˜e Nairobi Hospital: Main Hospital Tel: 020 - 2845000 / 020...

Annual Report & Financial Statements

2016�e Nairobi Hospital:

P.O. Box 30026-00100, Nairobi

Main Hospital Tel: 020 - 2845000 / 020-2846000Cell lines: 0703 082000 / 0730 666000

Email: [email protected]: www.nairobihospital.org

OUR VISION

To be the leading healthcare institution in the region providing world-class treatment and service.

OUR MISSION

To offer patients the best care, using advanced technology in an atmosphere of trust, safety and comfort.

OUR VALUES

Dedication: We are dedicated to offering patients and their families’ efficient service and great value for their money.

Empathy: We are devoted to providing a warm, friendly and caring environment in which patients can recover.

Inspiration: We are an organization that inspires our staff to achieve the extraordinary and develop the best careers.

Quality: We pursue superior performance and quality in all we do, to build and preserve the Hospital’s clinical, organizational and financial

strength.

Partnerships: We recognize the value of strong internal and external partnerships to accomplish our goals.

The Nairobi Hospital Annual Report & Financial Statements 2016 1

ContentsREPORT PAGES

Healthcare with a Difference 2

Notice of the Annual General Meeting 3 - 4

Corporate Information 5

Financial Highlights 6

Board of Management 7 - 10

Chairman’s Statement 11 - 12

Chief Executive Officer’s Statement 13 - 18

Corporate Governance 19 - 20

Operating Statistics 21

CSR 22 - 23

Report of the Board of Management 24

Statement of Board of Management’s Responsibilities 25

FINANCIALS

Independent Auditors’ Report 26 - 28

Statement of Financial Activities(Including Income & Expenditure Account) 29

Statement of Financial Position 30

Statement of Changes in Fund Balances 31

Statement of Cash Flows 32

Notes to the Financial Statements 23 - 52

Proxy 53

OUR VISION


OUR MISSION


OUR VALUES





strength.



Graphic Outlook of the Future

The Paediatric Centre


Notice of the Annual General MeetingNOTICE IS HEREBY GIVEN that the Annual General Meeting of the Association will be held at the Amphitheatre situated on 2nd floor of the Nairobi Hospital Convention Centre, New Anderson Centre, Argwings Kodhek Road, Nairobi on the 29th day of June, 2017 at 2.00 pm to conduct the following business: Agenda

1 To table the proxies and apologies and note the presence of a quorum.

2 To read the notice convening the Meeting.

3 To approve the minutes of the Annual General Meeting held on 28th July 2016.

4 To consider and, if approved, adopt the audited Statement of Financial Position and Accounts of the Association for the year ended 31st December 2016 together with the Chairman’s, the Board of Management’s and Auditors’ reports thereon.

5 To elect three members to the Board of Management:

i) In terms of Article 42 of the Association’s Articles of Association, Mr. Sam Nteere Ncheeri retires and is eligible for re-election.

ii) In terms of Article 42 of the Association’s Articles of Association, Mrs. Priscilla Komora retires and is eligible for re-election.

iii) To elect one Board Member of the Management following the retirement of the former Chairman Mr. Isaac Awuondo.

6 To note that Deloitte continue in office as the Company’s Auditors in accordance with the Companies Act 2015 and to authorize the Board of Management to fix their remuneration.

By Order Of The Board Of Management

Mrs. Mercy Mbijiwe Company Secretary7 June 2017


Notice of the Annual General MeetingNB: In accordance with section 136(2) of the Companies Act (Cap 486), every Member entitled to attend and vote at

the above meeting is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy must be a Member. A Proxy Form is enclosed and should be returned to the Registered Office of the Association, situated at the Office of the Company Secretary, Kenya Hospital Association, The Nairobi Hospital Main Building, Argwings Kodhek Road, P.O. Box 30026-00100 GPO NAIROBI. In terms of Article 34 of the Association’s Articles of Association the proxy form must arrive not less than 48 hours before the meeting or any adjournment thereof at which the person named in the instrument proposes to vote.

In the case of a corporate Member, a written authorisation given under Article 31(1) shall be deposited, appropriately dated, rubber-stamped or sealed and signed not less than 48 hours before the meeting.

In terms of Article 47(b) of the Articles of Association any Member of the Association desirous of being elected as a Member of the Board of Management shall be proposed and seconded by two Members of the Association on a form which may be obtained from the Company Secretary’s office on request and the proposed candidate shall not less than twenty one (21) days before the Annual General Meeting deliver the duly signed proposal form, attaching his or her personal details, professional qualifications, if any, and working experience together with a notice in writing to the Company Secretary at the Registered Office informing the Secretary of the fact that he/she has been proposed as a candidate and stating his/her willingness to be elected.


Corporate InformationBoard of ManagementDr. John Simba (Chairman) Appointed on 29th July 2016Mr. Coutts Otolo Dr. Charles KariukiDr. (Mrs.) Jean Kagia Mr. Sam NcheeriMrs. Susan DeverellDr. Sam Maina-WanjihiaDr. Eric KahuguMrs. Priscilla KomoraMr. Alan Gachukia

Medical Advisory Committee (MAC)Dr. Sam Maina-Wanjihia (Chairman) Dr. (Mrs.) Jean Kagia (Vice Chairperson) Dr. Samuel Maina KanyiDr. David OtienoDr. Timothy K. ByakikaDr. Stephen O. MuhudhiaDr. Phillip KisyokaDr. Guyo W. Jaldesa Dr. Gerald Moniz

Finance and Investment CommitteeMr. Coutts Otolo (Chairman)Dr. Sam Maina-Wanjihia Mr. Alan GachukiaMr. Sam Ncheeri Dr. Eric Kahugu

Audit and Risk CommitteeMrs. Priscilla Komora (Chairperson)Mrs. Susan DeverellDr. (Mrs.) Jean KagiaDr. Charles KariukiMr. Alan Gachukia

Human Resources ComitteeMr. Sam Ncheeri (Chairman) Mrs. Priscilla KomoraMrs. Susan DeverellDr. Charles Kariuki Dr. Eric Kahugu

Chief Executive Officer Mr. Gordon Otieno Odundo

Director Nursing Services Sr. Norah Onyango

Company Secretary Mrs. Mercy Mbijiwe

Registered Office Argwings Kodhek RoadP.O. Box 30026 – 00100 GPONAIROBI

BankersCommercial Bank of Africa LimitedMara & Ragati Roads, Upper HillP.O. Box 30437 – 00100 GPO NAIROBI

Barclays Bank of Kenya LimitedHurlingham BranchP.O. Box 34974 – 00100 GPONAIROBI

Stanbic Bank LimitedCFC Centre BranchP.O. Box 72833 – 00200 GPONAIROBI

Standard Chartered Bank Kenya LimitedMuthaiga BranchP.O. Box 64355 – 00620 NAIROBI Advocates Kaplan & StrattonWilliamson House, 9th FloorP.O. Box 40111 – 00100 GPO Nairobi

Hamilton Harrison & MathewsDelta-Offices, Waiyaki WayP.O. Box 30333 – 00100 GPONAIROBI Auditors DeloitteCertified Public Accountants (Kenya)Deloitte Place, Waiyaki Way, MuthangariP.O. Box 40092 – 00100 GPONAIROBI


Financial Highlights

ADMISSIONS

2012 2013 2014 2015 2016

PAT

IEN

TS

AD

MIT

ED

17,5

76

17,5

58

18,8

36

17,5

51

17,4

92ACCIDENT &

EMERGENCY VISITS

2012 2013 2014 2015 2016PA

TIE

NT

S

155,

860

146,

851

154,

760

141,

747

149,

937

REVENUES GROWTH (‘000)

2012 2013 2014 2015 2016

AM

OU

NT

6,74

1,24

5

7,52

6,03

5

8,79

6,13

6

6,86

1,06

7

8,07

3,32

1

OPERATING SURPLUS (‘000)

2012 2013 2014 2015 2016

AM

OU

NT

1,42

2,60

1

1,58

2,14

0

1,39

3,95

5

1,01

3,96

0

1,06

0,62

1


Board of Management

Dr. John Simba Chairman

Dr. Charles KariukiMr. Couts OtoloVice Chairman

Mrs. Priscilla Komora

Dr. S. Maina-WanjihiaDr. (Mrs) Jean KagiaMrs. Susan Deverell

Mr. Alan Gachukia

Mr. Sam NcheeriDr. Eric Kahugu


Board of Management ProfilesDr. J. Simba (Chairman)Dr. Simba holds a law degree from the University of Dar-es-Salaam. For his professional training, he attended the Kenya School of Law prior to being admitted as an advocate of the High Court of Kenya. He has undertaken specialized courses in Financial Management at the University of Sussex, UK and Legal and Investments at Georgetown University, Washington DC, USA. He has in addition, attended Executive Management Programs at the latter university among other institutions.

He is currently a Senior Partner with Simba & Simba Advocates specializing in commercial, intellectual property and retirement benefits law.

He is a past President of the Rotary Club of Nairobi, a member of the Law Society of Kenya, East African Law Society, the International BarAssociation and The Commonwealth Lawyers Association.

Mr. C. Otolo Mr. Otolo graduated from the University of Nairobi with a Bachelor of Commerce (Honors) Degree in 1977. He is a Certified Public Accountant, (CPA) in Kenya, Uganda & Rwanda. He is also a Fellow of the UK Chartered Association of Certified Accountants.

Mr. Otolo is the Interim Managing Director of Mumias Sugar Company.

In August 2010, together with other professional colleagues, he established Crowe Horwath EA, an international firm of certified public accountants and financial consultants, based in Nairobi, and operating under a membership franchise issued by Crowe Horwath International, which ranks amongst the top ten global accounting firms. In September 2014, together with several colleagues at Crowe Horwath, they acquired the local and regional franchise of Parker Randall International, a global professional services firm with headquarters in London. He currently is the CEO of Parker Randall Eastern Africa.

Mr. A. GachukiaMr. Gachukia is a 1982 graduate of the University of Wisconsin with a Bachelor of Science Degree, Political Science & Economics. He has also done the Advanced

Management Program (AMP) at Strathmore Business School.

He is currently the Executive Director of The Riara Group of Schools and Riara University.

Mr. Gachukia has over 25 years’ experience in senior management, business development, client relationship, marketing, credit appraisal and asset finance/leasing. He has good knowledge of local East African business operations, both private and public sector.

