The Nairobi Hospital Annual Report 2019 Final Final

2019Annual Report And Financial Statements

KENYA HOSPITAL ASSOCIATION

e Nairobi Hospital @ eNairobiHosp 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 CORPORATE CULTURE

We are specific about quality and we take pride in our reputation in provision of the highest standards of health care; we give patient satisfaction paramount attention. Our management style creates a sense of belonging and thus our highly motivated and com-mitted staff believes in teamwork and assisting each other to accomplish the corporate mission. Our admitting doctors are highly qualified and have specialized skills which meet international standards. We continue to maintain our nurses’ training school as part of our professional development programme.

We are self-financing and any surpluses are reinvested in hospital development, for the benefit of patients. In order to monitor our own performance we will continue to be subject to internal and external audits. We believe that the efficient utilization of our human and material resources is essential for the long term future of the hospital KENYA HOSPITAL ASSOCIATION

37 | Statement of Financial Position 38 | Statement of Changes in Fund Balances 39 | Statement of Cash Flows 40 - 73 | Notes to the Financial Statements

2 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTICE OF THE ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN pursuant to Article 19 of the Kenya Hospital Association Articles of Association and as permited by by the High Court of Kenya vide an order issued in Miscellaneous Application No. E757 of 2020, that the Kenya Hospital Association shall hold a virtual Annual General Meeting on 03 September 2020 at 2:00 P.M. to conduct the following business: 22 (b) (2): e members or proxies at the place or places at which persons are participating via electronic means shall be counted in the quorum, and be entitled to vote at the general meeting in question, and that meeting shall be duly constituted and its proceedings valid if the Chairman of the meeting is satisﬁed AGENDA that adequate facilities are available throughout the meeting to ensure that the members or proxies attending at the place or places at which persons are participating via electronic means are able to: ORDINARY BUSINESS a) Participate in the business for which the meeting has been convened; and b) See and hear all persons who speak (whether through the use of microphones, loud speakers, 1 To table the proxies, apologies and note the presence of a quorum. computer, audio-visual communication equipment or otherwise, whether in use when these Articles are adopted or developed subsequently) in the place at which persons are participating 2 To read the notice convening the Meeting. and any other place at which persons are participating via electronic means.

3 To approve the minutes of the Annual General Meeting held on 17 June 2019.

4 To approve the minutes of the Special General Meetings held on 27 November 2019 and 30 July 2020. By order of the Board 5 To consider and, if approved, adopt the audited Balance Sheet and Accounts of the Association for the year ended Dr. W. Irungu Ndirangu 31 December 2019 together with the Chairman’s, the Board of Management’s and Auditors' Reports thereon. Chairman Board of Management

6 To elect nine (9) members to the Board of Management in accordance with the Special Resolution passed on 27 November 2019.

7 To allow Deloitte and Touche to continue in office as the Associations Auditors for the financial year 2020 in accordance with the Companies Act 2015 and to authorize the Board of Management to fix their remuneration. NB: In accordance with section 298 (1) of the Companies Act 2015, 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 should be a member of the Association. A Proxy Form is enclosed and should be returned to the Registered Office of the Association, SPECIAL BUSINESS situated at the Officeof the Association Secretary, Kenya Hospital Association, e Nairobi Hospital Main Building, Argwings Kodhek Road, PO Box 30026-00100 GPO Nairobi. ; In terms of Article 34 of the Association's To consider and if thought appropriate to pass the following resolutions as special resolutions: 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. (i). THAT Article 19 of the Articles of Association of the Company be amended by adding the following words after the first sentence: In the case of a corporate Member, a written authorisation given under Article 31(1) shall be deposited, “e Company may give such notice in writing or by electronic means or by a combination of means permitted appropriately dated, rubber-stamped or sealed and signed not less than 48 hours before the meeting. by the Statutes.” In terms of Article 47(b) of the Articles of Association any Member of the Association desirous of being elected as (ii).THAT the Articles of Association of the Company be amended by inserting the following new Articles a Member of the Board of Management shall be proposed and seconded by two Members of the Association on a immediately after Article 22: form which may be obtained from the Administration Secretary’s office on request and the proposed candidate shall deliver the duly signed proposal form, attaching his or her personal details, professional qualifications, if any, 22 (b): ATTENDANCE BY ELECTRONIC MEANS and working experience together with a notice in writing to the Association Secretary at the Registered Office 22 (b) (1): In the case of any general meeting, the Board may make arrangements for simultaneous attendance and informing the Association Secretary of the fact that he/she has been proposed as a candidate and stating his/her participation by electronic means allowing persons not present together at the same place to attend, willingness to be elected. speak and vote at the meeting. e arrangements for simultaneous attendance and participation at any place at which persons are participating, using electronic means may include arrangements for controlling or regulating the level of attendance at any particular venue provided that such arrangements shall operate so that all members and proxies wishing to attend the meeting are able to attend at one or other of the venues, including venues chosen by such persons individually.

3 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTICE OF THE ANNUAL GENERAL MEETING Continued

3 To approve the minutes of the Annual General Meeting held on 17 June 2019.

6 To elect nine (9) members to the Board of Management in accordance with the Special Resolution passed on 27 November 2019.

4 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

BOARD OF MANAGEMENT

DR. W. IRUNGU NDIRANGU-CHAIRMAN

Dr. Ndirangu holds a Bachelor of Medicine and Bachelor of Surgery from Nairobi University – 1979. He attained his Masters in ENT and Head Neck Surgery in 1991. He also has a diploma in ENT Surgery from Royal College of Surgeons of England after intensive training at Royal Ear Nose and roat Hospital in London and Glasgow Royal Inﬁrmary. He is an Alumni of Kenyatta College Higher Secondary education department class of 1973.

Dr. Ndirangu is a Senior Ear Nose and roat Surgeon with a Private Clinic at Upper Hill Medical Centre where he is also a Director of Board of Management.

He has a special interest in Rhinology, Sleep breathing disorders and Noise Induced Deafness. He has had extensive surgical trainings in Europe, America and Asia.

Dr. Ndirangu is the former Chairman of Kenya ENT Society and Eardrop Voluntary Society. He is a Retired Military Oﬃcer with rank of Major. He pioneered Ear Nose and roat Surgery in the Department of defense of the Republic of Kenya.

He is the current Chairman of Kenya Hospital Association and a Director at Upper Hill Medical Centre.

HON DR. CHRIS BICHAGE - VICE CHAIRMAN

Dr. Bichage holds a Bachelor of Building Economics (Building Economics) from the University of Nairobi and a Bachelor of Arts in International Relations form United States International University-Africa (USIU). He holds a Master of Arts in International Relations from United States International University – Africa (USIU).

Dr. Bichage is currently the Chairman of iMed Healthcare Ltd, a company that deals with Medical Equipment and Suppliers. He is also the Chairman of Eremo Stores Limited, a company that deals in shipping and logistics, Civil Engineering and Building Contracting. He has previously worked at Standard Chartered Bank, Unilever East Africa in the operations department and at Coﬀee Board of Kenya where he worked in various capacities leading to the position of International Marketing Director.

Dr. Bichage has a wealth of board experience having been a Director of various organizations among them being, GS1 Kenya (2000-2015), Kenya International Freight and Warehousing Association (KIFWA) (1997-2012), Co-operative Finance Co. Ltd (1989 – 1992) and Co-operative Bank of Kenya (1986 – 992) just to name a few.

Dr. Bichage was an elected Member of Parliament for Nyaribari Chache Constituency in 2013. He is currently the Vice Chairman and Chairman Finance and Investment Committee.

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BOARD OF MANAGEMENT Continued

DR. W. IRUNGU NDIRANGU-CHAIRMAN AMBASSADOR CHARLES AMIRA MBAGAYA

Dr. Ndirangu holds a Bachelor of Medicine and Bachelor of Surgery from Amb. Amira attained an MBA with Citation from Brunel University UK in 1982, and a first Nairobi University – 1979. He attained his Masters in ENT and Head Neck Surgery in 1991. class pass from City and Guilds of London Examination. He has certificates in Senior He also has a diploma in ENT Surgery from Royal College of Surgeons of England after Management from Kenya Institute of Administration. He did an entry course in advocacy in intensive training at Royal Ear Nose and roat Hospital in London and Glasgow Royal Mediation and Arbitral Proceeding in 2009 from the Chartered Institute of Arbitration, and Infirmary. He is an Alumni of Kenyatta College Higher Secondary education department a Corporate Governance Course for Directors from the Center for Corporate Governance in class of 1973. 2012.

Dr. Ndirangu is a Senior Ear Nose and roat Surgeon with a Private Clinic at Amb. Amira began his career in Engineering in 1967 at the Ministry of Information and Upper Hill Medical Centre where he is also a Director of Board of Management. Broadcasting (MIB) Kenya and rose through the ranks up to Deputy Chief Engineer. He was then appointed Counselor Engineer, a diplomatic post in ITU, Geneva from January 1984 to He has a special interest in Rhinology, Sleep breathing disorders and Noise Induced August 1986. Subsequently, he was appointed Ambassador and Senior Regional Deafness. He has had extensive surgical trainings in Europe, America and Asia. representative for ITU in Africa, based in Addis Ababa, Ethiopia. He later served as Senior consultant/Coordinator for UNECA/OAU on Projects including “Governance for Dr. Ndirangu is the former Chairman of Kenya ENT Society and Eardrop Voluntary Society. Progressive Africa, (ADFIV) from December 2003 to October 2004. Amb. Amira has a wide He is a Retired Military Oﬃcer with rank of Major. He pioneered Ear Nose and roat experience as a board member. He has served as Chairman HR Committee, and Member Surgery in the Department of defense of the Republic of Kenya. Audit & Risk Committee at Consolidated Bank of Kenya board. He also served in the boards of Communication Commission of Kenya, and Public Procurement Administrative Review He is the current Chairman of Kenya Hospital Association and a Director at Board where he co-authored Public Procurement Law Reports Volumes 1 & 2 (2008 - 2010), Upper Hill Medical Centre. presently used by Judiciary, Lawyers and Tenderers.

Amb. Amira has written many papers and publications, both locally and internationally. He has also been awarded the University Gold Medal by Brunel University - UK, for the most distinguished academic performance on the Master’s program MP7 (Henley Management College). Amb. Amira is currently a Board Member and a member of the Human Resources and Audit and Risk Committees.

DR. JANE KABUTU

Dr. Jane Kabutu, a consultant anaethestist has a Bachelor of Medicine and a Bachelor of Surgery and Mmed in Anaesthesia from the Nairobi University. She is the current Chairperson, Division of Anaesthesia. She is currently the Vice Chairperson of Medical Advisory Committee a Board Member seconded from the Medical Advisory Committee. At the Board, she is the Chairperson, Governance and Legal Committee where she has championed the amendments to the Kenya Hospital Association’s Memorandum and Articles of Association. She passionate about good governance, compliance to protocols and processes and has a zero tolerance to corruption.

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BOARD OF MANAGEMENT Continued

MR. ROBERT SHAW

Mr. Shaw attained his Bachelor of Arts in History and Politics in 1987 from the University of York, UK.

Mr. Shaw has a rich and broad experience in the areas of public policy and responsibility, governance advocacy, corruption and work ethics, commerce and administration and the Kenyan economy spanning over a number of years. He also played a humble part in the dawn of the multiparty era.

He has been a board member of various private and public nonproﬁt making organizations among them Transparency International – Kenya and Institute of Economic Aﬀairs. He previously served as a board member of the Nairobi Hospital between 1994 - 2003 where he was a member of the Finance Committee. Currently, he is a member of the Board of Management at e Nairobi Hospital and is the Chairman of the Audit and Risk Committee and a member of the Human Resources Committee.

He is a Majority shareholder and Chairman of Robert Shaw Mft Ltd, an importing and semi manufacturing operation company from 1976 to date.

Mr. Shaw is a writer, analyst and researcher on Kenyan economic and public policy issues. He is a regular contributor to Kenya’s Daily Nation and Business Daily.

DR. STEPHEN OCHIEL, MBS

Dr. Ochiel holds a Bachelor of Medicine and Surgery (M.B. ChB) and Master of Medicine (M. MED)both from the University of Nairobi.

He has been a board member of various organizations, among them, National Economic and Social Council, Tobacco Control Board, NHIF, National Aids Control Council and Kenya Hospital Association.

Dr. Ochiel was the Chairman of KMA between 2004 to 2008, KOGS 1997 to 2001 and Nairobi Health Management Board from 2011 to 2017.

Dr. Ochiel was also awarded the Moran of the Order of the Burning Spear (MBS) by the Head of State.

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BOARD OF MANAGEMENT Continued MRS. AGNES ODHIAMBO, CBS

Mrs. Odhiambo holds a Master of Business Administration degree and a Bachelor of Commerce (Accounting Option) honours degree both from the University of Nairobi. She is a Certiﬁed Public Accountant of Kenya and a Fellow of the Institute of Certiﬁed Public Accountants of Kenya. She is also a member of the Association of Women Accountants of Kenya (AWAK) and a member of Women Corporate Directors(WCD).

Mrs. Odhiambo is a finance professional with over 30 years’ experience, having held various senior management positions in both the Public and Private Sectors. Mrs Odhiambo is the immediate former Controller of Budget in Kenya. She was appointed the first Controller of Budget in Kenya in August 2011 for an eight year non- renewable term which ended in August 2019 . Mrs. Odhiambo has also held other senior positions in the Public Sector. She was the Chief Executive Officer of the Constituencies Development Fund Board and the Director of Finance and Administration at Kenya Post Office Savings Bank (Postbank).

Prior to joining the Public Sector, Mrs Odhiambo served in several private sector organizations. She was the Finance Director at Metro Cash & Carry Limited (Kenya and Uganda), Finance Manager at Unga Feeds Limited and Financial Consultant at Deloitte Haskins and Sells Management Consultancy Ltd (presently Deloitte). She started her career at BAT Kenya Limited as an Assistant Accountant.

In 2016, Mrs. Odhiambo was awarded the Chief of Order of the Burning Spear (CBS) commendation for her role in national development by His Excellency the President of the Republic of Kenya.

Mrs. Odhiambo has served on various Boards both in the Public and Private Sectors. She is currently servicing as Chairperson of the National Transport and Safety Authority (NTSA) DR. STEPHEN OCHIEL, MBS and a Board member of World Wide Fund for Nature- Kenya (WWF- Kenya). She is also a Board Member of the Nairobi Hospital and a member of the Projects, Monitoring and Dr. Ochiel holds a Bachelor of Medicine and Surgery (M.B. ChB) and Master of Medicine Evaluation and Finance Committees. (M. MED)both from the University of Nairobi.

Dr. Ochiel is a Consultant Obstetrician/Gynaecologist at the Nairobi Hospital. He previously worked as a Chief Medical Officer at the University of Nairobi and also as Lecturer at the College of Health Science, University of Nairobi. MR. VICTOR O. MISEDA He has been a board member of various organizations, among them, National Economic and Social Council, Tobacco Control Board, NHIF, National Aids Control Council and Kenya Mr. Miseda currently holds CPA Part III Sec VI(CPAK) form Strathmore University, Hospital Association. Bachelor of Commerce, B.Com and is currently undertaking Bachelor of Laws, LL.B both from the University of Nairobi. Dr. Ochiel was the Chairman of KMA between 2004 to 2008, KOGS 1997 to 2001 and Nairobi Health Management Board from 2011 to 2017. Mr. Miseda is an experienced financial executive, with over 20 years of experience in accounting and finance. He is currently the Finance Director at TripleOKLaw LLP Dr. Ochiel was also awarded the Moran of the Order of the Burning Spear (MBS) by the Head Advocates a position he has held from March 2012. Previously, he has worked at Ochieng, of State. Onyango, Kibet and Ohaga Advocates as Accounts Assistant and rose through the ranks to the position of Chief Accountant.

