HIV work

Kenya is estimated to have around 2.3 million adults living with HIV; with about 700
people dying daily of HIV related infections. One of the key factors affecting Kenyans is
the high cost of anti-retrovirals (ARVs) and other essential medicines.

In 2001, the Kenyan parliament passed the Kenya Industrial Property Bill 2001, which
greatly impacted on the health sector, allowing the importation and production of
more affordable medicines for HIV/AIDS and other diseases.

The bill includes most of the WHO recommended ‗safeguards‘, which include:

 Parallel importing - the right to shop around the world for the cheapest
patented drug.
 Compulsory licenses - issuing licenses for the production or importation of
cheaper generic medicines - the new Kenya IP Bill specifically mentions high
drug prices as a ground for issuing compulsory licenses.
 The ‗Bolar provision‘ - which allows generic manufacturers to do the
appropriate trials, registration process etc, to be ready to roll off the production
line as soon as the patent expires.

The deadline for developing and least developed countries to amend the laws to make
them WTO/TRIPS compliant is 2000 and 2006 respectively.

8.5 Market Conditions

The market for pharmaceutical products in Kenya is currently estimated at Kshs

24.66 billion (USD 320 million) per annum (2010 estimates). The government, through
Kenya Medical Supplies Agency (KEMSA) is the largest purchaser of drugs
manufactured both locally and imported, in the country. It buys about 30% of the
drugs in the Kenyan market through an open-tender system and distributes them to
government medical institutions.

There are about 700 registered wholesale and 1,300 retail dealers in Kenya, manned
by registered pharmacists and pharmaceutical technologists. These pharmacies are
accorded a 25% mark-up on retail drugs.

23
Anti-infective products (chiefly antibiotics, anti-malarials, sulfonamides), analgesics,
antipyretics, bronchial relaxants and cytotoxins account for the bulk of government
and private sector purchases of medicines in the Country.

Exports

Kenya enjoys preferential access to the regional market under a number of special
access and duty reduction programmes related to the East African Community (EAC)
and the Common Market for Eastern and Southern Africa (COMESA) among others.

The country exports its medicinal and pharmaceutical products to Tanzania, Uganda,
DRC, Rwanda, Burundi, the Comoros, Ethiopia and Malawi among other destinations.

Imports

Control of the profession of pharmacy and the trade in pharmaceutical products is

administered by the Ministry of Health (MoH), through the Pharmacy and Poisons
Board, as provided for by Chapters 244 (The Pharmacy and Poisons Act) and 245 (The
Dangerous Drugs Act) of the Laws of Kenya.

Kenya largely imports medicinal and pharmaceutical products from sources such as
Great Britain, India, Germany, France, the USA and Switzerland.

Importers are expected to meet legal requirements, which include:

 Provide samples to the Kenya Bureau of Standards (KEBS) for quality checks
and registration.
 Meet the regulations of the national policy, which has been adopted by the
MOH. This includes an essential drugs list, using WHO guidelines, whose
objective is to promote the availability of quality pharmaceutical products at
affordable prices.
 Pass regulatory quality control, monitoring and market surveillance as
stipulated by the Pharmacy and Poisons Board and the National Drug Quality
Control laboratory.

9.0 THE PHARMACEUTICALS SECTOR OF TANZANIA

9.1 The Pharmaceutical Market in Tanzania

In 1997 the Tanzania government privatised its two pharmaceutical industries, TPI
and Keko Pharmaceutical industries, and there are six other local private
pharmaceutical industries in the country, including the largest pharmaceutical
industry in east and central Africa, Shelys Pharmaceutical Industry (see Table 10).

24
Table 10: Nature of ownership of the sample pharmaceutical industries
Name Name of Ownership
TPI Public until 1997 (Current shares: 60%
private; 40% public)
Keko Pharmaceutical Industry Public until 1997 (Current Shares: 60%
private; 40% public)
Shelly‘s Pharmaceutical Industry 100% private (ASPEN Holdings–South Africa
majority holding;
Sumaria Industries (original owner) minority
shareholder)

Privatisation stems from the neo-liberal ideology that focuses on market efficiency,
accountability, alternative financing of state/public goods and services from the
private sector, and end-user contributions through cost-sharing (e.g. user fees). The
aim is to minimize government expenditures and apply private sector managerial
skills. Privatisation of Tanzanian pharmaceutical industries has taken the forms of:
 liquidation: government sold shares of state-owned industries to the private
sector;
 indirect subsidisation: using tenders for international and local procurement
to distribute essential medicines free-at-point-of-use for strategic medicines
(e.g. ARTs and TB drugs) with resources from the Global Fund and PEPFAR);
and
 contracting-out by tendering: MSD contracts the private sector to supply
medicines.

Tanzania imports about 70% of the national drug requirement and local production
accounts for about 30%. The pharmaceutical sector in Tanzania consists of eight
manufacturing industries all producing generic pharmaceutical products using
imported active pharmaceutical ingredients (APIs). Most of the APIs are imported from
India and China. Local pharmaceutical production in Tanzania therefore takes place
at the secondary level, with some tertiary level activities also undertaken. Most of the
pharmaceutical production concentrates on less sophisticated medicines such as
simple antibiotics, cough and cold preparations, analgesics and antipyretics,
sedatives, nutraceuticals, anthelmintics and anti-malarials. More technologically
sophisticated pharmaceutical products like IV fluids, indictable, and more advanced
antibiotics like cepholosporins are not produced by local industries, which still lack
that competence. However, TPI currently produces ARVs and Shelys is planning to
start ARV production. By 2008, there were 3,388 drugs registered by 41 companies;
Figure 4 shows the amounts by country of origin.

25
 Figure 4: Number of drugs registered by TFDA by 2008

2000

1500

1000

500

0
Local India Kenya Egypt UK SAfrica Cyprus German Belgiu
3-D Column 1 324 1778 341 203 197 107 137 131 106

Source: TFDA, 2008

Pharmaceutical products from India dominate the share of drugs in the local market
registered by the Tanzania food and rugs administration (see Figure 4). Most (53.4%)
registered essential medicines in 2008 were from India, followed by Kenya (10.3%),
with the locally produced drugs at 10% of those registered. Notably registration does
not automatically translate into the volume of drugs produced or imported, explaining
the difference with the 30% share of drug requirements from local production. Indian
companies used to export to Africa through European companies such as Mission
Pharma, Helm, Troge, but now export directly to Africa through local logistics partner
(usually local importers/distributors, country managers or medical representatives)
(Chaudhuri, 2008). However, many more applications for registration are received
than are actually registered, often due to poor quality. The number of applications
rose dramatically from 2003/4 onwards, but after an initial slight increase in the
number of drugs registered, registration gradually declined from 2005/6 onwards.

Tanzania has 700 pharmacists, 300 pharmaceutical technicians, 250 pharmaceutical

assistants and a Pharmacist per population ratio of 1:50,000. Pharmaceutical
products are distributed by the public medical stores department (MSD) and 291
TFDA-registered private wholesalers (see Table 11). The private wholesalers procure
from international and local suppliers and distribute to:

 MSD (through tenders)

 352 registered retail pharmacies
 6,000 Duka la Dawas (drug stores licensed to sell only non-prescription
medicines) directly to hospitals.

Pharmacy retail outlets in Tanzania are of two types: Part I pharmacies sell both
prescription only and over-the-counter (OTC) medicines and must be operated by a
registered pharmacist; Part II pharmacies are those that are licensed to sell OTC
medicines; some general stores also market a limited range of OTC medicines.

Table 11: Number of registered private wholesalers in Tanzania, 2003-2009

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09
Number of companies 193 204 220 247 273 291
Source: TFDA, 2009.

26
 9.2 Regulatory and Legislative Environment

The overall objective of the existing Tanzania Drug Policy of 1991 is to make available
to all Tanzanians ‗essential pharmaceutical products, which are of quality, proven
effectiveness and acceptable safety at a price that the individual and the community
can afford‘. It aims to develop and support national pharmaceutical industries to
increase local production and thereby encourage self-reliance. The policy contains
provisions for:
 Drug selection: the policy aims to select pharmaceutical products in
accordance with the concept of essential drugs to be distributed as generic
drugs.
 Procurement: the policy prioritises essential drugs and preferentially supports
local manufacturing companies (who have 15% leeway on prices over
international suppliers), and aims to achieve self-reliance by shifting away from
imports.
 Distribution: essential medicines should always be available to those who need
them and should be distributed in the most cost-effective manner.
 Quality assurance: facilitated by the TFDA providing free technical support
and regularly inspecting industries (although this is limited due to budget
constraints). Local industries must register all drugs produced every year after
showing that they have achieved GMP.
The policy also requires all drugs to bear their generic International Non-Proprietary
Names (INN) even when available under brand names only.

All imported medicines in Tanzania are currently procured and distributed by 291
local private wholesalers. The wholesalers deliver to public health facilities through the
MSD competitive public tendering process and to private retail pharmacies and health
facilities through direct private procurement processes. Procurement of locally
produced essential medicines is also undertaken by the wholesalers together with
MSD. Public procurement is done on a competitive basis without any special
treatment and or discrimination against entirely private companies and those in which
the government holds 40% shares. Less than half (30%-40%) of locally produced
essential medicines are marketed directly to local wholesalers, private retail
pharmacies and healthcare facilities (Euro Health Group and MSH, 2007).

However, the policy is outdated — dating back to 1991 — and a revised/ updated
National Drug Policy and Pharmaceutical Master Plan is still awaited. Although the
National Essential Medicine List/ Treatment Guidelines were revised in 2006, the list
is far too long, containing over 700 items (MoHSW, 2007a). This provides minimal
protection for local pharmaceutical industries as there are many internationally
produced products to choose from. At the same time the Drug Tracking Study (Euro-
Health Group and MSH, 2007) found that Health Teachnical Committees (HTCs) are
not functioning optimally in hospitals and monitoring of drug utilization in not taking
place.

