tourism finance corporation (tfc) five year strategic plan

TOURISM FINANCE CORPORATION (TFC)

FIVE YEAR STRATEGIC PLAN – 2016/17 – 2021/22

April 2017

Five Year Strategic Plan

i

Table of Contents

DISCLAIMER ............................................................................................................................................... 2

GLOSSARY ................................................................................................................................................. 3

LIST OF FIGURES AND TABLES ......................................................................................................................... 4

1 EXECUTIVE SUMMARY ......................................................................................................................... 5

2 INTRODUCTION AND OVERVIEW ........................................................................................................... 6

2.1 BACKGROUND ............................................................................................................................................... 6

2.2 PURPOSE AND PERIOD .................................................................................................................................. 6

2.3 APPROACH AND METHODOLOGY .................................................................................................................... 7

2.4 CRITICAL SUCCESS FACTORS ........................................................................................................................... 8

3 OPERATING ENVIRONMENT OVERVIEW .................................................................................................. 9

3.1 PESTEL ANALYSIS ........................................................................................................................................... 9 3.1.1 Political Environment ....................................................................................................................... 9 3.1.2 Economic Environment ................................................................................................................... 9 3.1.3 Social Environment ....................................................................................................................... 10 3.1.4 Technological Environment ........................................................................................................... 10 3.1.5 Legal and Regulatory Environment ............................................................................................... 11 3.1.6 PESTEL Summary ........................................................................................................................ 12

3.2 TOURISM SECTOR OVERVIEW ...................................................................................................................... 14

3.2.1 Global ............................................................................................................................................ 14 3.2.2 National ......................................................................................................................................... 15 3.2.3 The Tourism Value Chain .............................................................................................................. 17

3.3 DEVELOPMENT FINANCING SECTOR OVERVIEW ............................................................................................ 18

3.4 KEY TOURISM DEVELOPMENT FINANCING PLAYER ANALYSIS ........................................................................ 20

4 REVIEW OF TFC’S PAST STRATEGIC PERFORMANCE ............................................................................... 22

4.1 REVIEW OF PAST FINANCIAL PERFORMANCE .................................................................................................... 22

4.1.1 Key financial performance trends .................................................................................................. 22 4.1.2 Key performance ratios ................................................................................................................. 23 4.1.3 Loan Recoveries ........................................................................................................................... 24 4.1.4 Review of subsidiary performance ................................................................................................ 26

4.2 REVIEW OF PAST STRATEGIC PERFORMANCE ................................................................................................ 28

5 TFC KEY STAKEHOLDER SCORECARD ................................................................................................... 29

5.1 STAKEHOLDER MAPPING ................................................................................................................................ 29

5.2 STAKEHOLDER FEEDBACK ............................................................................................................................ 30

6 SWOT ANALYSIS .............................................................................................................................. 31

7 STRATEGIC DIRECTION ...................................................................................................................... 32

7.1 TFC’S TRANSFORMATION ............................................................................................................................ 32

7.2 VISION ........................................................................................................................................................ 33

7.3 MISSION...................................................................................................................................................... 34

7.4 CORE VALUES ............................................................................................................................................. 35

7.5 TFC’S WINNING STRATEGIC DIRECTION ...................................................................................................... 36

7.6 KEY THEMATIC AREAS ................................................................................................................................. 37

7.7 STRATEGIC BUSINESS UNIT CASCADES ......................................................................................................... 38

7.7.1 Investment ..................................................................................................................................... 38 7.7.2 Credit ............................................................................................................................................. 39 7.7.4 Business Advisory ......................................................................................................................... 40


ii

8 STRATEGIC OBJECTIVES, STRATEGIES AND INITIATIVES ............................................................................ 41

8.1 OBJECTIVE 1 - ACHIEVE KES. 2 B ANNUAL REVENUE AND MAINTAIN 10% RETURN ON ASSETS ....................... 41

8.2 OBJECTIVE 2 - MOBILIZE A TOTAL OF KES 6 B FOR ON LENDING OVER 5 YEARS ............................................. 44 8.3 OBJECTIVE 3 - ENHANCE THE CORPORATIONS BRAND VISIBILITY BY 60% AND MAINTAIN 95% CUSTOMER

SATISFACTION INDEX .................................................................................................................................................. 45 8.4 OBJECTIVE 4 - ENHANCE THE CORPORATION’S SOCIO ECONOMIC IMPACT BY CREATING 8000 JOBS AND

SUPPORTING 200 ENTITIES ......................................................................................................................................... 46 8.5 OBJECTIVE 5 - ACHIEVE 90% OF SERVICE STANDARDS (SLAS), MAINTAIN NON PERFORMING LOANS, NPL OF

LESS THAN 10% IN 3 YEARS AND 5% IN 5 YEARS AND SUSTAIN A COMPLIANCE RATING OF 85% ..................................... 47 8.6 OBJECTIVE 6 - IMPROVE EMPLOYEE PRODUCTIVITY TO KES. 50M IN FIVE YEARS AND MAINTAIN EMPLOYEE

ENGAGEMENT (AND PRODUCTIVITY) AT 85% ANNUALLY ................................................................................................ 48

9 STRATEGIC RISK MANAGEMENT FRAMEWORK ....................................................................................... 49

10 FINANCIAL PROJECTIONS OVERVIEW .................................................................................................. 51

10.1 KEY ASSUMPTIONS...................................................................................................................................... 51

10.2 INCOME STATEMENT SUMMARY ................................................................................................................... 52

10.3 STATEMENT OF FINANCIAL POSITION SUMMARY ........................................................................................... 53

10.4 KEY RATIOS ................................................................................................................................................ 54

11 APPENDIX ....................................................................................................................................... 55

11.1 IMPLEMENTATION PLAN ............................................................................................................................... 55

11.2 MONITORING AND EVALUATION FRAMEWORK ............................................................................................... 68

11.4 ORGANIZATION STRUCTURE ........................................................................................................................ 69

11.4.1 Current structure ........................................................................................................................... 69 11.4.2 Proposed structure (during management retreat).......................................................................... 70 11.4.3 Revised structure .......................................................................................................................... 71 11.4.4 Structure Transition Summary ....................................................................................................... 72

11.5 RESOURCE MOBILIZATION PLAN .................................................................................................................. 73

11.5.1 Introduction ................................................................................................................................... 73 11.5.2 Resources requirements ............................................................................................................... 74 11.5.3 Summary approach for development of resources mobilization framework .................................. 74 11.5.4 Resources mobilization strategies and initiatives .......................................................................... 77 11.5.5 Risks and mitigation plan .............................................................................................................. 79

11.6 DETAILED FINANCIAL PROJECTIONS ............................................................................................................. 81

11.6.1 Projected statement of profit & loss ............................................................................................... 81 11.6.2 Projected statement of financial position ....................................................................................... 83 11.6.3 Projected cash flow statement ...................................................................................................... 85

11.7 DETAILED LISTING OF REVIEWED DOCUMENTS ............................................................................................. 86

11.8 TFC 5O YEAR MILESTONES ........................................................................................................................ 87

11.9 GLOBAL AND REGIONAL TOURISM DATA ....................................................................................................... 88

11.10 DEVELOPMENT FINANCING SOURCES ............................................................................................................ 91


2

Disclaimer

This report is confidential and is addressed solely to named recipients. Altima Africa cannot be

held responsible for its unauthorized copying and distribution. Recipients are respectfully reminded

that this report contains potentially sensitive information and should be kept secure.

The conclusions, findings and opinions expressed in this report are those of Altima unless identified

as those of other parties. We have produced the report specifically for the purposes stated and its

interpretation, use or application for other purposes imposes no obligations on Altima.

A report of this kind is dependent on the completeness, accuracy and reliability of data received

from a variety of sources. ALTIMA makes no warranty or claim as to the accuracy of the information

on which this report is based and cannot be held responsible for any inaccuracies so arising. No

representation or warranty, expressed or implied, is or will be given by ALTIMA, or its respective

directors, employees, or consultants or any other person, as to the accuracy or completeness of

this report and, as far as permitted by law and except in the case of fraud by the party concerned,

no responsibility or liability is accepted for the accuracy or sufficiency thereof, or for any errors,

omissions, or misstatements, negligent or otherwise, relating thereto. In particular, but without

limitation, (subject as aforesaid), no representation or warranty is given as to the achievement of

intended outcomes as a result of the implementation of recommendations, and nothing in this

report is or should be relied on as a promise or representation as to the future.

Accordingly, ALTIMA, nor any of the respective directors, employees, or advisors, nor any other

person, shall be liable for any direct, indirect, or consequential loss or damage suffered by any

person as a result of relying on any statement in or omission from this report and any such liability is

expressly disclaimed.


3

Glossary

[ TFC ] Tourism Finance Corporation [ SDGs ] Sustainable Development Goals

[IDIs ] In depth Interviews [ MTP II ] Second Medium Term Plan

[ DFI ] Development Finance Institutions [ ERP ] Enterprise Resource Planning

[FGDs ] Focus Group Discussions [ IDCSA ] Industrial Development

Corporation- South Africa

[ ADR ] Average Daily Rate [ TFCI ] Tourism Finance Corporation of India

[ RevPar ] Revenue per available room [ TAT ] Turn Around Time

[ NPL ] Non-performing Loans [ SLA ] Service Level Agreement

[ OPEX ] Operating Expenses [ SOP ] Standard Operating Procedure

[ TRA ]Tourism Regulatory Authority [ KTB ] Kenya Tourism Board

[ KATO ]Kenya Association of Tour Operators [ ADB ] Asia Development Bank

[ IFC ] International Finance Corporation [ AFDB ] Africa Development Bank

[ IDB ] Islamic Development Bank [ UN ] United Nations

[ EADB ] East African Development Bank [ JV ] Joint Venture

[ AADI ] Association of African Development

Financing Institutions

[ KFW ] Kreditanstalt für Wiederaufbau (A

German DFI)

[ GoK ] Government of Kenya [ HSBC ] Hongkong and Shanghai Banking

Corporation

[ MoT ] Ministry of Tourism [ FY ] Financial Year


4

List of Figures and Tables

List of Figures

Description Page

Figure 1 – strategy development approach and methodology

Figure 2: global key economic drivers

Figure 3 ; Population demographic highlights Kenya, 2014 &

2020

Figure 4: key technological trends

Figure 5: Legal and Regulatory Environment Summary

Figure 6: Inbound tourism visitor growth worldwide 2008 – 2017

Figure 7: 2015 global visitor exports, travel & tourism

investment; The warmth of Kenyan hospitality

Figure 8: tourism sector competitiveness analysis 2015, Eastern

& Southern African Countries

Figure 9: Key Tourism Industry Players, Kenya

Figure 10: The tourism value chain

Figure 11: Revenue and Net profit trend 2011-2015

Figure 12: Return on Assets Ratio 2011 to 2015

Figure 13: TFC Revenue Streams 2011 to 2015

Figure 14: TFC Revenue Share 2011 to 2015

Figure 15: TFC Profit Margin 2011 to 2015

Figure 16: Loan portfolio movement 2013 to 2016

Figure 17: Loan collections 2016 – 2017

Figure 18: TFC Subsidiary performance summary

Figure 19: Past strategic performance review summary

9

11

12

12

13

16

16

18

18

19

23

24

25

26

26

27

27

29

29

30

30

List of Tables

Description Page

Table 1: Stakeholder mapping and assessment criteria

summary’

Table 2: PESTEL Summary findings and insights

Table 3: East African Inbound Tourist Arrivals ‘000 (2013 & 2014)

Table 4: Hospitality Industry Value and international arrivals

Kenya 2014 – 2020

Table 5: Key Tourism Development Components

Table 6: Tourism Sector Assessment Summary

Table 7: Case study analysis summary

Table 8: TFC Subsidiary performance summary

Table 9: External TFC Stakeholders

Table 10: summary of the projected income statement

Table 11: Projected statement of financial position

Table 12: Key financial projection ratios

10

15

16

18

19

20

22

28

29

51

52

53


5

1 Executive Summary

Strategic planning is a vital process in modern management that guides organizations towards

their desired business destination. It is an organization’s way of ensuring that it is prepared for the

future by envisaging this future and coming up with strategic objectives, strategies and initiatives

for its achievement.

This report documents the strategic direction for the Tourism Finance Corporation for a five year

period (2016/17-2021/22). The development of this plan followed a systematic and participatory

approach with all relevant stakeholders for the Corporation. The process entailed: review of key

documents such as the previous strategic plan to build an in depth understanding of TFC’s

operations as well as market research to understand TFC’s operating environment. Interviews and

discussions with external stakeholders such as Eco Tourism and National Museums of Kenya were

conducted to clearly define opportunities TFC can tap into and key threats to mitigate against. An

analysis of TFCS’s internal environment was conducted through a comprehensive strategic

performance review analysis which aimed at defining strengths TFC can build on and weaknesses

that it needs to address. This included interviews with the board and senior management as well

as an online survey of TFC staff.

Based on this analysis the following strategic themes were identified for the 2017-2022 planning

period:

I. Higher returns from revenue contributions and investments;

II. Significant impact on our customer, stakeholders and tourism sector-Brand relevance;

III. Efficient service delivery and higher controls;

IV. Greater contribution of staff and innovation.

The themes are in tandem with Corporation’s transformation agenda to demonstrate its relevance

in the Country’s development space to be the leading DFI in the tourism sector. This necessitated

a relook into the Vision, Mission and Core Values. Thus, the Vision was revised to “The leading

financial partner driving sustainable tourism development in Kenya”. The strategic themes form the

basis for the setting of the strategic objectives that will be at the core of the Corporation’s

operation over the duration of this strategic plan. They also inform the strategies for the

achievement of the objectives. The identified objectives are:

I. Achieve KES. 2B annual revenue and maintain 10% return on assets;

II. Mobilize a total of KES 6B for on lending over 5 years;

III. Enhance the Corporation’s brand visibility by 60% and maintain 95% Customer Satisfaction

Index;

IV. Enhance the Corporation’s socio economic impact by creating 8000 jobs and supporting

200 entities;

V. Achieve 90% of service standards (SLAs), maintain Non Performing Loans (NPL) of less than

10% in 3 years and 5% in 5 years and sustain a compliance rating of 85%;

VI. Improve employee productivity to KES. 50M in 5 years and maintain employee

engagement (and productivity) at 85% annually.

An implementation plan which identifies for each objective, the strategies, key initiatives, financial

targets, responsibilities, timelines and specific activities towards the achievement of the objective

has been developed. Key performance indicators (KPIs) that will track the progress towards the

achievement of the objectives have been identified and documented. This report also includes a

revised organization structure that will drive the delivery of the strategic plan, financial projections

for each year of the duration of the plan, a resource mobilization plan and a risk management

framework to hedge strategic risks.


6

2 Introduction and Overview

2.1 Background

The Tourism Finance Corporation (TFC) was established in 1965 through an Act of Parliament. The

corporation’s core business is to provide project financing for the tourism industry.

TFC is tasked by Vision 2030 to develop 65,000 beds by 2030. It is envisaged, this will be achieved

through credit funding to potential investors, rehabilitation and upgrading of existing lodging

facilities and investing in new four and five star hotels. Some flagship projects for 2013 to 2017

include the development of five resort cities; developing and sustaining premium Parks and

developing niche tourism products such as agro tourism.

TFC has the key mandate of facilitating and providing affordable development funding and

advisory services for long-term investment in Kenya’s tourism industry. In addition In line with

devolution the corporation is meant to re align and enhance its investment strategies to contribute

to the tourism subsectors in each of the forty seven (47) counties.

