The Reject Shop (TRS)

Company/ASX Code : The Reject Shop Limited (TRS)
Registry : Link Market Services
Poll/Show of Hands : Show of hands
Webcast : No
Venue :
Crowne Plaza Hotel Melbourne, Victoria
Monitor : Mr Ian Curry
AGM Details / NoM : Wednesday 14th October, 2015
ASA Position
Not Applicable
Item 1: Consideration of Accounts and Reports

The Reject Shop (TRS), is the leading national discount variety store, and delivered slightly better results for the year ended 30 June 2015. Sales were up 6.4% due to an improved second half. Profit was down from $14.5 million to $14.2 million and net debt reduced to $12 million due to a sound cash flow position. The first two months of the 2016 year have continued to show positive results. 21 new stores were opened but the rate of new store openings has slowed and 2016 will see this trend continue. Competition from State based competitors has had an impact as has the decline in the $A which increases the cost of imported goods. Rent escalation and onerous leases have led to store closures. TRS has finally started to use its customer base to directly target customer preferences and this will continue. A revised marketing/sales approach using social media/TV/catalogues has broadened the message. Action has been taken to improve the supply chain and reduce costs of acquiring product.

Dividend for the year has been held at 30 cents with a payout ratio of 60%. Franking credits continue to accumulate and ASA has asked the company to consider a number of capital management measures to use these credits.The company performance over 10 years shows the share price at $5.40 the lowest since 2005 and well down from the peak of $17.19 two years ago. However, under the recently appointed CEO it is clear that action has been taken to reverse these trends.

ASA Position
Item 2: Adoption of Remuneration Report

Executive remuneration in 2015 reflects the disappointing results over the last two years. A number of executives have left the company. No short term bonuses were paid ( if earned payable in cash) and most long-term incentives lapsed during the year. Changes to short-term incentives now allocate 90% to EBIT and 10% to qualitative measures with emphasis on safety. The LTI is now based entirely on EPS, a compound annual growth rate of 10% over three years. However EBITDA must be at least 0.15% of sales and a return on average capital employed of 20% achieved. The company has moved from a four year LTI period to three years and does not have a holding lock. However it is noted that the board has a tough approach to remuneration and the company does not overpay on any measure.

Directors’ fees are reasonable and there are only four directors. ASA is concerned that directors and executives hold very few shares in the company but it is clear the chairman does not support a policy of minimum shareholdings.

ASA has asked for a table to be included in the remuneration report showing actual remuneration. This will be considered for 2016

ASA Position
Item 3: Re-elect Mr William Stevens as a director

Mr Stevens was appointed a director in 2008 and chairman in 2010. He is an experienced and independent non-executive director. He does not have any other listed directorships. He has an accounting/finance background.

ASA Position
Item 4: To re-elect Ms Meinda Conrad as a director

Ms Conrad was appointed a director in 2011. She is an independent non-executive director and has extensive experience in the retail sector and has one other listed company directorship.

ASA Position
Item 5: Approval of Grant of Performance Rights to Managing Director

It is proposed to issue 62,400 performance rights to the Managing Director, Mr Sudano with performance targets as set out in the comments earlier on the remuneration report. Only 50% of these rights will be awarded if the specific targets are achieved. The remaining 50% will only be awarded if performance targets are materially over achieved, based on the absolute discretion of the board. These are challenging targets and shareholders will be well rewarded if they are achieved. While the performance period is only three years this is appropriate for a company in this retail segment and directors have the right to assess vesting conditions in the light of unforeseen material changes to company performance.

ASA Position
Item 6: Approval of Directors' Fees

The present aggregate maximum sum for directors’ fees is $600,000. It is proposed to increase this by $350,000 to $900,000 an increase of more than 50%. Such an increase is of concern. It is noted the last increase in the fee pool was five years ago. Currently fees paid are close to the $600,000 maximum and therefore an increase is warranted. It appears that an additional director may be appointed in the near future as part of board succession and renewal planning.

ASA support for the increase is based on our experience of tight control of expenditure by directors, the relatively low fees paid to directors compared to directors similarly sized companies and the likelihood of the appointed of a fifth director.

The individual (or their associates) involved in the preparation of these voting intentions does not have a shareholding in The Reject Shop.

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