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Investors Can Learn Valuable Lessons on Crisis Management From This Company

Most companies have been through some form of crisis or challenge during their lifetime, as business conditions sometimes change rapidly and unexpectedly. Managing conflict and trouble successfully and effectively help to differentiate the great companies from the mediocre ones, and investors can also learn a lot about crisis management from such companies. Only when management is tested by fire can investors see their ability to handle adversity, and such instances offer many valuable lessons.

Boustead Singapore Limited (SGX: F9D) has a long history; it was incorporated in 1828 and has been through many different crises during its lifetime. The group currently has four main divisions: energy-related engineering, real estate solutions, geospatial technology, and healthcare technology. The CEO, Wong Fong Fui, has managed to navigate the group through two major crises in the last 10 or so years, and I feel there are good lessons to be learned on crisis management from how this business operates.

1. The Al Marj Township project

In August 2007, BSL announced a record contract of S$300 million to design and build a new township in the municipality of Al Marj, Libya. BSL will form a joint venture with General Construction and Building Company (GCBC) to hold 65% in the project. The project involved building 1,164 single-storeyed semi-detached houses and supporting infrastructure, and it was expected to be completed within 24 months (i.e., by the end of 2009).

However, significant delays cropped up, and in February 2011, BSL announced a restructuring of the joint venture, whereby GCBC would take up 65% of the project while BSL reduced its stake to 35%. Within weeks, civil war broke out in Libya, and BSL evacuated all of its non-Libyan staff from the country. As a result of the turmoil and subsequent change in government, the group had to suspend and terminate its project in Libya.

Fortunately, there was a force majeure provision that limited BSL’s exposure to S$24.1 million, which, while painful, would not have sunk the group as it had adequate resources to absorb the losses. BSL thus learnt a valuable lesson from this debacle and now proceeds very cautiously when entering such frontier markets.

2. A collapse in oil prices, over-supply in industrial property

In 2014, there was a collapse in oil prices from more than US$150 per barrel to as low as roughly US$20 per barrel, causing many oil and gas companies to either go bust or massively restructure their operations. At the same time, the industrial real estate market also saw an oversupply that increased vacancy rates and depressed rental rates. These two events were a double whammy for BSL as their two largest divisions dealt with oil and gas and industrial real estate.

BSL reacted to these developments by expanding its geographic reach for its real estate division, Boustead Projects Limited (SGX: AVM), into Vietnam and Malaysia, where there are still ample opportunities for growth. Also, in June 2018, BSL purchased healthcare business WhiteRock Medical for S$19 million, which helped to reduce the cyclicality within its core divisions and smooth out revenue and profit. This division is now known as healthcare technology. These measures helped ensure continued growth for the group amid challenging times.

Effective crisis management

Investors should keep their eyes out for companies that successfully react to crises and either evolve their business models or come up with strategies to mitigate any weaknesses or challenges thrown at them. Astute management and a board of directors with a diverse set of skills are great at helping a company navigate through rough seas in order to emerge even stronger than before.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Boustead Singapore Limited and Boustead Projects Limited. Motley Fool Singapore contributor Royston Yang owns shares in Boustead Singapore Limited and Boustead Projects Limited.