TFC since inception has developed and invested in some of the key landmark properties (including

Mountain Lodge, Mombasa Beach Hotel, Ngulia Safari Lodge, Voi Safari Lodge, Kilaguni Hotel,

Bomas of Kenya, Mt. Elgon Lodge, Sunset Hotel and Golf Hotel) across the country.

The Corporation also carries out research on the emerging and existing investments opportunities

in the Country and provides advisory services to investors in the tourism sector: Among the

developments funded since inception include TPS Serena Group of Hotels and Lodges, the Hilton

Hotel, Intercontinental Hotel, Sunset Hotel, Kisumu and Poll man Tours among others.

2.2 Purpose and Period

TFC has been experiencing various strategic and operational challenges. These include but are

not limited to a limited access to credit lines, underutilized facilities and investments, stunted

operations – with no credit facilities /loan disbursements having been issued over four years,

underutilised capacity and a limiting mandate. These challenges have greatly inhibited the

corporation’s impact in the tourism sector and in the Kenyan economy.

It is against to this background that TFC contracted Altima Africa to provide professional support

the project that aims at developing a five year (2017 – 2022) strategic plan that will aide in its

transformation and growth.

This strategic plan provides both the assessment of the business environment in which the

corporation operates in (the macro environment) as well as TFC’s current/past strategic

performance (the micro environment). The plan then details the corporation’s five year (2017 –

2022) strategic direction.

This business environment constitutes a variety of factors, whose existence continually influences its

behaviour and performance. The action of these factors may be direct or indirect. This assessment

covers trends in tourism, tourism finance and development finance sectors, the business

environment and local market and an analysis of the key players in the market (Global, regional

and local). This section looks at best practice and assists in the identification of all possible strategic

directions, potential opportunities and threats and key learning points that can be utilised during

the planning period.


7

The assessment of TFC’s current and past performance focuses on internal operations, financial

performance and organizational structure.

Taking all this into consideration, this strategic plan defines TFC’s five year (2017 – 2022) strategic

direction including year zero’ which details strategies between the planning period and the first

year of implementation (i.e. November 2016 to June 2017). The strategic direction contains the

refined Vision statement, Mission and core values. The plan further details the six key objectives,

which define clear targets, crafted to achieve the pre-set vision. These objectives are further

broken down into strategies and initiatives. The plan also details the critical aspects of

implementation defining clear action plans illustrating how and when the objectives, strategies

and initiatives will be executed. An organizational structure has as well been proposed to support

the strategic direction. Key strategic risks have been identified and mitigating actions have been

developed to ensure overall strategic planning success.

2.3 Approach and Methodology

The overall project approach and methodology is as illustrated below:

Figure 1 – strategy development approach and methodology

Source – Altima Afica

The diagnosis phase utilised the following approaches based on the stakeholder type and the

desired output:

Stakeholder Desired Output Approach

Key external

stakeholders

Key opportunities

Key strategic partnerships

Workshop sessions/ Focus

Group Discussions (FGDs)

Individual In depth

Interviews (IDIs)

Board of Directors Overall strategic direction

Sensitization session

Individual In depth

Interviews (IDIs)


8

Stakeholder Desired Output Approach

Management

Current and past strategic

performance

Strategy management and execution

options

Sensitization session

Individual In depth

Interviews (IDIs)

Staff

Strategy execution roadblocks and

enablers

Operational roadblocks and enablers

Online strategy survey

Table 1: Stakeholder mapping and assessment criteria summary

Source: Altima Analytics

2.4 Critical Success Factors

The critical success factors identified for the successful implementation of this strategic plan are as

highlighted below:

Active endorsement, support and commitment of the Board and the Leadership Team

Effective, regular and timely decision making and communication

Investments in increased loan book size

Transformation of investment and portfolio performance

Enhanced brand visibility, socio economic impact and sector leadership

Systematic strategy implementation that ensures departments and individual employees

own the new strategic direction

Matching staffing to business and growth needs and timely commitment and allocation of

adequate resources to support strategy implementation.


9

3 Operating Environment Overview

This chapter provides a summarised assessment of the corporation’s internal (the micro

environment).and external (the macro environment) business environment. The detailed

assessment is contained in the the comprehensive diagnostic report submitted on 30th November

2016.

This business environment constitutes a variety of factors, whose existence continually influences

the corporation’s behaviour and performance. The action of these factors may be direct or

indirect. The external environment assessment covers trends in tourism, tourism finance and

development finance sectors, the business environment and local market and an analysis of the

key players in the market (Global, regional and local). The internal environment assessment covers

TFC’s current and past performance focuses on internal operations, financial performance and

organizational structure

3.1 PESTEL Analysis

3.1.1 Political Environment

The global political environment is facing numerous challenges such as the US Elections and

changes in foreign policies; the regrouping of the Grand Old Party (GOP);BREXIT and Britain’s

foreign policies; terrorism and religious extremism (ISIS/ ISIL, Al Qaida);the establishment of the

“BRICS Bank” –the New Development Bank; and re-establishment of ties between Cuba and the

US.

The political outlook across Africa includes Nigeria taking over as the key economic powerhouse;

Egypt’s unrest and Islamic State infiltration; a more united Africa and the Advocacy and

Communication Cluster (ACC); a Reenergized COMESA and enhanced China Activity in Sub-

Saharan Africa.

The EAC political scene consists of many joint intergovernmental programs; Burundi and DRC

warned on presidential term limits; South Sudan leadership woes; Tanzania leadership shift and

Kenya’s and Rwanda's uncertainty on succession.

In Kenya the upcoming national elections has seen increased tensions across the country as well

as slowed government projects and foreign investments. In addition, devolution has resulted in

decentralized opportunities; distributed resources and uncertainty in taxation

3.1.2 Economic Environment

The global economy is on a narrow path of slow and fragile recovery. Many countries are

struggling with a massive debt burden and high unemployment persisting to bog down their

economies and hampering growth. Commodity prices remain high and will continue to put

further pressure on the global economy. Some of the global key economic drivers are as

illustrated below:

Figure 2: global key economic drivers



10

The Kenyan business climate has been rendered unfavourable due to key issues such as corruption,

inflation, tax rates, insecurity, and access to financing, inadequate supply of infrastructure,

inefficient government bureaucracy, and policy instability. However, it is important to note that

doing business in Kenya has significantly improved as ranked by the World Bank ease of doing

business report.

3.1.3 Social Environment

The Kenyan social environment is facing significant growth in the middle class population; rapid

urbanization and focus to new devolved centres; continued focus on creating opportunities for

youth and women; a slowed population growth rate of 1.8% p.a.; improved literacy levels and

enhanced social media evolution. The figure below highlights a projected increase in Kenya’s

working population.

Figure 3 ; Population demographic highlights Kenya, 2014 & 2020

Source: Kenya Bureau of Statistics & CIA World Fact book

Changes of the social environment have a major impact on products, services market and

consumers. Organizations are being staggered and challenged by the opportunities and threats

arising from changes in the social environment which affect the customer needs and the size of

the potential markets. Some of these changes include an increasing middle class with enhancing

purchasing power; a growing mismatch between the skills employers need and the talent

available; rapidly growing population and enhanced urbanization.

3.1.4 Technological Environment

Technology is changing rapidly as the tourism and financing industries aim to achieve efficiency

to drive down costs e.g. alternative sources of energy. Advances in technology can have a

major impact on business success, with companies that fail to keep up often going out of

business. Technological change also affects political and economic aspects and plays a part in

how a firm does its business. Some key technological trends include the use of Social Media in

conducting business; digital Consumerism; E-commerce and clean energy as illustrated below.

Figure 4: key technological trends Source: Altima Analytics


11

Technology is transforming the global tourism industry: The industry is embracing e-Tourism which

refers to the digitalization of all processes and value chains in the tourism, travel, hospitality and

catering industries that enable organizations to maximise their efficiency and effectiveness.

3.1.5 Legal and Regulatory Environment

The legal environment in Kenya is characterized by changing and emerging (new) Acts, conflicting

legislation by other sectors, disparities in regional policies and laws, International agreements a new

constitution and most recently devolution. The overarching Legislation, National Strategies and

Policies include:

Figure 5: Legal and Regulatory Environment Summary



12

3.1.6 PESTEL Summary

The table below highlights the key PESTEL environmental analysis findings as well as the insights drawn for TFC.

Aspect Key Finding Insight Drawn

Political

Environment

Deterioration of the British Pound as a result of BREXIT Kenya becomes a more expensive tourist destination for Britons

Egypt’s unrest and its adverse impact on their tourism industry Kenya can target the leisure and cultural tourists who traditionally visit Egypt e.g.

Russians

Enhanced China investment and trade activity in sub-Saharan Africa Target China for volume (large numbers) and value (high end Chinese) tourism

business

Upcoming elections in Kenya may result in increased political temperatures

and increase country risk

Reduced in flows of tourists particularly in second half of 2017 which is usually

pick leisure tourism period

Opportunity for current leisure tourists to revamp their facilities given the likely

slow down over that period

Devolution has created particular focus of counties on opportunities for

growth, investment and diversification creating better focus on tourism

regionally

Partnering with specific counties to improve the diversification of the tourist

product offering and also address current tourism seasonality challenges

Insecurity and travel advisories Target domestic tourists and focus marketing efforts around changing the

perception of insecurity

Economic

Environment

Increase in FDI to Africa-from USD 46.5 billion in 2008 to USD 86.1 Billion in

2013

Kenya to build a strong case for investments in the tourism sector to channel

credit lines within the same sector

High demand for financing and limited access to financing as a key barrier

to doing business in Kenya

Need for enhanced risk appraisal systems to enhance the quality of financing

demands; drive financing towards enhancing the variety of the tourism product

Inadequate supply of infrastructure Kenya to strategically improve infrastructure to drive returns from the tourism

sector

Interest rate capping

Increased competition to the development financing sector as loan pricing was

a key differentiator before with TC offering loans at 9% and commercial banks

offering at an average of 18%

Increased private consumption Kenya needs to actively target and enhance domestic tourism

Increasing inflation and a decelerated positive growth of 4.5% in the

domestic economy Need to factor inflation during risk pricing

Increasing and dynamic energy costs Need to drive clean energy investments


13

Aspect Key Finding Insight Drawn

Technological

Environment

Shift towards sustainability and clean energy Actively target and drive investments geared at clean energy

Increased use of Social Media in conducting business Leverage on social media to enhance brand visibility and enhance customer

engagement and relationship management

Digital consumerism and a shift to E-commerce Increased need to enhance systems to capture the digital space

Increasing innovation and automation Need to enhance internal operational efficiency by utilising and leveraging on

technology

Social

Environment

An increasing middle class with enhancing purchasing power Kenya needs to actively enhance focus on domestic tourism

A growing mismatch between the skills employers need and the talent

available

Need to develop comprehensive on boarding training programs specialised to

industry, organization and role requirements

Rapid urbanization Kenya needs to actively identify and plan around natural tourism products to

enhance conservation and sustainability

Legal and

Regulatory

Environment

Key TFC mandate: increasing of bed capacity; development of hotels;

diversification of the tourism product Need to actively target and focus on the diversification of the tourism product

Numerous tourism sector flagship projects Need to actively take up and champion some of these sectorial flagship projects

Table 2: PESTEL Summary findings and insights



14

3.2 Tourism Sector Overview

3.2.1 Global and Regional

The travel & tourism sector has developed into an industry with an annual economic impact (direct,

indirect and induced) of around 6.5 trillion U.S. dollars worldwide. In 2012, the number of

international tourist arrivals exceeded the one billion mark for the first time, an increase of almost

50% compared to ten years earlier. International travellers from China, Germany and the United

States are amongst the biggest spenders worldwide.

The global hotel industry generates approximately between 400 and 500 billion U.S. dollars in

revenue each year, one third of that revenue is attributable to the United States. Some of the

biggest hotel chains (groups) are the InterContinental Hotels Group, Marriott International, Hilton

Worldwide, Accor, Starwood Hotels & Resorts, and the Wyndham Hotel Group. Three of the most

important hotel performance indicators are the Average Daily Rate (ADR), the revenue per

available room (RevPar), and the occupancy rate. Some key facts and figures are presented

below:

Figure 6: Inbound tourism visitor growth worldwide 2008 - 2017

Source: European Travel Commission, 2016

The 2015 global visitor exports, travel & tourism investment data is displayed in the following charts:

Figure 7: 2015 global visitor exports, travel & tourism investment

Source: Travel & Tourism Economic Impact 2016 World, The World Travel & Tourism Council


15

Regional tourism was been on the decline in 2014 mainly attributable to the perception of

insecurity across the EAC. However, this has since picked up with the changes in policies

affecting labour and trade in the Region taking effect in 2015. The East African Inbound Tourist

Arrivals ‘000 (2013 & 2014) are as presented below:

Table 3: East African Inbound Tourist Arrivals ‘000 (2013 & 2014)

Source: World Tourism Organisation, 2016

3.2.2 National

Inbound tourism is forecast to grow positively from 2017. Over the long term this growth will

increase at a faster pace than previously expected, with total arrivals projected to hit over 1.4mn

by 2020.By 2020, the higher number of inbound tourists will push international tourism receipts up,

to just over USD3.5bn, an increase of 14.3% from 2019.

The hotel and restaurant industry value is expected to stay at USD0.5bn for the majority of the

forecast period, from 2016 to 2019; it will increase to USD0.6bn in 2020. The KTB has identified the

Middle East and Asia Pacific as potential source regions for tourism growth.

In December 2015, Kenya was voted the world's leading safari destination at the World Travel

Awards, a recognition that could boost the tourism sector. The hotel sector is experiencing high

volumes of investments and expansions, an indicator of foreign investors' trust in the growth of

Kenya's economy. There are some downside risks to our forecasts, which include the continuous

uncertain security situation in the country.

Figure 7.1: The Kenyan Tourism Sector

Product



16

Some key National tourism facts and figures include:

Table 4: Hospitality Industry Value and international arrivals Kenya 2014 - 2020

Source: National sources, BMI

The World Economic Forum (WEF) tourism sector competitiveness analysis in 2015 is as highlighted

below:

Eastern & Southern African Countries Kenya & South Africa

Figure 8: tourism sector competitiveness analysis 2015, Eastern & Southern African Countries

Source: World Economic Forum (WEF)

49.44 50.46 51.77 53.9457.15

60.0763

-1

0

1

2

3

4

5

6

7

0

10

20

30

40

50

60

70

2014 2015e 2016f 2017f 2018f 2019f 2020f

y-o

-y G

row

th,

%

KESb

n

Hospitality Industry Value

Hotel and restaurant industry value, KESbn

Hotel and restaurant industry value, KESbn, % y-o-y

235.55220.25

226.37 258.39 293.66 345.72 400.53

1337.25 1230.27 1168.751209.66 1255.02

1359.27 1472.18

-15

-10

-5

0

5

10

15

20

0

500

1000

1500

2000

2014 2015e 2016f 2017f 2018f 2019f 2020f

y-o

-y G

row

th,

%

KESb

n/

Tou

rist

s

Tourism Arrivals/ International Receipts

International tourism receipts, KESbn Total arrivals, '000

International tourism receipts, KESbn, % y-o-y Total arrivals, '000, % y-o-y


17

The key tourism sector players include:

The key circumstances deterring tourism

development include ecological imbalance;

disease outbreak; limited infrastructure;

congestion and economic inefficiencies;

deterioration of natural and artificial

environment; insecurity and the destruction

on host community/ conflict.