Dr. C. KariukiDr. Kariuki attended the University of Nairobi, Royal College of Physicians. He also attended Universities of Cambridge and London affiliated Hospitals in the UK and sub-specialized in Interventional Cardiology. He was registered by the Kenya Medical Board in 1991 and was also registered as a Specialist in Internal Medicine in March 2001 and Cardiology in December 2001.

Dr. Kariuki is an Admitting Staff at The Nairobi Hospital and currently manages a Cardiac Clinic based at the Hospital. He is the Head of Cardiology at The Nairobi Hospital and is also a member of the Hospital’s Research & Bioethics Committee. He is currently supervising University of Nairobi Internal Medicine Registrars in Cardiology attached to The Nairobi Hospital.

Dr. Kariuki is an MB ChB Nairobi Kenya (1989), MRCP London UK (19998, FRCP London UK (2008) and FACC USA (201 4).

He is a member of the Cardiac Society and Kenya Physicians Association.

Dr. E. KahuguDr. Eric Kahugu is a Consultant Maxillofacial Surgeon. He trained in the United Kingdom and the United States and worked as a Surgical Fellow at the University College London Hospital before returning to Kenya in 1997.

He is a Fellow of the International Association Maxillofacial Surgeons (FIAOMS) and Fellow of the Royal College of Surgeons in England and Ireland (FCS RCSI),Founding Fellow of the College of Surgeons of East and Central Africa (FCS-ECSA) and founding Fellow of The Eastern Africa Association of Maxillofacial


Surgeons. He is a certified Trainer in Advanced Trauma Life Support, Honorary Lecturer and Faculty Member of the AO CMF Foundation.

He has been in practice for the past 18 years and has a special interest in management of Craniofacial Trauma, Aesthetic Facial surgery and the application of modern 3D imaging and modelling in facial reconstruction. He is the current President of the Eastern Africa Association of Maxillofacial Surgeons; a chapter of the International Association of Maxillofacial Surgeon.

Mrs. P. KomoraMrs. Komora hold a B. A. (Hon) Economics, second Class Honors, Upper Division from E. A. /Makerere University College in Uganda. She is a member of Canadian Comprehensive Auditing Foundation, CCAF and is also registered as a Director by the Institute of Directors Kenya.

She is involved in church activities at the ACK St. Mark’s Church Westland’s where she is currently the Secretary of the Parish Church Council (PCC). She is also pursuing Theology Education by Extension (TEE) and has trained as a TEE leader at the Diocese Office. She serves in the Board of Governors for two schools and during her spare time she enjoys playing golf

Mr. S. NcheeriMr. Ncheeri is an Insurance Broker by profession with over 17 years professional experience. He holds a BSc. In Business Administration and MSc. in Management Organizational Development. He has a vast experience in Management and Development of Business activities. He is a fellow of the Kenya Institute of Management and a member and past Director of the Insurance Institute of Kenya.

For his professional training, he trained with Hogg Robinson and Gardner Mountain Manchester and London in the United Kingdom in 1980 to 1981. In 1984 he trained with Executive Development Management – TACK International in London. In 1990 he trained with Executive Development by TACK in Cambridge and in 1995 and 1996 with Executives Training by Emerge UK among others both locally and internationally.

Mrs. S. DeverellMrs. Deverell trained as an Occupational Therapist. She has worked as a volunteer with the Kenya Red Cross Society for approximately 30 years. For a number of these years she was in administration as the Deputy Secretary – General, and in the Health Program.

During her tenure at the Kenya Red Cross she was responsible for setting up the Aids Program in 1987 and was a member of the National Aids Committee for Information and Education for a number of Years. She was also responsible for fund raising. She was the Chairperson of the Health Committee, a Member of the Executive Committee and the Finance Committee. She retired from the Red Cross in 2001.

Mrs. Deverell is a Trustee of the Nairobi Hospital’s Nursing and Non-Nursing Staff Provident Funds since June 2002. She has served on the Board of Kenya Hospital Association since July 1999.

Dr. (Mrs.) J. Kagia Dr. Kagia is an obstetrician and gynecologist with special interest in prevention of cancer of the cervix and has undergone several courses in colposcopy.

She graduated from The University of Nairobi in 1975 with Bachelors of Medicine and Bachelors of Surgery (MBCHB). In 1981, graduated with Masters of Medicine in Obstetrics and Gynecology (MMed O/G) from the same University.

She has been an admitting Doctor of the Hospital since 1980 and has served in the Board of Management of the Kenya Hospital Association. She is currently the Chair of the Standard Audit and Ethics Committee as well as the Vice Chair of the Medical Advisor Committee.

She is the founder and Board Member of the Institute of Family Medicine and the Founder and Chairperson of protecting life movement trust that rescues girl/woman in crisis pregnancy

Dr. S. Maina-WanjihiaDr. Wanjihia is a medical Consultant with more than 30 years’ experience in Obstetrics and Gynecologist since 1984 when he set up his practice.

Board of Management Profiles continued


Board of Management Profiles continued

Dr. Wanjihia is a graduate of University of Nairobi with a degree in MBchB. He undertook a Master’s degree at the University of Nairobi majoring in Obsetrestics and Gynecology.

Dr Wanjihia has been an admitting Doctor at Nairobi Hospital for over 31 years. He is a Member of the Board of Management of Kenya Hospital Association and the current Chairman of the Medical Advisory Committee.

He started the X-ray and ultrasound services to improve scanning at The Nairobi Hospital.

He is involved in several social events in particular he is an ardent golf player and has been involved in organizing golf tournaments for The Nairobi Hospital for raising funds for the Children’s heart surgery and Lavington United Church manse project and social services.


Chairman’s Statement

Introduction

Fellow Kenya Hospital Association (KHA) members, let me take this opportunity to welcome you all to the 2017 Annual General Meeting. In addition, it gives me pleasure to present the KHA Annual Report and Financial Statements for the year ended December 31, 2016.

Arrival of Mr. Gordon Otieno Odundo

Since the last annual general meeting, Mr. Gordon Otieno

Odundo joined the hospital as the Chief Executive Officer. He is a very resourceful person whom we believe shall steer the institution to greater levels of growth. I would urge the entire hospital fraternity including the staff, doctors, our clients and all other stakeholders to accord him the necessary support in order to achieve the ideal vision of this institution. I do believe his leadership provides a shared vision of a greater future for The Nairobi Hospital.

I would like to take this opportunity to applaud Dr. Ravi Bowry for his hard work and commitment during

the period he headed the institution after the departure of Dr. Cleopa Mailu. It is my pleasure on behalf of the Board of Management, staff and the membership of The Kenya Hospital Association as a whole to thank him for his tireless dedication in serving the hospital.

Operating Environment

In 2016, global economic activity remained subdued. Growth in emerging market and developing economies despite accounting for over 70 percent of global growth, declined for the fifth consecutive year, while a modest recovery continued in advanced economies. Three key transitions continue to influence the global outlook: (1) the gradual slowdown and rebalancing of economic activity in China away from investment and manufacturing toward consumption and services, (2) lower prices for energy and other commodities, and (3) a gradual tightening in monetary policy in the United States of America in the context of a resilient U.S.A recovery as several other major advanced

“Overall, the Hospital achieved revenue of KES 8.79 billion compared to KES 8.03 billion in 2015, a growth of 9%”.

Dr. John Simba (Chairman)


Chairman’s Statement continued

Institutional Performance

Overall, the Hospital achieved revenue of KES. 8.78 billion compared to KES. 8.03 billion in 2015, a growth of 9%. The surplus for the year was KES. 1.394 billion compared to KES. 1.06 billion in 2015, a growth of 31% this surplus represents a 16% return on revenue compared to 14% in 2015. However, our balance sheet grew from KES. 10.133 billion to KES. 11.53 billion, a growth of 14%.

The Hospital continued to optimize investment in facilities and infrastructure expansion in line with the Master Plan. We invested KES. 2.149 Billion in 2016 in the following projects CSSD, new Inpatient Pharmacy, expansion of water storage capacity, Parking management, Nurses accommodation - Anderson Center, Ring road and perimeter fence, Central stores/Supplies center, New kitchen and the ongoing upgrade of Critical Care Unit.

The projects have been initiated with objectives ranging from enhancing service delivery levels, exploiting potential and emerging market segments, sustainability of service delivery as essential services are relocated to other areas to pave way for implementation of the master plan, as well as conveniently locating services to enhance efficiency.We shall continue to implement projects as laid out in the Master Plan even as we respond appropriately to developments within the health care industry.

Appreciation

On behalf of the Board, I wish to express appreciation for all the support from KHA Members; for the commitment to service of the Admitting Consultants; and for the dedication and engagement of the Management and Staff of the Hospital. I wish to thank my fellow Board members for their tireless support and contribution to the Hospital over the past year.Thank you.

Dr. John SimbaChairman7 June 2017

economy central banks continue to ease monetary policy.

In Kenya, the Central Bank effectively managed currency volatility to cushion the shilling, through sound monetary policy that restored stability in the currency markets. As a result, the Kenya shilling depreciation was moderate in comparison to other regional currencies.

The Central Bank contained the 12-month average overall inflation at 6.6% in December 2016. Low commodity prices had a net positive impact in Kenya in 2016. The gains through low oil prices and the rising earnings from tea have offset the loss in earnings from other exports (coffee and horticulture). As a result, the current account deficit contracted from 10.4% to 7.1% of GDP. Oil prices have declined markedly since September 2016, reflecting expectations of sustained increases in production by Organization of the Petroleum Exporting Countries (OPEC) members amid continued global oil production in excess of oil consumption.

Kenya’s growth is projected to improve to 5.9% in 2017. The positive outlook is predicated on infrastructure investments. Fiscal consolidation is expected to ease pressure on domestic interest rates and increase credit uptake by the private sector. The contraction in the current account deficit will continue to be supported by declining commodity prices and rising exports of tea.


Chief Executive Officer’s Statement

Introduction

The Hospital continued its steady growth throughout the year and this is mainly attributed to increased activity levels with a majority of the areas exceeding the budget together with positive performance across in the majority of our business segments.

The year 2016 was a transitional year for the top leadership of the institution as I joined in October 2016 to take over from the Ag. CEO, Dr. Ravi Bowry. I do thank him.