Mr. Miseda is currently a Board Member of the Nairobi Hospital, and a committee member of Audit & risk Committee and Legal and Governance Committee. He is the Chairman of Jenel International Holding Company Limited, a family run investment business.

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BOARD OF MANAGEMENT Continued

ENG. MAXWELL ODONGO He was elected Chairman of the Surgical Division and later Chairman of the Medical Advisory Committee and Admitting Staff Association from 2001- 2007. He sat on the Eng. Odongo graduated as a Civil Engineer in 1973 and as a Lawyer in 2004 from the Editorial Board of the East African Medical Journal and was a peer reviewer for several years. University of Nairobi. He holds a Post Graduate Diploma in law from the Kenya School of Law and was admitted to the bar as an advocate of the High Court of Kenya in 2006. He is currently the Chairman of the Medical Advisory Committee and the Admitting Staff Association of the Nairobi Hospital. His main ambition is to see the Nairobi Hospital as a Eng. Odongo runs a firm of structural engineers which has been engaged in areas of Civil Centre of excellence for health care in the Eastern Africa region. Engineering since 1978 and with time became the largest consulting local engineering firm in Africa. Areas of his expertise includes, Highways, Bridges, Water and Sanitation, Building Structures and associated Civil Works. He has also carried out extensive consultancies in Preliminary, Final Designs and Environmental Impacts assessment. As a consultant he carried out various works for Ministries, government institutions and parastatals in Kenya and other countries in Africa like Mozambique, Botswana, Swaziland, Zambia, Malawi, Congo, Burkina Faso, Cape Verde, Sierra Leone, Comoros, Tanzania and Uganda among others.

Eng. Odongo is a practicing advocate of the High Court of Kenya with expertise in areas of Project Management and Company Law. He has an interest in hospitality development and management as well as manufacturing in minerals, grain produce like maize mill ﬂour, and rice mill and animal feeds. Eng. Odongo, is a keen church goer and participates fully in church activities. He has been the Treasurer of St. Francis Church Karen for the past 10 years.

MR. RICHARD BARAZA

Mr. Richard Baraza went to Alliance High School (1961-66) then Makerere University 1967-1972 for his MBCBH degree. After internship in 1973, he enrolled for M. Med Surgery at the University of Nairobi qualifying in 1977.

He joined the department of Human Anatomy of the same University rising to the position of Senior Lecturer and Head of the Department. In 1980 he left for University of London Gower Street as Research fellow and was a part-time lecturer in the Department of Anatomy. He was appointed Registrar in Surgery at the Queen’s University of Belfast in 1981, the same year he obtained Fellowship of the Royal College of Surgeons of Edinburgh. He moved to Glasgow Royal Inﬁrmary as a Registrar in Urology and did original research co-publishing three papers in international journals within that period.

He returned to Kenya in 1985 and worked in Kenyatta National Hospital as a consultant General Surgeon and Urologist before joining the Nairobi Hospital a year later. He has been an Admitting staﬀ since then. He was appointed Head of A&E in 1989 and later worked with the team which started the kidney transplant programme at the Nairobi Hospital. It was also through his eﬀort (with other colleagues) that laparoscopy was introduced at the hospital.

He was appointed Chairman of the Medical Practitioners and Dentists Board and it was under his leadership that the Board gained ﬁnancial independence from the Ministry of Health and moved away to its present location on Woodlands Road.

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BOARD OF MANAGEMENT Continued

He was elected Chairman of the Surgical Division and later Chairman of the Medical Advisory Committee and Admitting Staﬀ Association from 2001- 2007. He sat on the Editorial Board of the East African Medical Journal and was a peer reviewer for several years.

He is currently the Chairman of the Medical Advisory Committee and the Admitting Staﬀ Association of the Nairobi Hospital. His main ambition is to see the Nairobi Hospital as a Centre of excellence for health care in the Eastern Africa region.

MR. CHARLES WAMBUGU

Mr. Wambugu graduated from Leeds Polytechnic (Now Leeds Metropolitan University) with a Masters Degree (Librarianship), CNAA, UK in 1979 specializing in Management covering organization and Human Resource Management; sponsored by the British Council and Kenya Government. He attained his Diploma in Librarianship of the University of East Africa: Makerere University College between 1968 and and 1971 and was awarded Second Class; sponsored by the British Council and Kenya Government.

Mr. Wambugu is currently the Secretary/Coordinator of Ufungamano, a Joint Forum of Religious Organizations founded in 1999 to deal with the review of the constitution of MR. RICHARD BARAZA Kenya, now focusing on the implementation of the new constitution and governance in the country. Mr. Richard Baraza went to Alliance High School (1961-66) then Makerere University 1967-1972 for his MBCBH degree. After internship in 1973, he enrolled for M. Med Surgery Mr. Wambugu worked for Kenya National Library Services for over 20 years where he rose at the University of Nairobi qualifying in 1977. to the rank of Deputy Director. He was a consultant/coordinator for the National Convention Executive Council from 1997 to 1998 He joined the department of Human Anatomy of the same University rising to the position of Senior Lecturer and Head of the Department. In 1980 he left for University of London Mr. Wambugu is a board member of the current Board of Management of the Nairobi Gower Street as Research fellow and was a part-time lecturer in the Department of Anatomy. Hospital and is the Chairman of the Human Resources Committee. He was also a Board He was appointed Registrar in Surgery at the Queen’s University of Belfast in 1981, the same member of the Kenya Anti-Corruption Commission Advisory Board from 2004 to 2011 and year he obtained Fellowship of the Royal College of Surgeons of Edinburgh. He moved to Chairman of the Board’s Finance and Administration Committee for 5 years. He was also the Glasgow Royal Infirmary as a Registrar in Urology and did original research co-publishing past Chairman of Kenya Bowling Association and Kenya Library Association. three papers in international journals within that period. His working life has been guided by the Motto of the Outward Bound School which is He returned to Kenya in 1985 and worked in Kenyatta National Hospital as a consultant “To Serve, To Strive and not to Yield”. General Surgeon and Urologist before joining the Nairobi Hospital a year later. He has been an Admitting staff since then. He was appointed Head of A&E in 1989 and later worked with the team which started the kidney transplant programme at the Nairobi Hospital. It was also through his effort (with other colleagues) that laparoscopy was introduced at the hospital.

10 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CORPORATE INFORMATION

BOARD OF MANAGEMENT Dr. W. Irungu Ndirangu - Chairman - Appointed 27 November 2019 Dr. Chris M. N. Bichage - Vice Chairman - Appointed 27 November 2019 Dr. Stephen Ochiel - Board Member - Appointed 27 November 2019 Mr. Victor Opiyo Miseda - Board Member - Appointed 27 November 2019 Mr. Charles K. Wambugu - Board Member - Appointed 27 November 2019 Eng. Maxwell O. Odongo - Board Member - Appointed 27 November 2019 Mr. Robert Shaw - Board Member - Appointed 27 November 2019 Amb. Charles Amira - Board Member - Appointed 27 November 2019 Dr. Richard Baraza - Board Member - (MAC-Chairman) Dr. Jane Kabutu - Board Member - (MAC-Vice-Chairperson) Mrs. Agnes odhiambo - Co-opted on 16 December 2019 Mrs. Jane Muigai Briggs - Co-opted on 16 December 2019 and resigned on 19 May 2020 Mrs. Lydia Kibaara - Co-opted on 16 December 2019 and resigned on 7 July 2020 Dr. John.P.N. Simba OGW,MBS, EGH- Ceased being a Director on 18 November 2019 Mr. Coutts Otolo - Ceased being a Director on 27 November 2019 Mr. Joe Kigwe - Appointed 17 June 2019 & Ceased being a Director on 27 November 2019 Margaret Muigai - Ceased being a Director on 27 November 2019 Dr. (Mrs.) Anuja Kapila - Ceased being a Director on 27 November 2019 Dr. Charles Kariuki - Ceased being a Director on 27 November 2019 Mr. Sam Ncheeri - Ceased being a Director on 27 November 2019 Mr. Allan Gachukia - Ceased being a Director on 27 November 2019

MEDICAL ADVISORY COMMITTEE (MAC) Dr. Richard Baraza - Chairman Dr. Paul Musila Dr. Jane Kabutu - Vice Chairperson Prof. Guyo W. Jaldesa Dr. Oscar Onyango Dr. Edwin Rono Dr. Gladwell Kiarie Dr. Luka Musau Dr. Caroline Odula

FINANCE AND INVESTMENT COMMITTEE

Hon. Dr. Chris Bichage - Chairman Dr. Richard Baraza Dr. Stephen Ochiel Mrs. Agnes Odhiambo

PROJECTS MONITORING AND EVALUATION COMMITTEE Eng. Maxwell Odongo - Chairman Mrs. Agnes Odhiambo Hon. Dr. Chris Bichage Dr. Stephen Ochiel

AUDIT AND RISK COMMITTEE Mr. Robert Shaw - Chairman Mr. Victor Miseda Amb. Charles Amira

11 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CORPORATE INFORMATION Continued

GOVERNANCE AND LEGAL COMMITTEE Dr. Jane Kabutu -Chairperson Hon. Dr. Chris Bichage Mr. Charles Wambugu Mr. Victor Miseda

HUMAN RESOURCES COMMITTEE Mr. Charles K. Wambugu - Chairman Mr. Robert Shaw Amb. Charles Amira

CHIEF EXECUTIVE OFFICER AG. CHIEF EXECUTIVE OFFICER

Dr. Allan Pamba - Appointed on March 9, 2020 Dr. Chris Abied - Ceased being Ag. CEO on March 8, 2020

DIRECTOR NURSING SERVICES AG. MEDICAL DIRECTOR

Sr. Benta Omonge Dr. Aysha Edwards

FINANCE DIRECTOR AUDITORS

Mr. Samson Mwangi Deloitte & Touche Certiﬁed Public Accountants (Kenya) REGISTERED OFFICE Deloitte Place, Waiyaki Way, Muthangari P O Box 40092 – 00100 GPO Argwings Kodhek Road Nairobi P. O. Box 30026 – 00100 GPO Nairobi

ADVOCATES

Kaplan & Stratton Hamilton Harrison & Mathews Williamson House, 9th Floor Delta-Oﬃces, Waiyaki Way P O Box 40111 – 00100 GPO P O Box 30333 – 00100 GPO Nairobi Nairobi

Echessa & Bwire Advocates LLP JAB Orengo Advocates 4th Ngong Towers, 17th Floor Lonrho House, 6th Floor, Standard Street 4th Ngong Avenue, oﬀ Bishops Road P.O. Box 55021-00200 P.O. Box 50307-00100 Nairobi Nairobi

BANKERS

NCBA Bank Kenya Plc Stanbic Bank Limited Mara & Ragati Roads, Upper Hill CFC Centre Branch P O Box 30437 – 00100 GPO P O Box 72833 – 00200 GPO Nairobi Nairobi

ABSA Bank Kenya Plc Standard Chartered Bank Kenya Limited Hurlingham Branch Muthaiga Branch P O Box 34974 – 00100 GPO P O Box 64355 – 00620 Nairobi Nairobi

12 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

FINANCIAL HIGHLIGHTS

ADMISSIONS ACCIDENTS & EMERGENCY VISITS 17,558 17,492 18,836 18,649 18,768 149,937 154,760 165,743 160,453 174,040 PATIENTS PATIENTS ADMITTED PATIENTS 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

OPERATING SURPLUS REVENUES GROWTH ’ (’000) ( 000) 900,448 AMOUNT 1,060,621 1,393,955 1,780,070 AMOUNT 8,037,321 8,796,136 10,105,506 11,095,778 11,222,589 2015 2016 2017 2018 2019

2015 2016 2017 2018 2019 (824,601)

13 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHAIRMAN’S STATEMENT

GENERAL OVERVIEW

Fellow Kenya Hospital Association (KHA) Members, the year under review was unfortunately characterised by suboptimal revenue performance. e macroeconomic environment not-withstanding, governance challenges at both Board and Management levels played a significant role. Whereas revenue growth remained generally flat from previous year, there was indiscipline in cost management and poor debt collection resulting in the posted deficit. Lack of financial discipline manifested in a number of ways including suboptimal procurement practices, irresponsible spending and poor debt collection. e hospital embarked on a significant expansion program with multiple construction projects running in parallel. Collection & disbursement of Doctors’ pay had delays, often unnecessary, and the hospital closed the year with significant debt owed as turbulent business period and carry out the expectations of our members well as owing. On a positive note, a robust 2019-2024 strategy was developed with as articulated by the Board. We continue to cement our position as the additional provisions of Sh 1.06 billion support of Mackenzie consultants. is lays out a well-considered blue-print for leading healthcare provider in the region. recorded in the year on debtors and our future growth. We will now require a strong team to execute the strategy prepayments. ese provisions are in line with effectively and with good governance practices. It is my pleasure and honor to present to you the Financial Statements for the requirements of International Financial the year ended December 31, 2019. Reporting Standards (IFRS) 9. is has been occasioned by the Covid-19 Pandemic and the related public health regulations and directives passed by the Government of Kenya precluding public e hospital remains extremely agile and has gatherings. Traditionally, the Association holds its General Meeting in the month OPERATING ENVIRONMENT responded to this. We have instituted of June which was not practical due to the pandemic. Coincidentally, Article 17 of efficiency measures across the entire our Memorandum and Articles of Association allows the Company to hold the Private hospitals in Kenya have rolled out multi-billion-shilling expansion organization; we expect these to translate to Annual General Meeting not later than fifteen months after holding the last projects in order to meet the current and expected growth in demand for better results in the subsequent periods. preceding meeting. is allowed us time to seek for an alternative method of quality healthcare services as the country’s middle class population grows. holding the meeting since the last Annual General Meeting was held on As a business, we equally invested heavily on new equipment and new During the year, 17 June 2020 and the last day to hold the meeting would have been Outpatient Centers across Nairobi as informed by our Strategy. While we 17 September 2020. We applied to the High court of Kenya in Miscellaneous are yet to fully reap on these significant outlays, the business remains well CONCLUSION the Board has Application No. E757 of 2020 under the provisions of Section 280 of the positioned to remain very competitive and the preferred hospital in the Companies Act 2015, and we were issued with an order granting special region. Consistent with our vision, the Board will dispensation to Kenya Hospital Association to convene and conduct a virtual spare no effort to make e Nairobi Hospital re-engineered general meeting. We had the opportunity to test the systems in the Special General After the outbreak of Covid-19 pandemic, we were forced to isolate the leading healthcare institution in the Meeting which was held on 30 July 2020. Covid-19 patients from our general patients which took away some of our region, providing world-class treatment and governance operating theatres and Bed space. In March 2020, we were approached by service. e Current Board of Management took office on 27th November 2019 in a the United Nations to enter into a partnership and build a Covid-19 and structures that challenging business environment, after petitioning the removal of the previous infectious disease facility. e UN is financing the construction and the Board of management. However, goodwill from e Kenya Hospital Association, equipment of 100 Beds facility and e Nairobi Hospital will be partners and stakeholders has enabled us to deliver. revolve around the constructing an infectious disease Hospital of 50Beds. is will expand e Nairobi Hospital’s Bed capacity by 150 Beds and can be increased to Dr. W. Irungu Ndirangu e Board has re-engineered governance structures that revolve around the 350 Beds if the need arises. is facility will be fully managed by e Chairman, Board of Management patients’ needs. patients’ needs. Some of the signature interventions include a technical audit on Nairobi Hospital and will be located at the old nursing school. the Hospital’s projects, clinical governance and invigorating partner relations with 31 July 2020 key stakeholders such as the Admitting Staff Association. FINANCIAL HIGHLIGHTS e Board has also created new Board level governance structures such as the Governance and Legal Committee, and Projects Monitoring and Evaluation e hospital managed to record a marginal growth on its revenue of 1% to Committee. ese board committees raison d'être is to ensure that all resources are Sh 11.2 billion up from Sh 11.1 billion in the prior year. reinvested in hospital development for the exclusive benefit of patients. is was in the midst of a generally depressed macro environment, and an equally challenging internal business environment. e Board through the Human Resources Committee endeavored to fill Senior Management positions and the managers have settled in well amidst a seemingly We have however recorded an overall deficit of Sh 825 million down from a surplus of Sh 900 million in 2018. e position is primarily driven by