Figure 9: Key Tourism Industry Players, Kenya

Source: Altima Africa Analytics

The Tourism Value Chain

The figure below illustrates the tourism value chain as well as the key players across the value chain:

Figure 10: The tourism value chain

Source: Sustainability Matters: Discovering Sustainable Tourism – Spescha, G. Reutimann (2015)

TFC has an opportunity for portfolio mix on a lending and investments front based on the tourism

value chain. The key components of tourism development include the following:

Components Elements/samples

Tourism attractions and facilities

All natural, cultural and special features of an area which attracts tourists to visit the area

Accommodation Hotels and other types of facilities

Other tourist facilities and services

Eating establishments, outlets for handicrafts and souvenir, tourist information offices, medical facilities, etc.

Transportation facilities and services

Access into the country or area, internal transport, and facilities related to all modes of transportation

Other infrastructure Water supply, power and sewage systems, telecommunications as well as drainage systems

Institutional elements Manpower planning and educational programs, training and development, public and private sectors investment policies and control of tourism impacts

Table 5: Key Tourism Development Components Source: Altima Analytics


18

The table below provides a summary of the key findings and insights drawn from the analysis of the

tourism sector

Key Finding Insight Drawn

Greater presence of special purpose funds and

development finance institutions targeting specific

sectors of the economy

Forming partnerships, co-coopetition and driving

the tourism investment agenda for cross cutting

projects

Increased competition from commercial banks,

merchant banks and micro finance institutions

Develop capabilities within the tourism sector.

Highly specialized tourism sector products and

service offering.

Existence of tourism industry advisory service

providers and industry leadership gap with KTB at

the helm

Consolidate market leadership and be the go-to

tourism sector advisory and investment service

facilitator

Mobilization of national investments through

existing public and private entities

Forming partnerships, co-opetition and driving the

tourism investment agenda for cross cutting

projects

Greater complexities of enterprise risk evaluation Need to revise risk evaluation and management

policies

Table 6: Tourism Sector Assessment Summary

Source: Altima Africa

3.3 Development Financing Sector Overview

The key trends in this sector include the following:

Changing development financing environment as more developing countries use savings and

revenues to fund their development

Greater presence of special purpose funds and development finance institutions targeting

specific sectors of the economy

Need for adequacy of financing to provide sufficient public expenditures to meet desired

social and economic investments, and the adequacy of long-term financing to allow

economies to grow and develop to their full potential

Expanding number of development finance options available beyond Official Development

Assistance (ODA). New sources of financing that are becoming more significant include non-

DAC sovereign donors philanthropic organizations, NGOs, special purpose funds and DFIs

Reducing need for foreign financing resulting in financing flows falling sharply as more

countries are able to finance their activities

Stringent loan pricing policies that ensure adequate rate of return of the development finance

institutions’ return on their asset portfolios

The key challenges facing the sector include:

Competition from commercial banks, merchant banks and micro finance institutions in

developing countries.

Greater complexities of enterprise risk evaluation when enterprises are cross border enterprises

operating in non-uniform regulatory and legal jurisdictions

Reduced funding as governments become increasingly reluctant to guarantee development

finance institutions’ debt and the institution may not have the debt bearing capacity or

sufficiently strong rating

Some key industry opportunities that TFC could tap into include the following:

Possibility of joint financing arrangements with commercial and merchant banks which will see

development financing institutions increase the size of their loans to remain competitive

Engaging traditional funding partners on different modalities of funding as alternative lines of

credit such as fixed term debt and bond issues which might lower cost of funds mobilization

and transactions costs associated with reporting lines of credit

Expansion of diaspora bonds. Governments to issue diaspora bonds specifically targeted at a

country’s emigrant population as a way to raise money for development activities


19

DFI Consolidation in Kenya is a key risk facing the Corporation. The key reasons for consolidation

include fluid and ambiguous definition of State Owned Corporations and failure by responsible

persons within government to adhere to the process of establishing the entities. The purpose and

rationale of the consolidation:

Increase efficiency and effectiveness;

Rationalize areas of overlapping mandates;

Improve service delivery;

Enhance the ability of public agencies to meet their core regulatory and developmental

mandates; and

Maximize the contribution to the sectoral and national development goals under vision

2030

Taskforce Recommendation: Consolidation of key public agencies, with minor exceptions as

overarching policy recommendation. Exceptions will be to accommodate the special

requirements of special priority sectors. Consolidation of DFIs under the proposed Kenya

Development Bank (KDB) in an initial phase is the need to create a single, cross-sector DFI with

sufficient scale, scope and resources to play a catalytic role in Kenya’s economic development

through providing long-term financial and other financial, investments and business advisory

services to meet the objectives set under Vision 2030. The taskforce highlighted the following

about the current state of Kenyan DFIs:

Are not significant players in Kenya’s vibrant financial market

Are modest in size and account for less than1% of banking sector assets

Suffer from weak management

Were only effective in the first 15-20 years of operations.

Are on the decline due to interventionist models and narrow credit focus

The tourism industry in Kenya is a high GDP contributor and foreign exchange earner employing

thousands of Kenyans across its value chain and like agriculture is a critical sector. Vision 2030

identifies the sector as a key pillar towards achieving the 10% annual growth. In this regard TFC,

being the sole DFI and financial institution dedicated to this sector, has great potential in driving

socio economic growth and sector diversity and will be more impactful as a standalone DFI.

TFC’s current transformation efforts, including this strategic planning, are geared towards

achieving this impact on the sector.


20

3.4 Key Tourism Development Financing Player Analysis


21

Comparative

Institution

Key Finding Insight Drawn

Case 1:

Tourism

Development

Corporation- India

• Varied risk pricing depending on the

tenure of the loan and credit rating

of the borrower

• Provision for takeover financing

depending on the viability of the

project

• Defined and communicated

proposal evaluation criteria

• Diversified funding instruments not

limited to debt and equity

• Need to continually review and update

risk profiling and rating

• Possibility of partnering with other

financial institutions to grow loan

portfolios

• Need to define and effectively

communicate to customers at all stages

of the loan application process

• Need to explore additional possible

funding instruments and structures which

drive industry confidence

Case 2:

Industrial

Development

Corporation- South

Africa

• Clearly defined target market

• Clearly visible benefit for the host

country’s economy

• Optimally segmented products

• Clearly defined and customer

focused TATs and SLAs

• Need to build market intelligence

• Opportunity to clearly articulate socio

economic impact and relevance

• Need to fully understand customer

requirements and accordingly structure

business model

Table 7: Case study analysis summary



22

4 Review of TFC’s Past Strategic Performance

A review of the past strategic performance of the Tourism Finance Corporation has been

conducted along the parameters of financial performance and against objectives in both the

current (2016) and past (2013 – 2015) strategic plans.

4.1 Review of Past Financial Performance

Pre-tax Profit – TFC reported a net loss of Kshs. (14.72) million against a target of Kshs. 80.43 million.

Return on Investments – TFC achieved 0.30% against a target of 1.81%. This was mainly attributed

to non-disbursements during the period as there was no Board in place.

Dividend to National Treasury - Due to the fact that the corporation did not post any profit TFC did

not declare any dividend to Treasury. The projected target was Kshs. 2.2m.

4.1.1 Key financial performance trends

Revenue and Net profit trend 2011-2015

Figure 11: Revenue and Net profit trend 2011-2015


The 2013 figures includes an expense of 38.6m from the de-recognition of an investment asset

The 2012 figures include gains from disposal of investments 43.8m and gains from disposal of fixed

asset 1.9m

The 2011 figures include gains from disposal of investments 43.8m and gains from disposal of fixed

asset 1.9m

(65,544,475.00) (62,681,314.00)

(84,500,950.00)

69,526,992.00

41,054,843.00

(150,000,000.00)

(100,000,000.00)

(50,000,000.00)

-

50,000,000.00

100,000,000.00

150,000,000.00

200,000,000.00

250,000,000.00

300,000,000.00

350,000,000.00

400,000,000.00

2015 2014 2013 2012 2011

Revenue

Expenses

Net Profit


23

4.1.2 Key performance ratios

Return on Assets Ratio 2011 to 2015

Figure 12: Return on Assets Ratio


Revenue Streams 2011 to 2015

Figure 13: TFC Revenue Streams


(1,000,000,000.00)

-

1,000,000,000.00

2,000,000,000.00

3,000,000,000.00

4,000,000,000.00

5,000,000,000.00

6,000,000,000.00

2015 2014 2013 2012 2011

Assets

Net Profit

56,022,269.00

67,771,100.00 74,445,704.00

55,420,194.00

30,204,608.00

124,714,269.00 125,563,434.00

117,932,540.00 113,308,252.00

108,653,758.00

1,600,000.00 -

26,807,000.00 33,025,342.00

27,112,078.00 22,327,317.00

14,512,254.00 11,907,608.00 17,201,616.00 14,586,668.00

48,482.00 175,612.00 413,622.00 6,388,581.00 5,248,400.00

- - -

93,699,519.00

43,779,661.00

- - - - 1,917,458.00 -

20,000,000.00

40,000,000.00

60,000,000.00

80,000,000.00

100,000,000.00

120,000,000.00

140,000,000.00

2015 2014 2013 2012 2011

Loan Interest Rental Income Dividend Income

Bank Deposit Income Other Income Investment Disposal

Asset Disposal


24

Revenue Share 2011 to 2015

Figure 14: TFC Revenue Share


Profit Margin 2011 to 2015

Figure 15: TFC Profit Margin 2011 to 2015


4.1.3 Loan Recoveries

In the last four financial years the Gross Non-performing Loans (NPL) Ratio has consistently been

high ranging from 88% in 2013 culminating to 89% in 2016 for TFC subsidiary units. In respect to

other portfolios, that is private sector borrowers, the Gross NPL ratio has equally been high ranging

over 90% until early 2016 when the non performing position was reversed and is now at 66% at the

close of the last financial year 2015/2016. As per the figures below there has been a drastic

improvement due to the implementation of the above recovery strategies. Upon conclusion of

the public auction of the 8 accounts already on notices the corporation should be able to have

reduced the non-performing loans from 66% to below 10%

23.76%

49.40%

7.41%

6.74%

1.03%11.51%

0.16%

Loan Interest

Rental Income

Dividend Income

Bank Deposit Income

Other Income

Investment Disposal

Asset Disposal

(200,000,000.00)

(100,000,000.00)

-

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

2015 2014 2013 2012 2011

Gross Income

Gross Profit

OPEX


25

Figure 16: Loan portfolio movement 2013 to 2016

Source: TFC

The actual loan collections have doubled in the past financial year. The comparative

performance for 2014/2015 and 2015/2016 highlighted below:

Figure 17: Loan collections 2016 – 2017

Source: TFC

88% 92% 89%94%

89%98%

89%

66%

0%

20%

40%

60%

80%

100%

120%

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

900,000,000

Sub

sid

iari

es

Oth

er

Po

rtfo

lio

Sub

sid

iari

es

Oth

er

Po

rtfo

lio

Sub

sid

iari

es

Oth

er

Po

rtfo

lio

Sub

sid

iari

es

Oth

er

Po

rtfo

lio

2013 2014 2015 2016

Axi

s Ti

tle

AM

OU

NT

IN

kES

Axis Title

PORTFOLIO MOVEMENT 2013-2016

Total Portfolio Gross Non-performing Gross NPL Ratio

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

Actual Loan Recoveries 2014-2015 Actual Loan Recoveries 2015-2016

Strategy Review Diagnostic Report

26

4.1.4 Review of subsidiary performance

This performance data compares subsidiary performance between July 2015 and March 2016

Revenue OPEX Efficiency Occupancy Key trends/ commentary

Sunset Hotel

Net loss of Kshs. 7.11 million

against a budget of Kshs.

2.2 million

-983% decrease from a net

profit of Kshs. 0.806 million in

2014/15

Revenue declined by 40%

to Kshs. 43.7 million

The cost of sales

declined proportion to

the revenue change

from 2015 to 2016

There was a 5% decrease

in expenditure in 2016 as

compared to the

previous year

The Hotel efficiency was

low, operating above

the budget and industry

standards. Food

efficiency was

39%, while beverage

efficiency was 40%

Room and bed

occupancy rates declined

by 77% and 62%

respectively

Average rates for room

and bed declined by 34%

and 48% respectively

A shift in revenue streams

from accommodation to

conferencing

Increased completion

from new facilities

Golf Hotel

Net profit of Kshs. 15.6

million against a budget of

15.2 million

This is a 5% decrease from a

net profit of 16.5 million in

2014/15

Revenue increased by 5%

to 99.7 million

Total expenditure of Kshs.

58.6 million was 7%

above the previous

year’s performance

Operating expenses

increased by 9%

The hotel efficiency was

slightly below the both

budget and the

industrial standards.

Food efficiency was

36%, while beverage

efficiency was 49%

Room and bed

occupancy rates

increased by 14% to 57%

and 10% to 37%

respectively


and bed increased by 9%

and 11% respectively

A shift in leading revenue

stream from food casual

in 2014/15 to

accommodation in 2016.

There was however a

12% decline in resident

food revenue despite

the increase in

accommodation

Kabarnet Hotel



2.2 million

-980% decrease in from a

net profit of Kshs. 0.806

million in 2014/15



Total expenditure

increased by 24%. To 11.7

million

Operating expenses

declined by 24% from

Kshs. 12.6 million to Kshs.

9.5 million


very poor below the

both budget and the

industrial standards.

Food efficiency was 47

%, while beverage

efficiency was 70%

Room occupancy

decreased with 24% from

33% to 25%

Bed occupancy dropped

25% to 15% occupancy

Revenue from food

resident and

accommodation

accounted for the

greatest contribution of

43% and 39%.

Both experienced

declines of 5% and 25%


27

Revenue OPEX Efficiency Occupancy Key trends/ commentary

Mt. Elgon

Lodge Ltd


against a budget of Kshs 6.1

million



Total expenditure

decreased by 25% to

Kshs. 4.1 million

Operating costs reduced

by 25% to Kshs 3.37

million


very poor below the

both budget and the

industry standards.

Food efficiency was

55%, while beverage

efficiency was 70%

Room rates remained

constant at 11% with bed

rates reducing by 1% to 5%


increased by 70%

Food was the highest

earner at 52% followed

by drinks and

accommodation with

34% and 19%

High staff costs (84%)

driving up expenses

KSLH

(Mombasa

beach, Voi

safari &Ngulia

Net Loss of Kshs 22.46 million


11.3 million

Revenue increased by 7%

from the previous year to

119 million

Total expenses

decreased by 19% to

1114.6 million

Operating costs

Efficiency was fairly

good being slightly

above industry metrics

Food efficiency

averaged 38%, while

beverage efficiency

averaged 40%

Room and bed revenues

increased by 15% and 4%

respectively

The company's metrics

vary greatly from the

budgeted position

Food was the highest

earner followed by

rooms and beverage

sales

Table 8: TFC Subsidiary performance summary


-100,000,000

-50,000,000

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

Revenue

2014/15

Revenue

2015/16

Expenses

2014/15

Expenses

2015/16

Net Profit

2014/15

Net Profit 2015/16

Sunset Hotel

Golf Hotel

Kabarnet Hotel

Mt. Elgon Lodge

KSLH

Total

Figure 18: TFC Subsidiary performance summary



28

4.2 Review of past strategic performance

The internal environment analysis focuses on seven aspects and key areas (people, products, customers, infrastructure, systems, processes and

business model) as illustrated below. The synopsis summarizes findings from the annexed strategy review and strategy survey findings.

Figure 19: Past strategic performance review summary



29

5 TFC Key Stakeholder scorecard

Stakeholders offer critical input to a strategic planning process by virtue of their diverse and

specialised relationship with the organization and the respective roles that they play in the

operating environment. As part of the diagnose phase, key internal (i.e. the board,

management and staff) and key external (i.e. investors, strategic partners, and competitors)

stakeholders were consulted mainly via FGDs and IDIs to identify and analyse any needs, gaps,

strengths and opportunities.