27
Tenders

Tanzanian bidders enjoy preferential treatment when the Tanzanian government

issues a tender, and then only need to comply with Tanzanian Good Manufacturing
Practices (GMP) standards) set by the TFDA. The MSD runs the tenders and gives a
15% preferential treatment for national suppliers — both local producers and
wholesalers. However, allocation of public funds to procure essential medicines for the
public sector are less than US$1 per capita (in the 2005/6 Fiscal Year). Though public
expenditure on essential medicines has been increasing there is also a counter-acting
growing need for medicines due to population growth and a higher disease burden
(MoHSW, 2008a; MoHSW, 2008b).

International donors issue most medicine tenders, and bidders on these tenders must
comply with international standards. Findings from this study shows that none of the
Tanzanian producers complies with international standards yet except Shelys, which
also relatively sales a larger share of the essential medicines to MSD compared to
other industries, and is the only industry that has been able to penetrate the export
market. This implies that, though, Tanzanian producers have potentially a substantial
local market access advantage over foreign produced medicines through the MSD
tendering process, have limited access to the local market for essential medicines.

A drug tracking study (Euro Health Group and MSH, 2007) shows that the MoHSW
covers 85–90% of essential drug expenditures for health facilities‘ individual accounts.
The remaining essential medicine financing comes from NHIF, CHFs (including the
government top-up) and formal user charges. According to key informants, most local
pharmaceutical manufacturers depend on the local demand (see Box 1). Public
procurement through the MSD is the most reliable market for locally produced
essential medicines.
Box 1: Market share of locally produced pharmaceutical products in Tanzania

TPI: 100% local market; 100% public ARV market (and large share of other essential
medicines) to MSD;
Keko: 100% local market — 70% to MSD (public); 30% to sales agents/ distributors (private)
Shelys: 59 % local market — of which 60% to MSD (public) and 25% local private outlet; 41%
export — to Uganda, Kenya, Zambia, Malawi, DRC, Madagascar, Mozambique, Mauritius,
Rwanda and Burundi.

9.3 International agreements

Global brand name pharmaceutical corporations seek to:

 restrict generic manufacturers from producing and distributing essential
medicines; and
 ration access, which results in a widening access gap, if safeguards are not
developed and implemented (Sell, 2007).

28
International intellectual property regulations, such as TRIPS (WTO, 1994), allow
multi-national pharmaceutical companies to block production of generics on drug
innovation for twenty years.
However, due to the detrimental effects of such regulations on producing affordable,
life-saving, essential medicines, the TRIPS agreement provides three flexibilities to
improve access:
 Parallel imports: the rights to import brand name products when they are sold
at lower prices in other countries.
 Compulsory licensing: the right to grant a license, without permission from
the license holder, on various grounds of general interest including public
health.
 'Bolar exception' (early working): the right of a generic producer to conduct
tests and obtain approval from a health authority before the expiration of the
patent, so that cheaper generic drugs are available immediately upon patent
expiration.
However, these safeguards are not automatic, but must be written into national law to
become applicable. Tanzania‘s national drug policy only covers drug regulatory
control, registration, procurement and quality assurance. It does not effectively utilise
the flexibilities to guarantee increased local production of essential drugs. Drugs
procurement in Tanzania is not currently affected by intellectual property issues, as
many of the TFDA registered drugs are generic.

10.0 WIDER EAST AFRICAN MARKET ENTRY STRATEGY

We recommend that City Pharmacy of Kampala Uganda Ltd. enters the wider East
African market through wholly owned subsidiaries in Kenya, Tanzania, Rwanda,
Burundi, Eastern DR Congo and South Sudan which will source their pharmaceutical
products from the company‘s major suppliers in Western Europe and North America.

City Pharmacy of Kampala Uganda Ltd. has other avenues of entry into the
broader East African market thru: - joint ventures (JVs) with local pharmaceutical
enterprises in Kenya and Tanzania, acquisitions, greenfield projects (with entirely
pharma-distribution and wholesale/retail set ups in Kenya, Tanzania, Rwanda,
Burundi, Eastern DR Congo and South Sudan) are a few such options. While joint
ventures and acquisitions may help City Pharmacy of Kampala Uganda Ltd. leverage
the knowledge/resources of partners/existing players, the absence of large players in
the Kenyan, Tanzanian, Rwandan, Burundian, Eastern DR Congo and South Sudan
markets with a good fit (marketing- and operation-wise) for City Pharmacy of
Kampala Uganda Ltd. nullifies the potential benefits that these avenues may have
offered.

Further, evaluating the options based on the criteria of retaining control,

maximizing profits and minimizing the risks of starting a new business in Kenya,
Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan, we find the option
of setting up subsidiary pharma-distribution and wholesale/retail enterprises without
any manufacturing facilities in Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo
29
and South Sudan as the best alternative. Exhibit 2 shows the Evaluation of the
various Entry Avenues available to City Pharmacy of Kampala Uganda Ltd.

11.0 CITY PHARMACY’S VALUE PROPOSITION AND BRAND POSITIONING

City Pharmacy of Kampala Uganda Ltd. will seek to become an end-to end
prescription pharmaceuticals provider to East African customers. In order to achieve
this goal it will have a 3-Pronged Value Proposition – Quality, Health and Services.
Exhibit 3 shows City Pharmacy of Kampala Uganda Ltd.’s Value Proposition Model.

We believe that City Pharmacy of Kampala Uganda Ltd. can differentiate itself
from the current players in the East African Pharmaceuticals Market on the basis of
two main factors – a) High Brand Value and b) Scientifically Researched & Developed
Products. This will also allow City Pharmacy of Kampala Uganda Ltd. to pursue the
premium pricing approach which has been a major reason for its strong past financial
performance. Exhibit 4 shows City Pharmacy of Kampala Uganda Ltd.’s Product
Positioning Map.

12.0 MARKETING STRATEGY

In order to strategically use its limited resources and to minimize risk, City Pharmacy
of Kampala Uganda Ltd. should use a concentrated marketing approach and confine
its efforts to East Africa and niche segments to build a strong brand image and gain a
firm foothold in the East African market. City Pharmacy of Kampala Uganda Ltd.
should enter the Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South
Sudan markets with only the traditional pharmaceutical product line that it has been
selling in the Ugandan market since City Pharmacy of Kampala Uganda Ltd. can
differentiate itself best on the basis of the brand premium, quality, and pricing of the
prescription pharmaceuticals that it has been sourcing directly from its West
European and North American supplies and because the Kenyan, Tanzanian,
Rwandan, Burundian, Eastern DR Congo and South Sudan prescription
pharmaceutical markets generally offer more opportunities in this segment. Further,
City Pharmacy of Kampala Uganda Ltd. should initially restrict itself to a limited
number of pharmaceutical products on the Kenya, Tanzania, Rwanda, Burundi,
Eastern DR Congo and South Sudan domestic markets. Once City Pharmacy of
Kampala Uganda Ltd. has managed to establish itself on the market and gain a
sizeable foothold, it can then expand its range of offerings in phased fashion. City
Pharmacy of Kampala Uganda Ltd. can also leverage on its corporate brand image in
Uganda to expand its pharmaceuticals marketing and operational network to the
neighbouring Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South
Sudan markets in order to complete its promise of becoming an end-to-end
prescription pharmaceuticals provider in East Africa.

To reduce risk and increase the chances of a successful product launches in

Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan, we
recommend that City Pharmacy of Kampala Uganda Ltd. does simulated market

30
testing followed by controlled market testing to ensure that its products are well
accepted by the target segment during the actual launch. Simulated testing involves
observing the purchasing behavior of a focus group in a test environment containing
various pharmaceutical products including those of competitors followed by a product
satisfaction survey a few weeks later. As part of controlled market testing City
Pharmacy of Kampala Uganda Ltd. will launch the product in a few locations within
Nairobi (Kenya) and Dar-es-Salaam (Tanzania) to gauge the consumer reaction to its
products and then accordingly modify its strategy during the actual launch of the
product.

City Pharmacy of Kampala Uganda Ltd. will have to adapt its marketing
strategy to suit the needs of the target East African market. This may result in higher
initial costs but will help secure a larger market share and greater return. To
differentiate itself from its competitors, City Pharmacy of Kampala Uganda Ltd. shall
retain the globally recognized pharmaceutical brands of the suppliers of its products
as well as its packaging, pricing techniques, communication, advertising and
promotion activities to target the affluent pharmaceutical consumer market segments
in Uganda, Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan.
The detailed marketing plan is explained in Section 14.0 of this report.

13.0 EAST AFRICAN PHARMACEUTICAL MARKET SEGMENTATION &

IDENTIFYING THE MARKET SEGMENT

We used the following criteria to segment the East African Pharmaceuticals Market
and identify the Target Segment for City Pharmacy of Kampala Uganda Ltd.

 Measurability: The size, purchasing power and profile of the segment(s) should
be quantifiable objectively.
 Accessibility: The market segment(s) should have easy accessibility.
 Substantiality: The market segment(s) should be large and profitable enough to
serve.
 Actionability: Effective programs can be designed to attract and serve the
segment(s).
 Growth: The segment(s) should be undergoing rapid growth.
 Structural Attractiveness: Avoid segments that have many strong and
aggressive competitors.
 Company Objectives and Resources: City Pharmacy of Kampala Uganda
Ltd.’s most profitable products are in the consumer pharmaceuticals group for
children and women.

Explanation of the Segmentation Process:

Level 0 Segmentation: Users/Non-users of consumer prescription pharmaceutical

products

31
Level 1 Segmentation: Income
The population of the five East African countries using prescription pharmaceutical
products was divided into the lower middle, upper middle, and rich class users and
others. The use of prescription pharmaceutical products in East Africa to a good
extent depends on income levels. However, only the rich and lower middle/upper
middle class East Africans are considered as the target market for City Pharmacy of
Kampala Uganda Ltd. since it has always position its prescription pharmaceuticals in
Uganda as premium brands.

Level 2 Segmentation: Gender

A substantially higher proportion of East African women (49%) than men (37%) are
found to use prescription pharmaceutical products and are thus identified as the
primary target market.

Level 3 Segmentation: Age

Women below the age of 15 are categorized as children and not included as the
primary target segment as their health considerations differ from those of older
women.