14 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHAIRMAN’S STATEMENT Continued

GENERAL OVERVIEW

Fellow Kenya Hospital Association (KHA) Members, the year under review was unfortunately characterised by suboptimal revenue performance. e macroeconomic environment not-withstanding, governance challenges at both Board and Management levels played a significant role. Whereas revenue growth remained generally flat from previous year, there was indiscipline in cost management and poor debt collection resulting in the posted deficit. Lack of financial discipline manifested in a number of ways including suboptimal procurement practices, irresponsible spending and poor debt collection. e hospital embarked on a significant expansion program with multiple construction projects running in parallel. Collection & disbursement of Doctors’ pay had delays, often unnecessary, and the hospital closed the year with significant debt owed as turbulent business period and carry out the expectations of our members well as owing. On a positive note, a robust 2019-2024 strategy was developed with as articulated by the Board. We continue to cement our position as the additional provisions of Sh 1.06 billion support of Mackenzie consultants. is lays out a well-considered blue-print for leading healthcare provider in the region. recorded in the year on debtors and our future growth. We will now require a strong team to execute the strategy prepayments. ese provisions are in line with effectively and with good governance practices. It is my pleasure and honor to present to you the Financial Statements for the requirements of International Financial the year ended December 31, 2019. Reporting Standards (IFRS) 9. is has been occasioned by the Covid-19 Pandemic and the related public health regulations and directives passed by the Government of Kenya precluding public e hospital remains extremely agile and has gatherings. Traditionally, the Association holds its General Meeting in the month OPERATING ENVIRONMENT responded to this. We have instituted of June which was not practical due to the pandemic. Coincidentally, Article 17 of efficiency measures across the entire our Memorandum and Articles of Association allows the Company to hold the Private hospitals in Kenya have rolled out multi-billion-shilling expansion organization; we expect these to translate to Annual General Meeting not later than fifteen months after holding the last projects in order to meet the current and expected growth in demand for better results in the subsequent periods. preceding meeting. is allowed us time to seek for an alternative method of quality healthcare services as the country’s middle class population grows. holding the meeting since the last Annual General Meeting was held on As a business, we equally invested heavily on new equipment and new 17 June 2020 and the last day to hold the meeting would have been Outpatient Centers across Nairobi as informed by our Strategy. While we 17 September 2020. We applied to the High court of Kenya in Miscellaneous are yet to fully reap on these significant outlays, the business remains well CONCLUSION Application No. E757 of 2020 under the provisions of Section 280 of the positioned to remain very competitive and the preferred hospital in the Companies Act 2015, and we were issued with an order granting special region. Consistent with our vision, the Board will dispensation to Kenya Hospital Association to convene and conduct a virtual spare no effort to make e Nairobi Hospital general meeting. We had the opportunity to test the systems in the Special General After the outbreak of Covid-19 pandemic, we were forced to isolate the leading healthcare institution in the Meeting which was held on 30 July 2020. Covid-19 patients from our general patients which took away some of our region, providing world-class treatment and operating theatres and Bed space. In March 2020, we were approached by service. e Current Board of Management took office on 27th November 2019 in a the United Nations to enter into a partnership and build a Covid-19 and challenging business environment, after petitioning the removal of the previous infectious disease facility. e UN is financing the construction and the Board of management. However, goodwill from e Kenya Hospital Association, equipment of 100 Beds facility and e Nairobi Hospital will be partners and stakeholders has enabled us to deliver. constructing an infectious disease Hospital of 50Beds. is will expand e Nairobi Hospital’s Bed capacity by 150 Beds and can be increased to Dr. W. Irungu Ndirangu e Board has re-engineered governance structures that revolve around the 350 Beds if the need arises. is facility will be fully managed by e Chairman, Board of Management patients’ needs. Some of the signature interventions include a technical audit on Nairobi Hospital and will be located at the old nursing school. the Hospital’s projects, clinical governance and invigorating partner relations with 31 July 2020 key stakeholders such as the Admitting Staff Association. FINANCIAL HIGHLIGHTS e Board has also created new Board level governance structures such as the Governance and Legal Committee, and Projects Monitoring and Evaluation e hospital managed to record a marginal growth on its revenue of 1% to Committee. ese board committees raison d'être is to ensure that all resources are Sh 11.2 billion up from Sh 11.1 billion in the prior year. reinvested in hospital development for the exclusive benefit of patients. is was in the midst of a generally depressed macro environment, and an equally challenging internal business environment. e Board through the Human Resources Committee endeavored to fill Senior Management positions and the managers have settled in well amidst a seemingly We have however recorded an overall deficit of Sh 825 million down from a surplus of Sh 900 million in 2018. e position is primarily driven by

15 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT

INTRODUCTION

Fellow Kenya Hospital Association (KHA) Members, the year under review was unfortunately characterized by suboptimal revenue performance. e macroeconomic environment not-withstanding, governance challenges at both Board and Management levels played a significant role. Whereas revenue growth remained generally flat from previous year, there was indiscipline in cost management and poor debt collection resulting in the posted deficit. Lack of financial discipline manifested in a number of ways including suboptimal procurement practices, irresponsible spending and poor debt collection. e hospital embarked on a significant expansion program with multiple construction projects running in parallel. Collection & disbursement of Doctors’ pay had delays, often unnecessary, and the hospital closed the year with significant debt owed as well as owing. On a positive note, a robust 2019-2024 strategy was developed with support of Mackenzie consultants. is lays out a well-considered blue-print for our future growth. We will now require a strong team to execute the strategy effectively and with good governance practices.

FINANCE.

Revenue

e hospital turnover grew by 1% from Kshs. 11.1 billion in 2018 to Kshs. 11.2 billion in 2019, primarily driven by the growth of revenue at the Out Patient Centers. Total Outpatient revenue for 2019 was Kshs. 961million compared to Kshs. 809 During the year, million in the previous year. the Hospital Pharmacy, Laboratory, Surgery and Radiology continued to form the bulk of our total revenue drivers each contributing 31%, 19%, 10%, and 8% respectively. Our bed fees successfully tran- were 14% of total revenue. We recorded marginal growth in the number of sited to the new admissions as well as A&E visits. ISO standards, i.e. Expenditure

ISO 9001: 2015 e hospital’s direct costs (Representing costs directly incurred to generate revenues) and ISO expanded by 8% in the year. We pursued an aggressive expansion plan which included opening an additional two outpatient centres late in 2018 as well as well us multiple 14001:2015 and construction projects. e full impact of this came into our books in 2019. was certiﬁed by In addition, we experienced increased inﬂationary and currency related price increases on our costs of imported inputs, which form the bulk of our laboratory, Kenya Bureau of pharmacy and surgical supplies.

Standards (KEBS). e operating overheads grew by 39% to Kshs. 7.7 billion. We had to make an additional Kshs. 1.05 billion provision for debtors and prepayments in line with International Financial Reporting Standards. e institution incurred significant one –off expenses on the master-plan works, and legal representations on various suits it was involved in. Our staff costs also remained high, and is one of the key items being addressed in the current year.

16 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

INTRODUCTION Surplus As a result of this growth in expenses, the institution posted an overall deficit of Kshs 825 million, down from a surplus of Fellow Kenya Hospital Association (KHA) Members, the year under review was Kshs. 900 million in 2018. While a big part of this is from the one-off costs incurred, there are significant areas of in-efficiency. unfortunately characterized by suboptimal revenue performance. e e new Management is working on the same to ensure a complete reversal. macroeconomic environment not-withstanding, governance challenges at both Board and Management levels played a significant role. Whereas revenue growth Capital Investments remained generally flat from previous year, there was indiscipline in cost management and poor debt collection resulting in the posted deficit. Lack of financial We invested Kshs. 355 million in new medical equipment and software across various lines of service. We further invested discipline manifested in a number of ways including suboptimal procurement Kshs. 465 million in new buildings and facilities. practices, irresponsible spending and poor debt collection. e hospital embarked on a significant expansion program with multiple construction projects running in STRATEGY parallel. Collection & disbursement of Doctors’ pay had delays, often unnecessary, and the hospital closed the year with significant debt owed as well as owing. On a e hospital commissioned support of Mackenzie to develop it’s 2019 -2024 strategy. e strategy articulates TNH’s vision to positive note, a robust 2019-2024 strategy was developed with support of Mackenzie be a world-class multi-specialty hospital, delivering exceptional quality and patient safety and outstanding stakeholder consultants. is lays out a well-considered blue-print for our future growth. We will experience, whilst achieving sustainable growth. It is characterised by 2key areas of initiatives: now require a strong team to execute the strategy effectively and with good governance practices. Growth & Social Responsibility Initiatives 1. Optimise and Expand the main campus FINANCE. 2. Double down on priority specialties 3. Create Unrivalled offering in Nairobi and E Africa Revenue 4. Implement a comprehensive social responsibility program

e hospital turnover grew by 1% from Kshs. 11.1 billion in 2018 to Kshs. 11.2 billion Transformation Initiatives in 2019, primarily driven by the growth of revenue at the Out Patient Centers. 1. Deliver Patient centred quality care Total Outpatient revenue for 2019 was Kshs. 961million compared to Kshs. 809 2. Conduct financial functions and back office transformation million in the previous year. 3. Implement digital strategy 4. Refresh organizational structure Pharmacy, Laboratory, Surgery and Radiology continued to form the bulk of our total 5. Improve staff engagement and performance revenue drivers each contributing 31%, 19%, 10%, and 8% respectively. Our bed fees were 14% of total revenue. We recorded marginal growth in the number of e strategy was adopted by the Board of management on 31st May 2020. Implementation is ongoing. Impact of COVID-19 admissions as well as A&E visits. pandemic on the same shall be outlined comprehensively in next year’s annual report.

Expenditure

e hospital’s direct costs (Representing costs directly incurred to generate revenues) CLINICAL SERVICES expanded by 8% in the year. We pursued an aggressive expansion plan which included opening an additional two outpatient centres late in 2018 as well as well us multiple NURSING DIVISION construction projects. e full impact of this came into our books in 2019. Quality nursing care remains the mainstay of good care outcomes for e Nairobi Hospital patient. e division employed In addition, we experienced increased inflationary and currency related price various approaches to enhance care processes, instructions, staff knowledge and skills in addition to acquisition of support increases on our costs of imported inputs, which form the bulk of our laboratory, equipment. pharmacy and surgical supplies. • Training in quality and patient safety goals as stipulated by the Joint Commission International Accreditation (JCIA) guidelines, was continued throughout 2019. e operating overheads grew by 39% to Kshs. 7.7 billion. We had to make an • Performance in quarterly clinical audits averaged 83% at close of year, an improvement from 78% in previous year. additional Kshs. 1.05 billion provision for debtors and prepayments in line with • e patient loyalty score for the inpatient services remained above 95% for most part of the year. All concerns International Financial Reporting Standards. e institution incurred significant raised by patients were addressed promptly to ensure rapid service recovery. one –off expenses on the master-plan works, and legal representations on various • Nurses were trained in the following hospital sponsored specialization Post Basic Diploma programs: -Critical suits it was involved in. Our staff costs also remained high, and is one of the key items Care Nursing (10n), Perioperative Nursing (4), Neonatal Critical Care Nursing (3), Pediatric Critical Care Nursing being addressed in the current year. (4), Kenya Registered Pediatric Nursing (4), Accident and Emergency Nursing (5), Catheterization Laboratory Nursing (1) • Average length of stay (ALOS) is used in assessment of quality of care, costs and efficiency in service delivery.

17 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

e ALOS in 2019 was 4.7 days. is was lower in comparison to 4.8 in 2018. e WHO data in 2011 indicates ALOS across Africa as 5-7 and 4.0- 7.0 days in Europe (Rodney, 2012). • e Obstetric department continued to register the highest occupancy at 72% raising the need for additional space at the surgical ward. South Wing (en-suite rooms) remain the accommodation of choice for e Nairobi Hospital patient.

COLLEGE OF HEALTH SCIENCE

e College of Health Science continued to focus on development of curricula in specialized courses for accreditation by the Nursing Council of Kenya. e aim of this was to support the institution towards becoming a multi-specialty hospital.

Partnerships and Collaborations • e College established a partnership with VOLTA-LEAP, a UK based organization that gives loans to students. is helped to increase as well as maintain high numbers of students in class because none was sent home for lack of fees. • e college in partnership with Emergency Care Trainers –Kenya (ECT-K) facilitated training of over six hundred (600) staﬀ in Basic life support (BLS) and over one hundred (100) in Advanced Cardiac Life Support (ACLS) in 2019.

Accreditation • e College renewed its license as a Continuing Professional Development (CPD) centre. is has been granted for another one year starting 30th April, 2020. Within the year 2020, it is the intention of the College to extend the CPD opportunities beyond e Nairobi Hospital and include other health institutions. • In the year 2019, three curricula were reviewed and approved by the Nursing Council of Kenya. ese are Kenya Registered Nursing, and Post basic diploma in Critical Care and Accident and Emergency Nursing. e approvals are valid for another ﬁve (5) years.

Post Basic Diploma Programs (Specialization) • e College increased the number of specialized courses from ﬁve to six after one more curriculum was approved in 2019. e latest accreditation is the Kenya Registered Oncology Nursing, which is expected to commence in September 2020.

Learning and Development • In order to maintain continual improvement, critical skills and knowledge among the nurses and lecturers, the College coordinated short courses. is facilitation is important in assisting e Nairobi Hospital nurses renew their practicing licenses annually. A total of 969 staﬀ were trained (short courses) in 2019, an increase of 34% from 723 in the previous year. Continued medical education (CME) attendance improved from 1,962 in the year 2018 to 3,743 in 2019. is is an increase of over 90%.

MEDICAL SERVICES & RESEARCH

rough 2019, e Division of Clinical Services and Research continued to embrace its role of ensuring quality patient care in an environment of trust. e following departments moved from the Division of Nursing Services to the Division of Clinical Services and Research: Accident and Emergency Department, Anderson Specialty Clinics, Endoscopy, Renal Unit and Oncology. is marked the commencement of re-conﬁguration of some of the division’s key processes to improve patient experience and clinical outcomes.

18 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

PHARMACY SERVICES

Patient Experience Average Monthly Customer Satisfaction Index was 86% against a target 90% for outpatients at the Main Hospital. 76% of patients were served within target Turnaround around Time (TAT) of 15 minutes for outpatients and 30 minutes for inpatients against a target of 80%.

Process Improvements • irteen (13) operational research papers were concluded by December 2019 against a target of 10. Results and recommendations from these continue to inform evidence based practice at the hospital. • e pharmacy was accredited to be a registered CPD (Continuous Professional Development) provider under which the monthly pharmacy CME schedule is recognised for CPD Points. • eatre pharmacy was opened in March 2019. It drove improvement in TAT and stock management within theatre. • Annual inspection of all 36 medicine storage areas in the Hospital was carried out in November 2019. Compliance level was 90%, an improvement from 2018

LABORATORY MEDICINE

e Laboratory revenue increased by 6% in 2019. e department continued on a path of digital transformation, speciﬁcally improvement of the lab information management system. Further, implementation of the quality management software Q-PULSE helped improve reporting and resolution of customer complaints, incidences and document management.

Process Improvements During 2019, the department’s key achievement included a signiﬁcant reduction in sample-processing time, primarily driven by automation of samples retrieval and automatic emailing of results to clinicians.

A highly specialized immunology laboratory was set up in one of the satellite locations at the Upper Hill Medical Centre. We expect the laboratory to become a recognized centre for autoimmune diseases testing and infectious diseases serology.