5.1 Stakeholder mapping

Stakeholder

Group Stakeholder Stake

Regulators

Ministry of tourism Oversight and Mandate Cascading

Kenya Tourism Board (KTB) Tourism promotion

Tourism Regulatory Authority (TRA) Market intelligence and product research

Council of Governors (County Executive

Members responsible for Tourism) Product development

County Executives

Investors

Kenya Investment Authority (KENINVEST) Potential tourism sector investors

Kenya Bankers Association Partnership with commercial banks

Industrialization and enterprise

development Resource mobilization options

Kenya National Chamber of

Commerce Resource mobilization options

AFREXIM Bank Development financing best practice

Kenya National Treasury Credit lines

Kenya Tourism Fund Product development funding

Local Private (Tourism) Financiers

Industry

Associations

Kenya Association of Hotel Keepers and

Caterers/ Kenya Association of Tour

Operators Pubs, Entertainment and

restaurants Association of Kenya/ Cruise

Tourism PMAEASA

Strategic partnerships - market intelligence

and potential clients

Kenya Tourism Federation (KTF) Strategic partnerships - market intelligence

and potential clients

Clean

energy

players

Eco Tourism Kenya Sustainable development within the tourism

sector

Energy financing; Clean energy

UNEP

E tourism Frontiers

Kenya Association of Manufacturers

Strategic

Partners

Exports Development Fund

Ministry of Trade Facilitating the obtaining of credit lines from

foreign investors

Kenya Wildlife Services (KWS) Strategic partnership - sustainability products/

investments

Kenya National Museums Strategic partnership - development of key

properties

KICC Conferencing opportunities

Other Kenya Bankers Association Partnership with commercial banks

BOMAS of Kenya Subsidiary performance

Table 9: External TFC Stakeholders



30

5.2 Stakeholder feedback

Stakeholder Key Improvement Areas Key Opportunities Key Threats Areas of Partnership

Strategic

Partners

(including

clean energy

players)

Market presence and visibility

Clarity of the proposal

evaluation criteria

Limited budget to effectively

meet the mandate

Debt collection policies

Pre funding due diligence

Strategy monitoring and

evaluation framework

Increased focus on niche

and emerging markets,

tourism ventures and small

time investors such as tour

guides and tourism schools

Joint financing with other

financial institutions such

as banks and

microfinance institutions

Partnerships with identified

stakeholders for skills

exchange

Interest rate capping act

that offers cheaper

financing to the market

Increasing consumer

knowledge

Promoting and encouraging

Eco-Friendly tourism investment

through the Eco Tourism Rating

for investors

Evaluation of investee’s

proposal from an ethical and

ecofriendly perspective

Creating awareness among

members of the Partners on

the Corporation and its

products and service

Investors

Enhance visibility in the market

Assess the impact of current

initiatives and projects

Resource mobilization

from the Treasury as an

alternative source of

funding for on lending

Changing consumer

expectations Provision of credit lines

Regulators Enhance loan collections

Enhance risk m management

Enhancing bed quality

across the country

Faster adoption of

technology to enhance

efficiency

Product research and

information

Industry

Associations

and

customers

Simplify the ;loan application

process

Enhance visibility in the market

Enhance business advisory

services

Refurbishment of existing

facilities

Innovative and diverse

tourism products such as

camping sites

Increased competition

from

Industry research and

information

Table 10: Stakeholder feedback matrix


First Draft TFC 5 Year Strategic Plan

31

6 SWOT analysis This SWOT analysis is aimed at defining TFC’s strengths, weaknesses, opportunities and threats.

Strengths and weaknesses are internal and the organization has the ability to control. They

represent TFC’s organizational competitiveness. The opportunities and threats are usually external

and represent the organization’s market attractiveness.

Strengths

Strong asset base demonstrated by investments and

loans

Well defined mandate as the financing partner for

growth of the tourism industry and the only DFI in the

Tourism sector

Rich history ad tract record that has contributed to icons

in the tourism industry

Professional, committed and fully constituted board

Qualified, competent and professional management

team

Government goodwill and support

Weaknesses

Limited funds for on lending

Large non-performing loan book that has given the

institution a negative image

Insufficient revenue generation to support operational

activities and growth of the DFI

Low return on assets and investments

Limited brand visibility

Lengthy and complicated processes particularly loan

application process

Misaligned organizational structure that does not support

strategy execution

Low staff morale, motivation and engagement

contributing to low productivity

Sub-optimal monitoring and supervision of assets and

investments (including subsidiaries)

Limited ICT infrastructure

Inadequate performance management system

Opportunities

Rapid urbanization providing opportunities for expansion

of the tourism offering e.g. recreation and for further

exploitation of existing investments

Championing specific Vision 2030 tourism flagship

projects e.g. The Cradle of Mankind

Spearheading product differentiation and diversification

e.g. buffet kind formula, high end backpackers,

amusement parks, homestays, timeshare and MICE;

targeted products

Leveraging digital technology e.g. social media for

growth by TFC and other players

Increased investor confidence in Kenya

Mine Big Data to exploit existing opportunities

Partnerships e.g. County Government, Standard Gauge

Railway - SGR, Public Private Partnerships, PPP as

examples

Monetize tourism financing information

Resource mobilization e.g. local investors

Support from the government through incentives

Adopt sustainable development goals e.g. focus on

renewable energy

Further development of existing attractions (religious sites,

historical sites, archaeological sites, flora and fauna)

Threats

Limited additional funds for on lending from Government

Impact on negative perception on likely financial,

investment and delivery partners

Insufficient revenue generation to support operational

activities and growth of the DFI

Consolidation of DFIs

Continued limited growth of the tourism sector and

numbers further dampening investment returns

The strategic plan has crafted initiatives and strategies aimed at building on the key strengths,

addressing the key weaknesses, tapping into the identified key opportunities and mitigating

against key risks.


32

7 Strategic Direction

7.1 TFC’s Transformation

TFC has been experiencing various strategic and operational challenges. These include a limited

access to credit lines, underutilized facilities and investments, stunted operations – with no credit

facilities /loan disbursements having been issued over four years, underutilized capacity and a

limiting mandate. These challenges have greatly inhibited the Corporation’s impact on the tourism

sector.

Despite this history, TFC has been undergoing a radical transformation, for instance; NPLs have

reduced from 89% in 2016 to less than 45% by the beginning of 2017. A fully functional and qualified

Board of Directors has been constituted after a four year period without a board. The lending

moratorium, that was initially placed, has been lifted. The current demand for TFC loans stands at

over Kshs 4B.

From the strategic planning onset and throughout the process, the need for TFC to demonstrate its

relevance had been emphasized. In part, this contributed to a review of its existing Vision, Mission

and Values in line with its mandate. It clearly emerged that TFC had a role to play as a leading DFI

in the tourism sector. Within this context TFC needs to be strategically positioned to focus on

expanding the productive capacity of the industry, improving returns from existing investments and

attracting new capital investment. Largely, it will achieve this overarching goal by:

Identifying and pursuing opportunities that create increased demand for TFC’s products and

services;

Promoting diversification of the tourism industry by opening up new regions, fostering

investments in new products, addressing seasonality and driving value over volume; and

Supporting enterprises in ways that continually improve their productivity, profitability and

returns while driving additional value through the provision of an outstanding client

experience. TFC will achieve this by either supporting players to provide more services with

the same inputs, or provide the same services with fewer inputs.

This transformational agenda is at the core of this strategic plan. This plan is presented in the next

section and details the refined vision, mission, core values, strategic objectives, strategies and

initiatives. This is supported by an implementation plan that details the action points crafted to

achieve the strategy. This plan has necessitated changes to the current organization structure and

core internal business processes to ensure strategic alignment and successful implementation.


33

7.2 Vision

The defined vision statement is highlighted below as well as the justification for a new vision

statement and the rationale behind the new vision.

Revised Organization Vision

Vision:

‘To be the leading and

reliable Development

Financial Institution (D.F.I) in

providing affordable and

accessible financial

facilities to the tourism

industry’

Proposed Vision:

“The leading financial partner

driving sustainable tourism development in Kenya”

Rationale:

• Distinctive

• Focused and covers

mandate aspects

• Aspirational to all

stakeholders

• Short and memorable

• Creates a basis for the

core values

• Is not aspirational

and compelling

enough

• Is limiting with

regards to scope –

only focusing on

financing

• Too long to be

memorable

The vision needs to:

• Be clear and compelling

• Be a call for action for all stakeholders

• Shift towards a key and relevant market player

• Cover all aspects of the corporations mandate

• Create a strong link to the core values

Previous Organizational

Vision

Key Gaps

Elaboration: • Leading: A leader in tourism

development in Kenya

• Financial partner: One stop for

all financial solutions including

advisory services

• Driving: Spearheading tourism

sector diversification and

growth

• Sustainable: development

that will stand the test of time


34

7.3 Mission

The defined mission statement is as highlighted below as well as the justification for a new mission

statement and the rationale behind the new mission.

Proposed Organization Mission

Mission:

‘To develop and diversify

Kenya's Tourism industry by

providing a range of

advisory and financial

services to investors in

tourism related enterprises’

Rationale:

• Is directional

• Is comprehensive

• Is easy to communicate • Is ambiguous

• Is not inspirational

• Is limiting – the

service provision

includes not only

investors but

investees and other

key players

• Is not comprehensive

The mission needs to:

• Highlight the organization’s core purpose – reason for existence

• Outline a clear guide on achieving the vision

• An inspirational tool

Previous Mission Statement

Key Gaps

Proposed Mission:

“To provide customer focused

financial solutions that drive

tourism sector development and socio-economic growth”

Elaboration: • Provide – Frontline solution

delivery provided

collaboratively to effectively

meet customer requirements

• Financial solutions – financial

and business advisory solutions

• Development and socio

economic growth – Increased

GDP contribution, sector

profitability and breadth

through diversification


35

7.4 Core Values

The refined core values that are aligned to the new vision statement are as detailed below

Core Value Definition

Professionalism We demonstrate confidence, competence, knowledge and

resourcefulness in all our operations

Accountability and

Integrity

We do the right thing, take responsibility for our actions and always

adhere to the highest possible standards of conduct

Customer focus

We ensure that the customer is at the core of all business decisions and

activities and strive to offer solutions that meet and exceed their

expectations

Innovation

We are passionate about being an industry leader and continuously

challenge existing practices while striving to find creative, new ways to

consistently improve for our customers

Teamwork

We work openly and consultatively with each other, build productive

and long-term relationships with customers and stakeholders to deliver

unrivaled service


36

7.5 TFC’s Winning Strategic Direction

The ‘playing to win’ framework is a best practice strategy formulation tool that enables an

organization to clearly define and articulate its desired strategic direction and craft key objectives

aimed at achieving this desired direction. The framework contains five key questions.

The ‘playing to win’ framework was utilized with the aim of defining specific aspects which will aim

at enabling the corporation to achieve its new strategic vision. The output of this exercise is

summarized in the cascade below:


37

7.6 Key Thematic Areas

The key thematic areas (key result areas) are as presented below using the balanced scorecard.

The themes are in addition presented with the respective strategic objectives

Financial

• Higher Returns from

revenue contribution

and investments

Customer/ Stakeholders

• Significant impact on

our customer,

stakeholders and

tourism sector – Brand

relevance

Internal

Business Processes

• Efficient service

delivery and higher

controls

Learning Growth

• Greater contribution of

staff and innovation

• Achieve KES. 2 B annual revenue

and maintain 10% return on assets

• Mobilize a total of KES 6 B for on

lending over 5 years

• Enhance the corporation’s brand

visibility by 60% and maintain 95%

Customer Satisfaction Index

• Enhance the corporation’s socio

economic impact by creating 8000

jobs and supporting 200 entities

• Achieve 90% of service standards

(SLAs), maintain Non Performing

Loans, NPL of less than 10% in 3

years and 5% in 5 years and sustain

a compliance rating of 85%

• Improve employee productivity to

KES. 50M in five years and maintain

employee engagement (and

productivity) at 85% annually

Perspective

Key Focus Area/ Theme Strategic Objectives


38

7.7 Strategic business unit cascades The strategic business units are the three core units identified by the strategy as key players towards

the achievement of TFC’s strategic direction. These units are Investment, Credit and Business

Advisory. Each of these three units have developed their individual cascades defining how they

will enable TFC to deliver on its mandate of ‘being the leading financial partner driving sustainable

tourism development. An overview of this is provided below:

7.7.1 Investment

The investments unit will enhance returns by optimising current and new investments and assets.

This will enable TFC to expand its operations such as enhancing its loan book size. The unit will also

drive tourism sector diversity by prudently investing in innovative and diverse tourism products

(across the value chain) that have a high socio economic impact. The unit has been restructured

to ultimately be responsible for the business advisory function (despite its consideration as a sole

strategic business unit) as well as to increase the quality of investment evaluation and portfolio

management. The Investment unit cascade is as illustrated below:


39

7.7.2 Credit

The credit unit will transform and optimise the current loan book quality and build capability to

continue offering and maintaining high quality loans. The unit will develop competitive and

innovative products aimed at both generating more income for lending as well as driving the

tourism sector’s diversity. This unit has as well been restructured to enhance appraisal, relationship

management, monitoring and collection quality. The Credit unit’s cascade is as illustrated below


40

7.7.4 Business Advisory

The Advisory unit is a new unit set up to achieve a specific part of TFC’s mandate which is to provide

professional consulting services to the tourism sector. The unit has been structured to have technical

(hospitality, business and project management), clean energy, research and development

capabilities. This unit will have the responsibility of advising both internal (other departments and

units) and external clients. The Advisory unit’s cascade is as illustrated below


41

8 Strategic Objectives, Strategies and Initiatives

8.1 Objective 1 - Achieve KES. 2 B annual revenue and maintain 10% return on assets

Strategy Initiative Target Resource Timeline

- Achieve a loan

book size of KES 3B

by year 3 and KES

5B by year 5

- Revise and define lending policy to optimise loan

portfolio

- Develop a clear credit strategy

- Review current lending rates

-

KES 3B by year 3 and KES

5B by year 5

Interest Income-KES 107

M

Appraisal fee-KES 15M

Commitment fee-KES

10M

- HOC - 2019

Policy revision

by April 2017

- 2017


M


Commitment fee-KES

10M

- 2018


M


Commitment fee-KES

10M

- 2019

- Drive sector

diversification

- Develop an aquarium; sports museum (Eldoret),

wellness parks, resort city (Northern Kenya); cruise

boats/boat restaurants (Kisumu & Mombasa); cable

cars (Nyandarua); magical gardens; clean/ renewable

energy; SGR stop resorts and shopping malls;

- Invest in at least 2

p.a.

