Directors' Statement on Corporate Governance

The directors strive to maintain the highest standards of corporate governance. This statement details how the Company applies the main principles and provisions of the 2010 UK Corporate Governance Code (‘the Code’) and the Irish Corporate Governance Annex (‘the Annex’), which applied to the Company for the year ended 30 September 2012. The Board welcomes corporate governance developments including the publication of the updated UK Corporate Governance Code (2012) which applies to the Group for the year ending 30 September 2013.

Board of directors

Role

The Board is responsible for the leadership, oversight and the long-term success of the Group. The Board has reserved certain items for its review including the approval of Group strategic plans, financial statements, budgets, risk management, significant acquisitions and disposals, investments in significant joint ventures, significant property transactions, significant capital expenditure, dividends 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 here. The Board receives reports at its meetings from the Chairman of each committee on current activities.

 

Non-executive directors are expected to constructively challenge and debate management proposals and to examine and review management performance in meeting agreed objectives and targets. In addition, they are expected to input their knowledge and experience in respect of any challenges facing the Group and in relation to the development of strategy and strategic plans.

 

All directors are required to allocate sufficient time to the Group to discharge their responsibilities effectively.

 

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

 

Membership, size and structure

The Board is comprised of eleven directors, four executive directors and seven non-executive directors. Biographical details are set out here.

 

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

 

The Board believes the current board size and structure to be appropriate as it facilitates proper representation of the business through the executive directors, while ensuring independence is maintained. The current size and structure also ensures that the Board continues to have the appropriate skills, expertise and experience necessary to enable it and its committees to discharge their responsibilities effectively and also enable the Committees to operate without undue reliance on individual non-executive directors.

 

The Chairman ensures that the skills, expertise and experience of the Board are harnessed to best effect in addressing significant issues facing the Group by ensuring; (i) directors are properly informed on all matters; (ii) that discussions foster constructive challenge and debate; and (iii) that adequate time is provided for discussions so that the view of each director is presented and considered.

 

The balance of skills, knowledge, experience and the tenure of the Board are regularly assessed and reviewed to ensure they remain appropriate and as a result the composition of the Board may change from time to time. There are currently no plans for the size or structure of the Board to materially change, however as noted in the Chairman’s Statement, to ensure continued phased renewal and refreshment and to further enhance diversity, a search for additional non-executive director candidates is currently being undertaken. The Board recognises the importance and benefit of diversity and is committed to achieving a greater level of diversity, including gender diversity.

 

Independence of non-executive directors

The Board has evaluated the independence of each of its non-executive directors and has determined that each of the non-executive directors, with the exception of Ms. Flynn, is independent. In arriving at this conclusion, the Board considered many factors including the principles relating to independence contained in the Code. As with all directors, Ms. Flynn brings independent judgement to bear on board related matters however due to Ms. Flynn being a former employee of the Group she is determined not to be independent.

 

On appointment as Chairman, Mr. Gray met the independence criteria set out in the Code.

 

The Board has determined that at least half the Board, excluding the Chairman, is comprised of independent non-executive directors.

 

Chairman

Mr. Gray was appointed Chairman of the Board on 7 February 2012. The process undertaken relating to the appointment of Mr. Gray as Chairman is set out below. The Chairman leads the Board and has responsibility to ensure it is effective and efficient, that it considers the key strategic issues facing the Group and that the directors receive accurate, relevant, timely and clear information. In addition, the Chairman ensures appropriate and effective interaction with shareholders and that the Board is apprised of the views of shareholders.

 

Senior Independent non-executive director

Mr. McGann was appointed the Senior Independent non-executive director on 20 November 2007. Mr. McGann is available to shareholders who have concerns that cannot be addressed through the Chairman, Chief Executive or Finance Director and is available to meet major shareholders on request. Mr. McGann is also available to act as intermediary for directors, if necessary.

 

Company Secretary

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.

 

Meetings

The Board routinely meets at least six times a year and additionally as required. The Board usually makes at least one visit a year to a group subsidiary. As noted in the Chairman’s Statement, the Board met fourteen times during the year. Details of directors’ attendance at these meetings are set out below.

 

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. In the event a director is unavailable to attend a board meeting, he or she can communicate their views on any items, to be raised through the Chairman at the meeting.

 

Appointment, retirement and re-election

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. After three years’ service and subsequently after six years’ service each non-executive director’s performance is reviewed by the Nomination Committee and a recommendation is made to the Board whether a further period of service is recommended. Ms. Flynn’s term of appointment as a non-executive director is for two years.