Level 4 Segmentation: Geography

Consumption of prescription pharmaceutical products in all the three East African
countries follows an income distribution pattern which also follows a geographical
trend. In Uganda, consumers of with the highest disposable income to purchase
prescription pharmaceutical products are concentrated within and around Kampala –
the administrative and business hub of Uganda and also from the major up-country
urban centres in Uganda like Arua, Mbale, Gulu, Jinja, Masaka, and Mbarara.

In Kenya, the geographical pharmaceutical product consumption distribution pattern

follows the same trend with the highest per-capita pharmaceutical consumption to be
found within and around Nairobi, Mombasa, Nakuru, Kisumu, Eldoret, and Naivasha.

For the Tanzania market, the highest prescription pharmaceutical consumer

populations live in areas like Dar-es-Salaam, Arusha, Mwanza, Bagamoyo, Dodoma,
and Iringa on account of having a much higher urban-influenced earning capacity and
disposable income means than the rural dwelling populations in the Tanzanian
countryside.

14.0 MARKETING PLAN

14.1 Product

City Pharmacy of Kampala Uganda Ltd. plans to introduce to the Kenya, Tanzania,
Rwanda, Burundi, Eastern DR Congo and South Sudan pharmaceutical markets the
whole range of branded and generic prescription/OTC pharmaceutical products like it
has been offering on the Uganda market. As a major drugs distributor in Uganda, City
Pharmacy of Kampala Uganda Ltd. is licensed to import, stock, distribute, and

32
wholesale/retail a comprehensive inventory of prescription/OTC pharmaceuticals
whose details are provided in the attached Essential Drug List for Uganda 1996
(Appendix 1), and will use the same product list to source, freight, and distribute a
similar range of prescription/OTC pharmaceuticals in Kenya, Tanzania, Rwanda,
Burundi, Eastern DR Congo and South Sudan.

The packaging of the drugs should reflect the premium positioning and value
proposition of the product. The packaging and labeling must meet the requirements of
the Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan
consumer markets. Packaging must ensure that the medicines are not affected by
temperature, light, transportation and storage. Polyethylene liners may be heat sealed
to give an air-tight closure. While vacuum packing is not generally used, it is effective
in preserving quality and compresses the product package into a smaller volume
which can lead to savings in freight costs. Packets for palletization are suitable since
they reduce handling and hence damage to the product. There should be consistency
of packaging and package sizes, an orderly loading of containers, shipping marks on
the master pack and article numbers on the inner packs. Shipping containers must be
clearly stamped or stenciled on a minimum of two sides with all code markings, and in
waterproof ink. The packages should be sturdy enough for multiple handling.
Reusable rather than disposable packaging addresses environmental concerns of the
East African countries. Proper packaging is important since sub-standard packaging
may damage the product and create problems for the marketing the goods and conflict
with the image of ―high quality‖.

14.2 Pricing

City Pharmacy of Kampala Uganda Ltd. will adopt a pharmaceutical product pricing
and sales margin policy whose details are displayed in Table 12a & 12b below:

Table 12a: Private Prescription Medications

Types or Cost of Items Margin

<$100 20-30%

>$100 25-35%

Known Value Items (KVIs such as

Combined Oral Contraceptives or
phosphodiesterase inhibitors) 20%

33
Table 12b: Non-Prescription Medications

Non Prescription Product Lines Margin

KVIs [includes OTC analgesics, specific Meet the competition pricing

supplements (e.g. fish oil and
glucosamine), skin care oral health, and
gastro-health]

Conventional pharmacy lines 35%

The rationale for the pricing strategy is ―Value Based Pricing‖ based on an analysis of
purchasing power of the target segment and the current customer spending on
pharmaceutical products. Concerns on health and need for good quality are on the
rise and correspondingly the willingness to spend on premium value medicine is
increasing.

Further, a high price will align with City Pharmacy of Kampala Uganda Ltd.’s
positioning of a premium brand and have a connotation of high quality associated with
it. Also, as per market research studies, demand is relatively less elastic for medicinal
products. Hence, the higher than average prices of City Pharmacy of Kampala
Uganda Ltd.’s products should not be a concern.

14.3 Promotion

City Pharmacy of Kampala Uganda Ltd. will use a multi-pronged approach

(combination of push and pull promotional strategies) for establishing pharmaceutical
products in East Africa and it will have a budget of $470,650 for promotions in 2011
(Refer Exhibit 5 for promotion budget allocation details). The major factors that affect
the decision of East African customers in the purchase of pharmaceutical products are
family/friend (36%), health books (18%) and medical practitioners (9%). Hence, it is
essential to use the promotion budget in those vehicles which can help generate
curiosity, awareness and a positive word of mouth in the market. This will ensure that
once City Pharmacy of Kampala Uganda Ltd. has cleared the barrier of developing
an initial customer base set up (especially in Kenya, Tanzania, Rwanda, Burundi,
Eastern DR Congo, and South Sudan), it will have a self-sustained advertising
medium. City Pharmacy of Kampala Uganda Ltd.’s public relations activities,
advertising, sales promotions, in-store promotions and direct mailing will all be
designed with this in mind.

Pull Strategies:

Advertising: City Pharmacy of Kampala Uganda Ltd should focus its advertising on
its pharmaceutical products‘ benefits, and on the research and development capacity
of its major West European and North American suppliers. This will help build
consumer confidence on the high quality of its imported products. It should also

34
associate itself with health and fitness experts and sports icons to further augment its
brand image.

City Pharmacy of Kampala Uganda Ltd should use multiple media vehicles to reach
the target customers. It should run ads on existing TV channels which is a relatively
inexpensive medium for running television ads as compared to other channels.
Advertising in men and women health magazines in all the seven target market East
African countries should also be a primary means of reaching the health conscious
affluent men and women in Uganda, Kenya, Tanzania, Rwanda, Burundi, Eastern DR
Congo and South Sudan. Radio ads run during morning and evening primetime are
very reasonably priced and can prove to be a very important tool for brand building.
Billboards placed at strategic locations such as downtown area, near health clubs,
near pharmacies etc. are an effective and enduring way of reaching the target
customers. City Pharmacy of Kampala Uganda Ltd should have a daily
advertisement (25 lines) in the two of leading newspapers in each of the three sister
East African states (e.g. New Vision and Daily Monitor for Uganda, and Daily Nation
and The East African Standard for Kenya, and Citizen Newspaper and Daily News of
Tanzania). Online ads and banners on health related websites should also be used to
target the tech-savvy consumers of East Africa. City Pharmacy of Kampala Uganda
Ltd should also develop its own website to further advertise its products and build its
image as a reliable pharmaceutical products provider.

Public Relations: City Pharmacy of Kampala Uganda Ltd should work towards
building a good corporate image by ensuring that occasional articles on City
Pharmacy of Kampala Uganda Ltd and its products appear in health magazines and
print media. Additionally, the public relations effort may include charity events, and
supplying free samples on special public heath events/days in Uganda, Kenya,
Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan. City Pharmacy of
Kampala Uganda Ltd should participate in social causes related to public health
issues to create awareness and goodwill for City Pharmacy of Kampala Uganda Ltd
and its products. City Pharmacy of Kampala Uganda Ltd should also participate in
annual health shows that are organized to raise public and individual health
awareness in any of the seven East African countries.

Push Strategies:

Sales Promotions: We recommend the use of the following sales promotions at different
times during the year. Free samples should be given to public and private health
practitioners (e.g. hospitals/health centres, private clinics/domiciliaries, and the
smaller retail pharmacies) who can then distribute those to their customers. As part of
a major promotion strategy, a free sample can be distributed with each copy of one of
the leading men and women healthcare magazines. City Pharmacy of Kampala
Uganda Ltd can also sell value packs (two for the price of one) while launching new
pharmaceutical products on the market, add coupons in pharmaceutical product
packs which give a discount (5-10%) for the next purchase and can also bundle other
items such as key chains, pens, coffee mugs, caps, T-shirts (with the City Pharmacy
of Kampala Uganda Ltd name and logo) to build the brand and to increase sales. City

35
Pharmacy of Kampala Uganda Ltd should also have campaigns wherein customers
can win attractive prizes such as television, digital cameras, and music systems with
purchases of City Pharmacy of Kampala Uganda Ltd products.

In-store promotions: City Pharmacy of Kampala Uganda Ltd should offer trade
discounts to retailers to secure prime shelf space in their stores, periodically pay extra
for prominent spaces, have campaigns for City Pharmacy of Kampala Uganda Ltd
products during which they are attractively displayed with City Pharmacy of
Kampala Uganda Ltd banners.

Direct Mail: City Pharmacy of Kampala Uganda Ltd should purchase the list of the
major pharmaceutical product consumers in East Africa (data driven market research)
and send catalogues, brochures etc specifically targeted at these users. Customer
information required for direct mail campaigns can be obtained from organized health
clubs and associations, medical and/or pharmaceutical societies and the retail
channels that City Pharmacy of Kampala Uganda Ltd will be affiliated to.

14.4 Distribution

There are three main distribution channels which City Pharmacy of Kampala
Uganda Ltd should adopt in East Africa: health food stores, pharmacies, and public
and private health practitioners. The online channel is not recommended due to low
ROI from this channel.

Health Food Product Stores: City Pharmacy of Kampala Uganda Ltd should primarily
target these stores for sale of their products through their established distribution
networks.

Pharmacies: City Pharmacy of Kampala Uganda Ltd can utilize the established
pharmacy distribution associations in Kenya, Tanzania, Rwanda, Burundi, Eastern
DR Congo and South Sudan to build relations with the leading distributors in these
six East African markets. For ease of co-ordination and to avoid channel conflicts as
well as to reduce risk from singular dependency, City Pharmacy of Kampala Uganda
Ltd should use one sub-distributor each for Kenya, Tanzania, Rwanda, Burundi,
Eastern DR Congo and South Sudan.

Public and Private Health Practitioners: City Pharmacy of Kampala Uganda Ltd must
try and use Public and Private Health Care Practitioners to capture new adopters of
prescription/OTC pharmaceutical products. City Pharmacy of Kampala Uganda Ltd
should use this channel sparingly given that there are many players fighting for this
channel already.

