Shareholders calls on STO to reform business practices

  • Profits took a plunge due to STO reliance on oil
  • Foray into tourism sector unsuccessful
  • Development plans for company

Key concerns of shareholders

"We cannot rely on oil alone. We have to focus on that," shareholder Ahmed Shahid said in last night's AGM at Kurumba Maldives.

Their concerns would be clear once one goes through the financial statements for last year.

66.4 percent of the company is reliant on oil sales. Last year, the earnings from this sector had dipped by 20 percent, due to the volatile global oil market. In 2014, the global oil prices sharply fell to US$ 50 from a high of US$ 115 and the oil traders were at a loss over their futures. Saudi Aramco profits dipped and subsequently the same happened for STO.

STO financial statements is a clear revelation of this fact. Last year the company posted MVR 7.3 billion as earnings. This figure was at MVR 9.1 billion the previous year. Oil earnings dipped to MVR 4.8 last year from MVR 7.2 billion the previous year. Lower oil prices contributed to a 33 percent dip in earnings derived from oil.

"STO revenue fell by MVR 2 billion. This is not a surprise. This is a wake up call. It is a huge risk to rely solely on oil as a source of income. The global market for oil could change any time. Revenues can fall even more," an STO shareholder said in last night's AGM.

Responding to the shareholders, STO Managing Director Ahmed Shaheer said 75 percent of company is reliant on oil and the company was seriously evaluating options.

Key concerns of shareholders

Shareholders said this is a litmus test for the management, noting that the company needs to diversify their investments. The shareholders highlight tourism as a potential sector in which the company can make a serious investment into. However, there are many challenges for the company in achieving this. The company has zero experience in running a tourist operation.

The Government had granted many concessions for the company to enter into the sector. When STO was granted the contract to develop an airport in Fuvahmulah, the state handed over an island for resort development as an incentive. However, the company later said the island was too small for sustainable development.

STO MD Shaheer said the island is an extremely small one and the company had passed not to invest in the island.

"The island was a three, four hectare island. We informed that we want to release the island. In exchange we have gotten a better island," Shaheer said.

"We will diversify in the future, in future we will have better news to share,"

The company had also passed to sell the company's first tourism venture "STO Hulhumale' Hotel". The Hotel was initially set to be built with the collaboration of the US Carlson group. The agreement was signed back in 2008 and since then STO had spent MVR 115 million on the property. The 500 bed property is to be sold soon.

Business diversification

"We believe there are many resorts leased for development but no development had been started. Even though we do not have experience in the field, we had completed 60 percent of the project. But we need additional resources to develop the four core businesses. That's why we had planned to sell the Radisson project, the sale is in the final stages now," Shaheer said.

STO Chair Ahmed Niyaz said the resort will be not be sold at a loss.

"We will ensure we sell the property at a price that would earn a profit for the shareholders," Niyaz said.

With this, the Government had leased "Ekulhivaru" island to STO for resort development.

Business diversification

The current STO board had initiated many plans to change the outcome of the company and shared the details with the shareholders.

MD Shaheer said under the changes initiated, the company now purchases medicine straight from suppliers instead of buying from intermediaries.

"Under the pharmacy initiative, 70 percent of medication is now purchased directly. We are negotiating with suppliers to boost quality of medication," Shaheer said.

"To expand our oil business, we are increasing fuel storage and expanding supply resources. Storage will be increased in North and South. Increasing oil barges. Thinadhoo LPG storage will be increased," Shaheer said regarding the oil expansion business.

Speaking about the medical supplies arms of the company, Shaheer said the company will focus on increasing their capabilities in that sector.

STO profits and shareholder earnings are a clear indication of the nation's economic status. Last night 99.2 percent of shareholders had passed to disburse MVR 57 per share as earnings. KPMG was appointed as the auditor for this year for a fee of US$ 39000.