 

While the Group’s Articles of Association provide among other provisions that directors must submit themselves for re-election at least every three years, in accordance with the recommendation contained in the Code, the Board has adopted the practice that all directors shall retire at each Annual General Meeting and, unless stepping down from the Board, offer themselves for re-election.

 

Induction, training and development

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 individual training and development requirements for each director are also reviewed. During the year the Board visited businesses in the UK, during which they received a tour of the facilities and met local management. Presentations by internal and external parties are also made to the Board and committees, as appropriate.

 

Remuneration, share ownership and share dealing

Details of directors’ remuneration and share ownership are set out in the Report on Directors’ Remuneration. Since 2010 it has been company practice to put the remuneration report to a non-binding advisory vote at the Annual General Meeting.

 

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.

Board committees

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, which was amended to the Risk, Acquisitions & Finance Committee post year end.

 

Each committee has specific terms of reference under which authority is delegated to it by the Board. The terms of reference of each committee are reviewed annually and are available on the Group’s website. The current membership of each committee, and each member’s length of service, is set out in this report and here. Details of attendance at the meetings held during the year are set out below. The Chairman of each committee reports to the Board. The Chairman of each committee also attends the Annual General Meeting and is available to answer questions from shareholders.

 

Audit Committee

The Audit Committee is comprised of three non-executive directors considered by the Board to be independent. The members of the Committee are Mr. Toomey (Chairman), Mr. Friel and Dr. Peter. On 7 February 2012, following his appointment as Chairman of the Board, Mr. Gray retired from and Mr. Friel was appointed a member of the Committee.

 

The Chief Executive, Mr. FitzGerald and the Finance Director, Mr. McGrane, are not members of the Committee but normally attend meetings at the invitation of the Committee. In addition the Chairman of the Board, Mr. Gray, attends meetings at the invitation of the Committee. 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 a number of times with the Head of Internal Audit and the external auditor without other executive management being present.

 

The Committee meets a minimum of three times a year. During the year under review the Committee met eight times. Details of attendance at the meetings held during the year are set out below.

 

The Committee has determined that Mr. Toomey, a Fellow of the Institute of Chartered Accountants in Ireland, is the Committee’s financial expert.

 

The Committee’s responsibilities include:

  • monitoring the integrity of the Group’s financial statements;
  • reviewing the effectiveness of the Group’s internal financial control and financial risk management systems;
  • monitoring and reviewing the effectiveness of the Group’s internal audit function;
  • monitoring and reviewing the external auditor’s independence and objectivity;
  • making recommendations to the Board on the appointment, re-appointment or removal of the external auditor; and
  • reviewing the Group’s confidential reporting arrangements whereby employees can raise concerns about possible wrongdoing in confidence.

 

The Committee discharged these responsibilities during the year by:

  • Reviewing the Group’s interim management statements which were issued in February and August 2012, the interim report for the six months ended 31 March 2012 and the preliminary announcement and the Annual Report for the year ended 30 September 2012. The Committee’s review incorporated a review of the consistency of, or, any changes to significant accounting policies; significant judgemental areas; and disclosure and compliance requirements. During August 2012, the Committee reviewed the external auditor’s 2012 year end audit plan and during November 2012 reviewed in detail the 2012 report prepared by the external auditor relating to their year end audit.
  • Discussing the Group’s internal financial control and financial risk management systems with management, the Head of Internal Audit and the external auditor; considering internal audit and external audit reports received; and discussing and reviewing the results of the Group’s financial internal control and financial risk management systems assessment.
  • The Committee reviewed and approved the internal audit function’s charter and audit plan and reviewed the adequacy of the resources of the internal audit function. Internal audit reports and resulting action points were also regularly reviewed and followed up to ensure resolution. Progress of the audit plan was also reviewed.
  • The Committee monitored and reviewed the independence and objectivity of the external auditor by receiving confirmation from the external auditor that in their professional judgement they are independent from the Group, including details of their internal policies and procedures for maintaining independence and monitoring independence compliance. The Group external audit partner is replaced every five years and in this regard a new audit partner was appointed during the year. There are no contractual obligations which restrict the Committee’s choice of external auditor. The Committee reviewed and monitored the Group’s policy on the hiring of former employees of the external auditor to senior managerial positions in the Group within three years of having previously been employed by the external auditor.
    The Committee also reviewed and monitored the Group’s policy on the provision of non-audit services by the external auditor whereby the external auditor may not provide services which would result in it auditing its own firm’s work, conducting activities that would normally be undertaken by management, having a mutuality of financial interest with the Group, being predisposed to accept or insufficiently question the Group’s point of view or acting in an advocacy role for the Group. Other than as outlined, the Group does not impose an automatic ban on the external auditor undertaking non-audit work. The external auditor is permitted to provide non-audit services that are not, or are not perceived to be, in conflict with auditor independence, provided it has the skill, experience, competence and integrity and is considered by the Committee to be the most appropriate to undertake such work in the best interests of the Group. The engagement of the external auditor in non-audit work must be pre-approved by the Committee or entered into pursuant to pre-approved policies and procedures established by the Committee and approved by the Board. The nature, extent and scope of non-audit services provided to the Group by the external auditor and the economic importance of the Group to the external auditor were also monitored to ensure that independence and objectivity was not impaired.
    Details of amounts paid to the external auditor during the year for audit and other services are set out in note 3 to the financial statements. During the year the Committee gave approval to the external auditor providing non-audit services principally in relation to tax and transaction services. The Committee is satisfied that the fees paid to the external auditor for non-audit services did not compromise their independence.
  • The Committee recommended the re-appointment of the external auditor to the Board. Prior to making the recommendation, the Committee considered matters incorporating the effectiveness of the external auditor, the reasonableness of the fees charged by reference to certain benchmarks and the outcome of the independence and objectivity review.
  • The Committee reviewed the Group’s confidential reporting policy and procedures.