15.0 ORGANIZATION PLAN & MANAGEMENT STRUCTURE

15.1 Mission, Vision & Values:

We believe that the mission of City Pharmacy of Kampala Uganda Ltd in Uganda
and elsewhere in East Africa should be inline with the company‘s mission of
―Promoting and Sustaining the Health of East Africans‖. Further, the company‘s vision
36
should reflect the desire to have a truly regional market presence and impact. Based
on this reasoning, we propose the following for the Kenya, Tanzania, Rwanda,
Burundi, Eastern DR Congo and South Sudan subsidiaries of City Pharmacy of
Kampala Uganda Ltd.

15.2 City Pharmacy Ltd’s Mission Statement:

The City Pharmacy of Kampala Uganda Ltd.’s mission is to provide our valued
customers with the best prices and quality for their prescription/OTC medications. We
would like to use our convenience and services to exceed the expectations of our
customers.

15.3 City Pharmacy Ltd’s Vision:

―To have a regional market presence and impact in high-value but competitively-priced
prescription/OTC pharmaceutical products.‖

City Pharmacy Ltd’s Values:

 Focus – Our customers.

 Quality – Superior products.
 People – Very caring.
 Research – Path breaking.
 Style – Strong teamwork.
 Position – Leader.
 Reward – Recognition and security

37
Figure 5: Strategic Diagram showing all aspects of City Pharmacy of Kampala Uganda Ltd. business
Sustain revenue growth at 7% p.a.
Financial
Perspective Productivity Strategy Revenue Growth Strategy

Optimise asset Increase cost Enhance Expand revenue

utilisation efficiency customer value opportunities

Customer
Quality Individualised Professional Approachable Community spirit
Perspective Right Price
Products care advice staff

Operations Management Customer Management Innovation Processes Regulatory and Social

Processes Processes Processes
 Fulfilling the distinctive
 Adhering to Compounding  Ability to tailor healthcare and expanded roles of each  Involvement in community
Standards for quality for each individual pharmacist charity events
Internal
customized products customer
Perspective  Building an interactive  Liaising with surrounding
 Maintaining good supplier  Providing our products website – a central hub of healthcare providers, and
relations and services for all types of information for customers, hospitals
industries staff and other HCPs
 Utilising latest technology  Meeting community
 Expanding our  Human resources healthcare responsibilities
 Efficient product community-outreach management
distribution network and other
professional bodies

Learning & Human Capital Intangible Assets Organisation Capital

Growth
Perspective  Values
Information Capital
 Culture

 Leadership
 Skills and knowledge  Systems

 Training and  Empowerment

development
38  Databases
 Alignment
 Networks
 Teamwork
 15.4 Legal description of the company:

City Pharmacy of Kampala Uganda Ltd. is a legally-registered and incorporated

business entity in Uganda specializing in the importation, distribution, wholesale and
retail of prescription/OTC pharmaceutical products.

The company will also be incorporated through separate subsidiary companies in

Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan under the
relevant national statutes. We propose to base the Kenya, Tanzania, Rwanda,
Burundi, Eastern DR Congo and South Sudan subsidiary offices/distribution outlet
stores in Nairobi, Dar-es-Salaam, Kigali, Bujumbura, Butembo/Goma, and Juba
respectively.

The Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan
subsidiary offices/distribution outlet stores will be subject to the laws of the countries
in which they operate. They will maintain proper records and file tax returns as
required. However, the parent company will assume unlimited liability for the debts (if
any) of its subsidiary operations.

15.5 City Pharmacy of Kampala Uganda Ltd.’s Organization Structure:

Refer Exhibit 6 for the Reporting Structure of the City Pharmacy of Kampala
Uganda Ltd. management team vis-à-vis the company‘s top level management.

The principal head of the company is the Board of Directors who defers to the
Executive Director for the overall routine management and stewardship of company
affairs. There is one line General Manager reporting directly to the Executive Director.
This one is the General Manager – Operations who directly oversees and manages the
integral operational aspects of the company.

Since City Pharmacy of Kampala Uganda Ltd.’s focus is on be marketing, the

Marketing Manager reports directly to GM – Operations. The Marketing Manager is
responsible for all aspects of marketing assists the GM – Operations in Retail
Distributor Relationship Management, which is key to City Pharmacy of Kampala
Uganda Ltd.’s business model. He also oversees CRM (Customer Relationship
Management) efforts that City Pharmacy of Kampala Uganda Ltd operates.

Also, a Research and Development Coordinator acts as a link between the

Uganda Government and City Pharmacy of Kampala Uganda Ltd.’s R&D division for
matters regarding certification, product safety etc. This coordinator will reports
directly to GM – Operations on product quality, safety matters and development of new
product variants.

The Logistics Manager is in-charge of coordinating product distributor

operations, forecasting, and handling inbound and outbound traffic including
customs. He also assists the Marketing Manager in fostering strong relationships with
the distributors.

39
 15.6 Managerial Autonomy & Reward System:

The Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan
divisions will have full autonomy in allocating the resources available to them.
However, the top brass of City Pharmacy of Kampala Uganda Ltd will decide how
much resource to make available to the Kenya, Tanzania, Rwanda, Burundi, Eastern
DR Congo and South Sudan division based on their ability to achieve the parent‘s
strategic goals.

The performance evaluation of the Kenya, Tanzania, Rwanda, Burundi, Eastern

DR Congo and South Sudan management teams will be based on their ability to
achieve yearly Sales and Profit growth targets. We recommend using both these as
criteria for evaluation because:

a) Sales growth is inline with the parent company‘s growth vision and
b) It is imperative to achieve the sales growth while also maintaining the premium
branding and pricing strategy.

Achieving one i.e. sale growth or profit growth at the expense of the other will be
detrimental to the strategy of City Pharmacy of Kampala Uganda Ltd.

15.7 Hiring Plan (Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo

and South Sudan):

The subsidiary company GMs of City Pharmacy of Kampala Uganda Ltd. for the
Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan operations
will be selected from among the executives of the Uganda division. These persons
should have a long history with City Pharmacy of Kampala Uganda Ltd. and should
be familiar with City Pharmacy of Kampala Uganda Ltd.’s culture, philosophy and
strategy. It will be beneficial if these executive were involved in one of City Pharmacy
of Kampala Uganda Ltd.’s earlier market expansion projects and have a good
background in Marketing. By selecting the Kenya, Tanzania, Rwanda, Burundi,
Eastern DR Congo and South Sudan subsidiary company GMs from among the
executives in Uganda, City Pharmacy of Kampala Uganda Ltd. can ensure that the
Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan arms have
philosophies, strategy and culture similar to those of the parent division.

City Pharmacy Kenya and City Pharmacy Tanzania will then proceed to hire
Kenyans, Tanzanians, Rwandans, Burundians, Congolese and Sudanese to all other
management positions, especially marketing. This is necessary since heads of these
functions need to have a thorough understanding of the Kenyan, Tanzanian,
Rwandan, Burundian, Eastern DR Congo and South Sudan markets respectively and
the way they work. These managers will then be trained at Uganda for a few weeks to
orient them with the City Pharmacy of Kampala Uganda Ltd. culture and way of
working.

City Pharmacy of Kampala Uganda Ltd. should also send some top level
executives from its Uganda division to Kenya, Tanzania, Rwanda, Burundi, Eastern
DR Congo and South Sudan for a few months to help set up the Kenya, Tanzania,
40
Rwanda, Burundi, Eastern DR Congo and South Sudan divisions and mentor the
management in Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South
Sudan.

Exhibit 7 shows the Head Count Planned for City Pharmacy of Kampala Uganda
Ltd. in 2011-12.

16.0 HUMAN RESOURCES

16.1 Our Culture

At City Pharmacy of Kampala Uganda Ltd., our culture is one of exemplary

leadership, professionalism, transparency and empowerment – values that extends to
our external dealings with the community and wider professional network. Learning is
life-long and hence, City Pharmacy of Kampala Uganda Ltd. invests a substantial
portion of human capital on training in a variety of health topics and products, as well
as personal development areas such as leadership and time management.

The Right Staff

A team is only as strong as the weakest member within it and therefore, we look for
high calibre staff who share the same cultural values we stand for. Having the right
mindset is critical in our selection process. We look for positivity, contribution,
motivation, initiative and independence in our staff.

16.2 Staff Training and Development

A business will only grow as fast as the people within it. The philosophy behind our
staff training and development falls under two streams – professional and personal
development, as shown in Figure 6. This will ensure not only better delivery of health
information to our community but also strengthen inter-professional networks and
team dynamics.

16.3 Staff Retention and Innovation

City Pharmacy of Kampala Uganda Ltd. will introduce quarterly workshops that will also
coincide with staff evaluation. A 360 degree appraisal will be carried out for each staff member
to provide feedback on their performance and address any individual concerns. A confidential
questionnaire will also be filled out to obtain levels of staff satisfaction and any perceived
weaknesses of the business.

City Pharmacy of Kampala Uganda Ltd. functions around a horizontal organizational

structure, where transparency between the directors and staff is vital to making key decision
processes in the company. Thus, creativity and innovative ideas will not be stifled. We will
nurture talented staff to reach their full potential should they develop interest in specific
aspects of our pharmacy. We will provide funding and mentorship in small-scale self-directed
projects to further their interests and thereby enriching their experience with City Pharmacy
of Kampala Uganda Ltd. An example could be conducting market research in a niche area of
interest. Keeping their interests alive is one way we can retain talented staff.

41
 CITY PHARMACY OF
KAMPALA UGANDA
LTD STAFF TRAINING
AND DEVELOPMENT

Tangible Stream Intangible Stream

Professional Development Personal Development

 Online modules to be  Emotional intelligence

completed every fortnight on  Leadership skills
the City Pharmacy Ltd  Time management
interactive website  Communication skills
 Fortnightly product training
on specific health focus
areas

Monthly Operation Quarterly Operation

 Informal assessment on  Workshop on each area held

health focus areas quarterly
 Case-based scenarios  Taught by external
 Main issues related to topics consultants
assessed  Staff feedback also given

 Maintenance of clinical • Increased self-awareness

competency • Increased time-efficiency and
 Greater depth of hence productivity
understanding of common • Increased personal confidence
health issues and product • Improved delivery of customer
knowledge service
 Up-to-date, sound • Strengthening of inter-
professional advice professional relationships
• Improved team dynamics

Figure 6: Flowchart of City Pharmacy of Kampala Uganda Ltd. staff development and
training process
42
17.0 OPERATIONAL STRATEGY

17.1 Operating Model:

Refer Exhibit 8 for the Schematic of the Operating Model to be adopted.