- HOC/HOI - 2022

- Appraise and provide debt funding to drive sector

diversification to at least 5 entities on quarterly basis

- 100 entities funded - HOC - 2022

- Sourcing for investors to take up the financing - 100 entities funded - HOC - 2022


42


- Exit mature hotel

investments

- Divest from Hilton, Intercontinental & Mountain Ridge

Lodge to achieve 3B revenue;

- Identify other viable hotel divestment opportunities)

- 3B revenue - HOI/MD - 2018

- Optimize

management and

returns from existing

hotel investments

profitability of 30%

in 3 years and 50%

within 5 years

- Undertake refurbishment of identified hotels (KSLH,

Sunset Hotel, Golf Hotel, Kabarnet Hotel and Mount

Elgon Lodge)

- Profitability of 30% in 3

years and 50% within

5 years

- HOI/MD - 2022

- Develop hotel specific clear 18 month Turn around

strategies to reduce operational cost by 30% and

Increase profitability by 50%

- HOI - 18 months

by end of

2018

- Enhance revenue

from existing hotel

investments by 30%

in year 3 and 50%

in 5 years

- Develop conferencing centres in Mombasa, Kabarnet,

Kisumu and Nairobi

- Identify alternative revenue generating products such

as meeting and MICE centres in other subsidiaries

- Revenue increase of

30% in year 3 and

50% in 5 years

- HOI/MD - 2019 (after

turnaround

efforts)

- Increase return on

assets from non -

hotel investments

to 10% every year

- Develop a clear investments strategy and policy

-

- 10% ROA - HOI/MD/HOS

&RM

- Annual

- Refurbish Utalii house to get 180M revenue annually

- Develop Watalii street to set up a tourism information

centre

- Develop vacant Mombasa plot

- Develop KNTB land at Hilton

- 10& ROA - HOI - 2019


43


- Build the business

advisory practice

(revenue – 30M by

year 3 & 120M by

year 5; socio

economic target;

support 40

enterprises

- Build a research data base

- Define strategic partners;

- Develop clear solution offering – transactional advisory;

project management; business planning and feasibility

studies;

- Build capacity internally as per defined solutions and

outsource other advisory functions

- Develop bundled products

- Launch advisory services offering (2018)

- revenue – 30M by year 3

& 120M by year 5;

support 40 enterprises

- At least 5 advisory

products

- HOI - 2019

- Increase revenue

from alternative/

NFI channels by

10M annually

- Develop renewable energy products

-

- 10M annually - HOC/HOF/HOI - annually

- Develop bancassurance product

-

- 10 M annually - -

- Optimize lending

(10%) and ensure

NPL below 10% in 3

years and 5% in 5

years

- Enhance monitoring and evaluation of portfolio

- Enhance policy compliance

- NPL below 10% in 3

years and 5% in 5 years

- 100% compliance to

credit appraisal

parameters

- 1% bad loans provision

- 100% compliance with

ALCO guidelines

- HOC - 2019 &

2022

- Achieve 30%

profitability (TFC)

annually from

17/18 -

- Develop an effective resource utilization framework

- Enhance cost efficiency

- 30% profitability - HOS&RM/MD - Annual

- Champion two

vision 2030 flagship

projects

- Champion the development of underutilized parks

(Turkana; Meru)

- Champion the development of conferencing centres

- 2 flagship projects

- 60% corporate brand

visibility

- HOC/HOI - 2019 and

2022


44

8.2 Objective 2 - Mobilize a total of KES 6 B for on lending over 5 years

Strategy Initiative Target - Resource - Timeline

- Mobilize resources

through

partnerships, equity

investments and

donors

- Define and develop key financial partnerships annually (e.g.

e.g. EADB, AfDB, IFC & Shelter Afrique)

- Establish local funding partners via Joint Venture (JV)

agreements (Leverage on AADI membership)

- Conceptualize projects

- Undertake feasibility and prioritize at least three projects

- Package funding requests

- Market and sell projects to potential partners and equity

investors

- 2B - HOS&RM

-

- 2022

-

- Secure Kshs 3 billion

from international

financial institutions

(including DFIs) for

onward lending

- Secure Treasury authorization and guarantee to borrow

externally

- Kshs 3B - HOS&RM/ MD - 2019

- Present loan/funding applications to various international

funding institutions

- Set up a 1B

clean energy

fund in 3 years

(smart grants to

support green

projects )

- Lobbying of funds in government agencies and NGO

- Develop a framework for clean energy funding

- Identify and partner with key clean energy players

- 1 B - HOS&RM/HOI - 2019

- Mobilize Kes. 50M

for setting up a

community fund

- Lobbying of funds in government agencies and NGOs - 50M - HOS&RM/HOF

/HOC/HOI

- 2019

- Develop relevant community funding products such as

table banking, supporting women's enterprise and artisans

- Identify and partner with key strategic players


45

8.3 Objective 3 - Enhance the corporations brand visibility by 60% and maintain 95% Customer Satisfaction Index


- Improve brand

visibility to 60% by

June 2019

- Enhance the marketing function

- Enhance marketing initiatives

- 60% brand visibility - HOPR/STRATEG

Y

- by June

2019

- Define CSR initiatives with high socio economic impact - Chief

Mrt,PR&Coms

- Annual

- Increase

customer

satisfaction rate

to 75% by Q1

2017 and

maintain a

Customer

Satisfaction Index

of 95% annually

- Improve TAT for loan disbursement to 45 days by Q1 2017 - CSI 75%

- CSI 95%

- HOPR/STRATEG

Y

- /HOC

- by Q1 2017

- Annually

from 2018 - Enhance customer communication and engagement

- Developing a clear strategic partnership framework –

identification and prioritization (e.g. county mapping and

prioritization)

- Develop stakeholder management, engagement

programs and communication plan

- Develop a customer service charter to ensure consistent

superior service offering


46

8.4 Objective 4 - Enhance the corporation’s socio economic impact by creating 8000 jobs and supporting 200 entities


- Support 200

enterprises and

create 8000 jobs

at the end of five

years

- Support 84 entities through loans

- Support 20 entities through investments

- Support 96 entities through advisory solutions

- Build specialized sector skills by developing sector internship

programs

- Develop diversified loan products as per the new lending

policy to create a high socio economic impact

- 200 enterprises

supported

- 8000 jobs created

- HOC/HOI - 2022


47

8.5 Objective 5 - Achieve 90% of service standards (SLAs), maintain Non Performing Loans, NPL of less than 10% in 3 years and 5% in 5 years and sustain a compliance rating of 85%


- Ensure 90% automation of

our core Business

Processes

- Define as is internal core business processes

- Benchmark and enhance these processes

- Identify viable automation candidates

- Source effective solutions and implement

- 90% system

uptime

- 60% increased

efficiency

- HOIC

- Chief

Automation

Officer

- 2020

- Enhance ERP utilization to 90% - HOICT - 2017

- Reduce existing loan

book NPLs to 45% in year

1; 20% in year 3 and 10%

in year 5

- Enhancing the risk appraisal process

- Enhance collection policy

- Enhance loan performance monitoring

- NPL less than 45%

in year 1; 20% in

year 3 and 10%

in year 5

- HOC - 2017

- 2019

- 2022

- Develop a

comprehensive risk

management and

mitigation framework

- Adoption of AADI standards as a compliance standard; Set

up a risk and compliance function – 85%

- 85% compliance - HOC/ HIA/

STRATEGY

- December

2017

- Build and improve

capabilities to respond to

low liquidity

- Enhance collection of rental payments/ advance payments;

- Enhance collection of dividend payments

- Effectively manage credit and debit days - Develop supplier

payment arrangements and partnerships

- ≤ 45 debtor days

- ≤ 30 creditor

days

- HOF/HOI/HO

C

- Annual

- Define service standards

and maintain 90%

achievement

- Develop service level agreement with service providers

- Develop internal business process service level agreements

- 90% compliance - HHR/HOF - 2017

- Annual

- Maintain new NPLs at

below 10%


- Develop and institute early warning defaulter systems


- by reviewing and adopting best practices in the market place

on loan recovery Enhance loan performance monitoring

- NPL less than 10% - HOC - 2018


48

8.6 Objective 6 - Improve employee productivity to KES. 50M in five years and maintain employee engagement (and productivity) at 85% annually


- Enhance employee

productivity to Kshs 50

M by June 2020

- Define the optimal organization structure

- Define the optimal staffing levels

- Undertake a right job right person right job match exercise

- Conduct a job evaluation exercise (2018)

- Employee

productivity Kshs.

50M

- HOHR - June 2020

- Roll out a salary survey - - -

- Increase employee

engagement to 85%

by June 2020

- Enhance performance management system

- Define desired organization culture (service delivery)

- Monitor staff productivity and engagement continually

- Enhance staff cohesion and morale for improved performance

and productivity to 85% by June 2020

- employee

engagement

85%

- 85% productivity

- HOHR - Annual

- Enhance staff

development and

welfare

- Conduct a training needs analysis

- Define annual training plans aligned to strategy

- Review and improve staff welfare schemes)

- Development areas of the individual performance appraisal

- 35 L&D hours per

annum

- HOHR - Annual

- Drive contribution of

innovation

- Develop an idea evaluation criteria and channel

- Appoint innovation champions

- Develop 3 new products annually

- Reduce TAT by 15% annually

- Define and develop reward and recognition criteria

- % Contribution to

revenue

- HOHR - Annual


49

9 Strategic Risk Management Framework The following elements have been considered to be key risks during the strategic planning and implementation period and could influence the success

of this strategic plan:

objective Risk Mitigating actions

Achieve annual revenue of

KES 2 B and 10% annual

return on assets by end of

year 5

Political risks due to the uncertainties of the 2017

upcoming elections.

Interest rates risks due to capping of interest rates.

Insecurity and a strong perception of insecurity

Impeding merger of the Corporations.

Non-performing loans

Default on rental income

Poor performance of subsidiaries.

Lack of funding to implement new investment projects

Market risks – failure to dispose mature investments

Establishment of ALICO to guide the structuring of rates

Enhance marketing efforts to guide investors

Lobby and strong articulation for the relevance of the TFC mandate to the

nation.

Set up the refined appraisal system in place and step up recovery efforts.

Enforce lease agreements and outsource leasing management

Put in place Turn Around strategies and close monitoring.

Creation of strong collaborative networks for financing and joint ventures and

develop resource mobilization strategy

Engage leading marketing and property agents

Enhance the Corporation

image by achieving 60%

brand visibility and 95%

customer satisfaction index

Reputational Risk as a result of limited funds for loans.

Inadequate brand communication thus affecting visibility

of TFC

Failure to respond and resolve customer complaints.

Put in place resource mobilization strategy

Identification & support of brand ambassadors

Build capability to manage client feedback and enhance the customer

experience

Leverage on ICT and social media to increase visibility and improve TAT for

customer service delivery.

Achieve 90% of service

standards (SLAs), maintain

Non Performing Loans, NPL

of less than 10% in 3 years

and 5% in 5 years and a

compliance rating of 85%

Changes to systems

Data loss

Non execution of contract documents for tenants &other

service providers

Low optimization of ERP system

Lack of funding to enable upgrade and maintain ERP

systems.

Poor appraisal systems for loans

Failure to monitor performance of loans

More trainings and testing on system prior to implementation

Set up a data backup system

Full optimization of ERP system and activation of all modules

Build business case and seek funding; Budget for the upgrade of the ERP

system.

Modernize/ automate the credit appraisal systems

Undertake peer review system of the prudential standards to enhance

compliance levels

Develop a loan performance monitoring & evaluation framework

Enhance the loan appraisal system


50

objective Risk Mitigating actions

Improve employee

productivity to KES. 50M in

five years and maintain

employee engagement

(and productivity) at 85%

annually

Negative corporate culture

Low morale among staff.

High turnover of staff.

Failure to enforce the performance management system

Continuous training & sensitization of staff

Inculcate a culture of performance management that rewards performers

and sanctions to non-performers

Clearly define the desired corporate culture

Alignment of the corporate strategy to the Org. Structure

Develop clear career development and progression policy

Implement the enhanced performance management system


51

10 Financial Projections Overview This is a summary of the key financial indicators over the life of the strategy. The summary has key revenue and balance sheet items as well as the key

ratios. The full financial projections are contained in appendix 11.6

10.1 Key Assumptions

The key assumptions taken in developing the five year financial projections are as highlighted below:

I. The planning period covers FY 2017/18 to FY 2021/22 which begins in the month of July to June in line with the GoK fiscal year.

II. During the planning period, the CBK rate will expected to remain stable at about 10%

III. The TFC lending rate will remain relatively about 10%

IV. The cost of living adjustment will be 5% and this will have a direct impact on the staff costs and other operating expenses

V. Grants received for on lending are treated similar to GoK grants

VI. Fund management administration fees are assumed to be 5%

VII. NPL projected to reduce to 20% of the loan portfolio by the 3rd year and 10% by the 5th year

VIII. Rent income to escalate at 10% after the 3rd year

IX. Utalii House, Watalii Street and Mombasa Island properties are to be revalued in Yr1 and expected to gain at 10%

X. Alternative revenue relates to alternative products including bancassurance, non-funded income and other predefined al; the assumed growth

rate is an annual 50%

XI. Provision for bad debts provided at 1% of the loan portfolio as per the current policy

XII. Dividends from subsidiaries will be realised upon profitability which is dependent on refurbishment and turnaround strategy

XIII. The development grants are used for onward lending

XIV. The GOK grant is dependent on Government priorities from one year to another; the assumed annual average is however Kshs 500M

XV. Gain on Revaluation assumed to be at 10%

XVI. Growth in alternative channels 50%

XVII. The costs associated with developing assets include consultancy, research and feasibility study, assumed to be 10%

XVIII. Grant Income is captured under development vote and will be used for onward lending hence cannot be matched with expenditure

XIX. Clean Energy and Community funds are captured under development vote and will be used for onward lending hence cannot be matched

with expenditure


52

10.2 Income Statement Summary

Below is a summary of the projected income statement:

Particulars

2017 2018 2019 2020 2021

Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’

Recurrent revenue 2,636.70 1,565.42 997.42 1,154.17 1,352.04

Development Revenue 1,112.20 1,400.00 1,550.00 1,100.00 1,200.00

Gross Revenue 3,748.90 2,965.42 2,547.42 2,254.17 2,552.04

Expenditure 946.15 793.66 533.00 577.09 655.95

Operating Profit/(Loss) 1,690.55 771.76 464.42 577.08 696.09

Provisions - Bad Debts 10.70 20.70 29.90 38.70 50.00

Net Profit 1,679.85 751.06 434.52 538.38 646.09

Table 10: summary of the projected income statement

Source: TFC

The key assumptions and trends in developing the income statement projections are as highlighted below:

I. Revenue is at its highest in year one as Kes 2B from the disposal of assets is recognised here. In addition, a 312M gain on revaluation is recognised

here. This as well results in net profit being at its highest in year one.

II. The development revenue varies as it spreads the following funds across five years: Development Grants (Partnerships); Clean Energy Fund;

Community Fund and the Development Grants GOK)

III. Expenditure in year one is at its highest due to the bulk (562M) of the refurbishment fund is expended here. The balance of this fund (329M) is

expended in year two.


