The directors are committed to maintaining the highest standards of corporate governance. This statement details how the Group applies the main principles and provisions of Section 1 of the Combined Code on Corporate Governance, June 2008 ('the Code') published by the Financial Reporting Council in the UK. The Board welcomes corporate governance developments including the publication of The UK Corporate Governance Code (June 2010) which applies to the Group for the year ending 30 September 2011.

The Board is responsible for the leadership and control of the Group. The Board has reserved certain items for its review including the approval of Group strategic plans, financial statements, budgets, significant acquisitions and disposals, investments in joint ventures, significant property transactions, significant capital expenditure and board appointments.

The roles of Chairman and Chief Executive are separate with a clear division of responsibility between them. The Board has delegated responsibility for the management of the Group, through the Chief Executive, to executive management. The Board has also delegated some of its responsibilities to board committees, details of which are set out below.

The Group's professional advisers are available for consultation by the Board as required. Individual direcs may seek independent professional advice at the Group's expense, where they judge it necessary to discharge their responsibility as a direc.

The Group has a policy in place which indemnifies the direcs in respect of legal action taken against them as direcs of the Company.

The Board is comprised of five executive and seven non-executive direcs. Biographical details are set out on the following page - Biographical details

It is board policy that a majority of the Board is comprised of non-executive directors and that the Chairman is a nonexecutive director.

All of the directors bring independent judgement to bear on issues of strategy, performance, resources, key appointments and standards. The Board considers that between them, the directors bring a range of skills, knowledge and experience necessary to lead the Group.

• has been an employee of the Group;
• has or had within the last three years, a material business relationship with the Group;
• receives remuneration from the Group other than a director's fee;
• has close family ties with any of the Group's advisers, directors or senior employees;
• holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
• represents a significant shareholder; or
• has served on the Board for more than nine years from the date of their first election.

Mr. R. Kells has been Chairman of the Group since 5 October 2005. On appointment as Chairman, Mr. R. Kells met the independence criteria set out in the Code. The Chairman has overall responsibility for the effective and efficient working of the Board, ensuring that the Board considers the key strategic issues facing the Group and that the directors receive accurate, relevant, timely and clear information. The Chairman also ensures appropriate and effective interaction with shareholders.

Mr. G. McGann is the Senior Independent non-executive director. Mr. G. McGann is available to shareholders who have concerns that cannot be addressed through the Chairman, Chief Executive or Finance Director. Mr. G. McGann is also available to meet major shareholders on request.

The appointment and removal of the Company Secretary is a matter for the Board. All directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that board procedures are followed and that applicable rules and regulations are complied with.

The non-executive directors are engaged under the terms of a letter of appointment. A copy of the standard letter of appointment is available on request from the Company Secretary. It is board policy that non-executive directors are normally appointed for an initial term of three years. Non-executive directors are typically expected to serve two, three year terms however the Board may invite them to serve longer.

The Group's Articles of Association provide that directors must submit themselves for re-election at least every three years. Directors appointed by the Board must submit themselves to shareholders for election at the Annual General Meeting following their appointment. All directors over the age of seventy must submit themselves for re-election on an annual basis. In accordance with the Code, a director who has served on the Board for in excess of nine years will also be subject to annual re-election.

On appointment, directors are provided with briefing materials on the Group and its operations. Visits to group businesses and briefings with senior management are arranged as appropriate and ongoing briefings are also provided to all directors.

The Board conducts an annual review of its own performance and that of its committees and of each individual director. During the year, this review was primarily achieved through discussions held by the Chairman with directors on both an individual and group basis and through a detailed questionnaire completed by each director. In addition, the Chairman also independently met with the non-executive directors. The Chairman provides the Board with a summary of the results of the evaluation process and suggestions for any related changes. The Senior Independent non-executive director also met with the other non-executive directors, without the Chairman present, to review the performance of the Chairman.