City Pharmacy of Kampala Uganda Ltd. sources goods directly from West European
and North American pharmaceutical product suppliers and then uses its established
distribution and break-bulk supply network in Uganda to deliver the products to the
smaller pharma-distributors/retails, hospitals/health centres for ultimate delivery to
the consumer.

The shipping of goods (lead time 45 days) from West European and North American
supplier sources to East Africa is usually outsourced (preferably to the freight
forwarder who normally handle City Pharmacy of Kampala Uganda Ltd.’s current
export shipments to other countries).

17.2 Rationale behind the Choice of Operating Model:

Primary Decision Criteria:

a) Low Risk b) High Profit c) High Control

Secondary Decision Criteria

a) High feasibility b) Fast Implementation c) Low Investment

The above mentioned operating model will allow City Pharmacy of Kampala Uganda
Ltd. to reduce its risk by:

a) Limiting its investment

b) Allowing it to focus on its core competencies – Product Quality & Marketing
c) Providing it an opportunity to leverage the experience of a partner (the Kenyan,
Tanzanian, Rwandan, Burundian, Eastern DR Congolese and South Sudanese
Distributors) who have a sound understanding of the Kenyan, Tanzanian,
Rwandan, Burundian, Eastern DR Congo and South Sudan Markets.
d) Providing it an easy way of tapping a wide range of retail pharmacy outlets.
Further, this strategy will allow City Pharmacy of Kampala Uganda Ltd. to
operationalize its Kenyan, Tanzanian, Rwandan, Burundian, Eastern DR Congo and
South Sudan arms in a short time (8 months). We believe it is critical for City
Pharmacy of Kampala Uganda Ltd. to come to market in quick time and build itself a
niche position in the market place before competition heats up.

Refer Exhibits 9 to 11 to understand ―Evaluation of Alternatives‖.

17.3 Challenges Associated with the Chosen Operating Model:

a) Response to Market fluctuations: Long Supply Chain can result in slower

response to meet sudden changes in customer demand. We hope to counter
this by maintaining a high level of inventory (approx. 67 days of inventory) for
the first two years till we familiarize ourselves with the Kenyan, Tanzanian,
43
 Rwandan, Burundian, Eastern DR Congo, and South Sudan market behaviour
and the new Supply Chain. However, this will result in higher working capital
requirements. Having only two products in the first two years will help reduce
complexity and enhance our ability to manage inventory effectively.
b) Co-ordination with Distributors on all aspects – sales forecasting, promotion
activities, supply chain matters etc will have to be done exceedingly well. It will
take some time for the relationship to develop well and things to start
functioning smoothly. We plan to overcome this issue by trying to develop a
long term strategic relationship with the concerned distributors. The Logistics
Manager will be assigned the responsibility to handle all supply chain and
forecasting activity coordination with the distributor. The Marketing Manager
will be responsible for co-coordinating promotion and data collection activities.

17.4 Applicable Statutory Requirements:

Table 13: East Africa Regulatory Framework and Time Line for New Product
Registration
Country Regulatory Body KRAs Time Line

Kenya The Pharmacy and Responsible for the

Poisons Board (PPB) registration and quality
control of 3-6 MONTHS
pharmaceuticals,
licensing of
pharmaceuticals and
advertising of drugs.
Tanzania Tanzania Food and  Responsible for
Drugs Authority (TFDA) registration and
licensing of
manufacturing sites,
entry ports
pharmaceutical and
8-12 MONTHS
medical device
products.
 Also regulates import
and export of registered
products.
Uganda National Drugs Authority The National Drug
(NDA) Authority (NDA) is an
autonomous body set up
by the government to
implement the National
Drug Policy based on the
concept of Essential
Drugs. NDA is the
guardian of public
interest concerning 8-12 MONTHS
drugs. Any drug
promotion information
reaching the public in
Uganda must first be
vetted by and obtain
approval from NDA.

44
 17.5 Short Term Project Implementation Plan:

Refer Exhibit 12 for City Pharmacy of Kampala Uganda Ltd. project implementation
Gantt chart.

Refer Exhibit 13 for list of responsibility assignment for the project activities.

List of Activities Critical to Meet Implementation Timeline:

a) Production Capacity Expansion

b) Shipping Supplier Sourcing
c) License Approvals
Note: All these activities do not tie up into a single Critical Path. However these
activities need to be given top priority to ensure a timely launch.

17.6 Operating Expenses:

Exhibit 14 lists out the Budgeted Operating Expenses for years 2011 to 2016.

18.0 OPERATIONS PLAN

All business operations will be evaluated according to their feasibility and the feedback
we receive from our internal and external stakeholders. This will ensure optimal
business growth and smooth running of daily trading.

18.1 Trading

Day Trading Hours

Monday - Friday 8.30 am – 6:05 pm
Saturday 9 am – 1:05 pm
Sunday Closed

All the City Pharmacy of Kampala Uganda Ltd. distribution/wholesale/retail

pharmacy outlets will be insured under the relevant insurance policies which cover
‗Professional Indemnity and Business Insurance‘. The management will also undertake
extra security measures at these outlets by installing in each two surveillance cameras
and a back-to-base alarm system.

18.2 Lease/Regulatory Issues

• To be negotiated for a period of 5 years from settlement date

• Two 5 year options available after the first 5 year term as finished
• Rent at a total fixed rate of $20 per square metre from January 2011 – 31st
December 2011.

45
 18.3 Quality Assurance

City Pharmacy of Kampala Uganda Ltd. will adhere to the applicable and
appropriate Quality Assurance/Quality Control programmes pertaining to
pharmaceutical distribution/trading practices in East Africa.

18.4 IT Component

We will implement a new point of sales (POS) system and train staff on its operation to
ensure optimal utilisation. The dispensary and front-of-shop (FOS) computers will be
networked and uploaded for smooth business running.

18.5 Technology

City Pharmacy of Kampala Uganda Ltd. is in advanced stages of launching an

interactive website. Market research has revealed that an increasing number of East
African pharmaceutical product users/consumers are becoming tech-savvy in the
knowledge, use and application of internet-based information resources such as the
use of an interactive health informative website created by the pharmacy. This service
will allow the business to keep in communication with an increasingly technologically
savvy generation of East Africans. We will also consider the addition of pouch
packaging technology and a robotic dispenser on evaluation of our prescription and
dose administration aid volume in the future.

19.0 FINANCIAL ANALYSIS

Refer Financial Performance Exhibits 15 to 28 for projected financial statements,

net present value of project, breakeven analysis, sensitivities and ratio analysis.

19.1 Source of Funds: We recommend that City Pharmacy of Kampala

Uganda Ltd. use long term financing from its current bank in Uganda to fund
investment in fixed assets. See Exhibit 31 for total financing required by the
respective subsidiaries of CPK in all the afore-mentioned seven Eastern African
markets up to 2015.

Investment in working capital and initial set up expenses of the Kenyan,

Tanzanian, Rwandan, Burundian, Eastern DR Congo and South Sudan operations will
be funded by the excess cash of City Pharmacy of Kampala Uganda Ltd. In later
years, the respective subsidiaries of CPK in all the afore-mentioned seven Eastern
African markets will secure working capital requirements from the respective
subsidiaries of CPK in all the afore-mentioned seven Eastern African country banks.

The current Debt/Equity ratio of 0.57 and leverage of 1.52 provide it good
financial flexibility and it should not be an issue for City Pharmacy of Kampala
Uganda Ltd. to get additional loans. Further, given City Pharmacy of Kampala
Uganda Ltd.’s strong financial performance – increasing profitability, good cash flows,
high interest coverage ratios and liquidity ratios – and its sound fixed assets base –
46
distribution/retail stores (real estate) in prime locations –, City Pharmacy of
Kampala Uganda Ltd.’s current bank should not have any major problems in
financing City Pharmacy of Kampala Uganda Ltd.’s additional funding
requirements.

By following this strategy, City Pharmacy of Kampala Uganda Ltd. will

maintain a healthy Ending Cash Balance (Refer Exhibit 28) to safeguard itself against
any untoward developments and also preserve its financial flexibility for future growth
needs (Refer Exhibit 27 for Debt/Equity Ratios).

19.2 Application of Funds:

The funds will be mainly used for marketing/sales capacity expansion at the Kenya,
Tanzania, Rwanda, Burundi, Eastern DR Congo, and South Sudan subsidiary
offices/distribution outlets, funding working capital increases, development of website
and initial setup and marketing expenses of the Kenya, Tanzania, Rwanda, Burundi,
Eastern DR Congo, and South Sudan operations.

19.3 Structure of New Loans:

The prime lending rate in Uganda has been stable at around 16-20% over the past 4
years and is expected to remain steady in the near future due to the continuing trend
of low inflation. Hence, we believe that it will not very difficult to secure a fixed interest
rate loan from its current bank.

19.4 Financial Risks & Challenges:

Foreign Exchange Fluctuations

All the five East African currencies are currently going strong and this is good news for
City Pharmacy of Kampala Uganda Ltd.’s plans to enter Kenya, Tanzania, Rwanda,
Burundi, Eastern DR Congo, and South Sudan now. However, an appreciation of the
Uganda Shilling against the regional currencies in the near future cannot be ruled out
and if this happens, it would be detrimental to the interests of City Pharmacy of
Kampala Uganda Ltd.

Risk Mitigation Steps Hedging Contracts should be undertaken when required.

Working Capital Requirements

The long supply chain makes it imperative to maintain a large finished goods
inventory in Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo, and South
Sudan in order to have the desired flexibility to meet the Kenyan, Tanzanian,
Rwandan, Burundian, Eastern DR Congo, and South Sudan market demands. This
will be true at least for the initial years till the respective subsidiaries of CPK in all the
afore-mentioned seven Eastern African countries get to understand the market
behavior and the supply chain issues better.