53

10.3 Statement of Financial Position Summary

Below is a summary of the projected statement of financial position

DETAILS 2016 2017 2018 2019 2020 2021 Movt Movt Movt Movt Movt

Amount (kshs) Amount (kshs) Amount (kshs) Amount (kshs) Amount (kshs) Amount (kshs) % % % % %

ASSETS

Non-Current

Assets 4,320,768,238.00 4,770,381,029.70 6,088,832,700.63 7,329,129,538.65 8,531,456,060.48 9,986,015,234.49 0.10 0.28 0.20 0.16 0.17

Current

Assets 493,081,093.00 2,226,537,798.00 1,951,314,402.20 1,785,407,619.42 2,111,899,817.06 2,397,246,995.77 3.52 -0.12 -0.09 0.18 0.14

Total Assets 4,813,849,331.00 6,996,918,827.70 8,040,147,102.83 9,114,537,158.07 10,643,355,877.54 12,383,262,230.25 0.45 0.15 0.13 0.17 0.16

LIABILITIES

Capital &

Reserves 4,611,670,111.00 6,779,321,686.06 7,787,565,573.54 8,818,966,634.48 10,323,028,301.59 12,035,701,896.71 0.47 0.15 0.13 0.17 0.17

Non-Current

Liabilities 92,938,777.00 97,432,654.70 102,375,920.17 107,813,512.19 113,794,863.41 120,374,349.75 0.05 0.05 0.05 0.06 0.06

Current

Liabilities 109,240,443.00 120,164,487.30 150,205,609.13 187,757,011.41 206,532,712.55 227,185,983.80 0.10 0.25 0.25 0.10 0.10

Total

Liabilities &

Equity

4,813,849,331.00 6,996,918,828.06 8,040,147,102.83 9,114,537,158.07 10,643,355,877.54 12,383,262,230.25 0.45 0.15 0.13 0.17 0.16

Table 11: Projected statement of financial position

Source: TFC

The key assumptions and trends in developing the statement of financial position projections are as highlighted below:

I. The revaluation of assets has been assumed to have a 10% increase in value and is recognised in year one

II. The cash generated from the divestiture is assumed to be invested and therefore not available for disbursement

III. The investment property is assumed to grow at an average of 10% p.a. over the five year period

IV. The loan book is assumed to grow to Kes 5B spread over the five year period


54

10.4 Key Ratios

The key financial ratios based on the financial projections are as highlighted below:

Ratio 2017 2018 2019 2020 2021 Commentary

Cost-Income Ratio 0.36 0.51 0.55 0.51 0.49

A lower percentage is better;

expenses are low and earnings are

high.

Cost of Funds (efficiency Ratio) 0.98 0.98 0.98 0.98 0.98 Higher is better as it reflects a higher

return on loans issued

Liquidity 4.51 18.53 12.99 9.51 10.23

Closer to one is better as a high

current ratio can be a sign of

problems in managing working

capital on the other hand if the

current ratio is below 1, then TFC

may have problems meeting its

short-term obligations

Return on Assets 0.20 0.09 0.05 0.06 0.08

Higher is better as it indicates a

higher efficiency in utilizing asset

base

Return on Equity 0.37 0.11 0.06 0.06 0.07

Higher is better as it indicates a

higher efficiency in utilizing

shareholder equity

Treasury Income/Total income 0.01 0.09 0.13 0.09 0.09 Higher is better as it indicates a

more efficient use of cash at bank

Lending income/Total income 0.04 0.13 0.31 0.34 0.37 Higher is better as this is the core

product

Non Lending income/Total

income 0.96 0.87 0.69 0.66 0.63

Lower is better as these are

secondary portfolio products

Table 12: Key financial projection ratios



55

11 Appendix

11.1 Implementation Plan

Objective 1 - Achieve KES. 2 B annual revenue and maintain 10% return on assets

Strategy Initiative Target Activity Resource Timeline

- Achieve a loan book

size of KES 3B by year

3 and KES 5B by year

5

- Revise and define lending policy to

optimise loan portfolio

- Develop a clear credit strategy

- Review current lending rates

-

- KES 3B by year 3

and KES 5B by year

5

- Carry out desktop research on best

practice lending policies

- Define credit and lending policy

benchmarks

- Review current policies against

benchmarks

- Identify gaps and define

recommendations

- Develop revised risk based lending policy

- Develop a clear risk strategy

- Present to management

- Present to credit committee

- Present to the full Board

- Roll out policies

- Train process owners and inputters

- Monitor compliance

- HOC - 2019

Policy revision

by April 2017

Interest Income-KES

107 M


Commitment fee-KES

10M

- 2017

Interest Income-KES

207 M


Commitment fee-KES

10M

- 2018

Interest Income-KES

299 M


Commitment fee-KES

10M

- 2019

- Drive sector

diversification

- Develop an aquarium; sports

museum (Eldoret), wellness parks,

resort city (Northern Kenya); cruise

boats/boat restaurants (Kisumu &

Mombasa); cable cars

(Nyandarua); magical gardens;

clean/ renewable energy; SGR stop

resorts and shopping malls;

- Invest in at least 2

p.a.

- Carry out market research on diverse

tourism products

- Prioritise listed development opportunities

by building business cases

- Identify potential strategic development

partners

- Define development/investment model

- HOC/HOI - 2022


56

- Appraise and provide debt funding

to drive sector diversification to at

least 5 entities on quarterly basis

- 100 entities funded - - HOC - 2022

- Sourcing for investors to take up the

financing

- 100 entities funded - Diarise, prioritise and participate in various

relevant stakeholder forum and

exhibitions

- Roll out advertisements both electronic

and print

- HOC - 2022

- Exit mature hotel

investments

- Divest from Hilton, Intercontinental

& Mountain Ridge Lodge to

achieve 3B revenue;

- Identify other viable hotel

divestment opportunities)

- 3B revenue - Engage the Privatization Commission

- Carry out property valuations

- Conduct market and feasibility studies

- Develop a business case for each

property

- Contract a real estate agent to facilitate

divestiture

- HOI/MD - 2018

- Optimize

management and

returns from existing

hotel investments

profitability of 30% in

3 years and 50%

within 5 years

- Undertake refurbishment of

identified hotels (KSLH, Sunset Hotel,

Golf Hotel, Kabarnet Hotel and

Mount Elgon Lodge)

- Profitability of 30%

in 3 years and 50%

within 5 years

- Develop a refurbishment fund and

refurbishment criteria

- Assess current state and investment

potential

- Develop refurbishment business cases

and feasibility studies for each subsidiary

hotel

- Roll out comprehensive refurbishment

program

- HOI/MD - 2022

- Develop hotel specific clear 18

month Turn around strategies to

reduce operational cost by 30%

and Increase profitability by 50%

- Enhance performance visibility of each

entity by introducing monthly automated

reports

- Enhance governance and control by

reviewing board constitution

- Recruit transformation GMs for each hotel

- Define hotel management targets and

requirements

- Engage with prospective hotel

management companies and define

potential partners

-

- HOI - 18 months

by end of

2018


57

- Enhance revenue

from existing hotel

investments by 30% in

year 3 and 50% in 5

years

- Develop conferencing centers in

Mombasa, Kabarnet, Kisumu and

Nairobi

- Identify alternative revenue

generating products such as

meeting and MICE centers in other

subsidiaries

- Revenue increase

of 30% in year 3

and 50% in 5 years

- Carry out market research and feasibility

studies on proposed developments and

products

- Build business cases for each new

development/ product

- Assess against investment criteria

- Pilot developments and projects

- Initiate and roll out development projects

- HOI/MD - 2019 (after

turnaround

efforts)

- Increase return on

assets from non - hotel

investments to 10%

every year

- Develop a clear investments strategy and

policy

-

- 10% ROA - Carry out desktop research on best

practice investment strategies and

policies

- Define relevant investment strategy

and policy benchmarks (e.g. AADFI)

- Review current policies against

benchmarks

- Identify gaps and define

recommendations

- Develop investments strategy

- Develop investments policy

- Develop a clear risk management

strategy

- Present to management

- Present to investment committee

- Present to the full Board

- Roll out policies

- Train process owners and inputters

- Monitor compliance Develop an

investment appraisal system

- Develop an asset investment portfolio

-

- HOI/MD/HO

S&RM

- Annual

- Refurbish Utalii house to get 180M revenue

annually

- Develop Watalii street to set up a tourism

information center

- Develop vacant Mombasa plot

- Develop KNTB land at Hilton

- 10& ROA - Carry out feasibility studies

- Develop business cases for each

development project

- Evaluate project against investment

strategy and policy

- Develop project requirements

- Develop project plans

- Engage development consultants

- HOI - 2019


58

- Build the business

advisory practice

(revenue – 30M by

year 3 & 120M by year

5; socio economic

target; support 40

enterprises

- Build a research data base

- Define strategic partners;

- Develop clear solution offering –

transactional advisory; project

management; business planning and

feasibility studies;

- Build capacity internally as per defined

solutions and outsource other advisory

functions

- Develop bundled products

- Launch advisory services offering (2018)

- revenue –

30M by year

3 & 120M by

year 5;

support 40

enterprises

- At least 5

advisory

products

- - HOI - 2019

- Increase revenue from

alternative/ NFI

channels (Renewable

energy, &

bancassurance) by

10M annually

- Develop renewable energy products

-

- 10M

annually

- Undertake desktop market research to

identify market needs and niches

- Design and pilot products

- Review product performance and

enhance/ develop

- Build business cases for each product

- Launch product

- HOC/HOF/H

OI

- annually

- Develop bancassurance product

-

- 10 M

annually

- Undertake desktop market research to

identify bancassurance market needs

and niches

- Design and develop bancassurance

product

- Define and evaluate potential

insurance providers to determine

partners

- Define bancassurance champions

- Launch product offering

- -


59

- Optimize lending

(10%) and ensure NPL

below 10% in 3 years

and 5% in 5 years

- Enhance monitoring and evaluation of

portfolio

- Enhance policy compliance

- NPL below

10% in 3

years and

5% in 5 years

- 100%

compliance

to credit

appraisal

parameters

- 1% bad

loans

provision

- 100%

compliance

with ALCO

guidelines

- Institute quarterly site visits and regular

status and progress reports

- Enforce one day arrears management

by portfolio owner.

- Continuous review and validation of

credit appraisal parameters.

- Weekly, Monthly & Quarterly review by

portfolio owners,

- Provisioning of bad loans

- Automate key credit processes to

enhance effectiveness

- Procure upgraded ERP modules

- Provision of Reports to the Assets and

Liability committee (ALCO) for

purposes of risk pricing

- HOC - 2019 &

2022

- Achieve 30%

profitability (TFC)

annually from 17/18 -

- Develop an effective resource utilization

framework

- Enhance cost efficiency

- 30%

profitability

- Map current key organizational

processes

- Benchmark against identified best

practice

- Identify key gaps, key cost centres

and enhance process efficiency

- Identify automation candidates

- Institute strategic sourcing initiatives

- HOS&RM/M

D

- Annual

- Champion two vision

2030 flagship projects

- Champion the development of underutilized

parks (Turkana; Meru)

- Champion the development of

conferencing centres

- 2 flagship

projects

- 60%

corporate

brand

visibility

- Identify all vision 2030 projects

- Evaluate viability of suggested projects

- Engage with vision 2030

- Identify potential investors/ investees

- Develop marketing campaigns

around projects

- HOC/HOI - 2019 and

2022


60

Objective 2 - Mobilize a total of KES 6 B for on lending over 5 years

Strategy Initiative Target - Activity - Resource - Timeline

- Mobilize resources

through partnerships,

equity investments and

donors

- Define and develop key financial partnerships

annually (e.g. e.g. EADB, AfDB, IFC & Shelter

Afrique)

- Establish local funding partners via Joint Venture

(JV) agreements (Leverage on AADI membership)

- Conceptualize projects

- Undertake feasibility and prioritize at least three

projects

- Package funding requests

- Market and sell projects to potential partners and

equity investors

- 2B - Identify unique opportunities with high

impact on communities and

economic potential

- Conceptualize the projects and

develop concept notes

- Undertake detailed feasibility studies

- Present and validate feasibility studies

to relevant stakeholders

- Engage the Ministry of Finance to

package the funding requests

- Secure approvals

- Develop marketing plans for approved

projects

- Seal partnerships financing (PPPs,

PSPs), equity investment

- Develop implementation and

monitoring plans

- HOS&RM

-

- 2022

-

- Secure Kshs 3 billion from

international financial

institutions (including DFIs)

for onward lending

- Secure Treasury authorization and guarantee to

borrow externally

- Kshs 3B - Prepare memo to treasury through

Ministry of Tourism

- Present and defend request before

relevant organs

- Review and agree on funding options

and instruments

- HOS&RM/

MD

- 2019

- Present loan/funding applications to various

international funding institutions

- Develop loan applications to target

lending institutions

- Present and defend loan applications

- Set up a 1B clean

energy fund in 3 years

(smart grants to

support green projects

)

- Lobbying of funds in government agencies and

NGO

- Develop a framework for clean energy funding

- Identify and partner with key clean energy

players

- 1 B - Develop funding proposals

- Present proposals and funding

requests to multilateral and national

climate change funds

- HOS&RM/H

OI

- 2019


61

- Mobilize Kes. 50M for

setting up a

community fund

- Lobbying of funds in government agencies and

NGOs

- 50M - Define potential partners and map key

stakeholders

- Identify sector related activities and

workshops that form lobby grounds

- Develop funding proposals

- HOS&RM/H

OF

/HOC/HOI

- 2019

- Develop relevant community funding products

such as table banking, supporting women's

enterprise and artisans

- Carry out a desktop market research

- Define key products

- Conduct a feasibility study

- Test and launch products

- Identify and partner with key strategic players - Partner with AfDB to secure SME funds


62

Objective 3 - Enhance the corporations brand visibility by 60% and maintain 95% Customer Satisfaction Index


- Improve brand

visibility to 60% by

June 2019

- Enhance the marketing function

- Enhance marketing initiatives

- 60% brand

visibility

- Set up a marketing function within TFC

- Enhance social media campaigns

- Set up a referrals platform

- Develop marketing campaigns - Year

of sustainable tourism 2017; launch

business advisory services;

- Define brand ambassadors and

develop supporting material

- HOPR/STRAT

EGY

- by June

2019

- Define CSR initiatives with high socio economic

impact

- Identify CSR initiatives within the pillars of

environment, sports, culture and health

- Chief

Mrt,PR&Com

s

- Annual

- Increase customer

satisfaction rate to

75% by Q1 2017 and

maintain a Customer

Satisfaction Index of

95% annually

- Improve TAT for loan disbursement to 45 days by

Q1 2017

- CSI 75%

- CSI 95%

- Map current key organizational

processes

- Benchmark against identified best

practice

- Identify key gaps and enhance process

efficiency

- Identify automation candidates

- Automate board approvals

- Constitute more frequent board meets

based on approval queues

- HOPR/STRAT

EGY

- /HOC

- by Q1 2017

- Annually

from 2018

- Enhance customer communication and

engagement

-

- Enhance website to enable customer

engagement

- Develop a structured customer care

framework and plan

- Develop customer feedback platforms

- Develop and roll out online customer

service trainings across the organization


63

- Developing a clear strategic partnership

framework – identification and prioritization (e.g.

county mapping and prioritization)

- Develop stakeholder management, engagement

programs and communication plan

-

- Identify cross cutting strategic partners

- Develop a comprehensive stakeholder

database

- Develop a communication plan

- Track stakeholder engagement

- Clearly define areas of engagement

- Develop a customer service charter to ensure

consistent superior service offering

-

- Map all customer processes

- Define SLAs for each of the mapped

processes

- Define the customer value proposition

- Benchmark with identified market

players

- Develop charter

- Seek approval

- Train staff

- Roll out


64

Objective 4 - Enhance the corporation’s socio economic impact by creating 4000 jobs and supporting 100 entities


- Support 200

enterprises and create

8000 jobs at the end

of five years

- Support 84 entities through loans

- Support 20 entities through investments

- Support 96 entities through advisory solutions

- Build specialized sector skills by developing sector

internship programs

- Develop diversified loan products as per the new

lending policy to create a high socio economic

impact

- 200

enterprises

supported

- 8000 jobs

created

- Define qualified loan entities

- Define qualified investment entities

- Develop advisory solution offerings

- Develop internship JDs and

requirements

- Conduct loan product research and

benchmarking; develop new suitable

products; carry out a feasibility test;

pilot and enhance products; Launch

products

- HOC/HOI - 2022


65

Objective 5 - Achieve 90% of service standards (SLAs), maintain Non Performing Loans, NPL of less than 10% in 3 years and 5% in 5 years and sustain a compliance rating of 85%