In line with the Hospital’s vision of providing World-Class services using advanced technologies, the Laboratory acquired two next-generation Biochemistry and Hematology platforms. e hematology system employs artiﬁcial intelligence in reviewing blood slides and helps pathologists deliver results in less than a day from the previous 2 days’ average. e automated PBF slides stainer with computerized imaging, in Biochemistry-Alinity replaced the Abbott Architect Ci8200 for the Integrated Immuno and clinical chemistry assays. In Microbiology, we acquired - Maldi-TOF for improved and rapid cultures identiﬁcation and phenotyping of bacteria. ese acquisitions align with the strategy of the hospital to support our expanding specialty clinics and bed capacity.

e department also collaborated with CDC, Atlanta, in mycology, speciﬁcally Candida auris, becoming the ﬁrst hospital in the country to set up antimicrobial sensitivity testing for Candida auris.

e department remains fully committed to follow high standards of quality through maintenance of its accreditation to ISO 15189:2012. To further improve our quality management system, we initiated the process towards accreditation by the College of American Pathologists (CAP).

IMAGING & RADIOLOGY

e department continued on its strive to oﬀer patients’ the best imaging service using advanced technology in an atmosphere of trust, safety and comfort. e main focus was on improving customer care service. e department maintained a customer loyalty index of approximately 90% and speciﬁcally achieved a score of 96% in December 2019. e imaging business environment remained relatively stable for the better part of the year leading to a 6% revenue growth over previous year.

19 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

Process Improvements During the year, the department started implementing the new FUJIFILM RIS/PACS system. e full completion is expected in 2020. is will drive speedy reporting by the Radiologist.

Staﬀ We hired more Radiologists, Sonographers and 1 Radiographer. is added to both the personnel and skills-base in the department.

PHYSICAL MEDICINE CENTRE

PMC continued to grow but did not manage to attain its budget for the year 2019. Part of the departmental space was hived oﬀ to allow space for lift construction. Further, the building that accommodated Occupational erapy and Speech erapy was brought down. is led to loss of a signiﬁcant portion of treatment area. PMC was subsequently relocated to a temporary space at the GIPAP area where it still sits.

Patient Experience We closed the year with a customer loyalty index of 92%. is was slightly lower than what we had in 2018 of 95% but still a good score in terms of patient care.

Equipment We replaced most of the old equipment that had served us for over ten years and acquired state of the art equipment including, Laser therapy, Lumbar and cervical traction machine, Combined electrotherapy machine i.e. TENS interferential and Ultrasound therapy.

Ongoing focus is on placing staﬀ to work in their area of specialization and encouraging more specialization in Neurology, Orthopaedics and Respiratory Rehabilitation. We look forward to expansion of our services and creating a one stop shop for our patients.

ONCOLOGY

Cancer Treatment Centre, is a day Centre that provides Chemotherapy, Radiotherapy, Brachytherapy, Prostate brachytherapy, blood irradiation, Keloids treatment and Iodine treatments to our patients. e services are significantly supported by the National Hospital Insurance Fund – NHIF. In 2019 we had significant increase in activities for chemotherapy and Radio-Iodine treatment. By contrast, Brachytherapy, Radiotherapy, Keloids treatment and Radiotherapy treatments saw significant reductions.

e Oncology department was not able to meet the 2019 revenue target of KES. 234 million. e earned revenue in the department was KES. 204 million. e performance was a decline of 10% from 2018 performance of KES. 225 million. e decline in revenue was largely explained by policy changes at NHIF and other insurance providers resulting in diversion of patients to lowest cost facilities. e NHIF argued that our rates were high in particular for medication and doctors’ fees. ere is ongoing eﬀorts on resolution, speciﬁcally price reviews and development of pre-priced treatment bundles aligned with insurance partners.

ANDERSON SPECIALTY CLINIC

e clinics continued to grow in statistics throughout the year and realized a 34% patient footprint growth above 2018 and 24 % above the budget. e Centre closed with a total of 31 clinics, 27 being consultants led and 4 being nurse led clinics. Other services provided at the Centre were: physiotherapy, radiology, laboratory, pharmacy, neurophysiology, nutrition, OCT, services, treadmill tests and psychosocial services. e Specialty clinics closed the year at 30% growth in revenue compared to 2018, and above 2019 target budget by 36%.

20 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

Process Improvements e clinics had a loyalty index above 90% throughout the year and averaged at 98.5% for the full year. All customer complaints During the year, the department started implementing the new FUJIFILM RIS/PACS system. e full completion is expected were closed within the year. Most of the complaints were on delays at registration and cash points. in 2020. is will drive speedy reporting by the Radiologist. ACCIDENT AND EMERGENCY DEPARTMENT Staﬀ We hired more Radiologists, Sonographers and 1 Radiographer. is added to both the personnel and skills-base in the Despite an increase in revenue, A&E reported a drop in actual patient numbers in 2019 by 4.6% compared to 2018. It closed department. at 9% below the planned target. Dental Clinic had a modest increase in patient numbers between 2018 and 2019 of 2%.

PHYSICAL MEDICINE CENTRE e customer loyalty index for the department averaged 89% for 2019, with the highest score of 95% reported in August 2019 and the lowest score of 83% in March 2019. A total of 100 complaints were registered during the year. e majority related to PMC continued to grow but did not manage to attain its budget for the year 2019. Part of the departmental space was hived staff professionalism (23%) and service delays (54%). e rest involved clinical errors (12%), housekeeping (1%) and various off to allow space for lift construction. Further, the building that accommodated Occupational erapy and Speech erapy services, e.g. billing (10%). was brought down. is led to loss of a significant portion of treatment area. PMC was subsequently relocated to a temporary space at the GIPAP area where it still sits. roughput time for ambulant patients averaged 75% for the year 2019 against a target of 100%. April 2019 recorded the best TPT at 97%, while May recorded the worst TPT at 61%. TAT related to admissions averaged 50% for the year, with April again Patient Experience recording the best TAT at 82% and August recording the worst TAT at 28%. We closed the year with a customer loyalty index of 92%. is was slightly lower than what we had in 2018 of 95% but still a good score in terms of patient care.

Equipment We replaced most of the old equipment that had served us for over ten years and acquired state of the art equipment NON-CLINICAL DEPARTMENTS including, Laser therapy, Lumbar and cervical traction machine, Combined electrotherapy machine i.e. TENS interferential and Ultrasound therapy. MARKETING AND CUSTOMER SERVICE

Ongoing focus is on placing staff to work in their area of specialization and encouraging more specialization in Neurology, • In 2019, the Marketing Division explored a number of approaches to enhance the Hospital’s position as the facility Orthopaedics and Respiratory Rehabilitation. We look forward to expansion of our services and creating a one stop shop for of choice in the market. ese included use of billboards and street poles in Nairobi and its environs. Mainstream our patients. Media presence was created through monthly radio talk shows on health topics at Radio Waumini and Capital FM. e hospital also featured in health-related interviews on NTV, Switch TV, KTN, and Citizen TV. ONCOLOGY Social Media platforms e.g. Facebook and Twitter were engaged to create awareness on the latest products and services. Cancer Treatment Centre, is a day Centre that provides Chemotherapy, Radiotherapy, Brachytherapy, Prostate brachytherapy, • Marketing of the six Outpatient Centres (OPC) was achieved through awareness creation activation events in blood irradiation, Keloids treatment and Iodine treatments to our patients. e services are significantly supported by the malls and high traffic venues in the environs of each OPC. National Hospital Insurance Fund – NHIF. In 2019 we had significant increase in activities for chemotherapy and • A 3 months, integrated marketing Kidney Transplant Campaign took place in the 3rd quarter of 2019, to create Radio-Iodine treatment. By contrast, Brachytherapy, Radiotherapy, Keloids treatment and Radiotherapy treatments saw awareness on the Hospital’s Kidney Transplant package. significant reductions. • Customer Service, and communication training was conducted by DGMB Training Solutions Ltd. 500 staff across all departments participated in this training. e ultimate objective was to improve Patient Experience for the e Oncology department was not able to meet the 2019 revenue target of KES. 234 million. e earned revenue in the hospital clients. e hospital subsequently recorded the highest number of raised and closed complaints ever. department was KES. 204 million. e performance was a decline of 10% from 2018 performance of KES. 225 million. • Installation of overhead broadcast speakers was completed to improve emergency (fire, cardiac arrest) response. e decline in revenue was largely explained by policy changes at NHIF and other insurance providers resulting in diversion • Last but not least, the Annual Charity Golf Tournament 2019 raised Kshs. 5 million for the Charity Heart Fund. 4 of patients to lowest cost facilities. e NHIF argued that our rates were high in particular for medication and doctors’ fees. needy children were sponsored with free open heart surgeries from this fund. ere is ongoing efforts on resolution, specifically price reviews and development of pre-priced treatment bundles aligned with insurance partners. SUPPORT SERVICES

• e Food Safety Management (FMS) system was upgraded from ISO 22000:2005 to ISO 22000:2018. ANDERSON SPECIALTY CLINIC • In 2019, the Maintenance department continued to support equipment, facilities and utilities to ensure the Hospital remains on course towards achieving its vision and mission objectives. e clinics continued to grow in statistics throughout the year and realized a 34% patient footprint growth above 2018 and 24 • e revenue from external laundry grew by 37% from Ksh.30 million in 2018 to Ksh.41 million. Installation of % above the budget. e Centre closed with a total of 31 clinics, 27 being consultants led and 4 being nurse led clinics. Other launderette equipment comprising three washers and dryers was completed for the College of Health Sciences services provided at the Centre were: physiotherapy, radiology, laboratory, pharmacy, neurophysiology, nutrition, OCT, located at Anderson Building. services, treadmill tests and psychosocial services. e Specialty clinics closed the year at 30% growth in revenue compared • Revenue generated by the Convention Centre grew by 33% from Ksh.23.4 million in 2018 to Ksh.31.2million in to 2018, and above 2019 target budget by 36%. 2019. • e Gym realized 5% revenue growth from Ksh.4.2 million in 2018 to Ksh.4.4 million in 2019.

21 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

HUMAN RESOURCES e clinics had a loyalty index above 90% throughout the year and averaged at 98.5% for the full year. All customer complaints were closed within the year. Most of the complaints were on delays at registration and cash points. • In 2019, the Human Resources Division continued its role as one of the enablers to achievement of results by ensuring the Hospital attracts employees with the required skills and experience and to further retain, motivate ACCIDENT AND EMERGENCY DEPARTMENT and develop them. Investing in employees remained paramount to the Hospital. e Division adopted a business partnership model of providing Managers and staff with an enhanced ‘one stop shop’ package with proactive client Despite an increase in revenue, A&E reported a drop in actual patient numbers in 2019 by 4.6% compared to 2018. It closed experience, people development agenda and alignment of HR functions to support the overall Hospital strategic at 9% below the planned target. Dental Clinic had a modest increase in patient numbers between 2018 and 2019 of 2%. objectives. e Human Resources division focused on organizational culture, talent development and acquisition, staff engagement and welfare and enhanced Divisional operational efficiency. e customer loyalty index for the department averaged 89% for 2019, with the highest score of 95% reported in August 2019 • A culture audit was carried out in December 2019 to determine the Hospital’s working environment, employee and the lowest score of 83% in March 2019. A total of 100 complaints were registered during the year. e majority related to sentiments, and the status of employee interactions and team communication. An Employee Engagement Survey staff professionalism (23%) and service delays (54%). e rest involved clinical errors (12%), housekeeping (1%) and various was also designed to assess how motivated and engaged the employees were. From the survey, the Hospital was services, e.g. billing (10%). able to gain insight into employees’ thoughts and attitudes towards their work and the overall environment. We will proceed to work on organizational culture transformation programs in order to reduce Cultural Entropy, roughput time for ambulant patients averaged 75% for the year 2019 against a target of 100%. April 2019 recorded the best build trust and increase Employee Engagement by embedding culture in business processes, practices and TPT at 97%, while May recorded the worst TPT at 61%. TAT related to admissions averaged 50% for the year, with April again policies. recording the best TAT at 82% and August recording the worst TAT at 28%. • e Hospital implemented staff engagement activities such as Human Resources Healthcare week which included financial talks, wellness talks and a sports day. We also held a Staff Children’s Party, Retirees Party and Staff Parties. As part of welfare and benefits, we continued with the Staff Mortgage Scheme and provided comprehensive and enhanced group life cover, group personal accident cover and a medical cover for staff and dependants. NON-CLINICAL DEPARTMENTS • On talent development, the Hospital invested in delivering a corporate learning agenda and building staff capabilities. is was also aimed at strengthening managers’ leadership capacities in empowering their staff to MARKETING AND CUSTOMER SERVICE thrive and meet their full potential. e Hospital utilized Kshs 110 million on staff training and development. • In 2019, the Marketing Division explored a number of approaches to enhance the Hospital’s position as the facility Investment in skills and accelerating employees’ professional and personal development were essential of choice in the market. ese included use of billboards and street poles in Nairobi and its environs. Mainstream components of the Hospital’s people agenda. Media presence was created through monthly radio talk shows on health topics at Radio Waumini and • On compliance, the Human Resources Division reviewed and implemented twenty-four (24) Hospital Policies and Capital FM. e hospital also featured in health-related interviews on NTV, Switch TV, KTN, and Citizen TV. procedures which provided a roadmap for day-to-day operations, compliance with laws and regulations, gave Social Media platforms e.g. Facebook and Twitter were engaged to create awareness on the latest products and guidance for decision-making and streamlined our internal processes. services. • Other notable achievements in the year included the successful negotiation and implementation of the March • Marketing of the six Outpatient Centres (OPC) was achieved through awareness creation activation events in 2019 to March 2021 Collective Bargaining Agreement with KUDHEIHA workers for the union employees and malls and high traffic venues in the environs of each OPC. enhancement of the Division’s operational efficiency by designing and implementing templates and checklists in • A 3 months, integrated marketing Kidney Transplant Campaign took place in the 3rd quarter of 2019, to create line with the requirements of the Joint Commission for International Accreditation to enhance consistency in awareness on the Hospital’s Kidney Transplant package. documentation. • Customer Service, and communication training was conducted by DGMB Training Solutions Ltd. 500 staff across • For sustained improvement to standards, the Hospital retained certifications in ISO 14001:2015 Environmental all departments participated in this training. e ultimate objective was to improve Patient Experience for the Management System (EMS), ISO 9001:2015 Quality Management System (QMS) and also successfully transited hospital clients. e hospital subsequently recorded the highest number of raised and closed complaints ever. from ISO 22000:2005 to ISO 22000:2018 Food Safety management system. Regulatory NEMA and DOHSS audits • Installation of overhead broadcast speakers was completed to improve emergency (fire, cardiac arrest) response. were successfully conducted without any improvement orders raised against the hospital. • Last but not least, the Annual Charity Golf Tournament 2019 raised Kshs. 5 million for the Charity Heart Fund. 4 needy children were sponsored with free open heart surgeries from this fund. QUALITY SYSTEMS • e Hospital successfully transited to the new ISO standards, i.e. ISO 9001: 2015 and ISO 14001:2015 and was SUPPORT SERVICES certified by Kenya Bureau of Standards (KEBS). Our scope of certification was also extended to all the six (6) • e Food Safety Management (FMS) system was upgraded from ISO 22000:2005 to ISO 22000:2018. outpatient centres. We continued building capacity through internal auditors training, Environmental committee • In 2019, the Maintenance department continued to support equipment, facilities and utilities to ensure the training including Heads of Department and Divisional Heads. Hospital remains on course towards achieving its vision and mission objectives. • We also retained our Food Safety Management System (ISO 22000:2005) certification and have continued to • e revenue from external laundry grew by 37% from Ksh.30 million in 2018 to Ksh.41 million. Installation of influence our food products suppliers in implementing food safety standards. In 2019 we audited twelve (12) food launderette equipment comprising three washers and dryers was completed for the College of Health Sciences products suppliers and submitted recommendation on how they need to improve food safety in their processes. located at Anderson Building. • e Hospital has continually complied with applicable environmental and workplace legislations by conducting • Revenue generated by the Convention Centre grew by 33% from Ksh.23.4 million in 2018 to Ksh.31.2million in Environmental audits, Occupational Safety and Health (OSH) audits, OSH risk assessments and fire audits. 2019. No improvement order was raised against the Hospital during this period. We also partnered with various • e Gym realized 5% revenue growth from Ksh.4.2 million in 2018 to Ksh.4.4 million in 2019. emergency responders such as the Nairobi County Fire Brigade, National Disaster Management Unit and the Kenya Police to conduct three (3) fire drills and evacuation in the Hospital premises. 22 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

Overall the responders were impressed with the level of preparedness. No incidents were recorded during these drills.