 

Remuneration Committee

Details of the composition and activities of the Committee during the year are set out in the Report on Directors’ Remuneration. Details of attendance at the meetings held during the year are set out below.

 

Nomination Committee

The Nomination Committee is chaired by the Chairman of the Board and is comprised of a majority of non-executive directors considered by the Board to be independent. The members of the Committee are Mr. Gray (Chairman), Mr. Brinsmead, Mr. FitzGerald, Mr. McGann and Mr. Toomey. On 7 February 2012, Mr. Kells retired as a member of the Committee upon his retirement from the Board and Mr. Gray was appointed Chairman of the Committee. Also on 7 February 2012, Mr. Brinsmead was appointed a member of the Committee.

 

The Committee meets at least once a year. During the year under review the Committee met twice. Details of attendance at the meetings held during the year are set out below.

 

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 reviewed and recommended to the Board the re-appointment of Mr. Friel at the conclusion of his specified term of office, reviewed the Group’s succession plan for directors and senior management and reviewed the process for the identification of potential suitable candidates for appointment to the Board.

 

A Nomination Sub-Committee, comprised of Mr. McGann (Chairman), Mr. Kells and Mr. Toomey, was engaged to identify a potential successor for the then Chairman, Mr. Kells and to recommend a chosen candidate to the Board. The Sub-Committee met eight times and was assisted by Barry Herriott, an independent consultant specialising in top level management and board appointments. The Sub-Committee in consultation with the independent consultant determined that due to the calibre of internal candidates, there was no requirement to seek external candidates. Following conclusion of the process, the Sub-Committee recommended to the Board that Mr. Gray succeed Mr. Kells as Chairman of the Board, which was unanimously approved.

 

Acquisitions and Finance Committee

The Acquisitions and Finance Committee advised the Board on matters relating to acquisitions and finance. At year end the Committee was comprised of Mr. Gray (Chairman), Mr. Brinsmead, Mr. FitzGerald, Ms. Flynn, Mr. Friel, Mr. McGann and Mr. McGrane. On 7 February 2012, Mr. Kells retired as a member of the Committee upon his retirement from the Board and Mr. Gray was appointed Chairman of the Committee.

 

The Committee meets during the year as required. During the year under review the Committee met four times. Details of attendance at the meetings held during the year are set out below.

 

Post year end the remit of the Committee was amended and extended to incorporate risk oversight and the Committee was accordingly re-named the Risk, Acquisitions & Finance Committee. The Committee is currently comprised of four non-executive directors considered by the Board to be independent. The members of the Committee are Mr. Brinsmead (Chairman), Mr. Friel, Mr. Gray, and Mr. McGann. The Chief Executive, Mr. FitzGerald and the Finance Director, Mr. McGrane are not members of the Committee but attend meetings at the invitation of the Committee.

 

Performance evaluation

The Board conducts an annual review of its own performance and that of its committees and of each individual director, including the Chairman. The review performed seeks to ensure all aspects of the Board are operating efficiently and effectively. The review also seeks to identify areas of strength and weakness in order to facilitate development.

 

During the year this review was primarily achieved through discussions held by the Chairman with directors on an individual basis and through a detailed questionnaire completed by each director. In addition, the Chairman also met with the non-executive directors as a group. The Senior Independent non-executive director met with the other non-executive directors, without the Chairman present, to review the performance of the Chairman, taking the views of the executive directors into account. The Chairman and the Senior Independent non-executive director provided the Board with a summary of the results of the evaluation process for consideration and discussion, the outcome of which was satisfactory. The methodology applied encompasses evaluation on an individual and group basis and provides a forum for open communication.