Details of directors' remuneration are set out in the Report of the Remuneration Committee on Directors' Remuneration on pages 39 to 46 of the Annual Report 2010.

Details of directors' shareholdings are set out in the Report of the Remuneration Committee on Directors' Remuneration on pages 39 to 46 of the Annual Report 2010.

The Group has a policy on dealing in shares that applies to all directors and senior management. This policy adopts the terms of the Model Code as set out in the Listing Rules published by the UK Listing Authority and the Irish Stock Exchange.

The Group recognises the importance of shareholder communications and has an established investor relations programme. There is regular dialogue with institutional shareholders as well as general presentations at the time of the release of the annual and interim results. The Board is briefed regularly on the views and concerns of institutional shareholders.

Results announcements are released promptly to shareholders. Interim management statements were also issued in February and July 2010, in accordance with requirements under the EU Directive 2004/109/EC ('the Transparency Directive'). In addition, acquisitions are notified to the stock exchanges in accordance with the requirements of the Listing Rules.

The Group's website, www.united-drug.ie provides the full text of the annual and interim reports, investor presentations, interim management statements and stock exchange announcements.

The Board routinely meets at least six times a year and additionally as required. During the year, the Board met eleven times. Details of directors' attendance at these meetings are set out on page 38 of the Annual Report 2010

The Chairman sets the agenda for each meeting in consultation with the Chief Executive and the Company Secretary. The agenda and board papers are circulated prior to each meeting to provide the directors with relevant information and enable them to fully consider the agenda items in advance of the meeting.

The Company's Annual General Meeting affords shareholders the opportunity to question the Chairman and the Board. The Notice of Annual General Meeting, the Form of Proxy and the annual report are issued to shareholders at least 21 working days before the meeting. At the meeting, resolutions are voted on by a show of hands of those shareholders attending, in person or by proxy. After each resolution has been dealt with, details are given of the level of proxy votes cast on each resolution and the number of votes for, against and withheld. If validly requested, resolutions can be voted by way of a poll whereby the votes of shareholders present and voting at the meeting are added to the proxy votes received in advance of the meeting and the total number of votes for, against and withheld for each resolution are announced. Details of proxy votes received are made available on the Company's website following the meeting.

All other general meetings are called Extraordinary General Meetings (EGM). An EGM called for the passing of a special resolution must be called by providing at least 21 clear days' notice. Provided shareholders have passed a special resolution at the immediately preceding Annual General Meeting and the Company allows shareholders to vote by electronic means, an EGM to consider an ordinary resolution may, if the directors deem it appropriate, be called by providing at least 14 clear days' notice.

A quorum for a general meeting of the Company is constituted by three or more shareholders present in person or by proxy and entitled to vote. The passing of resolutions at a meeting of the Company, other than special resolutions, requires a simple majority. To be passed, a special resolution requires a majority of at least 75% of the votes cast.

Shareholders have the right to attend, speak, ask questions and vote at general meetings. In accordance with Irish company law, the Company specifies record dates for general meetings, by which date shareholders must be registered in the Register of Members of the Company to be entitled to attend. Record dates are specified in the Notice of Annual General Meeting. Shareholders may exercise their right to vote by appointing a proxy/proxies, by electronic means or in writing, to vote some or all of their shares. The requirements for the receipt of valid proxy forms are set out in the Notice of Annual General Meeting. A shareholder, or a group of shareholders, holding at least 5% of the issued share capital of the Company, has the right to requisition a general meeting. A shareholder, or a group of shareholders, holding at least 3% of the issued share capital of the Company, has the right to put an item on the agenda or to table a draft resolution for inclusion on the agenda of a general meeting, subject to any contrary provision in Irish company law.

The Company's Memorandum and Articles of Association sets out the objects and powers of the Company and may be amended by a special resolution passed by the shareholders at a general meeting of the Company.