In this report I will focus on key achievements of the various Hospital departments during the year.

Kenyan Healthcare

Pneumonia followed by Malaria, Cancer and HIV/AIDS continue to be the leading causes of death

amounting to 33% of all deaths nationally.

The National Hospital Insurance Fund (NHIF) total contribution in the year more than doubled from KES. 12.4 billion in 2014/2015 to KES. 28.5 billion in 2015/2016. This resulted in the growth of benefits to members to KES. 10.2 billion representing 88% increase. This is attributed to the upward review of rates in April 2015.

The total number of registered health personnel increased by 12.3% from 153,802 in 2015 to 172,706 in 2016. This is expected to increase in 2017 in tandem with increased numbers of those in training presently.

Kenya Health Sector contributes approximately 6% to the country’s GDP. The sector is expected to grow at a faster rate than the overall economy at 10.8% per annum up to 2019. The reasons for this are

increased government contributions, a growing population, economic growth, growing trends in non-communicable and communicable disease, increasing urbanization, awareness of preventive healthcare and increase in life expectancy.

Strategy

We continued with the implementation of the 2016 - 2018 strategy based on the five key pillars that were identified to address long term strategic imperatives, these being;• Talent: Focusing on people

management, leadership development, organizational culture change and team work. We invested more this year in people development, staff recruitment and team building.

• Turnaround: Redefining ourbusiness model to enable us sustain our existence. Several business models are under review and deliberation to ensure the hospital adopts what best suits our clients, members, partners and staff.

• Territory: Developing a clearplan to expand our physical and virtual presence, in this regard we have revamped our website and identified a number of locations to enable access to our services.

• Technology:Focusingoncurrentand future developments in technology will provide us the highest technology-based quality services and in the most cost-effective manner. We are currently in the process of implementing a new ERP – Hospital Management

Mr. Gordon Otieno Odundo (Chief Executive Officer)


Chief Executive Officer’s Statement continued

information system for the hospital.

It is our belief that the synergies between the 4T's enumerated above will create a Trusted brand, hence, Talent + Technology + Turnaround + Territory = TRUST

On the implementation of the master plan, The Supplies Centre superstructure works are now complete and the support functions and stores started relocating to the new centre in December 2016. The Anderson Clinics also relocated to the new facility at the Anderson Centre while The Nairobi Hospital Convention Centre was also completed and commissioned in 2016. At the Anderson Centre the ongoing projects which are nearing completion include doctors consulting rooms and the staff health club facilities. The Critical Care Unit is also undergoing a major upgrade to offer world class services to our patients. The new kitchen to support the expanded hospital is also near completion as is the road and parking works around the hospital.

The Maternity and Neonatal Intensive Care unit are also undergoing refurbishment.

CLINICAL SERVICESNursing Division

We maintained our focus on patient satisfaction with customer feedback index of 89% with a target of above 90%.

The activity levels were largely affected by the relocation of wards, ICU/HDU to allow for ICU renovations. The bed capacity reduced from 356 to 299 for the rest of the year.

Capacity building remained key to strengthen our brand in the provision of quality nursing services. Specialty training for our nurses to support specialty services was undertaken in the following areas:

• CriticalCareNursing• EmergencyNursing• PerioperativeNursing• PediatricNursing• PediatricCriticalCare• NeonatalNursing

• NephrologyNursing

Emergency training in Advanced Life Support, Ventilation Training, Pain Management, Wound Management, Diabetic Specialist Nursing, Palliative Nursing, Midwifery Nursing and Lamaze Training for expectant mothers and breast feeding champions to support post-natal mothers. We now have several nurses trained and working in the hospital with the above specialties.

The nursing clinical practice for continual improvement in quality patient care has been consistent and, the target to achieve clinical score of 90% for the specific quality aspects was maintained.

The nursing clinical practice audits continued as a means of monitory practice. The auditable quality aspects gave an average score of 87% in 2016, target remains 90% and above

Equipments ordered and received in 2016, were selected with full participation of the Clinical Heads and customized to specific need requirements. Most of the equipment received are used in Theatres, Endoscopy And Dialysis Units. We received, Anaesthetic Machines, Dialysis Machines, Laparoscopic Towers, Laser Machine (lumenious) for the ENT surgery, Constellation Tower for eye surgery, and many others to improve patient care turnaround time and quality output.

Programmes that significantly increased due to the expansion of the NHIF scheme include among others,

“Cumulatively, Pharmacy registered a sales turnover of KES. 2.5 billion; 6% above the year’s budget and 13% growth over 2015 performance”..



dialysis services where patients are paid for twice in a week. The number of patients increased tremendously and the department is now on 24 hour service. We also had an increase in open heart surgeries for adult patients due to NHIF cover.

Pharmacy Services

Pharmacy Department registered impressive business performance in 2016, including a 60% growth in chemotherapy sales following inception of the expanded NHIF package. Cumulatively, Pharmacy registered a sales turnover of KES. 2.5 billion; 6% above the year’s budget and 13% growth over 2015 performance. The number of prescriptions served at the eight pharmacy outlets grew marginally in 2016 to 354,296 up from 340,308 served in 2015, albeit being 3% below the 2016 activity budget. Out of the pharmacy sales, 52% was generated from outpatients and 48% from inpatients. This reflected a marginal growth in inpatient sales compared to outpatient sales in previous years.

Customer service satisfaction was a focus item with various interventions undertaken to improve not only efficiency but also the quality of clinical practice. Medication errors were reported and monitored throughout the year with various risk mitigation measures being implemented. Various educational programs were held to boost the pharmacy staff competency.

The Medicines and Therapeutics committee (MTC), a vital arm of the Hospital’s medicine management, continued to provide a forum,

allowing all the relevant people (clinicians, nurses, microbiologists and pharmacists) to work together to improve health care delivery. The team reviewed the medication error reports bi-monthly to confirm adequacy of preventive and corrective actions and the controls in place.

The Pharmacy Department, continued to entrench the door to door prescription medicine delivery concept reaching out to pharmacies outside Nairobi. In addition, the department ensured a smooth operation and medicine supply for the CSR cancer medicine access program, Glivec International Patient Assistance Program (GIPAP). Currently there are 830 patients in the program. Under the GIPAP program, Pharmacy facilitates fortnight physician consultation at the Hospital, medicine importation logistics and patient support services.

Laboratory Medicine

The Laboratory performed well in 2016 with an overall consolidated lab income of KES. 1.42 billion against a budget of 1.44 billion, a variance of 1%, with Warwick laboratory outperforming the other centres. The laboratory continues in test menu growth and additional tests were introduced in year 2016, including Tropical Fever PCR, Brucella PCR, Gram negative Klebsiella pneumoniae & pseudomonas aeruginosa PCR, Multiplex in Mycoplasma pneumonia & chlamydia pneumoniae PCR and Bacterial Vaginosis PCR. In addition the diagnosis of malaria has been improved with the new and superior Sight Technology in Haematology Department. Automation of

tests previously batched has also drastically improved turnaround times in some tests thereby aiding in quicker diagnosis.

In April 2016 the laboratory underwent re-accreditation audit for ISO 15189:2012 by KENAS. The laboratory was once more recommended for continued accreditation. The current ISO has been upgraded to ISO 15189:2012.

A combination of more marketing and improved customer care is expected to capture more customers while retaining the already loyal customers. External Quality performance has been expanded to include a cardiac and immunosupressant programme to offer continued quality assurance especially on Cardiac function assessments and organ transplant monitoring.

The department has implemented offshore reporting from India for CT scan, MRI and mammography. The services will be available on 24 hours. A new fully digital mobile radiography machine was commissioned in July 2016. The machine is able to display the images within three seconds on the control panel. The equipment has been well received by the clinicians especially in critical care department who are now able to view the images instantly on the machine without delay. Commissioning of Direct Radiography system for accident and emergency center was done in November 2016. This has increased efficiency and the quality of images for quicker management of our A/E patients. Upgrading one of the medium end ultrasound machines to high end version has been done.



The new generation equipment has advanced software known as Elastography which can be used to differentiate tumors in the breast and the liver.

Physiotherapy Services

We concentrated on engaging our main Stakeholders and suppliers and these were the doctors within and outside Nairobi Hospital, Several Physiotherapist and Occupational therapist teams were formed and there were able to visit and enlighten the doctors on the services offered in PMC as well as distribution of our request forms. It is good to note that this worked as we could see a stream of referrals after the visits. We hope to make this a continuous event. Revenue for the year was KES. 246 Million at a growth of 6% compared to the prior year. In activity level we registered a growth of 4.5% as compared to the previous year i.e. 2015.

Accident And Emergency

The Accident and Emergency activities grew by 3% compared to 2015 13% forecast. The revenue realized was KES. 374,480 million which was 2% above 2015 but 19% below the forecast figures of the same year. 53% of the patients not requiring any investigations completed their patient journey within 75 minutes. In November, efforts to improve the process flow to ensure less throughput time were put in place. Results of the same will be appreciated in 2017. The customer service index increased from 66% in the first quarter to 82% in the fourth quarter. Notable areas of improvement were effective

communication and professionalism. There is still room for improvement in the waiting time which will be appreciated with the change of processes.

In regard to effectiveness, the following integrated pathways were forged: Acute myocardial infarction, stroke pathway, hypertension in pregnancy and post-partum hemorrhage. The following trainings were run as scheduled to ensure the teams were proficient: CMEs, ACLS, and trainings with the ministry of health in relation to various diseases. The first ever mechanical ventilation was carried out in the hospital to improve extrication of patients from ambulance services to the A&E.

Clinical Division

The activities of the inpatient registrar division were 27% above budget and 561% above 2015 while the follow up clinics were 3% below budget and 27% above 2015. This was an improvement but we noted the need to have more specialty clinics in order to have more effective discharge follow up. An orthopedics registrar was added to the surgical team to bring the total number to 4.

Case reviews, peer reviews and regular mortality reviews were initiated as part of improving the quality of care. The following policies and documents were reviewed and ratified by the medical advisory committee: code of conduct, senior registrars’ policy, revised fee guidelines, medical staff rules and regulations.

As part of leadership growth and succession planning, team leaders

in the various departments were reorganized to facilitate smoother running of operations.