Hence, the long supply chain will result in a highly ―Positive Cash Cycle‖. As a
result, financing working capital increases associated with the aggressive sales growth
47
forecasted for the Kenyan, Tanzanian, Rwandan, Burundian, Eastern DR Congo, and
South Sudan operations will be a challenge.

In order to overcome this challenge, sales growth in Kenya, Tanzania, Rwanda,

Burundi, Eastern DR Congo, and South Sudan should be accompanied with supply
chain efficiency improvements and better inventory management based on a sound
understanding of the Kenyan, Tanzanian, Rwandan, Burundian, Eastern DR Congo,
and South Sudan market behavior.

Financial Risk

Given City Pharmacy of Kampala Uganda Ltd.’s geographic diversification and

strong financial performance, a steady cash stream to meet interest obligations does
not seem to be an issue at present. (Refer Exhibit 27 for Interest Coverage i.e.
EBIT/Interest).The expectation of steady interest rates in Uganda into the future
augurs well for City Pharmacy of Kampala Uganda Ltd. even if it only manages to
secure a floating interest rate loan.

Further, by taking on debt in a phased manner (inline with the phased expansion plan
in Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo, and South Sudan), City
Pharmacy of Kampala Uganda Ltd. will ensure that it is not straddled with
unmanageable debt if the Kenyan, Tanzanian, Rwandan, Burundian, Eastern DR
Congo, and South Sudan business does not unfold as planned.

20.0 BUSINESS RISKS

20.1 Regulatory Risks:

The East African pharmaceutical products market is a relatively mature one and is
well regulated by governments at present. However, given that this is a fast growing
segment in healthcare, the government may impose yet stricter regulations in the
future, especially related to safety standards. Mitigation Steps Develop good
relationship with the government and create a premium brand image supported by
high quality and scientifically developed products.

20.2 Competitive Risks:

The pharmaceutical products market in East Africa can be expected to attract many
players in the near future because of its attractiveness (as a result of accelerated
regional economic growth leading to increased average per capita incomes). An entry
by a ―Brand & Research‖ oriented competitor can result in City Pharmacy of
Kampala Uganda Ltd. facing tough times in its niche segment.

Mitigation Steps Build a strong brand name in East Africa quickly to gain the ―first
mover advantage‖ and also lock in the major pharma-product distributors (and
through them, the retailers).

20.3 Litigation Risks:

The Pharmaceuticals industry is susceptible to litigation risks.

48
Mitigation Steps Contract a reputed legal firm(s), to sort out the legal issues within
wider East African market.

20.4 City Pharmacy Ltd’s Lack of Business Experience in Kenya,

Tanzania, Rwanda, Burundi, Eastern DR Congo, and South Sudan:

The lack of prior experience of operating in Kenya, Tanzania, Rwanda, Burundi,

Eastern DR Congo, and South Sudan can pose a significant challenge to City
Pharmacy of Kampala Uganda Ltd.’s efforts to be successful in these markets.
However, given the fact that in Kenya, Tanzania, Rwanda, Burundi, Eastern DR
Congo, and South Sudan, City Pharmacy of Kampala Uganda Ltd. sees its future
growth, it has to take this leap.

Mitigation Steps The top management of the Kenyan, Tanzanian, Rwandan,

Burundian, Eastern DR Congo, and South Sudan divisions (except GMs Kenya,
Tanzania, Rwanda, Burundi, Eastern DR Congo, and South Sudan) should all be
Kenyans, Tanzanians, Rwandans, Burundians, Eastern DR Congolese, and South
Sudanese who have long work experience in the Kenyan, Tanzanian, Rwandan,
Burundian, Eastern DR Congo, and South Sudan pharmaceutical products markets
respectively and should be well versed with the Kenyan, Tanzanian, Rwandan,
Burundian, Eastern DR Congo, and South Sudan market conditions.

49
Exhibit 1: The Five Forces Analysis for Industry Attractiveness

Industry
Forces Analysis Effect Attractiveness

No major players in the market

Low product differentiation
Low capital requirements
Barriers to Entry Limited access to distribution channels Low
Low economies of scale
Liberal government policy
Few patents

Many small suppliers

Supplier Power Geographically distributed
Less forward integration Low
Low Bargaining Power

Distributor
High volume
Buyer Power Choice of many small suppliers
Consumer Medium HIGH
Low volume purchases
Wide choice of herbal products
Low differentiation, Low availability

Regular use prescription medicines

Threat of
Substitutes
Non-prescription OTC medicines Medium
Ayurvedic medicines

Competitive
Many small competitors Medium
No major brands
Rivalry

Rule: The Weaker the Forces, the Higher will be the Profitability &
Attractiveness of the Industry

50
 Exhibit 2: Evaluation of EAC Common Market Entry Strategies

EAC Common Market Entry Strategy

Alternatives Sub-Categories Analysis Decision Criteria Strategy

Licensing Low Risk, Low Profit, Low Control

Joint Contract Low Risk, Medium Profit, Low Control

Venturing

Low to Medium Risk, High Profit, High Control

Manufacturing

Joint Ownership Medium Risk, Medium Profit, Medium Control

Direct (Self- Medium Risk, High Profit, High Control Direct

Managed) Exporting
Exporting

Indirect Low Risk, Medium Profit, Medium Control

(Intermediaries)

Manufacturing
(New Setups in High Risk, High Profit, High Control
Kenya &
Tanzania)
Direct
Investment
Acquisition (In
Kenya & High Risk, High Profit, High Control
Tanzania))

Other Factors Considered Joint Acquisition New Manufacturing Exporting

Venture Set Up in East Africa

Implementation Time Low Low High Low

Investment Low Very High Very High Moderate

City Pharmacy Ltd’s past None None None High

experience with the
Alternatives

Potential to Leverage Partner‘s High Moderate- Low Low

Knowledge about the East High
African Market

51
Exhibit 3:

CITY PHARMACY (U) LTD’S 3-PRONGED VALUE PROPOSITION TO CUSTOMERS

Quality
 Safety

 Efficacy

 Research

 Brand
Service
 Prescription Pharmaceutical Clinics

 Consultancy

 Helplines

Health
 Longevity

 Immunity

 Energy

52
Exhibit 4:

City Pharmacy Product Positioning

City Pharmacy
Brand Image

Competitors

Sourcing/Production of Scientifically-Researched &

Developed Products

53
 Exhibit 5: Marketing Budget Allocation for 2011

Budget Allocation for Market Tests

Cost (US$) Remarks

 Simulated Testing 15,000 Limited Group

 Controlled Test Environment 50,000 Testing in Sample Retail Outlets in

different localities

Budget Allocation for Advertisements

Vehicle Total Cost/Use Frequency/ Total Annual Estima Custom Cost/Cu Remarks
Reach/Circula (US$) Duration of Cost (US$) ted ers stomer
tion Use Respo Acquire (US$)
nse d
Rate

Health 315,000 $1,700 per 25 42,500 3.00% 9,450 4.50

Magazines/Books Full Page
advert

Bill Boards 150,000 people $500 per 10 Boards 60,000 1.00% 15,000 4.00 Bill Boards in
per Bill Board Month per per Year High foot Step
Bill Board Round Areas

Channel TV 1,300,000 $20 per 30 1,000 per 22,000 1.20% 15,600 1.40 Low cost
seconds slot Year targeted
6 + $500 for advertising
developing through local
Advert channel TV
stations.
Different Advts
will be developed

Radio 2,100,000 $10 for a 30 1,200 per 12,000 0.50% 10,500 1.14 Effective if used
sec airing Year repeatedly

Newspaper 2,000,000 $1 per Line Daily 18,250 0.50% 10,000 1.83 25 Line Ad with
Logo DAILY in
top two
Newspapers

Online 1,000,000 $70 per 10 Websites 8,400 0.20% 2,000 4.20 Online Advts
Advertisements month for Year Round will help drive
websites sales demand
reaching
100,000+

Total 163,150 62,550 2.61 Average

Cost/Customer

54
 Budget Allocation for Sales Promotions

Cost (US$) Remarks

Bundling 16,500 Buy one get one free/discount on second

Coupons 10,000 Discount Coupons

Free Samples with 20,000 Free Samples distributed with 30,000

Magazines Health Magazines

Bundle Other Items 10,000 City Pharmacy logo bearing Key Chains,
Pens, Coffee Mugs, Caps and T-Shirts

Lottery 10,000 Lucky Draw Campaign

In-Store Promotions & 15,000 Special promotion activities in local retail

Trade Discounts outlets

Total 81,500

Budget Allocation for Direct Mail Campaigns

Reach Cost/Person Total Response Customers Cost/Customer Remarks

Approached Annual Rate Acquired (US$)
Cost
(US$)

Direct Mail 20,000 $1 per 80,000 0.08 1,600 50 These

Campaigns reference + Customers can
$2 Material be expected to
+ $1 have long-term
Postage. Value to City
Target Pharmacy as
they will
definitely be
repeat buyers

Budget Allocation for Other Promotions

Cost (US$) Remarks

Free Samples to Practitioners 16,000 100 Practitioners given 25 Samples each
Sponsorships of Social & Charitable Causes 30,000 High Spend inline with Long Term
Strategy of creating Goodwill for better
returns
Trade Shows 35,000 Annual Trade Exhibitions costs
Total 81,000

470,650
55
 Exhibit 6: Management Structure

Board of Directors

Executive Director

GM – Operations

Materials/
Finance Marketing Manager – Research &
Logistics Admin. & HR Development
Manager Manager
Manager Coordinator

Finance Logistics Dept

Department

Customer Marketing Dept

Relationship (Wholesale and
Management Dept Retail)

Exhibit 7:

Head Count in Different Departments

Department Finance & Marketing & Material R&D HR

Invoicing CRM Management & Support
Logistics
Head Count (Direct 3 5 2 1 2
Employees)
Contract Employees 2 1 1 1 1

Total Number of Employees 20

(including GM)