The Board has established four permanent committees to assist in the execution of its responsibilities. These committees are the Audit Committee, Remuneration Committee, Nomination Committee and Acquisitions and Finance Committee. Each committee has specific terms of reference under which authority is delegated to it by the Board. The terms of reference are available on the Group's website. The membership of each committee is set out in this report. Details of attendance at meetings are set out on page 38 of the Annual Report 2010. The Chairmen of each committee report to the Board. The Chairmen of these committees attend the Annual General Meeting and are available to answer questions from shareholders.

The Audit Committee comprises Mr. P. Gray (Chairman), Dr. J. Peter and Mr. P. Toomey, all of whom are non-executive directors.

The Chief Executive, Mr. L. FitzGerald and the Finance Director, Mr. B. McGrane, are not members of the Committee but may be invited to attend its meetings. The Head of Internal Audit and the external auditor also attend meetings and have direct access to the Chairman and the Committee for independent discussions. During the year, the Committee met with the Head of Internal Audit and with the external auditor in the absence of management.

The Committee meets a minimum of three times a year. During the year under review, the Committee met ten times. Attendance at meetings is set out on page 38 of the Annual Report 2010.

The Committee has determined that Mr. P. Gray is the Committee's financial expert.

The Committee's responsibilities include:

• monitoring the integrity of the Group's financial statements, including the annual report, interim report, preliminary
announcement and interim management statements;
• reviewing the effectiveness of the Group's internal financial controls and financial risk management systems;
• monitoring and reviewing the effectiveness of the Group's internal audit function;
• making recommendations to the Board on the appointment, re-appointment and removal of the external auditor;
• monitoring and reviewing the external auditor's independence, objectivity and effectiveness; and
• ensuring compliance with the Group's policy on the provision of non-audit services by the external auditor.

The Committee discharged these responsibilities during the year by:

• reviewing the Group's interim management statements which were issued in February and July 2010;
• reviewing the interim report for the six months ended 31 March 2010;
• reviewing the preliminary announcement and annual report for the year ended 30 September 2010;
• reviewing the results of the Group's financial controls risk identification and assessment process;
• approving the internal audit plan and reviewing internal audit reports;
• reviewing the external audit plan in advance of the audit and the post-audit report, as presented by the external auditor;
• reviewing the independence, objectivity and effectiveness of the external auditor; and
• recommending the re-appointment of the external auditor to the Board.

The Committee monitors the nature, extent and scope of non-audit services provided to the Group by the external auditor in order to ensure that this does not impair their independence and objectivity. It is current committee policy that where it is deemed to be in the best interests of the Group, alternative professional advisers, beyond the incumbent external auditor, are engaged to provide non-audit services. Four key principles underpin the provision of non-audit services by the external auditor, namely that the auditor shall not:

• audit its own firm's work;
• conduct activities that would normally be undertaken by management;
• have a mutuality of financial interest with the Group; or
• act in an advocacy role for the Group.

The Committee also reviewed the Group's practices in respect of the hiring of former employees of the external auditor.

Details of amounts paid to the external auditor during the year are set out in note 3 to the financial statements - Annual Report 2010

Click here for the Terms of Reference for the Audit Committee

The Remuneration Committee consists solely of non-executive directors and comprises Mr. G. McGann (Chairman), Mr. C. Brinsmead, Mr. H. Friel, Mr. R. Kells, Dr. J. Peter and Mr. P. Toomey. Mr. C. Brinsmead was appointed to the Committee on 10 June 2010.

The Chief Executive, Mr. L. FitzGerald, is not a member of this committee but may be invited to attend meetings, except those where his own remuneration is discussed.

The Committee meets at least once a year. During the year under review, the Committee met five times. Attendance at meetings is set out on page 38 of the Annual Report 2010.

The Committee's responsibilities include:

• determining the Group's policy on executive remuneration;
• determining the remuneration of the executive directors;
• monitoring the level and structure of the remuneration for senior management; and
• reviewing the design of share incentive plans and approving awards under such schemes.

Details of the activities of the Committee during the year are set out in the Report of the Remuneration Committee on Directors' Remuneration on pages 39 to 46 of the Annual Report 2010.

