md performance, page-11

Perhaps direct correspondence with MEO Australia Ltd’s chairman and non-executive directors is required to generate action. As a shareholder if you’re so inclined, feel free to copy the attached wording into a letter, add your name and address, date and mail to:

The Chairman and Non-Executive Directors – MEO Australia Ltd.
c/- the company address

Dear Mr Short, Mr Sweeney and Mr Hopley,

I am a shareholder of MEO Australia Ltd and I write to you in your respective capacities as chairman and non-executive directors of the company.

The company’s stated objective per the Chairman’s Message - Annual Report 2013 is “…continue to pursue our goal of delivering substantial growth in shareholder value by applying successful technical and commercial judgement.”

However Mr Jürgen Hendrich’s actual achievements since he was appointed as CEO are the destruction of shareholder funds (raised over A$90m of shareholder money; spent ~A$139m), negative shareholder returns (-80.7% shareholder return) and the absence of any technical success.

An objective review of Mr Hendrich’s performance as CEO/MD, who is ultimately responsible for execution of business strategy, shows there is clearly a major disconnect and failure between MEO’s own stated strategy/goals of capital discipline, capital preservation, risk management and MEO’s Core Business Strategy of farm-out versus the actual corporate accomplishments (only 1 farm-out accomplished in the last two and a half years with no risk management, capital discipline or preservation over this same timeframe).

And looking forward, referring to the Chairman’s Letter to Shareholders – 18 March 2013
Board’s Vision: delivering top quartile shareholder returns. Current Status: negative shareholder returns delivered.
Company Strategy:
1 Tassie Shoal Projects. Current Status: no commercial success. FEED not started.
2 Existing Upstream Projects. Current Status: only 1 farm-out (partial) achieved from Seruway PSC, G2-48, WA-454-P, WA-488-P, Ashmore Cartier Blocks farmouts in 2013.
3 New Upstream Projects – participate in at least 2 high quality drilling opportunities each year. Current Status: only 1 well participated in 2013. No wells in 2014 forecast.

Finally, according to MEO’s annual directors report and statutory accounts Mr Hendrich’s annual base salary has increased +24.8% over the same period as shareholder returns have declined -80.7%. Additionally, during his tenure as CEO/MD Jürgen Hendrich has been paid A$275k in STI.

There is a substantial disconnect between Mr Hendrich’s actual performance as CEO/MD and his actual remuneration versus the company’s stated remuneration intent of executive rewards being linked to exceptional individual performance, shareholder value and alignment of executive interests with those of shareholders.

I remind the directors of their fiduciary and statutory duties under the Corporations Act 2001 – specifically (ASIC website attached for your reference: http://www.asic.gov.au/asic/asic.nsf/byheadline/Directors+-+What+are+my+duties+as+a+director%3F?openDocument):

s180 the duty to exercise your powers and duties with the care and diligence that a reasonable person would;
s181 the duty to exercise your powers and duties in good faith in the best interests of the company and for a proper purpose;
s182 the duty not to improperly use your position to gain an advantage for yourself or someone else, or to cause detriment to the company.

The negative shareholder returns, destruction of shareholder funds, the failures to execute the stated corporate strategy by Mr Hendrich and an inverse relationship between Mr Hendrich’s remuneration and shareholder returns can all be deemed to be detrimental to the company.

I request you collectively exercise your duties as directors of the company to immediately replace Mr Hendrich with someone who is capable of executing the company strategy and generating positive shareholder returns and value.

Please refer also to the following company and asx data supporting the statements above.

Yours faithfully,


MEO Australia Ltd - data
Shareholder returns with Jürgen Hendrich as CEO
Date MEO Closing Price Shareholder Returns (to 14 Jan 2014)
20 May 2008 A$0.270 -80.7% Return from JH’s appointment as CEO
14 Jan 2009 A$0.270 -80.7% 5Yr shareholder return
14 Jan 2011 A$0.210 -75.2% 3Yr shareholder return
14 Jan 2013 A$0.086 -39.5% 1Yr shareholder return
14 Jan 2014 A$0.052
Source: asx data

Shareholder funds raised by Jürgen Hendrich
4 Jul 2008 Raised A$11.77m @ A$0.55/sh via placement
18 Nov 2009 Raised A$26.95m @ A$0.45/sh via placement
25 Nov 2010 Raised A$32.60m @ A$0.52/sh via placement
19 Oct 2012 Raised A$9.31m @ A$0.20/sh via SPP
19 Nov 2012 Raised A$10.00m @ A$0.245/sh via placement
Total Raised A$90.63m @ A$39.2/sh (average) [-86.7% return on shareholder funds raised]
Source: meo asx releases

Other cash injections
15 Oct 2010 US$39m Petrobras farmin
Q4 2013 A$2.8m Origin farm-in
Source: meo asx releases

Corporate spend due to Jürgen Hendrich?
Corporate cash balance when he took over as CEO = A$24.34m (Jun 2008)
Corporate cash balance at end Sep 2013 = A$14.49m
Total spent of A$139m (= A$9.85m [difference in corporate cash balances] plus all the shareholder and farm-in money received in the interim ~A$90.63m + US$39m @ A$1 = US$1 at the time it was received).
Source: meo asx releases

MEO stated corporate strategy
MEO’s Good Oil Conference Presentation – 5 Sep 2011
MEO claims Capital Discipline. Acquire high equity in blocks, Farm-down interest and reduce risk. Also claims Preservation of Capital.

MEO’s Fox-Davis UK Roadshow Presentation – 7 March 2012
MEO claims Capital Discipline. Capital preservation via low cost entry, technical value add, recover and redeploy invested capital.

MEO’s Euro Pacific Conference Presentation New York – 31 May 2012
MEO claims the company is Adequately funded (subject to farmout).

MEO’s ASX Small to Mid Caps Conference Presentation – 16 Oct 2012
MEO claims their Core Business Strategy is Farm-out to fund drilling.


MEO executive remuneration arrangements – annual directors report and statutory accounts
2008
Competitive rewards are set to attract high calibre executives
Executive rewards are linked to shareholder value
A significant portion of executive remuneration is dependent upon meeting pre-determined performance benchmarks; and
Appropriate performance hurdles are established in relation to variable executive remuneration.

2009 & 2010
Reward executives for individual performance against targets set by reference to appropriate benchmarks
Align the interests of executives with those of shareholders
Link reward with the strategic goals and performance of the Company; and
Ensure total remuneration is competitive by market standards.

2011
Offer competitive remuneration benchmarked against the external market to attract high calibre executives
Where appropriate, provide executive rewards linked to shareholder value; and
Encourage non-executive directors to hold shares in the Company through a Share Savings Plan .

2012 & 2013
Ensure total remuneration is competitive by market standards
Reward executive for exceptional individual performance; and
Align interests of executive with those of shareholders.

How much is Mr Hendrich actually being paid?
FY08/09 Salary A$375k + super + A$250k sign on payment (May 2008)
FY09/10 Salary A$400k + super
FY10/11 Salary A$420k + super + A$150k STI
FY11/12 Salary A$454k + super (= A$495k incl super) + A$125k STI
FY12/13 Salary A$468k + super (= A$510k incl super)
FY13/14 Salary A$468k + super (= A$510k incl super)
Source: meo annual directors report and statutory accounts