• In order to improve our responsiveness in addressing reported complaints, incidents and non-conformance, we successfully rolled out and operationalized Q-pulse which is a compliance software. It allows us to track implementation of corrective action plans objectively and comprehensively.

INFORMATION, COMMUNICATION & TECHNOLOGY

Close collaboration with stakeholders and other business functions saw the realization of various technology driven initiatives in 2019. e following are the key highlights;

1. Oncology Information System TNH Oncology radiotherapy equipment was upgraded with the latest version of software and hardware to enable treatment of patient seeking radiotherapy with precision and quality. Patient scheduling was integrated with advanced features such as patient preparation and appointment scheduling. Additionally, Quality checks were enhanced through online checks with latest software for veriﬁcation and validation.

2. Electronic Medical Records Despite the initial challenges, we continued to improve the functionality of the Hospital Information Management System(HMIS) to increase process eﬃciencies along the patient journey. is included integrations to payment platforms, management of theatre consignment items among other initiatives. Eﬀorts are ongoing to modify the discharge process with the aim of improving the management of discharges and associated documentation.

3. Laboratory Information System (LIS) enhancement More instruments were interfaced to the LIS which made result entry seamless therefore minimizing human error through wrong entry of results. is is now augmented by test results being sent automatically to practitioners via email when results are ready.

4. Electronic Data Interchange (EDI) Systems Our efforts to improve efficiency at our front office was boosted with the integration of two additional platforms to our Health Information Management System. is initiative eased the process of verification of benefits, e-claims submission and tracking from more insurance companies. e Hospital is working on expanding the functionality of these platforms to also include payment remittance information on submitted e-claims in order to ease the process of reconciliations.

5. Radiology Information System (RIS) e second phase of the rollout of the Fujiﬁlm Radiology System was concluded in June 2019, with the delivery and installation of the server end infrastructure. In addition to providing service reliability, this enabled the Hospital to take advantage of the improved features in the market such as 3D image processing and mobility that were not available with the older version from Philips.

On a less positive front, we continued to experience the shortfalls of our current systems Kranium and Navision –primarily resulting in record reconciliation challenges. ese have impacted both turn around time for various services as well as debt collection from insurance payors. e Hospital is committed to embark on a digital transformation journey geared towards improving the patient engagement and experience, optimizing process eﬃciencies as well and investing in business intelligence solutions to inform decision making.

23 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CHIEF EXECUTIVE OFFICER’S STATEMENT Continued

GOING FORWARD As we move through 2020, the Hospital’s focus will be on sustained effort to drive robust governance structures and practices, staff motivation and development, disciplined cost containment strategies and responsible prioritization of capital investments. We will execute the 2019-2024 strategy in ernest & endeavour to get back on track even as we mitigate the impact of COVID-19. Further, we will refresh and enhance relations with Key stakeholder groups including our Admitting Staff, Health Insurance Industry partners among others. Success in these areas will drive quality patient care, which continues to be the pillar of the Hospital.

APPRECIATION I take this opportunity to acknowledge the contribution of the staff, Management and Partners of the Hospital who worked tirelessly and closely through 2019. My thanks go to the Chairman and Members of the Board of Management for their guidance and support; members of the Admitting Staff for their continued collegial support; our Supply and Payor partners for their timely responses that allow continuity of quality patient care; and last but not least, special thanks to the entire customer facing staff for their enduring commitment to provide excellent services to our clients.

Dr. Allan Pamba CHIEF EXECUTIVE OFFICER

31 July 2020

24 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

SENIOR MANAGERS

Dr. Allan Pamba Chief Executive Oﬃcer

Dr. Aysha Edwards Maxwell Maina Benta Omonge Ag. Director Medical Ag. Company Secretary Director Nursing Services Services & Research

Edward Tuitoek Samson Mwangi Dr. Dorcas Kiai Ag. ICT Director Finance Director Human Resources Director

25 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CORPORATE GOVERNANCE

PREAMBLE

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

e Nairobi Hospital Board of Management is responsible for the corporate governance of the Hospital and is accountable to Kenya Hospital Association members for ensuring that the Hospital complies with the laws and the highest standards of corporate governance and business ethics. e Board members attach great importance to 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 MANAGEMENT

e Board of Management is composed of non-executive members elected by KHA Members. e 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 strategic plans and annual budgets, set objectives and review key risk and performance areas. • Determine overall policies and processes to ensure integrity of the Hospital’s management of risk and internal contracts; and • Review at regular meetings Management’s performance against approved budget.

e full Board meets at least five times a year and the Chairman has bi-weekly meetings with the Chief Executive Officer. e 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. e Board nonetheless retains responsibility for establishing and maintaining the Hospital’s overall internal control, financial, operational and compliance framework.

26 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CORPORATE GOVERNANCE Continued

COMMITTEES OF THE BOARD

e Board has six standing committees, which meet regularly under the terms of reference set by the Board.

Audit and Risk Medical Advisory Finance and Investment Management Committee Committee Committee

ere is an Audit and Risk e Board has constituted a Medical ere is a Finance and Investment Management Committee Advisory Committee, which meets Committee constituted by the constituted by the Board. at least four times a year. Board. e Committee meets at least four Its membership comprises elected times a year. members of Admitting Staff, the Its membership comprises four Its membership comprises four Chief Executive Officer and the non-executive members, the Chief non-executive members and the Matron/Director of Nursing Executive Officer and the Finance Internal Audit Manager. Services. Director. e Internal Audit Manager attends when there are e external Auditors attend the Its responsibilities include the review audit issues. meeting when requested by the of professional standards, ethics and Committee. any patients’ complaints on the e Committee’s main performance of any consultant. responsibilities include: Its responsibilities include It also lays down rules of operating monitoring of internal controls and procedures and conduct. • Receiving and considering management of financial, exchange, the Association’s annual budget interest and other risks. e Medical Advisory Committee and monthly financial accounts; shall assist the Board in fulfilling its • Reviewing annual financial e internal audit department oversight responsibilities with regard statements; performs various activities in the to the policies and quality of clinical • Reviewing compliance with evaluation of risk management, care and clinical governance of the accounting standards; control and governance. Significant Hospital in line with global best • Considering recommendations for business risks in the systems and practices. capital expenditure; and financial controls are highlighted • Evaluating investment proposals and brought to the attention of the e Medical Advisory Committee before they are approved by the Audit and Risk Management has a mandate to conduct or Board. Committee, Senior Management authorize investigations into any and external auditors. matters within its scope of responsibility.

It is empowered to Continually review and formulate on behalf of the Board clinical care and clinical governance policies of the Hospital, identify international best practices with regard to clinical care and make recommendations to the Board and seek any information it requires to discharge its responsibilities.

27 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CORPORATE GOVERNANCE Continued

COMMITTEES OF THE BOARD

Human Resource Governance and Projects Monitoring and Committee Legal Committee Evaluation Committee

ere is a Human Resources is Committee of the Board was is Board Committee was Committee of the Board which established to enhance the established to review all projects and meets quarterly. effectiveness of Corporate make its recommendation to the Governance and ensure compliance Board. In doing that, the Committee e Committee is mandated to with relevant legislation and reviews the Master plan and review and formulate on behalf of practices. appreciates expansions for the the Board human resources policies Hospital as originally intended and for the Hospital on employee e Governance Committee is reviews the extent of projects resourcing, staff training responsible for advising the Board completed from the Master plan. development, staff welfare and on effective governance of the training, and organizational organization through developing e Committee shall give a schedule development. and reviewing governance policies of building/projects done and and procedures. completed from masterplan. It is further mandated to ensure the Hospital has in place Human e Committee ensures the e Board will also Report issues Resources strategic objectives and Members of the Board are trained around Projects completed to the that these are implemented. and properly inducted, regularly Board for action and make ensure the evaluation of the appropriate recommendations Its membership comprises five performance of the Board as a whole non-executive members, the Chief is done and evaluating the Executive Officer and the Human contribution of individual Resources Manager. members.

e Committee also does the following: • Monitor and advise the Board on developments of the immerging best practice of governance. • Take responsibility for the implementation of the Code of Conduct and Ethics and advise on matters of Conﬂict of interest. • Ensure the organization is legal and regulatory compliant.

28 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

CORPORATE GOVERNANCE Continued

INTERNAL CONTROLS

e Hospital has defined procedures and financial controls to ensure the reporting of complete and accurate accounting information. ese 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 ETHICS

e 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 MEMBERS

e Hospital is committed to ensuring that KHA members are provided with full and timely information about the Hospital. is 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. ere 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. W. Irungu Ndirangu Dr. Allan Pamba Chairman, Board of Management Chief Executive Oﬃcer

31 July 2020

29 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

OPERATING STATISTICS

Percentage

2019 2018 change HOSPITAL SERVICES

Beds available 350 346 1% Patients admitted 18,757 18,768 (0.1%) Average bed occupancy 72% 77% (7%) Total in-patient days 91,700 91,935 (0.3%) Average length of stay 5 days 5 days - Overall Out-patient totals 174,040 160,453 8%

Operations performed

Main theatre Major operations 4,104 4,424 (7%) Minor Operations 1,449 1,682 (14%) Total 5,553 6,106 (9%) Labour ward theatre Major operations 1,593 1,646 (3%) Minor Operations 382 428 (11%)

Total 1,975 2,074 (5%)

Day Surgery Total DSU Operations 2,333 2,088 12%

Births 2,835 3,326 (15%) Laboratory tests 698,981 700,571 (0.2%) Radiology services 96,857 99,671 (3%) Renal Unit Services 13,230 13,755 (4%) Endoscopy 8,741 7,123 23% Rehabilitation services 73,818 69,257 7% Pharmacy prescriptions 524,249 576,186 (9%) Oncology 24,696 24,039 3%

30 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

REPORT OF THE BOARD OF MANAGEMENT

e 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 31 December 2019, in accordance with the Kenyan Companies Act, 2015, which disclose the state of aﬀairs of the Association.

INCORPORATION e Association is incorporated under the Kenyan Companies Act as an Association Limited by Guarantee and is domiciled in Kenya.

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

BUSINESS REVIEW

Financial Performance e deficit for the year of Sh 824,601,000 (2018 – surplus of Sh 900,448,000) has been transferred to the operating fund. e deficit position is primarily from additional provisions on debtors and prepayments in line with International Financial Reporting Standards (IFRS) 9 of Sh 1.06 billion recorded in the year. Our debtor’s collection efficiency is being addressed to reverse these provisions in the coming year.

e business recorded a marginal growth on its revenue of 1% to Sh 11.2 billion up from Sh 11.1 billion the previous year. is was in the midst of a generally depressed macro environment, and an equally challenging internal business environment.

Principal risks and uncertainties e Board of management is constantly review whether the policies and risk management programs in place are appropriate and eﬀective to manage and minimize the exposure in the long term.

e risks that the company is exposed to include: • Financial Risks, these include the market risks, credit risk, foreign exchange fluctuations exposure and other regulatory risk that affect the market and financial sector operations which could have a ripple effect on the association. • Operational risk mainly include both internal and external factors that affect the company processes, personnel, technology and infrastructure. e legal and regulatory requirements can have a significant impact on the operations of the company. Demands from the Collective Bargaining Agreements (CBA) giving rise to increase in labour costs, different level of governance structures, which affect the state of the infrastructure among others impact operations of the association. • Social sustainability, which require development of policies and practices that promote co-existence of the association with both the internal and external stakeholders. e association continues to be actively and seriously involved in corporate social responsibilities within various communities.

Future outlook

e Hospital’s focus continues to be on quality patient care, which continues to be the pillar of the Hospital and it is this culture of service excellence that continues to strengthen our patient-focus, service delivery and processes to deliver healthcare with a diﬀerence as well.

31 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

REPORT OF THE BOARD OF MANAGEMENT Continued

e present members of the Board of Management are listed on page 10.

BOARD OF MANAGEMENTS’ STATEMENT AS TO INFORMATION GIVEN TO AUDITORS

Each of the persons who is a member of the Board of Management at the date of approval of this report conﬁrms that: • so far as the Board Member is aware, there is no relevant audit information of which the Association’s auditors are unaware; and • the Board Member has taken all the steps that he/she ought to have taken as a Board Member in order to make himself/herself aware of any relevant audit information and to establish that the Association’s auditors are aware of that information.

AUDITORS

Deloitte & Touché, having expressed their willingness, continue in oﬃce in accordance with the provisions of section 719 (2) of the Kenyan Companies Act, 2015. e Board of Management to monitor the eﬀectiveness, objectivity and independence of the auditor. e Board of Management also approve the annual audit engagement contract, which sets out the terms of the auditor's appointment and the related fees.

BY ORDER OF THE BOARD

Dr. W. Irungu Ndirangu Chairman, Board of Management

Nairobi, Kenya 2020

32 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

STATEMENT OF BOARD OF MANAGEMENT’S RESPONSIBILITIES

e Kenyan Companies Act, 2015 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. e 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.

e 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 2015. ey 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.

e 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 31st July 2020 and signed on its behalf by

______Dr. W. Irungu Ndirangu Hon. Dr. Chris M. N. Bichage Chairman, Board of Management Vice Chairman, Board of Management

33 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

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 36 to 73, which comprise the statement of financial activities, the statement of financial position as at 31 December 2019, 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 31 December 2019 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, 2015.

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

e Board of Management is responsible for the other information, which comprises the Chairman’s statement, the Chief Executive Oﬃcer’s Statement, the Corporate Governance Statement, Operating Statistics and the Report of Board of Management which were obtained to prior to the date of the auditor’s report. e 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.

Responsibilities of the Board of Management for the Financial Statements

e 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, 2015 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 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 Board of Management either intend to liquidate the Association or to cease operations, or have no realistic alternative but to do so.

34 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

INDEPENDENT AUDITORS’ REPORT Continued

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: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, 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. e 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; • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association's internal control; • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Management; • Conclude on the appropriateness of the Board of Management’s use of the going concern basis of accounting and, 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; and • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We 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.

Report on other matters prescribed by the Kenya Companies Act, 2015

In our opinion, the information given in the Report of the Board of Management on pages 31 to 32 is consistent with the ﬁnancial statements.