Click here for the Terms of Reference for the Renumeration Committee

The Nomination Committee comprises Mr. R. Kells (Chairman), Mr. L. FitzGerald, Mr. P. Gray, Mr. G. McGann and Mr. P. Toomey.

The Committee meets at least once a year. During the year under review, the Committee met twice. Attendance at meetings is set out on page 38 of the Annual Report 2010.

The Committee's responsibilities include:

• reviewing the structure, size and composition, including the skills, knowledge and experience required by the Board, and making recommendations regarding any changes in order to ensure that the composition of the Board and committees is appropriate for the Group's requirements;
• establishing processes for the identification of suitable candidates for appointment to the Board; and
• overseeing succession planning for the Board and senior management.

During the year, the Committee recommended to the Board, one suitable candidate for appointment as a nonexecutive director. The Committee is empowered to use the services of independent consultants to facilitate the search for suitable candidates, however, such services were not required as the Committee engaged in a formal and rigorous process to consider the requirements of the position and identify suitable candidates.

Click here for the Terms of Reference for the Nomination Committee

The Acquisitions and Finance Committee advises the Board on matters relating to acquisitions and finance. The Committee comprises Mr. R. Kells (Chairman), Mr. C. Brinsmead, Mr. L. FitzGerald, Ms. A. Flynn, Mr. H. Friel, Mr. P. Gray, Mr. G. McGann and Mr. B. McGrane. Mr. K. McGowan was also a member of the Committee until his retirement from the Board on 8 February 2010. Mr. C. Brinsmead was appointed to the Committee on 10 June 2010.

The Committee meets during the year as required. During the year under review, the Committee met four times. Attendance at meetings is set out on page 38 of the Annual Report 2010.

Click here for the Terms of Reference for the Acquisitions and Finance Committee

The Group's corporate social responsibility policies and activities are summarised on the Corporate Social Responsibility page. Click here to view.

The directors have overall responsibility for the Group's system of internal control and for reviewing the effectiveness of these controls. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable but not absolute assurance against material misstatement or loss.

There is a continuous process for identifying, evaluating and managing the significant risks faced by the Group which has been in place during the year under review and up to the date on which the financial statements were signed. The Group's management operates a risk management process, which identifies the key risks facing the business, and reports to the Board on how these risks are being managed. This is based on each business producing a risk register, which identifies its key risks, the probability of those risks occurring, their impact should they occur and actions being taken to manage those risks to the desired level. This information is compiled and reviewed by the Risk Register Group, which includes executive directors, who meet bi-annually and additionally as required, to discuss these risks, and other risks faced at group level, and this process culminates in the production of the Group's risk register. On an ongoing basis, management ensure that steps are taken to further embed internal control and risk management into the operations of the Group and to identify any areas for improvement.

The Audit Committee meets and receives reports from both internal and external auditors and satisfies itself as to the adequacy of the Group's internal financial control systems. The Chairman of the Audit Committee reports to the Board on significant matters considered by the Committee and the minutes of its meetings are circulated to all directors.

Further key procedures that have been established and are designed to provide effective internal control include:

• a management structure with clearly defined lines of responsibility and delegation of authority;
• the approval by the Board of comprehensive annual budgets, and the monthly monitoring of performance against these budgets;
• the approval by the Board for all major capital projects; and
• the existence of an independent internal audit function, which reviews key business processes and controls.

The directors confirm that they have reviewed and are satisfied with the effectiveness of the system of internal control, which operated during the year covered by the financial statements and up to the date on which the financial statements were signed. In particular, they have considered the significant risks affecting the business and the way in which these risks are managed, controlled and monitored.

Company Name: United Drug PLC
Place of Registration: Companies Registration Office, Dublin, Ireland
Registered Number: 12244
Registered Office: United Drug House, Magna Drive, Magna Business Park, Citywest Road, Dublin 24, Ireland