Finance

The hospital turnover grew by 9% from KES. 8.04 billion in 2015 to KES. 8.80 billion in 2016, our finance income dropped by 23% to KES. 323 million in 2016 compared to KES. 419 million in 2015. The drop in returns from short term investments is due to the lower investment rates offered by the banks owing to the controls effected on lending rates in Q3 of 2016. The direct costs over the same period increased by 13% to KES. 5.67 billion in 2016 from KES. 5.0 billion in 2015 while the operating overheads reduced by 12% from KES. 1.94 Billion to KES. 1.71 Billion due to the fact the 2015 cost included an extra ordinary of cost for provision of KES. 399 Million held at the Imperial Bank of KenyaThe depreciation remained fairly stable during the year and hence the net loss arising from foreign currency fluctuation reduced by 33% to KES. 24.9 million in 2016 from KES. 37.3 million booked in 2015. The surplus for the period has also increased by 31% from the KES. 1.06 Billion reported in 2015 to KES. 1.39 Billion in 2016.

During the period, we have continued to invest in the Master Plan and enhancement of our medical and non-medical facilities. We invested total KES. 2.58 billion out of the total KES. 1.75 billion excess cash generated from our operation and KES. 0.83 Billion from our existing cash reserves. Our Master Plan projects incurred a total of KES. 2.15 Billion while the building costs was KES. 319 Million and equipment


bought in the year was a total of KES. 105 Million.

Marketing And Customer Service

The Hospital continued to pursue a more aggressive marketing strategy by implementing several programs aimed at raising awareness of new and current services available at the hospital. The hospital hired a Marketing Agency to inject fresh perspective to this. This was informed by a marketing audit that clearly showed our strengths and where our opportunities lay. We have great market presence driven by televised interviews, radio interviews of our doctors and advertisements in different magazines that are targeted. On social media, our Facebook page, The Nairobi Hospital, is leading in the health industry with over 24 thousand likes. and is very active as well as out twitter handle, @theNairobihosp. We must continue with this trajectory.

We have participated in various symposiums and expos in the region driving thought leadership in matters health.

We have purposefully reached out to connect with our clients through the monthly Sunday School Services held at St Mary’s Ward, celebrating Mother’s and Father’s Days as well as Valentine’s Day. During the festive season, different churches performed Christmas Carols for those who were admitted at the hospital.

The partnership with NHIF has opened doors to our brothers and sisters who would otherwise have

not received world class health services. This has seen a rise in number of patients accessing their preferred health care in our Cancer Center, Renal Unit and Catheterization Laboratory. We also partnered with Partners in Health a nongovernmental organization that sends cancer patients from Rwanda for treatment at our Cancer Center. Funds raised from the annual charity golf tournament enabled the hospital to operate on 9 (nine) children from economically disadvantaged background. This included set of triplets who received free heart surgery and was extensively covered by KTN, the Standard Newspaper and trended on various social media platforms. Other key CSR activities included Medical Camps in Kakamega, Pumwani, Mbooni and free screening during World Cancer Day and World Kidney Day. We had a large turn out during breast screening where we screened close to one thousand women. In total, over 4,000 people benefitted directly from our CSR program.

Support Services

The Support Services function performed well in 2016. In catering, patient covers rose by about 7% in 2016 as compared to 2015. In the same period, staff covers rose by 34% above 2015 figures. The on-going construction of the new kitchen facilities commenced in 2016, and progressed into 2017.In the laundry, the new laundry equipment performed well and met expectations. It is notable that in 2016, the internal laundry wash load increased by about 6% above 2015.To enhance the capability of the Hospital

engineering team in maintaining our equipment, basic maintenance tools were purchased within the year. Also, a system for monitoring the working of critical installations – medical oxygen, medical air and water levels was installed to provide early warning and enhance better management of potential unexpected outcomes.

Human Resources

A total of 276 staff were employed in 2016 of these 74% were clinical and 36% were non-clinical. These new employees included 128 Nurses, 4 Radiotherapists, 1 Physicist, 21 Medical Officers, 8 Senior Registrars, 3 Pharmacist, 9 Pharmaceutical Technologists and 5 Radiographers amongst others.

Key senior positions that were filled in the year were that of Chief Executive Officer, Company Secretary and Chief Security Officer.

The Specialist Recognition program was fully staffed in 4 of the 5 approved areas i.e. 16 Registrars in total in Paediatrics, Surgery, Internal Medicine, and Obstetrics/Gynaecology. Staff turnover dropped by 41% from in 191 2015 to 113 in 2016. Staff terms and conditions of service were improved during the year with several changes made to the staff medical scheme and study leave policy.

16 staff were awarded full time scholarships for Infection Control, Esophegeal HRM & Impedance, Critical Care Nursing, Peadiatric Nursing, A&E Nursing, Nephrology, Oncology and Midwifery. Several other short courses were undertaken




in clinical and non-clinical areas of expertise. The Hospital also carried out comprehensive retirement planning and personal finance management training for staff as part of its employee welfare and engagement activities.

Going Forward

2017 has started on high note we hope will continue with the same pattern. We are continuing with work on various infrastructural developments. The parking management system has been implemented and there is a notable improvement in the availability of parking space for our visitors. The new Kitchen facility and the upgraded ICU facility are expected to be launched in Q2 of 2017. The facility at the New Consulting Rooms building which currently hosts doctors’ suites shall be vacated once the new Doctors room are ready at the Anderson Centre. This move shall create room for refurbishment of the building and conversion to a 50 bed pediatric hospital. Road links, street lighting and Parking space upgrade is almost complete. We have identified and engaged with various developers to acquire space in order to expand our services to more clientele within Nairobi and its environs. We will be opening the new centres in second half of 2017. Other major infrastructural projects in our ICT system is also progressing with speed and expect the fruition of the same will improve our services to patients and other stakeholders.

Focus on quality patient care continues to be the pillar of the hospital and it’s with this culture of service excellence

that we willcontinue to strengthen our patient-focus, our service delivery and our processes to deliver healthcare with a difference.

Appreciation

I take this opportunity to acknowledge the contribution of the staff, management and partners of the Hospital who worked tirelessly to make the achievement for 2016 possible. Many thanks go to the Chairman and Members of the Board of Management for their guidance and support; members of the admitting staff for their collegial support; our external collaborators for supplying the goods and services required for patient care; and the entire staff for their commitment to providing excellent services to our clients.

Mr. Gordon Otieno OdundoChief Executive Officer7 June 2017


Corporate GovernancePreambleCorporate governance is the process by which companies and organizations are directed, controlled and held to account. The Board of Management recognizes the importance of corporate governance and as such it carries out its mandate with honesty, openness and integrity.

The Nairobi Hospital Board of Management is responsible for the corporate governance of the Hospital and is accountable to KHA members for ensuring that the Hospital complies with the laws and the highest standards of corporate governance and business ethics. The Board members attach great importance for the need to conduct the business and operations of the Hospital with integrity and in accordance with generally accepted corporate practice and endorse the internationally developed principles of good corporate governance.

Below are the key features of corporate governance structures and internal control systems put in place and that were in operation during the year.

Board of ManagementThe Board of Management is composed of non-executive members elected by KHA Members. The KHA Members’ responsibility is to elect the Board of Management and to ensure that the Board is held accountable and responsible for the efficient and effective governance of the institution.

Members of the Board have a range of skills and experience and each brings an independent judgment

and considerable knowledge to the Board’s discussions. One third of the members of the Board retire by rotation each year and these members may offer themselves for re-election if eligible in accordance with the Articles of Association.

Summarized below are the key roles and responsibilities of the Board:

• Approve and adopt strategicplans and annual budgets, set objectives and review key risk and performance areas.

• Determine overall policies andprocesses to ensure integrity of the Hospital’s management of risk and internal contracts.

• Review at regular meetingsManagement’s performance against approved budget.

The full Board meets at least five times a year and the Chairman has bi-weekly meetings with the Chief Executive Officer. The Board members are given appropriate and timely information so that they can maintain full and effective control over strategic, financial, operational and compliance issues. Except for direction and guidance on general policy, the Board has delegated authority for conduct of day-to-day business to the Chief Executive Officer. The Board nonetheless retains responsibility for establishing and maintaining the Hospital’s overall internal control, financial, operational and compliance framework.

Committees of the BoardThe Board has four standing committees, which meet regularly under the terms of reference set by

the Board.

Audit and Risk Management CommitteeThere is an Audit and Risk Management Committee constituted by the Board. The Committee meets at least four times a year. Its membership comprises three non-executive members and the Internal Audit Manager. The external Auditors attend the meeting when requested by the Committee. Its responsibilities include monitoring of internal controls and management of financial, exchange, interest and other risks.

The internal audit department performs various activities in the evaluation of risk management, control and governance. Significant business risks in the systems and financial controls are highlighted and brought to the attention of the Audit and Risk Management Committee, Senior Management and external auditors.

Medical Advisory CommitteeThe Board has constituted a Medical Advisory Committee, which meets at least four times a year. Its membership comprises elected members of Admitting Staff, the Chief Executive Officer and the Matron/Director of Nursing Services. Its responsibilities include the review of Professional standards, ethics and any patients’ complaints on the performance of any consultant. It also lays down rules of operating procedures and conduct.


Finance And Investment CommitteeThere is a Finance Committee constituted by the Board. The Committee meets at least four times a year. Its membership comprises four non-executive members, the Chief Executive Officer and the Finance Director. The Internal Audit Manager attends when there are audit issues.

The Committee’s main responsibilities include:

• Receiving and considering theAssociation’s annual budget and monthly financial accounts

• Reviewing annual financialstatements

• Reviewing compliance withaccounting standards

• Considering recommendationsfor capital expenditure

• Evaluating investment proposalsbefore they are approved by the Board.

HR CommitteeThere is a Human Resources Committee of the Board which meets quarterly. The Committee is mandated to review and formulate on behalf of the Board human resource policies for the Hospital on employee resourcing, staff training development, staff welfare and training, and organizational development. It is further mandated to ensure the Hospital has in place Human Resource strategic objectives and that these are implemented. Its membership comprises five non-executive members, the Chief Executive Officer and the Human Resources Manager.