56
 Exhibit 8: OPERATING MODEL

Overseas
Pharmaceutical
Mfrs/Suppliers

Pharma-retailers

City Pharmacy Pharma- Consumers

of Kampala distributors
Uganda Ltd

Hospitals/Health
Centres

Exhibit 9: Evaluation of Manufacturing Alternatives

Factors Produce in Uganda and New Production facility in

ship finished goods to Kenya/Tanzania
Kenya/Tanzania

Implementation time Low High

Investment Low High

Production cost Low High

Inventory cost High Low

Volume flexibility Low High

Ease of Exit (Contingency) Easy Difficult

Import tariff 0 -NA-

Co-ordination between R&D Easy Difficult

and Production

57
Exhibit 10: Evaluation of Distribution Alternatives

Factors Selling directly to Selling to distributors

retailers

Investment High Low

Feasibility Low High

Resources required High Low

Margins for City Pharmacy High Low

Administration Complex Easy

Warehouse required? Yes No (Use distributors)

Exhibit 11: Evaluation of Retail Alternatives

Factors Setting up City Pharmacy Use of Existing Retailer

Chain of Retail Stores Network

Investment High Low

Implementation Time High Low

Feasibility High Medium

Resources required High Low

Margins for City Pharmacy High Low

Administration Complex Easy

58
Exhibit 12: Project Implementation Gantt Chart

59
Exhibit 13: Responsibilities for Project Implementation Activities

S/No Activity Responsibility

1. Management Team Hiring Group Chairman, GM - Sales & Retail, GM

Kenya/Tanzania

2. Incorporation GM Kenya/Tanzania

3. Product Licensing GM Kenya/Tanzania, R&D Coordinator

4. Future Production & Capacity GM - Manufacturing

Expansion

5. Shipping Supplier Sourcing Purchasing Head, Uganda & Logistics Manager

6. Sourcing Kenyan/Tanzanian GM Kenya/Tanzania, Marketing Manager &

Distributors Logistics Manager

7. Site Licensing Logistics Manager

8. Marketing Planning & Promotion Marketing Manager & GM Kenya/Tanzania

Activity

9. Website Development & Hosting Marketing Manager

60
 Financial Performance Exhibits: (All figures in 000‘s of US $)

Exhibit 14: Operating Expenses

OPERATING EXPENSES Figures in US $

2011 2012 2013 2014 2015

Salaries & Health Benefits 96,480 129,840 173,520 204,360 237,960
Administration Expenses
- Travel 7,200 7,200 8,400 9,600 12,000
- Training 7,200 8,400 9,600 12,000 12,000
- Office Supplies 720 840 960 1,200 1,200
- Office Maintenance 600 720 720 840 840
- Office Lease 7,800 9,000 10,800 12,000 12,000
Total General & Admin.
Expenditure 120,000 156,000 204,000 240,000 276,000

61
 Exhibit 15: City Pharmacy of Kampala (U) Ltd’s Forecasted Income
Statements Figures in 000’s US $

Yearly Sales
Growth up to 75% Sales Growth in 2016 35%
2016
% of 2011E 2012E 2013E 2014E 2015E 2016E Remarks &
Sales Assumptions
Sales 100% 2,580 4,515 7,900 13,825 24,194 32,660
COGS 6% 154.8 270.9 474 829.5 1,451.625 1,959.6
Gross Margin 94% 2,425 4,244 7,426 12,996 22,742 30,700 Sales Price is
adjusted to
accommodate part of
transportation cost
Transportation $ marketing expense
4% 103.2 180.6 316 553 967.75 1.306.40 in 2011
Cost
SGA 80% 2,064 3,612 6,320 11,060 19,355 26,128
EBITDA 10% 258 452 790 1,383 2,419 3,266
Depreciation 4% 103.2 180.6 316 553 967.75 1,306.40 4% of Sales based on
assumption that
Depex is 10% of
Fixed Assets
EBIT 155 271 474 830 1,452 1,960
Interest 100 80 60 40 20 0 Interest Rate of 10%
on a Medium Term
Loan of US$ 1
million (i.e. payable
in 5 years)
PBT & Minority
55 151 414 790 1,432 1,960
Interests
Minority
33.78 27 20.27 13.5 6.76 0
Interests
PBT 21.22 124 393.73 776.5 1,425 1,960
Taxes Payable Taxes = 30% for EAC
6.366 37.2 118.119 232.95 427.572 588 Common Market
on Profit
states
Tax Cover from
0 0 0 0 0 0
previous Year
Actual Taxes
6.366 37.2 118.119 232.95 427.572 588
Paid
Tax Cover
0 0 0 0 0 0
Carried Over
PAT 14.854 86.8 275.611 543.55 998 1,372
NOTE: 1) Sales are based on City Pharmacy of Kampala Uganda Ltd.’s price to retailers.
Retailer margins are above this price. 2) Fixed Assets/Sales is assumed to remain at current
level of 0.29 (It has been in the range of 0.3 for the past 4 years).

62
 Exhibit 16: Sensitivity Analysis of Income from City Pharmacy of
Kampala (U) Ltd – Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo
and South Sudan

Profits (in US $)
Sales Growth Rates 2011E 2012E 2013E 2014E 2015E
30% 14.854 65.968 126.94 200.62 291
40% 14.854 76.804 156.20 259.89 398
50% 14.854 87.64 187.621 328.265 530
60% 14.854 98.476 221.213 406.39 691
70% 14.854 120.148 294.90 594.50 1,119
80% 14.854 130.984 334.99 705.79 1,393

Exhibit 17: Operating Cash Flow for Kenyan, Tanzanian, Rwandan,

Burundian, Eastern DR Congo and South Sudan Operations

2011E 2012E 2013E 2014E 2015E Remarks & Assumptions

Net Income 14.854 86.8 275.611 543.55 998
Add:
103.2 180.6 316 553 967.75
Depreciation
Less:
Taxes carried
forward 0 0 0 0 0
Increase in AR 140.68 105.54 335.1 755.07 1,183.41 32 Days Receivable
Increase in 67 days Inventory up to 2013.
Reduced to 45 days after that
Inventory 259.55 220.97 471.24 1,061.81 1,664.17
since we will have better
experience by then.
Increase in
Other Current
4 Days other current assets
Assets 18.46 13.85 43.98 99.1 155.32
Add: Increase in
15% of Sales (similar to current
Current
levels)
Liabilities 387 180.57 573.34 1,291.88 2,024.75

Net Cash Flow

from Operations 51.36 107.61 314.63 472.45 987.60

63
Exhibit 18: Net Cash Flow Projections for Kenyan, Tanzanian,
Rwandan, Burundian, Eastern DR Congo and South Sudan Operations

2011E 2012E 2013E 2014E 2015E

Net Cash Flow from
Operations 51.36 107.61 314.63 472.45 987.60
Net Cash Flow from
Investments -66.67 -50 -87.5 -153.13 -125.05
Net Cash Flow from
Financing 66.67 50 87.5 153.13 125.05
NET CASH FLOW 51.36 107.61 314.63 472.45 987.60
NOTE: Cash flow in investments in future years will be low due to slower average growth of
around 5-10%. Hence, cash flows from operations in future years will be steady and sufficient
to cover any future investment requirements. Growth will slow down because City Pharmacy
Limited will have completed its geographic and product line expansion in the EAC market by
2015.

64
Exhibit 19: Net Present Value of City Pharmacy of Kampala (U) Ltd – Kenya, Tanzania, Rwanda, Burundi,
Eastern DR Congo and South Sudan Plan (in 000‘s US $)
Terminal
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Value
Revenues 2,580 4,515 7,900 13,825 24,194 32,660 35,926 39,519 43,471 47,818 50,209
EBIT 155 271 474 830 1,452 1,960 2,155.56 2,371.14 2,608.26 2,869.08 3,012.54
Less: Taxes on EBIT 58.82 102.94 180.12 315.21 551.62 744.65 819.11 901.03 991.14 1,090.25 1,144.77
NOPAT 96.18 168.06 293.88 514.79 900 1,215 1,336.45 1,470.11 1,617.12 1,778.83 1,867.77 11,258.92

Free Cash Flow from Calc.

NOPAT 96.18 168.06 293.88 514.79 900 1,215 1,336.45 1,470.11 1,617.12 1,778.83 1,867.77
Plus: Depreciation 103.2 180.6 316 553 967.75 1,064.53 1,170.98 1,288.08 1,416.89 1,558.58 1,636.51
Gross Cash Flow 199.38 348.66 609.88 1067.79 1,868 2,280 2,507.43 2,758.19 3,034.01 3,337.41 3,504.28
Less: Increase in W/Cap. 342.47 256.85 244.9 428.58 454.54 1,012.46 1,113.71 1,225.09 1,347.60 1,482.36 1,556.48
Less: Capital Expenditure 748.2 561.15 981.86 1,718.25 1,819 861.04 948.23 1,041.87 1,146.05 1,260.65 693.36
Free Cash Flows -891.29 -469.34 -616.88 -1,079.04 -405 406.38 445.49 491.23 540.36 594.40 1,254.44
PV of Cash Flows -810.26 -387.89 -463.47 -737 -251.73 229.39 229.39 229.39 229.39 229.39 439.67 3,946.18
NPV of Project 2,882.45

Assumptions Made Remarks

Sales Growth rate up to 2014 75% Aggregate sales growth estimate due to plans of expansion through product launches and geographic expansion.

Sales Growth in 2015 35%

Sales Growth from 2015-2021 10% sales growth estimate is lower due to no major growth drivers & increased competition.

Assumptions for Terminal Value Calculation

NOPAT Growth Rate beyond 2021 5% Market to reach maturity and stiff competition expected.

