Reject Shop : Chairman's and Managing Director's AGM Address

CHAIRMAN'S & MANAGING DIRECTOR'S PRESENTATION AT AGM HELD ON 19th OCTOBER 2016

Good afternoon Ladies and Gentlemen.

My name is Bill Stevens and as the Chairman of the Reject Shop, I welcome you all to the Annual General Meeting and thank you for your attendance here today. The Company Secretary has advised me that we have a quorum present, so I declare the Annual General Meeting open.

Before we proceed, I would like to introduce, with me here today, my fellow non-executive directors, Ms. Melinda Conrad (Chairman of our Remuneration Committee), Mr. Kevin Elkington (Chairman of our Audit & Risk Committee), Mr. Denis Westhorpe and our Managing Director Mr. Ross Sudano; also to my far right is Mr. Darren Briggs, the Company Secretary and Chief Financial Officer.

Mr. Daniel Rosenberg, of PricewaterhouseCoopers, the Company Auditor, is also with us today; as are a number of members of our management team, and a number of our staff.

I would today like to present a brief overview of the company's activities for the year, including a number of significant events; highlight the impact of those events on a number of key decisions made by the Board during the year; and profile the progress made on some significant strategic objectives.

Ross Sudano will then present to you his thoughts on, and objectives for, the business going forward.

Following Ross's presentation; I will formally submit the Annual Report, inclusive of the Director's Report; the Remuneration Report; the Director's Declaration; and the Auditors Report for consideration and invite questions from registered shareholders or their registered representatives.

The Board has considered its performance over the past twelve months, and believes that it has continued to provide context and oversight to Ross, and to his executive team - (which also includes a number of recent appointments - as set out in the Annual report).

The Board is progressing with its succession processes. The size of the Board, and the range of skills and experience continue to be considered relevant. We continue to consider individuals for future roles with the Board, where their expertise will be of most benefit to the Company and its Executive team, as they continue into this significant next phase of expanded operations of your Company, and as the current Board members have assessed their own tenure.

The Board has sought some external assistance in considering succession candidates; and the Board and Remuneration Committee has also sought external input to its considerations of certain elements of the Company's Executive Remuneration policies.

As with recent times, the past year has continued to present conditions for the Australian Retail industry, and particularly the Discount Variety sector, which remain demanding. Ross will talk to you in more detail about how the business is dealing with its continued and profitable growth objectives.

The store opening program has stabilized through the 2016 year, but the Board continue to see an appropriate strategy of a steady opening program in new locations, as appropriate sites become available. Continuation to a portfolio of 400 plus stores remains a cornerstone. As previously discussed, all of our stores must be economically viable - and achieve base financial metrics. Several stores were ultimately closed during 2016 where we saw no likelihood of achieving that viability, and a few additional store closures stores were impacted by Centre Redevelopments. We have sought to provide ongoing access in those areas to our customers; where this can be done sensibly. While some stores, particularly in new population growth areas may perform below our standard metrics for a short period, it is the team's objective to lift all stores to viable and sustainable performance levels. We have a fantastic group of Team Members across our store portfolio, and we thank them for their everyday efforts.

As previously reported, the new Melbourne Distribution Centre at Truganina will become operational early in calendar 2017. The existing DC at Tullamarine, and its operating team has served us very well; however, the current operating environment has required a constant lift in productivity that it was not capable of delivering. The uplift in automation at the new facility will aid us, and the incremental efficiencies that will be delivered by the Contract Operator result in expectation of an improved economic outcome.

While the facility is leased, the Capital fitout costs, the exit costs from the existing Tullamarine facility; together with the full entitlement payments to all of our valued DC employees who will become redundant under the new DC operating arrangements, will be met from operating cash flows; although with some additional short term facilities provided by the Company's bankers.

While we operate in the Discount Variety sector, our competition for customer support requires that we maintain our stores in a manner which encourages that support. Accordingly, in addition to new store investments, we must continue to invest in maintenance and upgrade of our store portfolio, and continue to invest in systems development that improves the outcomes for all. An element of profit and cash flow retention is required to enable this to happen sensibly.