- Ensure 90%

automation of our

core Business

Processes

- Define as is internal core business processes

- Benchmark and enhance these processes


- Source effective solutions and implement

-

- 90% system

uptime

- 60%

increased

efficiency

- Map all internal core business

processes

- Define SLAs for each of the mapped

processes

- Benchmark with identified market

players

- Identify gaps and develop enhanced

processes


- Source effective automation solutions

- Define system requirements

- Build automation business cases

- Seek approvals

- Tender for system providers

- Engage consultant and implement

- Train staff and roll out

- HOIC

- Chief

Automation

Officer

- 2020

- - Enhance ERP utilization to 90% - Identify and document current user

issues and requirements

- Align ERP modules to enhanced

internal business processes

- Develop usage policies and

requirements

- Train all staff members

- Monitor utilisation

- HOICT - 2017

- Reduce existing loan

book NPLs to 45% in

year 1; 20% in year 3

and 10% in year 5



- Enhance loan performance monitoring

- NPL less

than 45% in

year 1; 20%

in year 3

and 10% in

year 5

- Assign dedicated resources to

continuously monitor loan portfolio

performance

- Develop early warning default

systems

- Automate key credit processes

- Enhance collection efforts

- HOC - 2017

- 2019

- 2022


66

- Develop a

comprehensive risk

management and

mitigation framework

- Adoption of AADI standards as a compliance

standard; Set up a risk and compliance function

– 85%

- 85%

compliance

- Review current processes against AADI

standards

- Identify gaps and enhance processes

and controls

- Institute monthly monitoring/

compliance audits

- HOC/ HIA/

STRATEGY

- December

2017

- Build and improve

capabilities to

respond to low

liquidity

- Enhance collection of rental payments/ advance

payments;

- Enhance collection of dividend payments

- Effectively manage credit and debit days -

Develop supplier payment arrangements and

partnerships

- ≤ 45 debtor

days

- ≤ 30 creditor

days

- Develop and provide different

payment platforms

- Institute weekly monitoring and

evaluation and tracking

- HOF/HOI/HO

C

- Annual

- Define service

standards and

maintain 90%

achievement

- Develop service level agreement with service

providers

- Develop internal business process service level

agreements

- 90%

compliance

- Map all service providers

- Define all service requirements and

TATs as per enhanced SLAs

- Develop service provider SLAs

- Hold SLA sensitizations

- Revise contractual terms

- HHR/HOF - 2017

- Annual

- Maintain new NPLs at

below 10%


- Develop and institute early warning defaulter

systems


- by reviewing and adopting best practices in the

market place on loan recovery Enhance loan

performance monitoring

- NPL less

than 10%

- Assign dedicated resources to

continuously monitor loan portfolio

performance

- Develop early warning default

systems

- Automate key credit processes

- Enhance collection efforts

- HOC - 2018


67

Objective 6 - Improve employee productivity to KES. 50M in five years and maintain employee engagement (and productivity) at 85% annually


- Enhance employee

productivity to Kshs

50M by June 2020

- Define the optimal organization structure

- Define the optimal staffing levels

- Undertake a right job right person right job match

exercise

- Conduct a job evaluation exercise (2018)

- Employee

productivity

Kshs. 50M

- Carry out job analysis for new roles

- Carry out a job evaluation to ensure

optimal grading

- Carry out workload analysis to define

optimal staffing levels

- HOHR - June 2020

- Roll out a salary survey - - Define relevant benchmarks

- Roll out survey

- Analyse results

- Enhance salary structure as per

findings

- -

- Increase employee

engagement to 85%

by June 2020

- Enhance performance management system

- Define desired organization culture (service

delivery)

- Monitor staff productivity and engagement

continually

- Enhance staff cohesion and morale for improved

performance and productivity to 85% by June

2020

- employee

engagemen

t 85%

- 85%

productivity

- Review current performance

management system

- Benchmark against best practice

- Enhance the performance

management system

- HOHR - Annual

- Enhance staff

development and

welfare

- Conduct a training needs analysis

- Define annual training plans aligned to strategy

- Review and improve staff welfare schemes)

- Development areas of the individual performance

appraisal

- 35 L&D hours

per annum

- - HOHR - Annual

- Drive contribution of

innovation

- Develop an idea evaluation criteria and channel

- Appoint innovation champions

- Develop 3 new products annually

- Reduce TAT by 15% annually

- Define and develop reward and recognition

criteria

- %

Contribution

to revenue

- - HOHR - Annual


68

11.2 Monitoring and Evaluation Framework

Monitoring and evaluation (M&E) is a framework for implementing the strategic plan. It enables management to measure the extent to which planned

activities and targeted outputs are being achieved. Through M&E, TFC will be able to identify where the organization intends to be and how to get

there and evaluate achievement of desired targets within the plan period.

TFC has defined key objectives to be achieved in five years (i.e. by 2022) NMC has set goals that have to be achieved by 2018. The strategies and

initiatives to achieve these goals must be implemented in an orderly and coordinated manner. Consequently, this framework must be put in place to

provide the requisite feedback in the sourcing and utilization of the resources towards successful implementation. The information generated is then

objectively used for forward and backward review of the respective program areas. In summary TFC will adopt the following:

I. An M&E Committee will be formed to continually monitor the progress of the strategic plan

II. The Chief Executive Officer and the Departmental heads to champion the implementation strategy

III. Departmental Heads to hold monthly meetings chaired by the Chief Executive Officer. During the meetings, the departmental heads to provide

feedback on implementation of their strategies together with areas they feel require changes in strategic approach and progress against

implementation (achievement of KPIs)

IV. On a quarterly basis, the M & E Committee to report to the TFC Board on the progress made towards achievement of the planned goals

V. Annual reviews are made so that the changes found necessary through the constant monitoring and evaluation mechanism are brought on

board

VI. The objectives and initiatives should be cascaded to all the TFC departments detailing the key activities required by the departments to implement

the strategic objectives on a year to year basis

VII. Departmental plans should then be rolled every year and level of achievement of the corporate goals documented. This is guided by the agreed

key performance indicators for each initiative.

The M&E template is as illustrated below:

KPIs/Performance Measures

Data source

(this is the information / data are you

looking at in order to evaluate this

dimension)

Current status as of

[date]

Recommended next steps

(to be reviewed on [date]) include timelines, KPI,

resources required and persons responsible

Objective: [enter initiative/

Performance

Measurement

Area]

[enter KPI] [add data source, e.g. survey results,

assessment results, reviews, management

feedback)

Red/Yellow/Green • [add recommended next steps/ action

plans]

[enter KPI] [add data source, e.g. survey results,

assessment results, reviews, management

feedback)

Red/Yellow/Green • [add recommended next steps/ action

plans]


69

11.4 Organization Structure

11.4.1 Previous structure


70

11.4.2 Proposed structure (during management retreat)


71

11.4.3 Revised structure


72

11.4.4 Structure Transition Summary


73

11.5 Resource Mobilization Plan

11.5.1 Introduction

TFC has embarked on the development of an ambitious strategy which is aimed at setting

the institution on a transformation path over the next five years. This comes at the back drop

of below par performance in the delivery of its mandate and a four year period when no

loans were disbursed. Over the period, TFC was only able to mobilize internal resources to

fund its operations and no disbursements for onward lending were received from the

Treasury.

TFC has already started the journey towards financial sustainability anchored on a

conducive resource mobilization environment by developing a draft resources mobilization

policy. The draft policy aims at:

Creating an environment for sustainable funding of the Corporation’s programs and

projects;

Identifying new funding opportunities for the Corporation’s programs;

Promoting collaborations and partnerships in support of the Corporation’s programs;

and

Diversifying and expanding its resources base, developing new thinking and

challenge the old traditions in supporting the achievement of the Corporation’s

mandate.

The resources mobilization function will be operationalized through the following actions,

contained in the draft policy:

The Board of Directors shall establish a Resource Mobilization Department/unit under

the Managing Director’s Office

This Office will be headed by the head of strategy & resource mobilization who

reports to the Office of the Managing Director

The Resource Mobilization Office is mandated to mobilize resources for the

Corporation’s projects and programs

Key challenges encountered in resources mobilization

In its quest to mobilize resources, TFC is faced by various challenges emanating from both the

internal and external environment. The key challenges, which TFC must address during the

strategy period so as to mobilize the required resources, are summarized below.

Lack of a well-defined vision and strategy for resources mobilization;

Inadequate institutional capacity – People/HR, systems and processes, structures and

governance, culture

Limited fiduciary standards and inability to ensure proper management, use,

accountability and risk management

Inadequate government support for credibility and legitimacy – national

government, Treasury and other agencies

Lack of demonstrable focus on transparency, independence to build trust and

confidence with potential partners and financiers

Poor image and lack of a track record of results – a history of success that facilitates

resources attraction and an evidence that resources will cause impact


74

Inadequate financing lines

Underutilized investments and facilities

Stunted operations in the last 4 years

Underutilized capacity and limiting mandate

A relatively high level of non-performing loans and limited performance in loan

recoveries

Unclear responsibility for resources mobilization function

Perceived competition from commercial banks (ideally, this is an opportunity to close

financing gap and for collaboration)

Increased risks and compliance environment

Lack of/reduced funding from Government

11.5.2 Resources requirements

TFC needs to raise over 5 billion over the next five years for onward lending as well as

operations costs to implement the transformation strategy. Almost all this resources will be

raised from external sources besides, rental and interest income. The resource requirement

over the next five years is broken down as follows:

2017/18 2018/19 2019/20 2020/22 Total

Operations Loans Operations Loans Operations Loans Operations Loans

Internally

funded

1

billion

Internally

funded

1

billion

Internally

funded

1

billion

Internally

funded

1

billion

5

billion

11.5.3 Summary approach for development of resources mobilization framework

The development of a resources mobilization framework for TFC has adopted the following

approach.

Analysis and vision/strategy development

This task constitutes the analysis of the context of resources mobilization for TFC, the baseline

and organizational arrangement. The analysis culminates in the identification of key

challenges facing TFC in resources mobilization and the development of a clear vision,

strategy and targets for the function.

Development of institutional capability

This phase aims at ensuring that TFC has the requisite capability to implement the resources

mobilization plan and deliver the required resource requirements. This constitutes the

Analysis and development of vision and strategy

Review and development of institutional capability

Implementation and monitoring of resources mobilsation plan

Review and report on impact and performance improvement plan


75

identification of capacity building initiatives based on desired capacity needs and gaps

established. A capacity building program and plan are developed with specific indicators

and targets for ease of monitoring.

Implementation and monitoring

This phase constitutes the targeting of specific donors and investors to raise targeted

resources. On a continuous basis performance is reported on the yield from various sources

and corrective measures instituted where targets are missed.

Review and performance improvement plan

This phase constitutes the evaluation of the success of the resources mobilization plan in

raising required resources to implement the TFC strategy. Ideally, this is done on annual bases

and a performance improvement plan is put in place to improve the yield of the entire

resource mobilization strategy.

The vision and strategy for resources mobilization

The vision for the resources mobilization plan is to achieve financial sustainability for TFC to

deliver its mandate. Financial sustainability for TFC means raising adequate resources for

operations, projects and onward lending. To implement the current strategic plan TFC

requires an additional Kshs 5 billion over the 5 years to meet its ambitious lending targets,

besides operational costs. TFC also targets to source funding for specific projects in the sector

to the tune of 15 billion in the next five years and beyond. TFC has already secured a 500

million shillings funding from government for onward lending and will lobby for more

resources in the coming years anticipated to increase to 2 billion over the five year period.

TFC will also target tourism growth funds that may be established by the government towards

financing of the Kenya vision 2030 flagship projects.

In diversifying the resources pool, TFC will look beyond government to raise additional funds

to finance its ambitious program. TFC will target international financing institutions and

programs including but not limited to the following: World Bank, International Finance

Corporation (IFC), Africa Development Bank (AfDB), Asia Development Bank (ADB), Islamic

Development Bank (IDB) and the United Nations (UN).

TFC will also target earmarked Government and UN funds in the areas of climate change

mitigation and adaptation to finance green projects in the sector. Key among the targeted

projects will be in renewable energy and sustainable water management in tourism

establishments. Other earmarked funds to be pursued to finance projects include pro-poor

funds, economic empowerment funds, eco-tourism funds and community tourism project

funds.

The main types of funding from these agencies are loans, grants, Guarantees, Equity

investments, credits or leases.

Key objectives and goals

The overall objective of the resources mobilization plan is to raise Kshs 5 billion over the five

year strategy period. The mobilized resources will be in form of investments into projects,

partnerships as well as for onward lending. TFC will target to raise resources from the following

sources:


76

International Funding Institutions – IFC, EIB, AfDB, KFW, EADB, HSBC

Development partners with interest in economic empowerment through tourism and

natural resources management - World Bank, EU, UN, USAID, DANIDA Kshs 7 billion

Green Growth Fund, KAM, Business Advocacy Fund (BAF)

Equity Funds – Acacia, Africa Guarantee Fund, Grofin, Emerging Capital Partners,

Aureos, Citadel Africa, Africa Capital Fund, Helios etc.

Climate Change earmarked funds – multilateral, Bilateral and national climate

change funds including MENR/NETFUND for Green Energy and Sustainable Water

Management, NEMA’s Adaptation Fund from UNFCCC, UNFCC Green Climate Fund,

DANIDA Green Growth Fund, KAM, WSTF, Kenya Climate Innovation Centre (KCIC),

Business Advocacy Fund (BAF), Kenya Climate Venture Fund (managed by KCIC)

To achieve the overall objective, TFC will pursue the following goals:

To raise approximately 2 billion through partnerships, equity investments and donors

to finance at least two high impact and unique projects in untapped, high potential

regions

Secure at least Kshs 3 billion from International Financial Institutions (including DFIs) for

onward lending

To negotiate climate smart grants to the tune of Kshs 1 billion to support green

projects in the area of energy and sustainable water management

TFC will implement a variety of strategies to achieve the goals and targets and ultimately

achieve the overall objective of raising Kshs 5 billion over the five years. The strategies are

summarized in the table below for each objective/result area and form the basis for the

development specific initiatives and the of annual work/implementation plans for the

resources mobilization function.


77

11.5.4 Resources mobilization strategies and initiatives

Goal Strategies Initiatives

To raise approximately 2 billion through

partnerships, equity investments and

donors to finance at least two high

impact and unique projects in untapped,

high potential regions

1. Conceptualize projects

2. Undertake feasibility and prioritize

at least three projects

3. Package funding requests

4. Market and sell projects to

potential partners and equity

investors

1.1 identify unique opportunities with high

impact on communities and economic

potential

1.2 Conceptualize the projects and develop

concept notes

1.3 Undertake consultations with stakeholders

and select best projects

2.1 Engage specialists to undertake detailed

feasibility studies

2.2 Present feasibility studies to stakeholders and

validate viability

2.3 Adopt stakeholder comments and Prioritize

projects

3.1 Engage the Ministry of Finance to package

the funding requests

3.2 Solicit and secure authorization, approvals

and necessary guarantees from GoK and other

agencies

3.3 Manage the loan agreements – reporting,

compliance, disbursements, repayments etc.