Internal ControlsThe Hospital has defined procedures and financial controls to ensure the reporting of complete and accurate accounting information. These cover systems for obtaining authority for major transactions and for ensuring compliance with laws and regulations that have significant financial implications. Procedures are also in place to ensure that assets are subject to proper physical controls and that the organization remains structured to ensure appropriate segregation of duties. In reviewing the effectiveness of the systems of internal control, the Board takes into account the results of all the work carried out to audit and review the activities of the Hospital. A comprehensive management accounting system is in place providing financial and operational performance measurement indicators. Weekly meetings are held by executive management to monitor operations and performance.

Code of EthicsThe Hospital is committed to the highest standards of integrity, behavior and ethics in dealing with all its stakeholders. A formal code of ethics has been approved by the Board and is fully implemented to guide management, employees and stakeholders on acceptable behavior in conducting business. All employees of the Hospital are expected to avoid activities and financial interests that could clash with their responsibilities to the Hospital.

Communication With KHA MembersThe Hospital is committed to ensuring that KHA members are provided with full and timely information about the Hospital. This is achieved by the distribution of the Hospital’s annual report and the release of notices and circulars to the press as and when necessary. There is one open day in a year, which provides members with the opportunity to see for themselves the developments going on at the Hospital and to raise any matter with the Board and Management.

Dr. John Simba Chairman7 June 2017

Mr. Gordon Otieno OdundoChief Executive Officer7 June 2017

Corporate Governance continued


Operating Statistics

2016 2015 Percentage change

MEMBERSHIP

KHA members 1,820 1,927 -6%

HOSPITAL SERVICES

Patients admitted 18,836 17,492 8%

Total in-patient days 96,165 92,815 4%

Out-patient attendance 154,760 149,937 3%

Beds available 299 318 -6%

Average bed occupancy 79% 81% -2%

Operations performed

•Minor 1,975 1,848 7%

•Major 7,990 7,825 2%

Births 2,730 3,300 -17%

Laboratory tests 685,802 648,318 6%

Radiology services 98,198 97,016 1%

Renal Unit Services 9,893 7,404 34%

Endoscopy 7,392 7,006 6%

Rehabilitation services 67,861 65,133 4%

Pharmacy prescriptions 354,296 340,308 4%


Corporate Social Responsibility

Supporting Beyond Zero Campaign marathon in support of maternal health.

The Pink Promise Campaign to create awareness of breast cancer and celebrate the survivors.

Hand washing campaign - Breaking the chain of infection.

One of the children who benefited from The Charity Heart Fund and is leading a normal life now.


Corporate Social Responsibility

Nurses educating patients on medical issues during the Patient Open Day.

Donating Linen to Tumshangilie Children’s Home in Kangemi.

This is on October 15th, the Hospital participated in CSR-free medical checkup at Kakamega in partnership with Kakamega Forest Heritage to provide medical service to the needy in Kakamega. Over 1,500 people underwent the medical checkups

and received free medication.


Report of the Board of ManagementThe Board of Management has the pleasure of submitting its annual report and the audited financial statements for the Kenya Hospital Association (the “Association”) for the year ended 31st December 2016, which disclose the state of affairs of the Association. In accordance with Section 42 of the Sixth Schedule, Transitional and Saving Provisions, of the Companies Act, 2015, this report has been prepared in accordance with Section 157 of the repealed Companies Act, as if that repeal had not taken effect.

Incorporation The Association is incorporated under the Kenyan Companies Act as a company limited by guarantee and is domiciled in Kenya.

Principal ActivitiesThe Association provides not-for-profit private health care services through The Nairobi Hospital. It also provides the Kenya Registered Nurse (KRN) training for the nursing profession in Kenya.

Financial ResultsThe surplus of incoming resources expended for the year amounting to KES. 1,393,955,000 (2015 – KES. 1,060,621,000) has been transferred to the operating fund.

Financial Risk Management Objectives And PoliciesThe Association’s activities expose it to a variety of financial risks, including credit risk and the effects of changes in foreign currency exchange rates and interest rates. The Association’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance.The Association’s financial risk management objectives and policies are disclosed in Note 3 to these financial statements.

Board Of ManagementThe present members of the Board of Management are listed on page 5. Mr. Isaac Awuondo retired from the Board of Management on 9th July 2016.

AuditorsDeloitte, having expressed their willingness, continue in office in accordance with the provisions of the Kenyan Companies Act.

BY ORDER OF THE BOARD

Mrs. Mercy Mbijiwe Company Secretary Nairobi, Kenya7 June 2017


Statement of Board of Management’s ResponsibilitiesThe Kenyan Companies Act requires the Board of Management to prepare financial statements for each financial year that give a true and fair view of the financial position of the Association as at the end of the financial year and of the results of its financial activities for that year. It also requires the Board of Management to ensure that the Association maintains proper accounting records that are sufficient to show and explain the transactions of the Association and disclose, with reasonable accuracy, the financial position of the Association. The Board of Management is also responsible for safeguarding the assets of the Association, and for taking reasonable steps for the prevention and detection of fraud and error.

The Association’s Board of Management accept responsibility for the preparation and presentation of these financial statements in accordance with the International Financial Reporting Standards and in the manner required by the Kenyan Companies Act. They also accept responsibility for:

(i) designing, implementing and maintaining such internal control as they determine necessary to enable the presentation of financial statements that are free from material misstatement, whether due to fraud or error;

(ii) selecting suitable accounting policies and applying them consistently; and(iii) making accounting estimates and judgements that are reasonable in the circumstances.

Having made an assessment of the Association’s ability to continue as a going concern, the Board of Management is not aware of any material uncertainties related to events or conditions that may cast doubt upon the Association’s ability to continue as a going concern.

The Association’s Board of Management acknowledge that the independent audit of the financial statements does not relieve them of their responsibilities.

Approved by the Association’s Board of Management on 5th June 2017 and signed on its behalf by

Dr. John Simba Mr. Couts OtoloChairman, Board of Management Vice Chairman, Board of Management7 June 2017 7 June 2017


Independent Auditors’ Report to the Members of Kenya Hospital Association

Report on the Audit of the Financial Statements Opinion We have audited the accompanying financial statements of Kenya Hospital Association, set out on pages 29 to 52, which comprise the statement of financial position as at 31st December 2016, the statement of financial activities, the statement of changes in fund balances and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Association as at 31st December 2016 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) and the requirements of the Kenyan Companies Act.

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Association in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code), together with the ethical requirements that are relevant to our audit of the financial statements in Kenya. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information The Association’s Board of Management is responsible for the other information, which comprises the operating statistics, the Chairman’s statement, the Chief Executive Officer’s statement, the Corporate Governance Statement and the Report of Board of Management as required by the Kenyan Companies Act. The other information does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Directors’ responsibility for the financial statements The Association’s Board of Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, and for such internal controls as the Board of Management determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Association’s Board of Management is responsible for assessing the Association’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Association’s Board of Management either intend to liquidate the Association or to cease operations, or have no realistic alternative but to do so. The Association’s Board of


Independent Auditors’ Report to the Members of Kenya Hospital Association continued

Management and those charged with governance are responsible for overseeing the Association’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,

design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association’s internal control.

• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelated disclosures made by the Board of Management.

• ConcludeontheappropriatenessoftheBoardofManagement’suseofthegoingconcernbasisofaccountingand, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Association’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Association to cease to continue as a going concern.

• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatements,includingthedisclosures,and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entity or businessactivities within the Association to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain responsible for out audit opinion.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We are also required to provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them the relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards. Report on Other Legal and Regulatory Requirements

Independent Auditors’ Report to the Members of Kenya Hospital Association


As required by the Kenyan Companies Act we report to you, based on our audit, that:

i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) in our opinion, proper books of account have been kept by the Association, so far as appears from our examination of those books; and

iii) the Association’s statement of financial position (balance sheet) and statement of financial activities (profit and loss account) are in agreement with the books of account.

The engagement partner responsible for the audit resulting in this independent auditor’s report is FCPA J W Wangai - P/No 1118.

Certified Public Accountants (Kenya)Nairobi, Kenya7 June 2017



Statement of Financial Activities (including Income & Expenditure Account) For the year ended 31st December 2016

2016 2015 Note Sh’000 Sh’000

INCOMING RESOURCES OPERATING REVENUE 4 8,305,739 7,403,624 INTEREST INCOME 5 323,222 418,678 OTHER INCOME 6 167,175 215,019

TOTAL INCOMING RESOURCES 8,796,136 8,037,321

RESOURCES EXPENDED DIRECT EXPENSES 7(a) (5,669,616) (4,998,946) OTHER OPERATING EXPENSES 7(b) (1,707,681) (1,940,423) FOREIGN EXCHANGE LOSSES (24,884) (37,331)

TOTAL RESOURCES EXPENDED (7,402,181) (6,976,700)

SURPLUS OF INCOMING RESOURCES OVER RESOURCES EXPENDED 8 1,393,955 1,060,621



2016 2015 Note Sh’000 Sh’000

ASSETS Non-current assets Property and equipment 10 7,871,628 5,832,217Intangible assets 11 20,023 22,158 7,891,651 5,854,375

Current assets Inventories 12 641,030 712,322Trade and other receivables 13(a) 1,908,144 1,251,711Fixed deposits 14(c) 2,503,078 3,146,387Cash and bank balances 201,773 382,775 5,254,025 5,493,195

Current liabilities Trade and other payables 15 1,618,567 1,214,416

Net current assets 3,635,458 4,278,779 Net assets 11,527,109 10,133,154

Fund Balances Operating fund 3,655,481 4,300,937Capital investment fund 16 7,871,628 5,832,217 Total funds 11,527,109 10,133,154

The financial statements on pages 29 to 52 were approved and authorized for issue by the Board of Managementon 5th June 2017 and were signed on its behalf by:

Dr. John Simba Mr. Couts OtoloChairman, Vice Chairman, Board of Management Board of Management7 June 2017 7 June 2017

Statement of Financial Position31st December 2016


Statement of Changes in Fund Balancesfor The Year Ended 31st December 2016

Capital Operating investment fund fund Total Sh’000 Sh’000 Sh’000

At 1st January 2015 3,850,384 5,222,149 9,072,533 Transfers to capital investment fund (note 16) (610,068) 610,068 - Surplus of incoming resources over resources expended 1,060,621 - 1,060,621

At 31st December 2015 4,300,937 5,832,217 10,133,154

At 1st January 2016 4,300,937 5,832,217 10,133,154 Transfers to capital investment fund (note 16) (2,039,411) 2,039,411 - Surplus of incoming resources over resources expended 1,393,955 - 1,393,955

At 31st December 2016 3,655,481 7,871,628 11,527,109

The capital investment fund represents the Association’s net investment in property and equipment and as disclosed in note 16, it is stated at an amount equivalent to the net book value of property and equipment net of borrowings acquired to finance capital acquisitions if any.