Certiﬁed Public Accountants (Kenya) Nairobi 2020

CPA Anne Muraya, Practising certiﬁcate No. 1697 Signing partner responsible for the independent audit

35 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

STATEMENT OF FINANCIAL ACTIVITIES (Including income & expenditure account) FOR THE YEAR ENDED 31 DECEMBER 2019

2019 2018 Note Sh’000 Sh’000

INCOME

OPERATING REVENUE 4 10,703,104 10,598,146

FINANCE INCOME 5(a) 252,034 225,893

OTHER INCOME 6 266,654 260,071

TOTAL INCOME 11,221,792 11,084,110

EXPENSES

DIRECT EXPENSES 7(a) (7,720,008) (7,130,861)

OTHER OPERATING EXPENSES 7(b) (4,244,948) (3,043,186)

FOREIGN EXCHANGE LOSS 5(b) (12,042) (9,615)

FINANCE COST 5(c) (69,395) -

TOTAL EXPENSES (12,046,393) (10,183,662)

(DEFICIT)/ SURPLUS 8 (824,601) 900,448

36 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2019

2019 2018 Note Sh’000 Sh’000

ASSETS Non-current assets Property and equipment 10 11,188,194 11,268,501 Intangible assets 11 137,989 98,303 Right of Use Asset 12 550,954 -

11,877,137 11,366,804

Current assets Inventories 13 805,675 841,153 Trade and other receivables 14(a) 1,543,706 1,508,363 Fixed deposits 15(c) 2,154,076 2,641,712 Cash and bank balances 109,490 26,196

4,612,947 5,017,424

Non-current liabilities Lease liabilities 16 545,141 - Current liabilities Lease liabilities 16 55,330 - Trade and other payables 17 2,677,517 2,347,531

Net current assets 2,732,847 2,347,531

Net assets 13,212,096 14,036,697

Fund Balances Operating fund 2,023,902 2,768,196 Capital investment fund 18 11,188,194 11,268,501

Total funds 13,212,096 14,036,697

e ﬁnancial statements on pages 36 to 73 were approved and authorized for issue by the Board of Management On 31 July 2020 and were signed on its behalf by:

______Dr. W. Irungu Ndirangu Hon. Dr. Chris M. N. Bichage Chairman, Board of Management Vice Chairman, Board of Management

37 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

STATEMENT OF CHANGES IN FUND BALANCES FOR THE YEAR ENDED 31 DECEMBER 2019

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

At 1 January 2018 2,781,911 10,354,338 13,136,249

Transfers to capital investment fund (note 18) (914,163) 914,163

Surplus for the year 900,448 - 900,448

At 31 December 2018 2,768,196 11,268,501 14,036,697

As at 1 January 2019 2,768,196 11,268,501 14,036,697

Transfers to capital investment fund (note 18) 80,307 80,307) -

Deﬁcit for the year (824,601 - (824,601)

At 31 December 2019 2,023,902 11,188,194 13,212,096

e capital investment fund represents the Association’s net investment in property and equipment and as disclosed in note 18 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.

38 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019

2019 2018 Note Sh’000 Sh’000

CASH FLOWS FROM OPERATING ACTIVITIES

Net cash generated from operations/operating activities 15(a) 451,055 1,712,549 Interest income received 5(a) 252,034 225,893

Net cash generated from operating activities 703,089 1,938,442

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment 10 (922,524) (1,789,652) Purchase of intangible assets 11 (77,351) (210) Proceeds of disposal of property and equipment 1,698 46

Net cash used in investing activities (998,177) (1,789,816)

CASH FLOWS FROM FINANCING ACTIVITIES

Payment of Lease Liabilities 16 (109,254) -

Net cash outﬂow from ﬁnancing activities (109,254) -

(DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (404,342) 148,626

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,667,908 2,519,282

CASH AND CASH EQUIVALENTS AT END OF YEAR 15(b) 2,263,566 2,667,908

39 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019

1 ACCOUNTING POLICIES

(a) Statement of compliance

e 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.

e 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. e 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)

Application of new and revised International Financial Reporting Standards (IFRSs)

(i) New and amended IFRS Standards that are eﬀective for the current year ended 31 December 2019

Impact of initial application of IFRS 16 Leases

In the current year, the Association has applied IFRS 16 (as issued by the IASB in January 2016) that is eﬀective for annual periods that begin on or after 1 January 2019.

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. e impact of the adoption of IFRS 16 on the financial statements is described below.

e date of initial application of IFRS 16 for the Association is 1 January 2019.

e Association has applied IFRS 16 using the cumulative catch-up transition method, without restating the comparative information. e Association has recognized lease liabilities at the date of initial application for leases previously classiﬁed as an operating lease applying IAS 17. e lease liabilities have been measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application.

e Association has recognised a right-of-use asset at the date of initial application for leases previously classiﬁed as an operating lease applying IAS 17. e Association has, on a lease-by-lease basis, measured the right-of-use asset at its carrying amount as if the Standard had been applied since the commencement date, but discounted using the Association’s incremental borrowing rate at the date of initial application.

40 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Continued

1 ACCOUNTING POLICIES 1 ACCOUNTING POLICIES (Continued)

(a) Statement of compliance Application of new and revised IFRSs (continued)

e financial statements are prepared in accordance with International Financial Reporting Standards and the requirements (i) New and amended IFRS Standards that are effective for the current year ended 31 December 2019 (continued) of the Kenyan Companies Act. Impact of initial application of IFRS 16 Leases (Continued) 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 (a) Impact of the new definition of a lease activities.

e preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It e Association has made use of the practical expedient available on transition to IFRS 16 not to reassess whether also requires the Board of Management to exercise its judgment in the process of applying the entity’s accounting policies. e a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will areas involving a higher degree of judgment, or where assumptions and estimates are significant to the financial statements, continue to be applied to those contracts entered or modified before 1 January 2019. are disclosed in note 2. e change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract (b) Adoption of new and revised International Financial Reporting Standards (IFRSs) and interpretations (IFRIC) contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. is is in contrast to the focus on 'risks and rewards' in IAS 17 and IFRIC 4. Application of new and revised International Financial Reporting Standards (IFRSs) (i) Former operating leases (i) New and amended IFRS Standards that are effective for the current year ended 31 December 2019 IFRS 16 changes how the Association accounts for leases previously classified as operating leases under IAS 17, Impact of initial application of IFRS 16 Leases which were off balance sheet.

In the current year, the Association has applied IFRS 16 (as issued by the IASB in January 2016) that is effective for Applying IFRS 16, for all leases (except as noted below), the Association : annual periods that begin on or after 1 January 2019. a) Recognises right-of-use asset and lease liabilities in the statement of financial position, initially measured at the IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes present value of the future lease payments; to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of b) Recognises depreciation of right-of-use asset and interest on lease liabilities in profit or loss; low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. e impact of the adoption of IFRS 16 on the financial statements is described below. c) Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing activities) in the statement of cash flows. e date of initial application of IFRS 16 for the Association is 1 January 2019. Lease incentives (e.g. rent-free period) are recognised as part of the measurement of the right-of-use asset and lease e Association has applied IFRS 16 using the cumulative catch-up transition method, without restating the liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive, amortised as a reduction of comparative information. e Association has recognized lease liabilities at the date of initial application for leases rental expenses generally on a straight-line basis. previously classified as an operating lease applying IAS 17. e lease liabilities have been measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial Under IFRS 16, right-of-use asset is tested for impairment in accordance with IAS 36. application. (ii) Former finance leases e Association has recognised a right-of-use asset at the date of initial application for leases previously classified as an operating lease applying IAS 17. e Association has, on a lease-by-lease basis, measured the right-of-use asset at e main differences between IFRS 16 and IAS 17 with respect to contracts formerly classified as finance leases is the its carrying amount as if the Standard had been applied since the commencement date, but discounted using the measurement of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Association’s incremental borrowing rate at the date of initial application. Association recognises as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. is change did not have a material effect on the Association’s financial statements.

41 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Continued

1 ACCOUNTING POLICIES (Continued) 1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued) Application of new and revised IFRSs (continued)

(i) New and amended IFRS Standards that are eﬀective for the current year ended 31 December 2019 (continued) (i) New and amended IFRS Standards that are eﬀective for the current year ended 31 December 2019 (continued)

Impact of initial application of IFRS 16 Leases (Continued) Impact of initial application of IFRS 16 Leases (Continued)

(a) Impact of the new deﬁnition of a lease (B) Impact on Lessor Accounting

IFRS 16 does not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify e Association has made use of the practical expedient available on transition to IFRS 16 not to reassess whether leases as either finance leases or operating leases and account for those two types of leases differently. However, IFRS a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will 16 has changed and expanded the disclosures required, in particular with regard to how a lessor manages the risks continue to be applied to those contracts entered or modified before 1 January 2019. arising from its residual interest in leased assets.

e change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. e contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of- use of time in exchange for consideration. is is in contrast to the focus on 'risks and rewards' in IAS 17 and IFRIC 4. asset arising from the head lease (and not breference to the underlying asset as was the case under IAS 17).

(i) Former operating leases e Association is not a sub lessor in any lease

IFRS 16 changes how the Association accounts for leases previously classified as operating leases under IAS 17, (c) Financial impact of the initial application of IFRS 16 which were off balance sheet. 2019 Sh’000 Applying IFRS 16, for all leases (except as noted below), the Association : Impact on profit or loss

a) Recognises right-of-use asset and lease liabilities in the statement of financial position, initially measured at the Decrease in rent expense (109,254) present value of the future lease payments; Increase in depreciation of right-of-use asset 89,376 Increase in finance cost 69,395 b) Recognises depreciation of right-of-use asset and interest on lease liabilities in profit or loss;

c) Separates the total amount of cash paid into a principal portion (presented within financing activities) and Increase in profit for the year 49,517 interest (presented within financing activities) in the statement of cash flows.

Lease incentives (e.g. rent-free period) are recognised as part of the measurement of the right-of-use asset and lease Impact on assets, liabilities and equity as at 1 January 2019 liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive, amortised as a reduction of As previously IFRS 16 After IFRS 16 rental expenses generally on a straight-line basis. reported adjustments adjustments Sh’000 Sh’000 Sh’000 Under IFRS 16, right-of-use asset is tested for impairment in accordance with IAS 36. Right-of-use asset - 640,330 640,330 (ii) Former finance leases Lease liabilities - 640,330 640,330 e main differences between IFRS 16 and IAS 17 with respect to contracts formerly classified as finance leases is the measurement of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Association recognises as part of its lease liability only the amount expected to be payable under a residual value Retained earnings - - - guarantee, rather than the maximum amount guaranteed as required by IAS 17. is change did not have a material effect on the Association’s financial statements. e application of IFRS 16 has an impact on the statement of cash flows of the Association. Under IFRS 16, lessees must present cash payments for the principal portion for a lease liability, as part of financing activities. Under IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, the net cash generated by operating activities has increased by Sh 150 million (2018: Sh Nil),

42 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 Continued

1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued)

(i) New and amended IFRS Standards that are eﬀective for the current year ended 31 December 2019 (continued)

Impact of initial application of IFRS 16 Leases (Continued)

IFRIC 23 Uncertainty over Income Tax Treatments e Association has adopted IFRIC 23 for the ﬁrst time in the current year. IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. e Interpretation requires the Association to: • determine whether uncertain tax positions are assessed separately or as a Association; and • assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax ﬁlings:

- If yes, the Association should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. - If no, the Association should reflect the effect of uncertainty in determining its accounting tax position using either the most likely amount or the expected value method.

e adoption did not have any impact on the disclosures or on the amounts reported in these ﬁnancial statements since the association is tax exempt.

ii) New and revised IFRS Standards in issue but not yet eﬀective

At the date of authorization of these ﬁnancial statements, e Association has not applied the following new and revised IFRS Standards that have been issued but are not yet eﬀective and in some cases had not yet been adopted by the:

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

IFRS 17-Insurance 1 January 2021, with earlier application permitted

Amendments to IAS 10 and IAS 28 Sale or Yet to be set, however earlier application permitted Contribution of Assets between an investor and its Associate or Joint Venture

Amendments to IFRS 3 Deﬁnition of a business 1 January 2020, with earlier application permitted

Amendments to IAS 1 and IAS 8- Deﬁnition of 1 January 2020, with earlier application permitted material

Conceptual Framework: Amendments to References 1 January 2020, with earlier application permitted to the Conceptual Framework in IFRS standards

43 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued)

ii) New and revised IFRS Standards in issue but not yet eﬀective(continued)

IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

e amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.

e eﬀective date of the amendments has yet to be set by the IASB; however, earlier application of the amendments is permitted. e directors anticipate that the application of these amendments may have an impact on the ﬁnancial statements in future periods should such transactions arise.

e Board of management are currently assessing the impact of these amendments and plan to adopt the amendments on the required eﬀective date if necessary.

Amendments to IFRS 3 Deﬁnition of a business

e amendments clarify that while businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a business. To be considered a business an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together signiﬁcantly contribute to the ability to create outputs.

Additional guidance is provided that helps to determine whether a substantive process has been acquired.

e amendments introduce an optional concentration test that permits a simpliﬁed assessment of whether an acquired set of activities and assets is not a business. Under the optional concentration test, the acquired set of activities and assets is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identiﬁable asset or Association of similar assets.

e amendments are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after the ﬁrst annual reporting period beginning on or after 1 January 2020, with early application permitted. e Board of management are currently assessing the impact of these amendments and plan to adopt the amendments on the required eﬀective date if necessary.

44 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued)

1 ACCOUNTING POLICIES (Continued) Application of new and revised IFRSs (continued)

Application of new and revised IFRSs (continued) ii) New and revised IFRS Standards in issue but not yet eﬀective(continued)

ii) New and revised IFRS Standards in issue but not yet effective(continued) Amendments to IAS 1 and IAS 8 Definition of material IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture e amendments are intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. e concept of ‘obscuring’ material information with e amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between immaterial information has been included as part of the new definition. an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from e threshold for materiality influencing users has been changed from ‘could influence’ to ‘could reasonably be the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture expected to influence’. that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting from the Amendments to References to the Conceptual Framework in IFRS Standards remeasurement of investments retained in any former subsidiary (that has become an associate or a joint venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit or loss only to the Together with the revised Conceptual Framework, which became effective upon publication on 29 March 2018, the extent of the unrelated investors’ interests in the new associate or joint venture. IASB has also issued Amendments to References to the Conceptual Framework in IFRS Standards. e document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, e effective date of the amendments has yet to be set by the IASB; however, earlier application of the amendments IFRIC 20, IFRIC 22, and SIC-32. is permitted. e directors anticipate that the application of these amendments may have an impact on the financial statements in future periods should such transactions arise. Not all amendments, however, update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to e Board of management are currently assessing the impact of these amendments and plan to adopt the indicate which version of the Framework they are referencing to (the IASC Framework adopted by the IASB in 2001, amendments on the required effective date if necessary. the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in the Standard have not been updated with the new definitions developed in the revised Conceptual Framework.

e amendments, where they actually are updates, are eﬀective for annual periods beginning on or after 1 January Amendments to IFRS 3 Deﬁnition of a business 2020, with early application permitted.

e amendments clarify that while businesses usually have outputs, outputs are not required for an integrated set of iii) Early adoption of standards activities and assets to qualify as a business. To be considered a business an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create e Association did not early-adopt any new or amended standards in 2019. outputs. e principal accounting policies applied in the preparation of the financial statements are set out below. ese Additional guidance is provided that helps to determine whether a substantive process has been acquired. policies have been applied consistently to all periods presented in these financial statements except for IFRS 9 and 15 that have been adopted in the current year. e amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Under the optional concentration test, the acquired set of Revenue recognition activities and assets is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or Association of similar assets. Income is recognized when rights and obligations of the service has been transferred to the customer being at the point when the patient receives the services at the hospital and is stated net of credit card commissions and prompt e amendments are applied prospectively to all business combinations and asset acquisitions for which the payment discounts. acquisition date is on or after the first annual reporting period beginning on or after 1 January 2020, with early application permitted. e Board of management are currently assessing the impact of these amendments and plan Entrance fees by new members are taken to income when received. Members’ subscriptions are recognized over a to adopt the amendments on the required effective date if necessary. period of time when the services are provided to the members.

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

Revenue from lease rental income is recognized when rights and obligations of the asset is transferred to the customer, that is being at the point in which the asset is utilised by the lessee. 45 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued)

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. e 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 improvements and 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 years Long 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 years CT scan and eatre equipment 5 years Computer equipment and motor vehicles 4 years Computer software 3 years

e 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. e 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.