4.1 develop marketing plans for approved

projects

4.2 seal partnerships financing (PPPs, PSPs),

equity investment

4.3 develop implementation and

monitoring plans


78

Goal Strategies Initiatives

Secure at least Kshs 3 billion from

international financial institutions

(including DFIs) for onward lending

1. Secure Treasury authorization and

guarantee to borrow externally

2. Present loan/funding applications

to various international funding

institutions

1.1 Prepare memo to treasury through Ministry

of Tourism

1.2 Present and defend request before

relevant organs

1.3 Review and agree on funding options and

instruments

2.1 develop loan applications to target

lending institutions

2.2 Present and defend loan applications

To negotiate climate smart grants to the

tune of Kshs 1 billion to support green

projects in the area of energy and

sustainable water management

1. Develop climate smart projects in

conjunction with existing or new

hotels for renewable energy

development and sustainable

water management

2. Solicit for financing from

multilateral/national climate

change funds

1.1 conceptualize projects

1.2 undertake detailed feasibility studies

1.3 validate projects with investors and

relevant agencies and stakeholders

2.1 Develop funding proposals

2.2 Present proposals and funding requests

to multilateral and national climate

change funds


79

11.5.5 Risks and mitigation plan

The resources mobilization plan is faced with risks that must be managed for the successful

achievement of the Kshs 5 billion mark. The main risks are listed below and initiatives to

manage the same are elaborated under each.

Risk Mitigation

Lack of an enabling

policy, legal, regulatory

framework

Approval of the TFC resources mobilization policy

Revision of applicable regulations in line with the TFC

resources mobilization policy

Compliance to government regulations related financial

instruments (loans, grants, partnerships etc.) engagement

with entities within and outside of government

Inability to redeem

image and attract

lenders, funders and

investment partners

• Enhance fiduciary capacity and transparency

• Clean up the Loan book to acceptable levels of NPL

• Undertake marketing and image building campaigns

• Solicit for ‘rest of government support’ in resource

mobilization drive

Lack of Government

Goodwill

Win the MoT (and Treasury) support and make it a key party

in the resources mobilization drive through consultations and

partnerships

Inadequate

organization structures,

staffing to drive the

resources mobilization

initiative

Institutionalize the resources mobilization function in the TFC

structure

Fill in capacity gaps in the resources mobilization function

and other related departments

Training and development of staff

Lack of stakeholder,

community buy in and

support

Involvement of all stakeholders in project development and

implementation

Mainstream stakeholder interests and address concerns

Continuous communication during conceptualization and

development of projects


80

- Critical success factors

The successful implementation of this resources mobilization framework will be successful if

the following conditions are fulfilled.

Internal organization development – having in place internal systems and process

that make TFC attractive to lenders. Some initiatives towards this include ISO (systems

and processes) certification and undertaking a PEFA/Fiduciary assessment (financial

management)and implementing improvement strategies

People development under the resources mobilization function- high level, skilled and

experienced resource is requisite to the realization of the resources mobilization

agenda. This, coupled with a needs based capacity building program for the

resources mobilization team will deliver or exceed targets set

Championing implementation of the resources mobilization plan – it is critical that this

is championed from the highest office, the MD’s office, and progress reported

periodically as a flagship project for TFC. This will result to production of quality

concept notes, feasibility reports, effective engagement with potential donors etc.

TFC will target potential projects in marginalized areas so as to attract earmarked

poverty grants as well as economic empowerment funds

TFC actively targets green funds available under national and international

frameworks

Having a clear sense and commitment to the TFC vision, mission and strategy;

Constitutes promising programs that yield success

If TFC is able to demonstrate evidence of past success

If there is effective management and leadership – Board, management and staff

Financial systems that provide controls and safeguards

A solid reputation, credibility and good image

Stakeholder linkage through communication, involvement and collaboration

Ability to attract, create, sustain new sources of funds including the private sector

and at community level

Independence of political groups

Cleaning and restructuring its portfolio to rid of the NPLs

Having in its ranks Human Capital trained in tourism

Increased focus on climate change, water management, eco-tourism and

renewable energy to attract earmarked resources

Thorough evaluation of projects at pre, during and after implementation

Alignment of TFC programs to national, sector and county priorities


81

11.6 Detailed Financial Projections

11.6.1 Projected statement of profit & loss

Details 2017 2018 2019 2020 2021 Total

Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’ Kshs ‘Million’

Recurrent revenue

Interest Income from Loans 107 207 299 387 500 1,500

Business Advisory 10 20 30 60 120 240

Rent Income 180 180 180 198 198 936

Dividend Income 3 8 10 12 15 48

Alternative Revenue 10 15 23 34 51 132

Fund Administration fees 15 45 53 30 35 178

Gain on Disposal 2,000 747 0 0 0 2,747

10% return on assets 312 343 403 433 433 1,926

2,636.70 1,565.42 997.42 1,154.17 1,352.04 7,705.75

Expenditure

Staff Costs 202 222 244 269 296 1,233

Other operating expenditure 136 163 196 235 282 1,012

Fund Administration Expenses 15 45 53 30 35 178

Costs for developing assets 31 34 40 43 43 193

Refurbishment of Utalii 562 329 - - - 891

946 794 533 577 656 3,506

Operating Profit/(Loss) 1,690.55 771.76 464.42 577.08 696.09 4,199.91

Provisions - Bad Debts 11 21 30 39 50 150

Net Profit 1,679.85 751.06 434.52 538.38 646.09 4,049.91

Development Revenue


82

Details 2017 2018 2019 2020 2021 Total

Development Grants (Partnerships) 300 400 500 600 700 2,500

Clean Energy Fund 0 500 500 0 0 1,000

Community Fund 0 0 50 0 0 50

Development Grants GOK) 500 500 500 500 500 2,500

Divestment Revenue 2,000 0 0 0 0 2,000

Gain on revaluation 312 0 0 0 0 312

3,112 1,400 1,550 1,100 1,200 8,362


83

11.6.2 Projected statement of financial position

Details 2016 2017 2018 2019 2020 2021 Movt Movt Movt Movt Movt

ASSETS

Non Current Assets

Investment Property 3,121,997,694 3,434,197,463

3,734,197,463 4,034,197,463 4,334,197,463

4,634,197,463

PPE 39,020,760

39,020,760

39,020,760

39,020,760

39,020,760

39,020,760

Intangible Assets

41,623

41,623

41,623

41,623

41,623

41,623

Investments 397,742,463 184,516,709

202,968,380

223,265,218 245,591,740

270,150,914

Loans 719,361,224 1,070,000,000

2,070,000,000 2,990,000,000 3,870,000,000

5,000,000,000

Deferred Tax 42,604,474

42,604,474

42,604,474

42,604,474

42,604,474

42,604,474

4,320,768,238 4,770,381,030

6,088,832,701 7,329,129,539 8,531,456,060

9,986,015,234 10% 28% 20% 16% 17%

Current Assets

Debtors &

Prepayments 192,098,920 211,308,812

153,230,712

338,349,556 424,935,747

467,429,322

Cash & Bank 300,982,173 2,015,228,986

1,798,083,690 1,447,058,063 1,686,964,070

1,929,817,674

493,081,093 2,226,537,798

1,951,314,402 1,785,407,619 2,111,899,817

2,397,246,996 352% -12% -9% 18% 14%

Total Assets 4,813,849,331 6,996,918,828 8,040,147,103 9,114,537,158 10,643,355,878 12,383,262,230 45% 15% 13% 17% 16%

LIABILITIES

Capital & Reserves

Equity funds 106,000,000 106,000,000

106,000,000

106,000,000 106,000,000

106,000,000

Pre-Investment grant 281,212

281,212

281,212

281,212

281,212

281,212

GOK Grant 857,722,200 1,345,522,431

1,602,102,684 2,225,682,938 3,219,263,192

4,285,843,445


84

Details 2016 2017 2018 2019 2020 2021 Movt Movt Movt Movt Movt

Capital Reserves 20,506,020

20,506,020

21,106,020

21,406,020

20,506,020

20,506,020

Retained earnings 3,538,579,837 5,218,431,181

5,969,494,816 6,377,015,622 6,888,397,036

7,534,490,378

Restructuring reserve 88,580,842

88,580,842

88,580,842

88,580,842

88,580,842

88,580,842

4,611,670,111 6,779,321,686

7,787,565,574 8,818,966,634 10,323,028,302

12,035,701,897 47% 15% 13% 17% 17%

Non Current Liabilities

Gok Revolving Fund

Loan 48,000,000

48,000,000

48,000,000

48,000,000

48,000,000

48,000,000

Provision Employee

Benefits 44,938,777

49,432,655

54,375,920

59,813,512

65,794,863

72,374,350

92,938,777

97,432,655

102,375,920

107,813,512 113,794,863

120,374,350 5% 5% 5% 6% 6%

Current Liabilities

Creditors & Provisions 109,240,443 120,164,487

150,205,609

187,757,011 206,532,713

227,185,984

Current Liabilities 109,240,443 120,164,487

150,205,609

187,757,011 206,532,713

227,185,984 10% 25% 25% 10% 10%

Total Liabilities &

Equity 4,813,849,331 6,996,918,828

8,040,147,103 9,114,537,158 10,643,355,878

12,383,262,230 45% 15% 13% 17% 16%


85

11.6.3 Projected cash flow statement

DETAILS 2017 2018 2019 2020 2021

Kshs ‘000,000 Kshs ‘000,000 Kshs ‘000,000 Kshs ‘000,000 Kshs ‘000,000

Net profit for the year 1,679.85 751.06 407.52 511.38 646.09

Adjustments for:

Increase/(Decrease) in Loans' Provision 11 21 30 39 50

Increase/(Decrease) in Employees Benefits Provision 4 5 5 6 7

(Surplus)/Deficit on Revaluation of Investment Property 0 600 300 0 0

Income from Investment (Dividend) -3 -8 -10 -12 -15

Operating Income/(Loss) before Working Capital Changes 1,692.55 1,368.71 732.86 544.06 687.67

(Increase) in Debtors (19.21) 58.08 (185.12) (86.59) (42.49)

Increase in Creditors 10.92 30.04 37.55 18.78 20.65

Cash generated from Operations 1,684.26 1,456.83 585.29 476.25 665.83

Net Cash Inflow/(Outflow) From Operating Activities 1,684.26 1,456.83 585.29 476.25 665.83

Cash Flows From Investing Activities:

Dividends Received 2.50 8.00 10.00 12.00 15.00

Principal Loans Disbursed/Recovered (460.31) (2,738.55) (2,119.00) (941.93) (1,204.56)

Principal Loans Recovered

Net Cash Inflow/(Outflow) From Investing Activities (457.81) (2,730.55) (2,109.00) (929.93) (1,189.56)

Cash Flows From Financing Activities:

GOK Grant Received 300.00 900.00 1,050.00 600.00 700.00

Net Cash Inflow/(Outflow) From Financing Activities 300.00 900.00 1,050.00 600.00 700.00

Net Increase/ (Decrease) in Cash and Cash Equivalents 1,526.45 (373.72) (473.71) 146.32 176.27

Cash & Cash Equivalents at Beginning of the Period 300.98 2,015.23 1,798.08 1,447.06 1,686.96

Cash & Cash Equivalents at End of the Period 1,827.43 1,641.51 1,324.37 1,593.38 1,863.24


86

11.7 Detailed Listing of Reviewed Documents

Past and current TFC strategic plans (Including departmental plans)

Past and current Ministry of Tourism strategic plan

Strategy review/performance data e.g. financial and operational KPIs and achievements.

Product offerings detail, structure and performance data

Port-folio/ Product performance data (sales):

• Loans;

• Hotels; and

• Other investments.

Key external stakeholders (key customers and partners) listing and contact details

Key internal stakeholder listing

Annual/quarterly/monthly departmental and staff work plans (Performance contracts at organizational

and HOD levels)

Departmental plans/ scorecards

Updated organizational structure

Subsidiary listing and performance data

Current/ past corporate budgets (3 to 5 years)

Past (3 to 5 year) financial statements

Vision 2030 and MTPII

Jubilee Manifesto

The Tourism Act

Industry research reference material


87

11.8 TFC 5O Year Milestones

1965 November 9th: The Corporation was established by an Act of Parliament with its mandate

to facilitate and finance development of tourism and tourism related enterprises.

1966: International Hotels (Kenya) Limited was incorporated and the established Hilton Hotel,

Nairobi in 1969. The Corporation shareholding in this five star hotel is 41%.

1967 November 17th: Mountain Lodge Limited Corporation has 39% shareholding. The Lodge

is situated at Mt. Kenya National Park in Nyeri.

1968 June 5th: The Ark Limited was incorporated and its facilities are located at the foot of

Mount Kenya inside Mt. Kenya National Park.

1968: Kenya Safari Lodges and Hotels Limited (KSLH) was established and the Corporation

holds 82% shares. KSLH is a holding company for three facilities Mombasa Beach Hotel; Ngulia

Safari Lodge and Voi Safari Lodge

1972: Bomas of Kenya Ltd, commenced operations with its mission to preserve, maintain and

promote Kenyan cultural values. The Corporation has majority shareholding. Bomas of Kenya

is a fully owned subsidiary of TFC.

1976: Mt. Elgon Lodge Limited was incorporated. It is located next to Mt. Elgon National Park

and the Corporation has 72% shareholding in the Company.

1978: Sunset Hotel Milimani, Kisumu town was incorporated. The Corporation holds 95% shares

in this two star hotel that

1979: Golf Hotel Limited is located in Kakamega town was incorporated. The Corporations

holds 80% shares in this two star hotel that has 62 numbers of rooms

1980: Kabarnet Hotel limited was established. The Corporation holds 98%

2007: The Corporation began a Massive Organization Restructuring which included an

overhaul of the Human Capital, financial re-organization and review of the Business Model.

2011 February: KTDC rebranded with new re-launch and new Logo by former Tourism Assistant

Minister Cecily Mbarire.

2012 September 25 to 26th: KTDC hosted the 1st Ever Africa Hotel Investment Forum (AHIF) jointly

with Bench Events that brought International Brands into Kenya.

2013 September 24 to September 29th: KTDC hosted the Africa Hotel Investment Forum (AHIF)

2013: The Corporation changed its name from KTDC to Tourism Finance Corporation (TFC) in

line with the Tourism Act.

2014: TFC received the Trophy from Livestock Cabinet Secretary Felix Kosgey for the Best

Institution other than Bank at Mambo Leo Showground, Kisumu.

2014: AADFI Recognized TFC and it was awarded “B” in their Peer Review Exercise.

2014: TFC compiled the Tourist Map showing that it funded Investments in all the 47 Counties

in Kenya.

2014: TFC received the International Quality Crown Award by UK based BID Group for being

a leading Development Financial Institution.

2014: TFC won Best Stand other than Bank trophy at the Kisumu ASK Show held at Mambo Leo

Grounds.

2014: Government announced plans to Merge TFC, with ICDC and IDB Capital.

2015: TFC was awarded the International Platinum Star for Quality Award from Jose. E. Preito,

President and CEO of Business Initiatives Direction in Paris.

2015 October 4th: TFC Board of Directors were appointed by President Uhuru Kenyatta.

2016: TFC undertakes effective turn around strategies to enhance efficiency and effectiveness


88

11.9 Global and Regional Tourism Data

The most popular tourist destinations globally include:

Chinese travellers spent $165 billion, a 27% increase on 2013. The United States came second

with just under $111 billion while Germany was in third place with $92 billion. China has been

the world's top tourism spender since 2012.


89

Enhancing the tourism value chain

South Africa Tourism Data


90


91

11.10 Development financing sources

1. Revenues of development country governments themselves (these also reduce external

financing needs when public savings go up);

2. Concessional development assistance, both external grants and concessional credits, that

may fund public or philanthropic expenditures, or catalyse growth enhancing private

financing;

3. Non-concessional loans taken out (or guaranteed) by developing country governments,

from international financial institutions or private sources;

4. Private external finance, in the form of foreign direct investment (FDI) and other portfolio

flows.


92