Statement of CashflowsFor The Year Ended 31st December 2016

2016 2015 Note Sh’000 Sh’000CASH FLOWS FROM OPERATING ACTIVITIES Net cash generated from operations 14(a) 1,749,354 1,390,256 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment 10 (2,572,458) (1,133,452)Purchase of intangible assets 11 (7,858) (30,076)Proceeds of disposal of property and equipment 6,651 5,810

Net cash used in investing activities (2,573,665) (1,157,718)

(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (824,311) 232,538 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,529,162 3,296,624

CASH AND CASH EQUIVALENTS AT END OF YEAR 14(b) 2,704,851 3,529,162


Notes to the Financial StatementsFor the Year Ended 31st December 2016

1 ACCOUNTING POLICIES

(a) Statement of compliance

The financial statements are prepared in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act.

For the Kenyan Companies Act reporting purposes, in these financial statements the balance sheet is represented by/is equivalent to the statement of financial position and the profit and loss account is presented in the statement of financial activities.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Management to exercise its judgment in the process of applying the entity’s accounting policies. The areas involving a higher degree of judgment, or where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

(b) Adoption of new and revised International Financial Reporting Standards (IFRSs) and interpretations (IFRIC)

(i) Relevant new standards and amendments to published standards effective for the year ended 31st December 2016

The following new and revised IFRSs were effective in the current year and had no material impact on the amounts reported in these financial statements.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exemption

The amendments clarify that the exemption from preparing consolidated financial statements is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all its subsidiaries at fair value in accordance with IFRS 10. The amendments also clarify that the requirement for an investment entity to consolidate a subsidiary providing services related to the former’s investment activities applies only to subsidiaries that are not investment entities themselves.

The application of these amendments has had no impact on the Association’s financial statements as the Association is not an investment entity and does not have any holding company, subsidiary, associate or joint venture that qualifies for designation as an investment entity.

Amendments to IFRS 11 Accounting for Acquisitions of interest in joint operations

The amendments provide guidance on how to account for the acquisition of a joint operation that constitute a business as defined in IFRS 3, Business Combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations in IFRS 3 and other standards should be applied. The same requirements should be applied to the formation of a joint operation if and only if an existing business is contributed to the joint operation by one of the parties that participate in the joint operation. A joint operator is required to disclose relevant information required by IFRS 3 and other standards for business combinations.

The amendment had no impact on the Association’s financial statements as there were no such transactions in the year.



1 ACCOUNTING POLICIES (Continued)

(b) Adoption of new and revised International Financial Reporting Standards (IFRSs) and interpretations (IFRIC) (Continued)

(i) Relevant new standards and amendments to published standards effective for the year ended 31st December 2016 (Continued)

IAS 1 Disclosure Initiative

The amendments clarify that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, and give guidance on the bases of aggregating and disaggregating information for disclosure purposes. However, the amendments reiterate that an entity should consider providing additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users of financial statements to understand the impact of particular transactions, events and conditions on the entity’s financial position and financial performance.

In addition, the amendments clarify that an entity’s share of the other comprehensive income of associates and joint ventures accounted for using the equity method should be presented separately from those arising from the Group, and should be separated into the share of items that, in accordance with other IFRSs: (i) will not be reclassified subsequently to profit or loss; and (ii) will be reclassified subsequently to profit or loss when specific conditions are met.

As regards the structure of the financial statements, the amendments provide examples of systematic ordering or grouping of the notes.

The application of these amendments has not resulted in any impact on the financial performance or financial position of the Association.

IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment.

The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. This presumption can only be rebutted in the following two limited circumstances:

a) when the intangible asset is expressed as a measure of revenue; or

b) when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are highly correlated.

As the Association already uses the straight-line method for depreciation and amortisation of its property and equipment, and intangible assets respectively, the application of these amendments has had no impact on the Association’s financial statements.





(i) Relevant new standards and amendments to published standards effective for the year ended 31st December 2016 (Continued)

Annual Improvements to IFRSs 2012-2014 Cycle

The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various IFRSs, which are summarised below:

• IFRS5-TheamendmentsintroducespecificguidanceinIFRS5forwhenanentityreclassifiesanassetor disposal group) from held for sale to held for distribution to owners (or vice versa). The amendments clarify that such a change should be considered as a continuation of the original plan of disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply. The amendments also clarifies the guidance for when held-for- distribution accounting is discontinued.

• IFRS7-Theamendmentsprovideadditionalguidancetoclarifywhetheraservicingcontractiscontinuinginvolvement in a transferred asset for the purpose of the disclosures required in relation to transferred assets.

• IAS19-Theamendmentsclarifythattherateusedtodiscountpost-employmentbenefitobligationsshould be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The assessment of the depth of a market for high quality corporate bonds should be at the currency level (i.e. the same currency as the benefits are to be paid). For currencies for which there is no deep market in such high quality corporate bonds, the market yields at the end of the reporting period on government bonds denominated in that currency should be used instead.

The application of these amendments has had no effect on the Association’s financial statements.

ii) New and amended standards in issue but not yet effective in the year ended 31st December 2016

The application of these amendments has had no effect on the Association’s financial statements.

New standards and Amendments to standards Effective for annual periods beginning on or after

IFRS 9 Financial Instruments 1st January 2018

IFRS 15 Revenue from contracts with customers 1st January 2018

Amendments to IAS 12 Recognition of Deferred

Tax Assets for Unrealised Losses 1st January 2017

Amendments to IAS 7 Disclosure Initiative 1st January 2017

IFRS 16 Leases 1st January 2019





iii) Impact of new and amended standards on the financial statements for the year ended 31st December 2016 and future annual periods

IFRS 9 Financial Instruments

IFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of financial assets. IFRS 9 was amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition.

Key requirements of IFRS 9:

• AllrecognisedfinancialassetsthatarewithinthescopeofIAS39FinancialInstruments:Recognitionand Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

• Withregardtothemeasurementoffinancialliabilitiesdesignatedasatfairvaluethroughprofitorloss,IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss.

Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

The Association’s Board of Management is assessing the impact of the application of IFRS 9 in the future. It is not practical to provide a reasonable estimate of this effect until a detailed review has been completed.

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.




iii) Impact of new and amended standards on the financial statements for the year ended 31st December 2016 and future annual periods (Continued)

IFRS 15 Revenue from Contracts with Customers (Continued)

Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customerStep 2: Identify the performance obligations in the contractStep 3: Determine the transaction priceStep 4: Allocate the transaction price to the performance obligations in the contractStep 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

The Association’s Board of Management does not anticipate that the application of IFRS 15 in the future will have a significant impact on amounts reported in respect of the Association’s financial assets and financial liabilities.

IFRS 16 Leases

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

The Association’s Board of Management do not anticipate that the application of IFRS 16 in the future will have a significant impact on amounts reported in respect of the Association’s financial assets and financial liabilities. However, it is not practical to provide a reasonable estimate of the effect of IFRS 16 until a detailed review has been completed.

Amendments to IAS 7 Disclosure Initiative

The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities including both changes arising from cash flows and non-cash changes. The amendments do not prescribe a specific format to disclose financing activities. However, an entity may fulfil the disclosure objective by providing a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.

The amendments apply prospectively for annual periods beginning on or after 1st January 2017 with early application permitted. The Association’s Board of Management do not anticipate that the application of these amendments will have a material impact on the Association’s financial statements.

iv) Early adoption of standards

The Association did not early adopt new or amended standards in 2016.

The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been applied consistently.




Revenue recognition

Income is recognised upon provision of services, and is stated net of credit card commissions and prompt payment discounts.

Members’ subscriptions are recognised on a receipt basis.

Student fees are recognised over the period of instruction. Fees paid in advance are deferred and are carried in the statement of financial position as liabilities.

Rental income is recognised on the straight-line basis over the term of the lease.

Translation of foreign currencies

Transactions in foreign currencies during the year are converted into Kenya Shillings at rates ruling on the transaction dates. Assets and liabilities at the reporting date, which are expressed in foreign currencies, are translated into Kenya Shillings at rates ruling at that date. The resulting differences from conversion and translation are dealt with in the statement of financial activities in the year in which they arise.

Property and equipment

All categories of property and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.

Depreciation on leasehold buildings is calculated on the straight-line basis to write down the cost over the remaining term of the lease as follows:Short term lease - 12.5 yearsLong term lease - 35.5 years

Depreciation on all other property and equipment is calculated on the reducing balance basis to write down the cost of each asset to its residual value over its estimated useful life as follows:Furniture, fittings and general equipment 8 yearsCT scan and Theatre equipment 5 yearsComputer equipment and motor vehicles 4 yearsComputer software 3 years

The cost of refurbishing the Association’s property is capitalized in the year in which it is incurred and depreciated over the remaining term of the leasehold property.

Properties in the course of construction for medical or other purposes are recorded as capital work in progress at historical cost less any accumulated impairment losses. The cost of such assets includes professional fees and costs directly attributable to the asset. Such assets are not depreciated until they are ready for their intended use.

Property and equipment are periodically reviewed for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining changes in the fund balances.

Linen, cutlery and crockery are written off in the year of purchase.




Intangible assets

Intangible assets represent computer software and are stated at their historical cost less accumulated amortization and any accumulated impairment losses.

Amortization is calculated to write off the cost of computer software on the straight line basis over its estimated useful life not exceeding three years. The useful life of intangible assets and the pattern of utilization of economic benefits arising from the use of the intangible assets are reviewed at each reporting date to take into account any changes in the market, economic and industry trends.

Leases

Leases of assets under which all the risks and benefits of ownership are effectively retained by the Association as a lessee are classified as finance leases. All other leases are classified as operating leases. Payments made under operating leases are charged to the statement of financial activities on the straight-line basis over the term of the lease.

When an operating lease is terminated before the lease term has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.

Finance leases are capitalized at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding obligations, net of finance charges, are included in other long-term payables. The interest element of the finance charge is charged to the statement of financial activities over the lease term. The property, plant and equipment acquired under finance leasing contracts are depreciated over the useful lives of the assets.