46 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued) 1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued) Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued) iii) Early adoption of standards(continued)

Translation of foreign currencies Intangible assets

Transactions in foreign currencies during the year are converted into Kenya Shillings at rates ruling on the Intangible assets represent computer software and are stated at their historical cost less accumulated amortization transaction dates. Assets and liabilities at the reporting date, which are expressed in foreign currencies, are translated and any accumulated impairment losses. into Kenya Shillings at rates ruling at that date. e resulting differences from conversion and translation are dealt with in the statement of financial activities in the year in which they arise. 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. e useful life of intangible assets and the pattern of utilization of economic Property and equipment 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. All categories of property and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Leases

Depreciation on leasehold improvements and buildings is calculated on the straight-line basis to write down the cost (a) e Association as lessee over the remaining term of the lease as follows: e Association assesses whether a contract is or contains a lease, at inception of the contract. e Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which Short term lease - 12.5 years it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases Long term lease - 35.5 years of low value. For these leases, the Association recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time Depreciation on all other property and equipment is calculated on the reducing balance basis to write down the cost pattern in which economic benefits from the leased assets are consumed. of each asset to its residual value over its estimated useful life as follows: e lease liability is initially measured at the present value of the lease payments that are not paid at the Furniture, fittings and general equipment 8 years commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, CT scan and eatre equipment 5 years the Company uses its incremental borrowing rate. Computer equipment and motor vehicles 4 years Computer software 3 years Lease payments included in the measurement of the lease liability comprise: • Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; e cost of refurbishing the Association’s property is capitalized in the year in which it is incurred and depreciated • Variable lease payments that depend on an index or rate, initially measured using the index or rate at the over the remaining term of the leasehold property. commencement date; • e amount expected to be payable by the lessee under residual value guarantees; Properties in the course of construction for medical or other purposes are recorded as capital work in progress at • e exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and historical cost less any accumulated impairment losses. e cost of such assets includes professional fees and costs • Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to directly attributable to the asset. Such assets are not depreciated until they are ready for their intended use. terminate the lease.

Property and equipment are periodically reviewed for impairment. Where the carrying amount of an asset is greater e lease liability is presented as a separate line in the statement of financial position. e lease liability is than its estimated recoverable amount, it is written down immediately to its recoverable amount. subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and e Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use are taken into account in determining changes in the fund balances. asset) whenever: • e lease term has changed or there is a significant event or change in circumstances resulting in a change Linen, cutlery and crockery are written off in the year of purchase. in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. • e lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on 47 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued)

the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

e right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. ey are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reﬂects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. e depreciation starts at the commencement date of the lease.

e right-of-use assets are presented as a separate line in the statement of ﬁnancial position. e Company applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identiﬁed impairment loss as described in the ‘Property, Plant and Equipment’ policy.

Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset. e related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line “Other expenses” in proﬁt or loss.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. e Company has not used this practical expedient. For a contracts that contain a lease component and one or more additional lease or non lease components, the Company allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

(b) e Association as lessor

e Association enters into lease agreements as a lessor with respect to some of its investment properties. Leases for which the Association is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.

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.

48 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued) 1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued) Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued) iii) Early adoption of standards(continued)

the lease term of the modified lease by discounting the revised lease payments using a revised discount rate Financial instruments(continued) at the effective date of the modification. Trade receivables e right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. ey Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective are subsequently measured at cost less accumulated depreciation and impairment losses. interest method less provision for impairment. A provision for impairment of receivables is established using an ECL model in line with the requirements of IFRS 9 as outlined in the next section below. e amount of the provision is Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on the difference between the carrying amount and the present value of estimated future cash flows, discounted at the which it is located or restore the underlying asset to the condition required by the terms and conditions of the effective interest rate. e amount of the provision is charged to profit or loss. lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce Impairment of financial assets inventories. e Association measures loss allowance equal to lifetime expected credit losses for trade receivables held at Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. amortised cost as these receivables do not contain a significant financing component, since such receivables are If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the normally due for settlement within 90 days from invoice date. Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. e depreciation starts at the commencement date of the lease. Cash flows relating to short-term receivables (0-12 months) generally are not discounted, unless the effect of doing e right-of-use assets are presented as a separate line in the statement of financial position. e Company so would be material. e carrying amount of the asset should be reduced to its estimated recoverable amount applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment through use of an allowance account. e amount of the loss should be included in net profit and loss for the period. loss as described in the ‘Property, Plant and Equipment’ policy. As trade receivables are generally due within 90 days from invoice date, existing provision matrices/methodologies Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and incorporating both historical and forward looking information may be used to determine the lifetime expected credit the right-of-use asset. e related payments are recognised as an expense in the period in which the event or losses and therefore measuring the provision for doubtful debts for trade receivables is not expected to change under condition that triggers those payments occurs and are included in the line “Other expenses” in profit or loss. IFRS 9.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account (i) Significant increase in credit risk for any lease and associated non-lease components as a single arrangement. e Company has not used this practical expedient. For a contracts that contain a lease component and one or more additional lease or non lease At each reporting date, the Association measures the loss allowance for a trade receivable measured at components, the Company allocates the consideration in the contract to each lease component on the basis of amortized cost at an amount equal to the lifetime expected credit losses if the credit risk on that financial the relative stand-alone price of the lease component and the aggregate stand-alone price of the instrument has increased significantly since initial recognition. non-lease components. is assessment is made considering all reasonable and supportable information, including that which is (b) e Association as lessor forward looking. Indicators of significant increase in credit risk could include (but not limited to) any of the following: e Association enters into lease agreements as a lessor with respect to some of its investment properties. Leases for which the Association is a lessor are classified as finance or operating leases. Whenever the terms of the • significant financial difficulty lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a • an actual breach of contract, such as a default in interest or principal payments finance lease. All other leases are classified as operating leases. • a high probability of bankruptcy or other financial reorganization • the disappearance of an active market due to financial difficulties Financial instruments If there is no significant increase in expected losses, then a loss allowance for 12 months must be recognized. 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.

49 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued) 1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued) Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued) iii) Early adoption of standards(continued)

Financial instruments(continued) Financial instruments(continued)

Trade receivables (ii) Deﬁnition of default

Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective e Association considers the following as constituting an event of default for internal credit risk interest method less provision for impairment. A provision for impairment of receivables is established using an ECL managementpurposes as historical experience indicates that financial assets that meet either of the model in line with the requirements of IFRS 9 as outlined in the next section below. e amount of the provision is following criteria are generally not recoverable: the difference between the carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. e amount of the provision is charged to profit or loss. • when there is a breach of financial covenants by the debtor; or • information developed internally or obtained from external sources indicates that the debtor is Impairment of financial assets unlikely to pay its creditors, including the Association, in full (without taking into account any collateral held by the Association). e Association measures loss allowance equal to lifetime expected credit losses for trade receivables held at amortised cost as these receivables do not contain a significant financing component, since such receivables are Irrespective of the above analysis, the Association considers that default has occurred when a financial asset normally due for settlement within 90 days from invoice date. is more than 90 days past due unless the Association has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Cash flows relating to short-term receivables (0-12 months) generally are not discounted, unless the effect of doing e Association write-offs debt only when there objective evidence that the debt will not be recovered and so would be material. e carrying amount of the asset should be reduced to its estimated recoverable amount after it has exhausted its collection avenues. through use of an allowance account. e amount of the loss should be included in net profit and loss for the period. (iii) Measurement and recognition of expected credit losses As trade receivables are generally due within 90 days from invoice date, existing provision matrices/methodologies incorporating both historical and forward looking information may be used to determine the lifetime expected credit e measurement of expected credit losses is a function of the probability of default, loss given default (i.e. losses and therefore measuring the provision for doubtful debts for trade receivables is not expected to change under the magnitude of the loss if there is a default) and the exposure at default. e assessment of the probability IFRS 9. of default and loss given default is based on historical data adjusted by forward looking information as described above. (i) Significant increase in credit risk As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at At each reporting date, the Association measures the loss allowance for a trade receivable measured at the reporting date. amortized cost at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial recognition. For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Association in accordance with the contract and all the cash flows that the Association is assessment is made considering all reasonable and supportable information, including that which is expects to receive, discounted at the original effective interest rate. forward looking. Indicators of significant increase in credit risk could include (but not limited to) any of the following: e Association recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. • significant financial difficulty • an actual breach of contract, such as a default in interest or principal payments • a high probability of bankruptcy or other financial reorganization Financial liabilities • the disappearance of an active market due to financial difficulties Financial liabilities include and are initially measured at fair value, net of transaction costs. ey are subsequently If there is no significant increase in expected losses, then a loss allowance for 12 months must be recognized. measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

e effective interest method calculates the amortised cost of a financial liability and allocates interest expense over the relevant period. e effective interest rate is the rate that exactly discounts estimated future cash payment

50 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued) 1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued) Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued) iii) Early adoption of standards(continued)

Financial instruments(continued) Financial instruments(continued)

(ii) Definition of default through the expected life of the financial liability or where appropriate, a shorter period to the net carrying amount on limited recognition. e Association considers the following as constituting an event of default for internal credit risk managementpurposes as historical experience indicates that financial assets that meet either of the Trade payables following criteria are generally not recoverable: Trade payables are stated at their nominal value. • when there is a breach of financial covenants by the debtor; or • information developed internally or obtained from external sources indicates that the debtor is Cash and cash equivalents unlikely to pay its creditors, including the Association, in full (without taking into account any collateral held by the Association). 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. Irrespective of the above analysis, the Association considers that default has occurred when a financial asset is more than 90 days past due unless the Association has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. Impairment of non-financial assets

e Association write-offs debt only when there objective evidence that the debt will not be recovered and At each reporting date, the Association reviews the carrying amounts of its tangible and intangible assets to after it has exhausted its collection avenues. 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. (iii) Measurement and recognition of expected credit losses Where it is not possible to estimate the recoverable amount of an individual asset, the Association estimates the e measurement of expected credit losses is a function of the probability of default, loss given default (i.e. recoverable amount of the cash-generating unit to which the asset belongs. the magnitude of the loss if there is a default) and the exposure at default. e assessment of the probability of default and loss given default is based on historical data adjusted by forward looking information as Any impairment losses are recognized as an expense immediately. Where an impairment loss subsequently described above. reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. A reversal of an impairment loss is recognized as income immediately. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date. Inventories

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows Inventories, which comprise pharmaceutical drugs and medicines, catering supplies, general stocks, surgical that are due to the Association in accordance with the contract and all the cash flows that the Association supplies, laboratory and X-ray materials, are stated at the lower of cost and net realizable value. Cost is determined expects to receive, discounted at the original effective interest rate. on a weighted average cost basis. Net realizable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Goods in transit are stated at cost. e Association continuously monitors inventory e Association recognises an impairment gain or loss in profit or loss for all financial instruments with a for obsolescence through the periodic stock taking process. Obsolete stocks identified are written off in the period corresponding adjustment to their carrying amount through a loss allowance account. identified.

Employee entitlements Financial liabilities Employee entitlements to annual leave and gratuity are recognized when they accrue to employees. A provision is Financial liabilities include and are initially measured at fair value, net of transaction costs. ey are subsequently made for the estimated liability for such entitlements as a result of services rendered by employees up to the reporting measured at amortised cost using the eﬀective interest method, with interest expense recognised on an eﬀective yield date. e estimated monetary liability for employees’ accrued annual leave entitlements at the reporting date is basis. recognized as an expense accrual.

51 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

1 ACCOUNTING POLICIES (Continued)

Application of new and revised IFRSs (continued)

iii) Early adoption of standards(continued)

Financial instruments(continued)

Retirement beneﬁts obligations

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

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

Capital investment fund

is 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.

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.

e 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 reason able under the circumstances.

e estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

52 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

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

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 l iabilities 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 of ﬁnancial assets

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. e expected credit loss model requires the Association to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Speciﬁcally, IFRS 9 requires the Association to recognise a loss allowance for expected credit losses on:

• Trade receivables; • Bank balances.

In particular, IFRS 9 requires the Association to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit impaired financial asset. IFRS 9 also requires a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables

Determination of discount rate e Association on application of IFRS 16 as at 1 January 2019, applied a discount rate to each lease that was determined by taking into account the risk free rate, adjusted for factors such as credit rating linked to the life of the underlying asset.

Critical judgements in applying the Association’s accounting policies Determining the lease term of contracts with renewal and termination options e Association determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. e Association has several property lease contracts that include extension options.

e Association applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. at is, it considers all relevant factors that create an economic incentive for it to term if there is a signiﬁcant event or change in circumstances that is within its control and aﬀects its ability to exercise or not to exercise the option to renew or terminate. 53 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

3 FINANCIAL RISK MANAGEMENT

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

Credit risk

Credit risk is managed on a Association basis and arises from cash and cash equivalents, deposits with banks, as well as trade receivables.

Management assesses the credit quality of each customer, taking into account its ﬁnancial position, past experiences, repayment history and other factors.

Bad debts are monitored closely and are minimal and when occurs are fully provided for by the Association. e Association has no signiﬁcant concentrations of credit risk.

e credit risk on bank balances is limited because the counter parties are banks with high credit ratings assigned by banking regulatory authority.

e amount that best represents the Association’s maximum exposure to credit risk at 31 December 2019 is made up as follows:

Internal/ external 12 months or lifetime Gross carrying Loss Net Note rating ECL amount allowance amount Sh’000 Sh’000 Sh’000 31 December 2019 Lifetime ECL Trade receivables 14 Performing (simpliﬁed approach) 2,679,306 (1,692,763) 986,543

Doctors’ fees 14 Doubtful Lifetime ECL 569,285 (308,775) 260,510 prepayment (simpliﬁed approach)

Bank balances 15(b) Ba, Baa 12 months ECL 108,407 - 108,407

Fixed deposits 15(c) Ba, Baa 12 months ECL 2,156,149 (2,073) 2,154,076

5,513,147 (2,003,611) 3,509,536

54 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued 3 FINANCIAL RISK MANAGEMENT(Continued) Internal/ external 12 months or lifetime Gross carrying Loss Net Note rating ECL amount allowance amount Sh’000 Sh’000 Sh’000 31 December 2018 Lifetime ECL Trade receivables 14 Performing (simpliﬁed approach) 2,167,130 (942,691) 1,224,439

Bank balances 15(b) Ba, Baa 12 months ECL 22,795 - 22,795

Fixed deposits 15(c) Ba, Baa 12 months ECL 2,647,803 (6,091) 2,641,712

4,837,728 (948,782) 3,888,946 Credit risk(continued)

Bank balances and bank deposits

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

Trade receivables

e Association applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been Associationed based on shared credit risk characteristics and the days past due. e expected loss rates are based on the payment profiles of revenues over a period of 12 month before 31 December 2019 and the corresponding historical credit losses experienced within this period. e historical loss rates are adjusted to reflect current and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.

e Association has identiﬁed the Gross Domestic Product (GDP) to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. On that basis, the loss allowance as at 31 December 2019 was determined as follows for trade receivables:

More than More than More than 90 Total Current 30 days past due 60 days past due days past due

Expected loss rate 25% 50% 83% 75% 66%

Gross carrying amount - Trade Receivables (Sh’000) 373,865 213,050 142,924 1,949,467 2,679,306

Security/Cash deposits - - - (109,928) (109,928)

Payments in January 2020 - - - (493,510) (493,510)

Exposure at default (Sh’000) 373,865 213,050 142,924 1,839,539 2,569,378

Loss allowance (Sh’000) 94,921 106,737 118,475 1,372,630 1,692,763

55 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

3 FINANCIAL RISK MANAGEMENT(Continued)

Credit risk(continued)

As at 31 December 2018

More than More than More than 90 Total Current 30 days past due 60 days past due days past due

Expected loss rate 8% 11% 60% 100% 46%

Gross carrying amount - Trade Receivables (Sh’000) 571,953 513,085 328,102 753,990 2,167,130

Security/Cash deposits - - - (109,928) (109,928)

Exposure at default (Sh’000) 571,953 513,085 328,102 644,062 2,057,202

Loss allowance (Sh’000) 45,756 56,439 196,434 644,062 942,691

e Association’s credit facility to its individual customers are secured by bank guarantees and cash deposits.

