UPD business review

UPD is well positioned to regain wholesale market share in the 2025 financial year.

After encountering multiple headwinds in the prior year, UPD successfully completed the large-scale systems implementation for its wholesale business in the first quarter of the 2024 financial year when the system went live at Lea Glen, the main distribution centre in Gauteng. This enabled the business to deliver a much-improved second-half performance as operational metrics returned to pre-systems implementation levels.

Distribution turnover grew by 3.3% (2023: 1.5%). After increasing by 1.3% for the first half, UPD delivered a stronger second-half performance with sales growing by 5.2%. The trading margin increased by 40 basis points to 3.2% due to the ongoing recovery in turnover, the higher increase in the regulated single exit price (SEP) of medicines relative to the prior year and good cost control. The margin is at the upper end of management’s medium-term financial target of 2.8% – 3.3%.

Performance against objectives in 2024 and plans for 2025

UPD’s wholesale turnover, which excludes bulk distribution and preferred supplier contracts, declined by 0.5% (H1 decrease of 2.3% and H2 increase of 1.2%).

Clicks is UPD’s largest single customer and accounted for 56.1% of wholesale turnover. Sales to Clicks increased by 6.8%, driven by second-half growth of 8.5%. Sales to private hospitals, which comprise 37.6% of sales, declined by 5.7% (H1 decrease of 8.1% and H2 decrease of 3.4%).

The continued consolidation of the independent pharmacy market contributed to sales in this channel declining by 21.8%. UPD currently services approximately 1 100 (2023: 1 150) independent pharmacies.

Wholesale market share declined from 28.0% to 26.7% (source IQVIA) due to the operational challenges faced by the business during the systems transition which resulted in Clicks and the private hospital groups buying away from UPD. Purchasing compliance improved in the second half and at the financial year-end, Clicks’ buying level from UPD was 97.5% relative to the targeted 98.0%.

Product availability, which is core to offering superior range and service to customers, averaged 97.0% (2023: 95.5%) for the year, while on-time deliveries were at 95.8% (2023: 91.9%).

UPD’s total managed turnover, which combines wholesale and bulk distribution clients, declined by 6.9% to R29.9 billion. UPD has pursued a strategy of rationalising its bulk distribution portfolio to focus on profitable clients. This resulted in two large distribution contracts with a combined annual turnover of approximately R3 billion not being renewed. This has created the capacity to support the acquisition of profitable new customers. At the financial year-end UPD had 25 (2023: 30) bulk distribution clients.

The portfolio rationalisation has enabled UPD to terminate the lease on the Cape Town facility and one of the Johannesburg facilities from January 2025.

UPD owns distribution centres located in Gauteng (Roodepoort), Cape Town, Durban, Bloemfontein and Gqeberha. All the distribution centres are ISO9001:2015 certified.

Growth plans for 2025

UPD is well positioned to regain wholesale market share following its improved performance in the second half of 2024 and the momentum being carried into the 2025 financial year.

UPD aims to recover market share through the growth of the Clicks pharmacy channel, supported by the opening of 40 to 50 pharmacies, and growing sales to the private hospital groups. Purchasing compliance levels from Clicks and the private hospitals will continue to normalise following the completion of the systems implementation.

Capital expenditure of R86 million has been committed for warehouse equipment and information technology in the year ahead. This includes the rollout of the new system for bulk distribution clients as well as further investment in solar power.

The investment to date in solar is reaping rewards as UPD’s electricity costs declined despite the double-digit increase in electricity tariffs. In line with the group’s commitment to a carbon neutral future, UPD has ordered 42 electric vehicles for deliveries in Gauteng and the Western Cape, while solar panels and batteries will be fitted on existing delivery vehicles to power refrigeration, further reducing the carbon footprint.

Performance against objectives in 2024 and plans for 2025