After a successful turnaround and two and half years into profits, HF Group is seeking Sh5.9 billion from shareholders to turbo charge its profits.
Robert Kibaara, HF chief executive, sat down with the Business Daily to share his turnaround strategy, the rights issue billions and his passion for the legacy brand.
You have put on the table a rights issue targeting Sh5.9 bn. Why now?
We want to power the growth of the business and our main shareholders are very supportive of us going to the market to raise additional investments. All the three businesses are now profitable: the bank, property development company and insurance business.
This investment that the shareholders are bringing is basically to power the growth of the bank. The other two businesses have sufficient capital.
What options are available to HF should the bank fail to hit its rights issue target?
Our major shareholder, Britam has confirmed its intention to defend their rights fully. Other shareholders are also supportive. As such, the rights issue is already over 50 percent successful even before we start.
This is the third straight year that the company has posted a positive and growing profit trajectory so we believe that all our shareholders will seize the moment and invest so as to be part of this emerging opportunity.
How will the new capital offer support in powering the bank?
Now that the business is profitable, when we bring in new capital, we can do a lot of capital-intensive things. We knew there are many businesses in banking that we can do that don’t require much capital.
If you look at our non-funded income, it’s been growing year-on-year. Investment in government securities doesn’t require capital, trade finance like bid bonds or advance payment guarantees and custodial business do not require a lot of capital.
How did you manage to turn around the business with minimal resources?
The most important thing is innovating solutions to problems because not everything requires money to solve. Some things require a bit of thinking and others grit.
Money is important but financial discipline is more important. If you look at us on the bank side, in 2018 we spent a total of Sh3 billion in expenses.
Five years later, we spent the same amount last year despite inflation, investment in technology, refurbishment of branches, having almost 200 more staff and salary increment. You need to move costs from non-productive to productive areas.
You were tasked with the job of transforming HF from predominantly a mortgage lender to a full-service bank. Where are you on this journey?
HF needed to become more diversified because the mortgage business is subject to and affected by various macroeconomic challenges.
We still remain true to the mortgage business, but we are also running a much more diversified business.
On the bank side, we have SME, commercial, personal, diaspora and institutional banking as well as custody and treasury business. That typically reflects a normal bank.
What were the major challenges that HF faced at your entry?
When I joined, there were obviously challenges in the real estate sector. But we saw it as an opportunity because at HF we say ‘we never waste a crisis’. This was an opportunity to innovate and change the way we do things. And the best way to change is in a crisis.
As a result, the bank now is less dependent on real estate. If real estate did not have problems, we would not have innovated into new businesses. Now this business is sustainably and irrevocably more promising into the future because it is diversified.
You stopped building new houses and went into property management services. Why this approach?
We have built about 18,000 houses. But we decided that we will slow down on building new houses and transform the business to provide new innovative solutions that are less capital-intensive and that we can compete better. So we have solutions like land owner wealth management solutions where we help our large landowners, like insurance companies and pension funds, to unlock cash from their land.
We can help them to masterplan, design infrastructure, design houses, do titling process and sell because we have a large database of clients.
Are we likely to see HF go back to construction of houses in future?
Not directly because the price of inputs fluctuates a lot. If you start a project, by the time you finish, the cost of just one input like cement can move from Sh500 to Sh700. So it’s very unpredictable.
Secondly, most clients prefer a house that they build themselves. That is the tradition. Even the diaspora tell us ‘I don’t want the one you have built, help me build mine on a plot that I have’.
The third force was that we realised that we are a less competitive. Sometimes, you just have face reality. So we changed tack.
What motivated you to take up your first job as a CEO in the middle of a recovery?
It was driven by the need to help and support this institution with a rich legacy. I felt that this indigenous company that has been here for so long should thrive. So when there was an opportunity to come here, I put up my hand.
When you came in, what was the general status of the firm?
I found things were worse than I thought. But that is a story for another day because HF also had a lot going for it even in the challenges it faced. It had a very rich heritage, good brand and a very loyal customer base whom it had supported for many years to acquire homes. HF had a strategic issue.
At that time, what was the single biggest challenge you dealt with?
HF had high concentration in a single sector— real estate. That means when the sector does well, you do well and vice versa. There was a need to diversify the company. We have built completely new businesses today.
What advice would you give executives after the HF turnaround?
First, have a clear sense of direction. Usually, when we have some difficulties, we tend to focus on the problem of the day rather than the future. Creating a clear sense of direction is seeing how the business will be in future rather than what it is now.
Then build a strong cohesive team and rally it to start walking the journey. The clearer it is, the faster you will move towards the resolution. The vaguer it is, the more you’ll stay in the problems you have. And then, the focus should be on client because without him, nobody has a job.