Currently, it is the intention of the Board that a Dividend payout ratio of 60% of NPAT, will continue. We will however continue to review the capital and funding requirements of the Company's ongoing and expanding operations, with reference to both the level of retained earnings, and balance of the franking credits which may be attached to Dividend payments.

The Remuneration Report will shortly be subject to a shareholder advisory vote - in accordance with legislation. You will also be aware that the Remuneration Report specifically deals with those employees who are considered to be Key Management Personnel (KMP's). We consider this group to be our Executive team, as well as the Board.

By reference to the Annual Report, it will be noted that short term 'at risk' remuneration was paid for the 2015-2016 period to Key Management Personnel. This was considered a welcome outcome after the previous two years where, notwithstanding significant ongoing contributions, no such amounts were paid to the Executive team.

The Board consider that Management, and our staff, should be appropriately remunerated for doing their jobs. From a Management perspective, the jobs entail specific functions, as well as an expectation of financial outcomes. The Board has long considered many of these elements to be components of the Executive team job specifications and functions, and on which their 'fixed remuneration' is based. Accordingly, and while the continued 'safety' of our people and our customers is a specific element which enables the payment of short term 'at-risk' remuneration, such additional Short Term Incremental amounts will only be payable if the current-year financial outcomes meet the targets agreed with Board.

The Board and Management remain very clear on the fact that our Shareholders, while supporting the growth strategy, also require a sound return from the existing business, and that only sound financial returns will enable the continued achievement of the Company's strategies.

As part of the Remuneration Report, there are details in respect of Performance Rights granted during the 2016 year, and which may vest in the future if specified outcomes are achieved. The majority of that number were related to the 2015 financial year, and a number have been granted as a component of contracts of employment. All members of the executive team (including our Managing Director Ross Sudano) are eligible for grants of Performance rights in respect of the 2016 year end. The grant to Ross is a later Agenda item for approval by Shareholders.

A very small number of Performance Rights, granted in prior years, vested in the 2016 year.

For Performance Rights to be granted in respect of the year ended 30 June 2016, the Board considers that the vesting term of three years, which was adopted in 2013, remains appropriate.

As discussed in the Annual Financial Report, the Board considers that the reversion to a focus on clearly determinable financial hurdles, based upon:

• Earnings per share growth of 10% p.a.;

• Appropriate returns on capital employed; and

• Improvements in our earnings to sales ratios,

Provides a clearer alignment with the interests of, and outcomes expected by, Shareholders.

Accordingly, the financial hurdles to be achieved to enable full vesting of the performance rights in respect of the 2014, 2015, and 2016 awards, have been set on achievement of those financial criteria.

The Company remains committed to the broad strategic direction which has been in place for some time, and which Ross will discuss in more detail.

The ability to continue our new store growth remains very important, but the achievement of efficiencies in our Cost of Doing Business are also critical. We continue to drive to reach more customers with our value offering. The responses to our new store, and re-located store openings program, Australia wide, continue to be extremely positive.

As stated earlier, all stores must achieve viable economic returns, and Ross and his team continue to challenge all elements of our costs. In addition, his team continues to challenge our ability to present our 'best' retail profile and offer to our customers. This places greater emphasis on our training and development regimes, and our people and our capabilities. All of these areas continue to be the subject of Management's focus.

We remain committed to building a model which delivers a trusted and well-priced offering to our customers, and, which provides an appropriate return to our shareholders, and to our finance providers for their capital support. These remain our drivers.

Our enthusiastic store teams are the front line in our engagement with our customers. In regard to our operations, and the sound business model that has been developed, the strength and commitment of the management team remains a major component of our ongoing success. Like any business I am sure that there will continue to be periodic changes in our team, as people seek new and different challenges, and as we seek to ensure that we have the skills and capabilities to meet our new challenges - and I sincerely thank all of our Executive team that are, and have been part of the journey, and all of our more than 6000 people, for their continuing efforts.

I now invite our Managing Director and Chief Executive Officer, Mr. Ross Sudano, to address you in regard to the past twelve months with the business, and his view of the future.