Weighted Average Cost of Capital 10%

In the Long Run, Depreciation = Capital Expenditure

In the Long Run, Working Capital Change = 0

NOPAT: Non-Operating Profit After Tax

65
 Exhibit 20: NPV Sensitivity and ROI Calculations

Net Present Value of City Pharmacy of Kampala (U) Ltd – Kenya,

Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan Project

NPV Terminal NOPAT Growth Rates

2882.45 0.01 0.02 0.03 0.04 0.05 0.06
0.07 6258.85 6334.18 6409.52 6484.86 6560.20 6635.55
0.08 4585.78 4645.29 4704.80 4764.31 4823.82 48883.33
0.09 3338.63 3386.43 3434.23 3482.03 3529.83 3577.62
0.10 2385.37 2424.28 2458.80 2502.09 2882.45 2579.91
WACC
0.11 1642.36 1674.38 1704.4 1738.42 1770.44 1802.46
0.12 1054.17 1080.77 1107.36 1133.95 1160.54 1187.14
0.13 582.67 604.94 627.20 649.46 671.72 693.98

5-Year Return on Initial Investment

2011 2012 2013 2014 2015

Profit After Tax 14.854 86.8 275.611 543.55 998
PV of Profits 14.854 78.909 227.78 408.38 681.647
Total PV of Profits 1.411.565
Investments 3,513
Return on Initial Investment in 5 years 40.18%

Exhibit 21: Net Profit Trend of City Pharmacy of Kampala (U) Ltd – Kenya,
Tanzania, Rwanda, Burundi, Eastern DR Congo and South
Sudan

1600
1400
1200
1000
Net Profit in US$
000's 800
600
400
200
0
2011E 2012E 2013E 2014E 2015E 2016E
Year

Net Profit

66
Exhibit 22: Cash Flow from Operations of City Pharmacy of Kampala (U) Ltd
– Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and South Sudan

1200
1000
800
Cash Flow in US$
000's 600
400
200
0
2011E 2012E 2013E 2014E 2015E
Year

Cash Flow

67
Exhibit 23: Cumulative Cash Flow from Operations of City Pharmacy of
Kampala (U) Ltd – Kenya, Tanzania, Rwanda, Burundi, Eastern DR Congo and
South Sudan Operations

2500
Cumulative Cash Flow in US$ 000's

2000

1500

1000

500

0
2011E 2012E 2013E 2014E 2015E
Year

Cumulative Cash Flow in US$ 000's

68
Exhibit 24: Forecasted Income Statements of City Pharmacy of Kampala Uganda Ltd.’s – Uganda
Operations

% of Sales 2011E 2012E 2013E 2014E 2015E 2016E Remarks

Sales 1,200 2,400 3,600 4,800 6,000 7,200
Gross Rev (Op Rev) 85.95% 1,031.40 2,062.80 3,094.20 4,125.60 5,157.00 6,188.40 Based on Current % of Sales
SGA 73.33% 879.96 1,759.92 2,639.88 3,519.84 4,399.80 5,279.76 Based on Current % of Sales
EBITDA 12.61% 151.44 302.88 454.32 605.76 757.20 908.64 Based on Current % of Sales
% of Sales based on assumption
Depex 2.89% 34.68 69.36 104.04 138.72 173.4 208.08 that Depex is 10% of Fixed Assets
EBIT 9.72% 116.76 233.52 350.28 467.04 583.80 700.56 Based on Current % of Sales
Interest 1.95% 23.4 46.8 70.2 93.6 117 140.4 Based on Current % of Sales
PBT & Minority Interest 7.77% 93.36 186.72 280.08 373.44 466.80 560.16 Based on Current % of Sales
26% Taxes & 19.2% Minority Interest
PAT 0.548 51.16 102.32 153.48 204.65 255.81 306.97 calculated from 2010

Exhibit 25: Forecasted Consolidated Income Statements

2011E 2012E 2013E 2014E 2015E 2016E

Sales 3,780 6,915 11,500 18,625 30,194 39,860
Gross Rev (Op Rev) 3,456.60 6,306.90 10,520.20 17,121.10 27,899.13 36,888.80
SGA 2,943.96 5,371.92 8,959.88 14,579.84 23,754.80 31,407.76
EBITDA 409.44 754.38 1,244.32 1,988.26 3,176.58 4,174.64
Depex 137.88 249.96 420.04 691.72 1,141.15 1,514.48
EBIT 271.56 504.42 824.28 1,296.54 2,035.43 2,660.16
Interest 123.4 126.8 130.2 133.6 137 140.4
PBT & Minority Interest 148.16 377.62 694.08 1,162.94 1,898.43 2,519.76
PAT 66.014 189.12 429.091 748.2 1,253.47 1,678.97
Dividend/Share 0.8 0.8 0.8 0.8 0.8 0.8
Dividend 97.6 97.6 97.6 97.6 97.6 97.6
Increase in Ret. Earnings -31.586 91.52 331.491 650.6 1,155.87 1,581.37

69
Exhibit 26: Forecasted Consolidated Balance Sheet

2011E 2012E 2013E 2014E 2015E 2016E

Cash 5,965.77 6,095.25 6,319.18 6,732.03 7,040.86 7,742.84

AR (Accounts Receivable) 4,568.69 4,625.71 4,716.36 4,889.32 5,220.31 5,623.54

Inventories 5,388.30 5,425.30 5,543.15 5,700.84 6,109.48 6,595.44

Other Current Assets 639.62 647.6 660.29 684.5 730.83 785.28

Total Assets 16,562.38 16,793.86 17,238.98 18,006.69 19,101.48 20,747.10

Fixed Assets 16,725.62 17,024.27 17,645.44 18,790.61 20,888.85 23,615.53

Total Assets 33,288.00 33,818.13 34,884.42 36,797.30 39,990.33 44,362.63

Current Liabilities 8,337.87 8,441.93 8,607.37 8,923.02 9,527.07 10,262.94

Long-Term Liabilities 4,181.40 4,220.23 4,300.19 4,452.75 4,744.71 5,100.36

Equity 20,768.73 21,155.97 21,976.86 23,421.53 25,718.55 28,999.33

L + OE 33,288.00 33,818.13 34,884.42 36,797.30 39,990.33 44,362.63

70
 Exhibit 27: Ratio Analysis for City Pharmacy of Kampala Uganda Ltd.

2011E 2012E 2013E 2014E 2015E 2016E

TA/Equity 1.6 1.6 1.59 1.57 1.55 1.53
Sales/Assets 0.11 0.2 0.33 0.51 0.76 0.9
PAT/Sales 0.018 0.027 0.037 0.04 0.042 0.042
ROE 0.32% 0.89% 1.95% 3.19% 4.87% 5.79%
Profit Growth 82.61% 186.45% 126.89% 74.37% 67.53% 33.95%
Debt/Equity 0.2 0.2 0.2 0.19 0.18 0.18
Current Ratio 1.99 1.99 2 2.02 2 2.02
Quick Ratio 1.26 1.27 1.28 1.3 1.29 1.3
EBIT/Interest 2.2 3.98 6.33 9.7 14.86 18.95

Exhibit 28: Consolidated Cash Flow Statement

2011E 2012E 2013E 2014E 2015E 2016E

Operations
Net Income 66.014 189.12 429.091 748.2 1,253.47 1,678.97
Add: Depreciation 161.16 294.82 490.30 794.07 1,141.15 1,699.41
Less:
Increase in AR 23.53 57.02 90.65 172.96 330.99 403.23
Increase in Inventory 25.41 37 117.85 157.69 408.64 485.96
Increase in Other Current Assets 1.02 7.98 12.69 24.21 46.33 54.45
Add: Increase in Current
Liabilities 26.41 104.06 165.44 315.65 604.05 735.87

Cash Flow from Operations 203.624 486 863.64 1,503.06 2,212.71 3,170.61

Investments
Increase in Fixed Assets -118.66 -298.65 -621.17 -1,145.17 -2,098.24 -2,726.68
Cash Flow from Investments -118.66 -298.65 -621.17 -1,145.17 -2,098.24 -2,726.68

Financing
Increase in Long Term Liabilities 34.79 38.83 79.96 152.56 291.96 355.65
Less: Dividend -97.6 -97.6 -97.6 -97.6 -97.6 -97.6
CF from Financing -62.81 -58.77 -17.64 54.96 194.36 258.05

Beginning Cash 5,943.62 5,965.77 6,094.35 6,319.18 6,732.03 7,040.86

Net Cash Flow 22.154 128.58 224.83 412.85 308.83 701.98
Ending Cash 5,965.77 6,094.35 6,319.18 6,732.03 7,040.86 7,742.84

71
Exhibit 29: Ending Cash Balance Projection for City Pharmacy of
Kampala Uganda Ltd. (Consolidated)

8000
6000
000s of US$ 4000
2000
0 3-D Line 1
2011E 2013E 2015E
Year

72
Exhibit 30: Profit Contribution of City Pharmacy of Kampala – Rest of
East Africa to overall performance of City Pharmacy Ltd.

1800
1600
1400
1200
1000
000s of US$
800
600
400
200
0
2011E 2013E 2015E
Year

Profits from City Pharmacy - Rest of East Africa Total Company Profits

73
 Exhibit 31: Break Even Sales Calculation

2011 2012 2013 2014 2015 2016

Fixed Costs
Depreciation 103.2 180.6 316 553 967.75 1,693.56
Minimum Marketing Expenses 470.65 743.63 1,409.60 2,650.35 3,653.29 6,150.50
Overheads 190 247 323 380 437 539
SGA 89.44 219.73 563.97 1,387.74 2,693.33 4,082.39
Total Fixed Costs 853.29 1,390.96 2,612.57 4,971.09 7,751.37 12,465.45

Variable Costs
Matl + Transport/Unit 2.5 2.5 2.5 2.5 2.5 2.5
Other Variable Costs/Unit 5 5 5 5 5 5
Total Variable Costs/Unit $7.50 $7.50 $7.50 $7.50 $7.50 $7.50

Contribution/Unit $17.50 $17.50 $17.50 $17.50 $17.50 $17.50

Breakeven Sales (000s
Units) 48.76 79.48 149.29 284.06 443 712.31
Breakeven Sales (000s US$) 1,219.00 1,987.00 3,732.25 7,101.50 11,073.39 17,808
East African Pharmaceuticals
Market Size 633,310 711,750 800,510 901,010 1,014,870.00 1,143,940.00
Breakeven Market Share 0.19% 0.28% 0.47% 0.79% 1.09% 1.56%

74