Financial instruments

Financial assets and liabilities are recognized in the Association’s statement of financial position when the Association has become a party to the contractual provisions of the instrument.

Receivables

Trade receivables are carried at amortized invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Association will not be able to collect all the amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount.

Bad debts are written off in the year in which they are identified as irrecoverable.

Trade payables

Trade payables are stated at their nominal value.

Cash and cash equivalents

For the purposes of the statement of cash flow, cash and cash equivalents comprise cash in hand and deposits held at call with banks, net of bank overdrafts.



1 ACCOUNTING POLICIES (Continued) Impairment

At each reporting date, the Association reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Association estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Any impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognised as income immediately.

Inventories

Inventories, which comprise pharmaceutical drugs and medicines, catering supplies, general stocks, surgical supplies, laboratory and X-ray materials, are stated at the lower of cost and net realisable value. Cost is determined on a weighted average cost basis. Net realisable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Goods in transit are stated at cost.

Employee entitlements

Employee entitlements to annual leave and gratuity are recognised when they accrue to employees. A provision is made for the estimated liability for such entitlements as a result of services rendered by employees up to the reporting date. The estimated monetary liability for employees’ accrued annual leave entitlements at the reporting date is recognised as an expense accrual.

Retirement benefits obligations

The Association contributes to the statutory defined contribution scheme, National Social Security Fund, in respect of all its permanent employees. The Association’s obligations under the scheme are determined by local statute and are currently at KES. 200 per employee per month. The Association also operates a defined contribution retirement benefits scheme for all its employees. The assets of the scheme are held in a separate trustee administered fund that is funded from contributions from both the Association and employees.

The Association’s obligations to both the NSSF and the defined contribution scheme are charged to the statement of financial activities as they fall due.

Designated funds

Included under the capital employed in the statement of financial position are the following funds:

Operating fund The fund represents un-appropriated net movements in fund balances from the statement of financial activities.

Capital investment fund This fund represents the Association’s investment in property, plant and equipment and is stated at an amount

equivalent to the net book value of property, plant and equipment net of outstanding borrowings acquired to finance capital acquisitions.



1 ACCOUNTING POLICIES (Continued) Comparatives

Where necessary, comparative figures have been adjusted to conform to changes in the presentation in the current year.

2 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING THE ENTITY’S ACCOUNTING POLICIES

In the process of applying the Association’s accounting policies, the Board of Management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities within the next financial year.

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.

Actual results may differ from these estimates including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision only affects that period or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty

Below is a disclosure of the key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Property, equipment and intangible assets

Critical estimates are made by the Board of Management in determining depreciation and amortization rates for equipment and intangible assets and evaluation of the useful lives of these assets.

Impairment

At each reporting date, the Association reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.

If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

In particular, the Association reviews its portfolio of trade receivables on a regular basis to assess the extent of recoverability and determine the appropriate level of provision for bad debts.

Where it is not possible to estimate the recoverable amount of an individual asset, the Association estimates the recoverable amount of the cash-generating unit to which the asset belongs.



3 FINANCIAL RISK MANAGEMENT

The Association’s financial risk management objectives and policies are disclosed below: Credit risk

Credit risk arises from cash and deposits with banks and financial institutions as well as credit exposures to customers, including outstanding receivables and committed transactions. Credit risk is the risk that counterparty will default on its contractual obligations resulting in financial loss to the Association.

Management assesses the creditworthiness of each customer as well as the financial institution it places funds with, taking into account its financial position, past experiences and other factors.

The amount that best represents the Association’s maximum exposure to credit risk as at year-end is made up as follows:

Fully Past due but performing Not impaired impaired Total Sh’000 Sh’000 Sh’000 Sh’000

As at 31st December 2016 Trade receivables 287,506 563,170 280,667 1,131,343 Bank balances 201,773 - - 201,773 Other receivables 943,730 - - 943,730 Fixed deposits 2,902,078 - 399,000 2,503,078

4,335,087 563,170 679,667 4,779,924 As at 31st December 2015 Trade receivables 281,995 535,138 240,412 1,057,545 Bank balances 382,775 - - 382,775 Other receivables 368,942 - - 368,942 Fixed deposits 3,146,387 - 399,000 3,545,387 4,180,099 535,138 240,412 4,955,649

Bank balances and bank deposits include deposits held with banks that have high credit ratings. Bank balances are fully performing since they are not restricted.

The customers under the fully performing category are paying their debts as they continue to receive services from the Association. The default rate is low.

The debt that is past due is not impaired and continues to be paid. The finance department is actively following this debt. The impaired debt is fully provided for.

There are no customers who represent a significant concentration risk of the total balance of trade receivables.



3 FINANCIAL RISK MANAGEMENT (Continued) Foreign currency exchange risk

The bulk of the Association’s income and purchases are denominated in its functional currency, which is also its reporting currency. The Association’s exposure to foreign currency exchange risk is therefore minimal.

Interest rate risk management

The Association is exposed to interest rate risk as it invests in fixed deposits. The risk is managed by the Association through a close management monitoring process. A 5 percentage point increase or decrease in the interest rate on fixed deposits would have led to a KES. 15,212,600 variation on the movement in funds for the year (2015: KES. 15,731,925).

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board of Management, which has built an appropriate liquidity risk management framework for the management of the Association’s short, medium and long term funding and liquidity requirements. The Association manages liquidity risk by maintaining adequate banking facilities as well as through continuous monitoring of forecast and actual cash flows.

The table below provides a contractual maturity analysis of the Association’s trade payables:

6 months Between 6 or on months and More than 1

demand 1 year year Total Sh’000 Sh’000 Sh’000 Sh’000

As at 31st December 2016 Trade payables 771,847 - - 771,847

As at 31st December 2015 Trade payables 623,501 - - 623,501

Capital risk management

The Association’s objectives when managing capital are to safeguard its ability to continue as a going concern while maintaining an optimal capital structure to reduce the cost of capital.

Consistent with similar entities in the industry, the Association monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. The Hospital did not have any borrowings at at 31st December 2016 (2015-Nil). Fund balances comprise operating fund and capital investment fund. The Association’s capital position as at the year-end is presented below:

2016 2015 Sh’000 Sh’000

Operating fund 3,655,481 4,300,937 Capital investment fund 7,871,628 5,832,217

Fund 11,527,109 10,133,154



4 OPERATING REVENUE

2016 2015 Sh’000 Sh’000

Medicines and drugs 2,503,609 2,242,227 In-patient bed fees 1,471,767 1,273,790 Laboratory 1,428,611 1,303,942 Radiology 728,012 711,156 Surgical 853,478 729,052 Theatre 279,204 304,208 Accident and emergency 506,524 387,820 Physical medicine 244,548 232,826 Endoscopy and oxygen 190,500 164,750 Cancer care and treatment 123,053 75,589

8,329,306 7,425,360 Less: Patients discounts (23,567) (21,736) 8,305,739 7,403,624

5 INTEREST INCOME Interest income earned on bank deposits – held to maturity 304,252 390,020 Interest income earned on the current accounts 19,070 28,658 323,222 418,678

6 OTHER INCOME

Rent 62,187 60,906 Miscellaneous income 36,781 100,069 Student fees – Nursing School 52,732 41,082 KHA members’ subscriptions 4,593 6,652 Restaurant sales 10,882 6,304 Gain on disposal of assets - 6 167,175 215,019



7 RESOURCES EXPENDED 2016 2015 Sh’000 Sh’000

(a) Direct expenses Staff costs (note 9) 1,726,964 1,413,796 Medicine 1,700,078 1,529,572 Surgical materials 710,230 586,362 Depreciation 421,838 428,619 Laboratory materials 386,410 305,319 Repairs and maintenance 180,757 238,827 Water, light and fuel 114,258 101,772 Catering and foodstuffs 107,692 102,935 Rent and rates 72,862 71,486 Cleaning services 71,082 58,888 X-ray and CT Scan materials 64,326 65,901 Oxygen 41,332 22,301 Printing and stationery 31,759 28,718 Cathlab materials 17,809 19,792 Linen, and laundry 13,924 14,680 Amortization of intangible assets 8,295 9,002 Impairment of assets - 976 5,669,616 4,998,946

(b) Other operating expenses Staff costs (note 9) 850,595 696,347 Legal and professional fees 121,755 120,348 Depreciation 86,400 87,984 General expenses 80,684 54,034 Water, light and fuel 76,172 67,848 Impairment charge for bad and doubtful debt (note 13(b)) 58,174 153,664 Marketing and promotion 57,699 29,639 License fees 56,147 52,056 Cleaning services 47,388 39,258 Catering and foodstuffs 41,880 40,030 Repairs and renewals 38,835 33,569 Security charges 31,901 31,755 Credit card charges 21,705 23,834 Printing and stationery 21,171 19,145 Telephone and postage 21,056 18,012 Accreditation expenses 19,719 4,544 Loss on disposal of assets 18,158 - Insurance 18,099 20,642 Transport 14,154 15,439 Bank charges 10,350 8,358 Rent and rates 8,096 7,943 Audit fees (including VAT) 5,474 5,274 Armortisation 1,698 1,844 Master plan expenses 371 9,856 Impairment loss on fixed deposits (note 14(d)) - 399,000 1,707,681 1,940,423



8 SURPLUS OF INCOMING RESOURCES OVER RESOURCES EXPENDED The surplus of income over expenditure is arrived at after charging:

2016 2015 Sh’000 Sh’000

Staff costs (Note 9) 2,577,559 2,110,143 Depreciation (Note 10) 508,238 516,603 Amortization of computer software (note 11) 9,993 10,846 Audit fees (including VAT) 5,474 5,274 Impairment charge for bad and doubtful debt 58,174 153,664 Impairment loss on other assets - 976 Impairment loss on fixed deposits - 399,000

9 STAFF COSTS

Salaries and wages 2,223,857 1,804,130 Retirement benefits - defined contribution scheme 149,213 131,842 Staff medical 121,643 91,605 Staff welfare 25,050 16,365 Staff training 22,410 15,621 Staff uniforms 13,305 15,026 Group life and personal accident cover 10,090 21,771 Staff recruitment 8,424 10,427 Social security contributions 3,567 3,356 2,577,559 2,110,143