 

The Board acknowledges the recommendation contained in the Code for evaluation of the Board to be externally facilitated at least every three years and accordingly has committed that the evaluation process in 2013 will be externally facilitated.

 

Internal control and risk management

The directors have overall responsibility for the Group’s internal control and risk management systems and for reviewing the effectiveness of these systems.

 

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 during the year reported directly to the Board on how the risks are being managed. This is based on each business producing a risk register, which identifies its key risks, evaluates the probability of those risks occurring, the likely impact should the risks materialise 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. The Risk Register Group discusses these risks, and other risks faced at group level, and this process culminates in the Group risk register. During the year the Group risk register was reviewed and approved directly by the Board. With effect from October 2012, the Group risk register will be reviewed by the Risk, Acquisitions & Finance Committee and the Chairman of the Committee will report to the Board regarding this matter. On an ongoing basis, management ensures 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 receives reports from both internal and external auditors and satisfies itself as to the adequacy of the Group’s internal financial control and financial risk management 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 preparation of the Group accounts is managed by group finance and supported by a network of finance personnel with appropriate expertise across the Group. The financial information for each entity is subject to review at both reporting entity and group level. The interim and annual group accounts are also reviewed by the Audit Committee in advance of being presented to the Board for approval;
  • the approval by the Board for all major capital and acquisition 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 internal control and risk management systems, 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.

 

Communication with shareholders

The Group recognises the importance of shareholder communications and has an established and ongoing 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. During the year the Chief Executive made a presentation at the Company’s Annual General Meeting. In addition, executive directors met with investors in the UK, Ireland, Continental Europe and the US. An investor day was also held in London, which was attended by the Chairman and executive directors, with significant shareholders together with various analysts and brokers present. In addition to the investor day, the Chairman attended further meetings with significant shareholders during the year, when requested. The Board is briefed regularly on the views and concerns of institutional shareholders and receive analysts’ reports on the Company on a regular basis.

 

Results announcements are released promptly to shareholders. Interim management statements were also issued in February and August 2012, in accordance with requirements under the EU Directive 2004/109/EC (‘the Transparency Directive’). In addition, information including acquisition details is notified to the stock exchange in accordance with the requirements of the Listing Rules.

 

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

 

The Group also responds throughout the year to numerous shareholder queries on a wide range of matters.

 

General meetings

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 (EGMs). 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. The Company specifies record dates for general meetings, by which date shareholders must be registered on the Company’s register 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 company law.

 

Memorandum and Articles of Association

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.

 

Corporate social responsibility

The Group's corporate social responsibility policies and activities are summarised here.

 

Compliance statement

The Board has taken the necessary steps to ensure compliance with the provisions set out in the Code and in the Annex throughout the year ended 30 September 2012.

 

Going concern

After making enquiries, the directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Attendance at board and committee meetings

Attendance at board and committee meetings during year ended 30 September 2012 is set out below.

 

Board Audit
Committee
Remuneration
Committee
Nomination
Committee
Acquisitions and
Finance Committee
A B A B A B A B A B
                     
C. Brinsmead(i) 14 14 - - 5 5 1 1 4 4
C. Corbin 14 13 - - - - - - - -
L. FitzGerald 14 14 - - - - 2 2 4 3
A. Flynn 14 14 - - - - - - 4 4
H. Friel(ii) 14 14 3 3 5 5 - - 4 4
P. Gray(iii) 14 14 5 5 2 2 2 2 4 4
R. Kells(iv) 6 6 - - 3 3 1 1 3 3
G. McGann 14 14 - - 5 5 2 2 4 4
B. McGrane 14 14 - - - - - - 4 4
J. Peter 14 14 8 8 5 5 - - - -
A. Ralph 14 14 - - - - - - - -
P. Toomey 14 13 8 8 5 5 2 2 - -


Column A details the number of meetings held during the year when the director was a member of the Board and committee.
Column B details the number of meetings attended during the year when the director was a member of the Board and committee.

 

  1. Mr. Brinsmead was appointed a member of the Nomination Committee on 7 February 2012.
  2. Mr. Friel was appointed a member of the Audit Committee on 7 February 2012.

  3. Mr. Gray ceased to be a member of the Audit Committee and was appointed a member of the Remuneration Committee on 7 February 2012.

  4. Mr. Kells retired from the Board, Remuneration Committee, Nomination Committee and Acquisitions and Finance Committee on 7 February 2012.