Classified as follows: Direct expenses – note 7(a) 1,726,964 1,413,796 Operating expenses – note 7(b) 850,595 696,347 2,577,559 2,110,143



10 PROPERTY AND EQUIPMENT Furniture Leasehold fittings Capital improve- Medical and other Motor work in Buildings ments equipment equipment Computers vehicles Progress* Total Sh ‘000 Sh ‘000 Sh ‘000 Sh’000 Sh ‘000 Sh ‘000 Sh ‘000 Sh ‘000COST At 1st January 2015 2,435,012 297,157 2,447,222 1,296,709 302,670 56,466 891,510 7,726,746Additions 13,938 13,111 202,236 54,528 29,837 - 819,802 1,133,452Disposals - - - (2,265) - (9,069) - (11,334)Transfers 1,379,284 15,012 - 27,990 - - (1,422,286) -

At 31st December 2015 3,828,234 325,280 2,649,458 1,376,962 332,507 47,397 289,026 8,848,864

At 1st January 2016 3,828,234 325,280 2,649,458 1,376,962 332,507 47,397 289,026 8,848,864Additions 318,617 242 56,327 18,574 14,184 15,793 2,148,721 2,572,458Disposals - - (13,001) (55,811) (25,493) - - (94,305)

At 31st December 2016 4,146,851 325,522 2,692,784 1,339,725 321,198 63,190 2,437,747 11,327,017

DEPRECIATION At 1st January 2015 304,883 172,259 1,268,324 523,024 207,002 29,106 - 2,504,598Charge for the year 80,050 43,921 257,038 102,695 27,687 5,212 - 516,603Disposals - - - (1,486) - (4,044) - (5,530)Impairment - - - - 976 - - 976

At 31st December 2015 384,933 216,180 1,525,362 624,233 235,665 30,274 - 3,016,647

At 1st January 2016 384,933 216,180 1,525,362 624,233 235,665 30,274 - 3,016,647Charge for the year 108,440 44,206 228,755 94,945 25,716 6,176 - 508,238Disposals - - (11,256) (35,474) (22,766) - - (69,496)

At 31st December 2016 493,373 260,386 1,742,861 683,704 238,615 36,450 - 3,455,389

NET BOOK VALUE At 31st December 2016 3,653,478 65,136 949,923 656,021 82,583 26,740 2,437,747 7,871,628

At 31st December 2015 3,443,301 109,100 1,124,096 752,729 96,842 17,123 289,026 5,832,217

Capital work in progress represents costs incurred on various construction works being carried out under the hospital master plan. These include the construction of the support central supply stores, new main kitchen and road and boundary wall civil works.

The Association owns parcels of leasehold land represented by L.R No. 209/4209/2 and L.R No. 209/6442. The leases expire on 30 June 2051 and 30 June 2028 respectively. They have no carrying value as they were granted at no cost to the Association in 1952 and 1964 respectively.



11 INTANGIBLE ASSETS – COMPUTER SOFTWARE

2016 2015 Sh ‘000 Sh ‘000

COST

At 1st January 34,230 4,154 Additions 7,858 30,076 At December 42,088 34,230 AMORTISATION

At 1st January 12,072 1,226 Charge for the year 9,993 10,846 At 31st December 22,065 12,072 NET BOOK VALUE

At end of year 20,023 22,158

2016 2015 Sh‘000 Sh‘000

12 INVENTORIES

Pharmaceutical drugs and medicine 290,903 318,395 Surgical consumables 184,770 178,395 Laboratory materials 84,151 158,036 Other stores 45,596 28,090 Food and drinks 35,610 29,406

641,030 712,322

13 TRADE AND OTHER RECEIVABLES 2016 2015

Sh‘000 Sh‘000(a) Analysis of trade and other receivables Patient fees receivable 1,131,343 1,057,545 Other receivables 943,730 368,942 Prepayments 113,738 65,636 Provision for bad and doubtful debts (note 13(b)) (280,667) (240,412) Net trade and other receivables 1,908,144 1,251,711



13 TRADE AND OTHER RECEIVABLES (Continued) 2015 2014

Sh‘000 Sh‘000

b) Movement in provision for bad and doubtful debts

At 1st January 240,412 199,828 Written off during the year as uncollectable (17,919) (113,080) 222,493 86,748

Impairment losses recognised on receivables (note 7 (b)) 58,174 153,664 At 31st December 280,667 240,412

14 NOTES TO THE CASH FLOW STATEMENT

(a) Reconciliation of surplus of incoming resources over resources expended for the year to cash generated from operations

2015 2014 Sh‘000 Sh‘000

Surplus of incoming resources over resources expended for the year 1,393,955 1,060,621 Adjustments for: Depreciation (Note 10) 508,238 516,603 Amortization (Note 11) 9,993 10,846 Loss/(gain) on disposal of equipment 18,158 (6) Impairment loss on computer assets - 976 Working capital changes: Decrease/(increase) in inventories 71,292 (73,924) Increase in trade and other receivables (656,433) (355,925) Increase in trade and other payables 404,151 231,065

Cash generated from operations 1,749,354 1,390,256 (b) Analysis of cash and cash equivalents:

Cash and bank balances 201,773 382,775 Fixed deposits (note 14(c)) 2,503,078 3,146,387 2,704,851 3,529,162



14 NOTES TO THE CASH FLOW STATEMENT (Continued)

(c) Fixed deposit maturity details were as follows:

2015 2014 Sh‘000 Sh‘000

Maturing within three months 2,503,078 3,146,387 Maturing after three months 399,000 399,000 Provision for impaired deposits (399,000) (399,000) 2,503,078 3,146,387

The short term deposits are held with local financial institutions. The weighted average effective interest rate on the deposits as at 31st December 2016 was 9.3 % (2015 – 12.58%).

(d) Movement in the provision for impaired deposits

At 1st January 399,000 - Impaired losses recognized on fixed deposits - 399,000 At 31st December 399,000 399,000

15 TRADE AND OTHER PAYABLES

2015 2014 Sh‘000 Sh‘000

Trade payables 771,847 623,501 Corporate deposits 206,702 193,586 Other payables 549,256 251,885 Accrued expenses 90,762 145,444 1,618,567 1,214,416



16 CAPITAL INVESTMENT FUND 2015 2014

Sh‘000 Sh‘000

Fund analysis

At 1st January 5,832,217 5,222,149 Transfer from operating fund 2,039,411 610,068 At 31st December 7,871,628 5,832,217

Represented by Net book value of property and equipment (note 10) 7,871,628 5,832,217

The transfer from operating fund is made every year to account for the net movement in the net book value of property and equipment.

17 TAXATION

The income of the Association is exempt from corporate taxation. The Association is, however, not exempt from Value Added Tax (VAT) and, therefore, pays VAT on chargeable goods and services.

18 RELATED PARTY TRANSACTIONS

Key management compensation

The remuneration of key management during the year was as follows:

2015 2014 Sh’000 Sh’000

Salaries and other benefits 92,955 130,691

19 COMMITMENTS AND CONTINGENCIES

a) Capital commitments

Commitments at year-end for which no provision has been made in these financial statements are as follows.

2016 2015 Sh’000 Sh’000

Authorized and contracted for 1,476,396 1,985,066 Authorized but not contracted for 1,507,207 1,781,887



19 COMMITMENTS AND CONTINGENCIES (Continued)

b) Contingent liabilities

There are various civil suits filed against the Association by various parties in the normal course of business.

2016 2015 Sh’000 Sh’000 Pending lawsuits 29,368 42,541

The amounts claimed have not been provided for in the financial statements as the Board of Management, based on advice received from the Association’s legal advisors, is of the opinion that no significant claims will crystallize from the pending suits.

20 OPERATING LEASE COMMITMENTS

The future minimum lease payments under operating leases are:

2016 2015 Sh’000 Sh’000 Within one year 97,902 86,161 Within 2 – 5 years 293,706 156,509

391,608 242,670

21 KHA MEMBERSHIP

Membership entry fee for the Kenya Hospital Association is KES. 10,000. The cost of subscription is KES. 5,000 per annum for those under 60 years and KES. 3,000 per annum for those who are 60 years and above. Those members whose annual subscriptions have been paid up in full are entitled to discounts and rebates on services received from the hospital, which are determined by the length of time they have been members.

22 INCORPORATION

The Association is registered in Kenya under the Companies Act as a company limited by guarantee and not having a share capital.

23 CURRENCY

The financial statements are presented in Kenya shillings (Sh’000) which is also the functional currency.

24 EVENTS AFTER THE REPORTING DATE

No material events or circumstances have arisen between the reporting date and the date of this report.


KENYA HOSPITAL ASSOCIATION

I,

of

being a member of the above-named Association hereby appoint

of

or failing him/her

of

as my proxy to vote for me on my behalf at the Annual General Meeting of the Association to be held on 2017 and at any adjournment thereof.

This form is to be used as follows:

In respect of the resolutions mentioned below:

Resolution Agenda Item No. 3 Approval of the Minutes For/Against

Resolution Agenda Item No. 4 Adoption of audited accounts For/Against

Resolution Agenda item No. 6 Fix remuneration of Auditors For/Against

In respect of election of members to the Board of Management:

1

2

3

Unless instructed as above, the proxy may vote as he/she thinks fit or abstain from voting in respect of one or more resolutions.

Signed this day of 2017

Signature:

Name of Member:

Note: 1 The proxy form should be completed and returned not less than 48 hours or in the case of a Corporate Member, written authorisation shall be returned not less than 48 hours before the Meeting or any adjournment thereof:

Note: 2 A representative appointed to represent a Corporate Member under Article 31(1) shall not represent more than one Corporate Member at the same time.

Note: 3 No person is entitled to hold and vote under more than 2 proxy forms appointing him/her as a proxy.

Note: 4 A proxy must be a Member of the Association.

PROXY FORM


NOTES

OUR VISION


OUR MISSION


OUR VALUES





strength.


Annual Report & Financial Statements

2016�e Nairobi Hospital:

P.O. Box 30026-00100, Nairobi

Main Hospital Tel: 020 - 2845000 / 020-2846000Cell lines: 0703 082000 / 0730 666000

Email: [email protected]: www.nairobihospital.org

˜e Nairobi Hospital: Main Hospital Tel: 020 - 2845000 / 020...

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