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Association, and a failure to make contractual payments for a period of greater than 365 days past due. Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

Doctors’ fees Prepayment e Association applies the IFRS 9 simpliﬁed approach to measuring expected credit losses which uses a lifetime expected loss allowance for the doctors’ prepayment that was made during the year (2018: Nil). e prepayment was made against the doctors’ fees for which amounts are expected to be recovered from the Insurance companies that pay KHA directly.

More than More than More than 90 Total Current 30 days past due 60 days past due days past due

Expected loss rate 21% 46% 82% 100% 62%

Gross carrying amount -Doctors’ fees prepayments (Sh’000) 81,935 87,337 37,206 362,807 569,285

Cash recovered from third parties - - - (141,851) (141,851)

Exposure at default (Sh’000) 81,935 87,337 37,206 220,956 427,434

Loss allowance (Sh’000) 16,966 40,239 30,614 220,956 308,775

56 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

3 FINANCIAL RISK MANAGEMENT(Continued)

Market Risk (i) Foreign exchange risk e association undertakes certain transactions denominated in foreign currencies. Exchange rate exposures are managed within approved policy parameters.

e carrying amounts of the association’s foreign currency denominated monetary assets and liabilities at the end of each reporting period as follows:

USD GBP EURO Total

Sh‘000 Sh‘000 Sh‘000 Sh‘000

2019

Bank and cash balances 78 33 30 141

Trade payables (516) (6) (520) (1,042)

USD GBP EURO Total

Sh‘000 Sh‘000 Sh‘000 Sh‘000

2018

Bank and cash balances 190 6 33 229

Trade payables (897) (114) (57) (1,068)

Foreign exchange risk - appreciation/depreciation of Sh against other currencies by 5%.

e following sensitivity analysis shows how deﬁcit and operating fund would change if the market risk variables had been diﬀerent on the balance sheet date with all other variables held constant.

2019 2018 Sh’000 Sh’000 Effect on Effect on Effect on Effect on deficit operating deficit operating fund fund Currency- US dollars + 5 percentage point movement 22 22 35 35 -5 percentage point movement (22) (22) (35) (35)

Currency-GB Pounds + 5 percentage point movement 1 1 5 5 -5 percentage point movement (1) (1) (5) (5)

Currency-Euro + 5 percentage point movement 25 25 1 1 -5 percentage point movement (25) (25) (1) (1)

57 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

3 FINANCIAL RISK MANAGEMENT(Continued)

(ii) Interest rate risk management

e Association invests in ﬁxed deposits whose rates are not variable and does not have any bank borrowings therefore not susceptible to interest rate risk

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. e Association manages liquidity risk by maintaining adequate banking facilities as well as through continuous monitoring of forecast and actual cash ﬂows.

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

6 months Between 6 or on months and demand 1 year More than 1 year Total Sh’000 Sh’000 Sh’000 Sh’000

As at 31 December 2019

Trade payables 1,484,390 - - 1,484,390 Lease liabilities 27,665 27,665 545,141 600,471

1,512,055 27,665 545,141 2,084,861

As at 31 December 2018

Trade payables 1,441,441 - - 1,441,441

Capital risk management

e 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. is ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. e Hospital did not have any borrowings as at 31 December 2019 and as at 31 December 2018. Fund balances comprise operating fund and capital investment fund.

58 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

4 OPERATING REVENUE

2019 2018 Sh’000 Sh’000

Medicine & Drugs 3,332,318 3,463,905 In-patient bed fees 1,519,599 1,530,384 Laboratory 2,050,519 1,924,079 Radiology 882,456 833,146 Surgical 1,078,552 1,129,427 eatre 362,439 356,591 Accident and emergency 797,901 696,321 Physical medicine 258,621 265,882 Endoscopy and oxygen 219,870 197,523 Cancer care and treatment 205,620 220,695

10,707,895 10,617,953 Less: Patients discounts (4,791) (19,807)

Total Operating Revenue 10,703,104 10,598,146

5 (a) INTEREST INCOME

Interest income earned on bank deposits – held to maturity 247,626 221,756

Interest income earned on the current accounts 4,408 4,137

252,034 225,893

5 (b) NET FOREIGN EXCHANGE LOSS

Foreign exchange gain (722) (11,668) Foreign exchange loss 12,764 21,283

12,042 9,615

5 (c) FINANCE COSTS

Interest on lease liabilities (note 16) 69,395 -

59 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

2019 2018 6 OTHER INCOME Sh’000 Sh’000

Rent 66,970 70,147 Miscellaneous income* 17,623 11,763 Laundry income 37,813 30,847 Parking income 17,868 21,042 Convention Centre Income 28,862 21,567 Bad debt recovery income 1,328 5,402 Health & Fitness Centre income 4,650 3,921 Commission on doctor’s fees** 16,378 10,063 Prompt payment income 332 704 Student fees – Nursing School 58,013 58,189 KHA members’ subscriptions 6,508 6,980 Staﬀ canteen sales 10,309 19,446

266,654 260,071

*Miscellaneous income is derived from tender fees, sale of empty containers, boxes and jerry cans, and requests for medical reports. *Commission on doctor’s fees represents a 1% administration fee

60 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

7 EXPENSES (a) Direct expenses

2019 2018 Sh’000 Sh’000

Staﬀ costs (note 9) 2,732,569 2,409,926 Medicine 1,801,379 1,837,181 Surgical materials 882,443 759,563 Depreciation on right of use asset (note 12) 89,376 - Depreciation of property and equipment 660,523 607,975 Laboratory materials 461,731 435,132 Repairs and maintenance 320,001 239,405 Water, light and fuel 167,507 141,258 Catering and foodstuﬀs 149,312 201,279 Rent and rates 37,284 99,501 Cleaning services 55,739 51,261 X-ray and CT Scan materials 97,416 100,206 Oxygen 57,128 37,399 Printing and stationery 94,930 88,306 Cathlab materials 1,590 31,572 Linen, and laundry 63,944 50,106 Amortization of intangible assets 47,136 40,791

7,720,008 7,130,861

61 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

7 EXPENSES(Continued) (b) Other operating expenses

2019 2018 Sh’000 Sh’000

Staff costs (note 9) 1,366,079 1,204,782 Depreciation 148,047 124,525 Repairs & renewals 40,877 41,589 General expenses 248,631 211,206 Water, light & fuel 111,671 94,172 Marketing & promotion 124,976 91,741 Catering & foodstuffs 58,066 78,275 Legal & professional 293,323 275,585 Printing & stationery 63,287 58,871 Cleaning services 37,160 34,174 Telephone & postage 32,486 28,733 Security charges 56,371 58,304 Impairment charge for bad and doubtful debt (note 14(b)) 1,058,847 441,232 (Write back)/impairment charge for bank deposits (4,018) 373 Insurance 16,453 11,035 Amortization 9,654 8,355 Bank charges 19,949 15,968 Audit fees (Including VAT) 6,811 5,921 Credit card charges 29,019 34,263 Loss on disposal of assets 11,275 132 Rent & rates 4,143 11,056 Transport 16,507 24,266 License fees 36,496 85,612 Accreditation expense 5,748 2,023 Discounts received from Suppliers - (10) Write off of Capex 161,875 96,532 Masterplan expenses 291,215 4,471

4,244,948 3,043,186

62 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

8 SURPLUS OF INCOME OVER EXPENSES e surplus of income over expenses

2019 2018 Sh’000 Sh’000

Staﬀ costs (note 9) 4,098,648 3,614,708 Depreciation (note 10) 808,570 732,500 Amortization of computer software (note 11) 57,078 49,146 Audit fees (including VAT) 6,811 5,921 Impairment charge for bad and doubtful debt (note 14(b)) 1,058,847 441,232 (Write back)/impairment charge for bank deposits (4,018) 373 Depreciation on right of use asset (note 12) 89,376 - Interest on lease liability ( note 16) 69,395 -

9 STAFF COSTS Salaries and wages 3,441,811 2,998,970 Retirement benefits - defined contribution scheme 258,093 234,337 Staff medical 230,313 216,712 Staff welfare 48,429 38,895 Staff training 83,500 81,505 Staff uniforms 18,568 9,618 Association life and personal accident cover 11,537 26,656 Staff recruitment 2,439 3,702 Social security contributions 3,958 4,313

4,098,648 3,614,708

Classiﬁed as follows:

Direct expenses – note 7(a) 2,732,569 2,409,926 Operating expenses – note 7(b) 1,366,079 1,204,782

4,098,648 3,614,708

63 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

10 PROPERTY AND EQUIPMENT

Furniture ﬁttings and Capital Leasehold Medical other Motor work in Buildings improvements equipment equipment Computers vehicles Progress* Total Sh '000 Sh '000 Sh '000 Sh'000 Sh '000 Sh '000 Sh '000 Sh '000

At 1 January 2018 7,040,128 406,059 2,984,490 2,045,638 352,152 63,190 1,432,479 14,324,136 Additions 157,889 56,596 551,638 98,819 38,394 - 886,316 1,789,652 Transfers from WIP 851,600 245,678 4,056 154,526 - - (1,255,860) - Transfers to intangible assets(note 11) ------(46,279) (46,279) Disposals - - - (613) - - - (613) Write oﬀs* ------(96,532) (96,532)

At 31 December 2018 8,049,617 708,332 3,540,184 2,298,370 390,545 63,190 920,123 15,970,363

At 1st January 2019 8,049,617 708,332 3,540,184 2,298,370 390,545 63,190 920,123 15,970,363 Additions 87,128 - 367,571 84,949 90,591 663 291,622 922,524 Transfers from WIP 385,813 5 - - - - (376,970) - Transfer to software ------(19,413) (19,413) Disposals - - (22,467) (34,402) (13,561) - - (70,430) Write oﬀs* (125,660) - - 2,735 (552) - (51,157) (174,634)

At 31 December 2019 8,388,050 708,338 3,885,288 2,351,652 467,024 63,853 764,205 16,628,410

64 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued 10 PROPERTY AND EQUIPMENT(Continued) Furniture ﬁttings and Capital Leasehold Medical other Motor work in Buildings improvements equipment equipment Computers vehicles Progress* Total Sh '000 Sh '000 Sh '000 Sh'000 Sh '000 Sh '000 Sh '000 Sh '000 DEPRECIATION At 1 January 2018 643,591 301,341 1,935,793 789,153 256,790 43,129 - 3,969,797 Charge for the year 220,963 23,115 275,991 178,771 28,638 5,022 - 732,500 Disposals - - - (435) - - - (435)

At 31 December 2018 864,554 324,456 2,211,784 967,489 285,428 48,151 - 4,701,862

At 1st January 2019 864,554 324,457 2,211,785 967,488 285,427 48,151 - 4,701,861 Charge for the year 236,550 53,165 299,481 173,605 41,982 3,787 - 808,570 Disposals - - (19,449) (25,279) (12,729) - - (57,457) Write oﬀs* (11,311) - - (1,208) (240) - - (10,176)

At 31 December 2019 1,089,793 377,621 2,491,816 1,114,607 314,441 51,938 - 5,440,216

NET BOOK VALUE At 31 December 2019 7,298,257 330,717 1,393,472 1,237,045 152,583 11,915 764,205 11,188,194

At 31 December 2018 7,185,063 383,877 1,328,400 1,330,881 105,118 15,039 920,123 11,268,501

*As at 31 December 2019, the write offs of Sh 96.5 Million relate to capital work in progress for discontinued projects. (As at 31 December 2018, assets whose NBV was 25 Million were written off following a fixed assets verification exercise during the year).

65 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

10 PROPERTY AND EQUIPMENT (Continued)

Capital work in progress represents costs incurred on various construction works being carried out under the hospital master plan. ese include the construction of the Central Core/ Western Entrance, Paediatric Centre and road and civil works.

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

11 INTANGIBLE ASSETS – COMPUTER SOFTWARE

2019 2018 Sh’000 Sh’000

COST At 1 January 183,342 136,852 Additions 77,351 210 Transfers from property and equipment (note 10) 19,413 46,279

At December 280,106 183,341

AMORTISATION At 1 January 85,039 35,892 Charge for the year 57,078 49,146

At 31 December 142,117 85,038

NET BOOK VALUE At end of year 137,989 98,303

*e software additions during the year mainly relate to Radiology system, Labware and SPSS software

66 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

12 RIGHT –OF-USE-ASSET

e Association leases oﬃce space. Information about the leases in which the Association is a lessee is presented below: 2019 2018 Buildings Buildings Sh’000 Sh’000 COST At 1 January as previously reported - - Adjustment on adoption of IFRS 16 640,330 -

At December 640,330 -

DEPRECIATION At 1 January - - Charge for the year 89,376 -

At 31 December 89,376 -

NET BOOK VALUE At end of year 550,954 -

e buildings average lease term is 8 years (2018, 8 years).

e various lease agreements do not provide for purchase options on expiry of the lease terms. No restrictions have been imposed by the lessors on the Association in respect to dividend pay outs, borrowings or further leasing. Amounts recognised in the proﬁt and loss are as follows:

Depreciation expense on right-of-use asset 89,376 - Interest expense on lease liabilities 69,395 - Expenses relating to leases with variable payments 15,765 - Service Charge Expenses 25,345 - Cash outﬂow for leases (109,254) -

67 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

13 INVENTORIES 2019 2018 Sh’000 Sh’000

Pharmaceutical drugs and medicine 371,904 417,473 Surgical consumables 233,884 252,416 Laboratory materials 118,656 91,582 Other stores 75,573 68,904 Food and drinks 5,658 10,778

805,675 841,153

14 TRADE AND OTHER RECEIVABLES

(a) Analysis of trade and other receivables

Patient fees receivable 2,679,306 2,167,130 Other receivables 227,129 225,280 Doctors’ fees prepayments 569,285 - Other Prepayments 69,524 58,644 Provision for bad and doubtful debts (note 13(b)) (2,001,538) (942,691)

Net trade and other receivables 1,543,706 1,508,363

(b) Movement in provision for bad and doubtful debts

At 1 January 942,691 501,460 Additional provisions during the year (note 7 (c)) 1,058,847 441,231

At 31 December 2,001,538 942,691

68 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

15 NOTES TO THE STATEMENT OF CASH FLOWS (a) Reconciliation of surplus for the year to cash generated from operations

2019 2018 Sh’000 Sh’000

(Deﬁcit)/surplus for the year (824,601) 900,448 Adjustments for: Depreciation of property and equipment (note 10) 808,570 732,500 Depreciation of right of use asset (note 12) 89,376 - Interest on lease liabilities (note 16) 69,395 - Amortization of intangible assets (note 11) 57,078 49,146 Loss on disposal of equipment 11,275 132 Loss on write oﬀ of assets 161,875 96,532 Interest income (252,034) (225,893) IFRS 9 Day 1 Impairment adjustment through operating fund - (170,930)

Working capital changes: Decrease/(increase) in inventories 35,478 (143,602) (Increase)/decrease in trade and other receivables (35,343) 687,165 Increase/(decrease) in trade and other payables 329,986 (212,949)

Cash generated from operations 451,055 1,712,549

(b) Analysis of cash and cash equivalents:

Cash at hand 1,083 3,401 Bank balances 108,407 22,795

Cash and bank balances 109,490 26,196 Fixed deposits (note 15(c)) 2,154,076 2,641,712

2,263,566 2,667,908

69 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

15 NOTES TO THE STATEMENT OF CASH FLOWS (Continued) (c) Fixed deposit maturity details were as follows:

2019 2018 Sh’000 Sh’000

Maturing within three months 2,156,149 2,647,803 Provision for expected credit losses (2,073) (6,091)

2,156,149 2,641,712

e short-term deposits are held with local ﬁnancial institutions. e weighted average eﬀective interest rate on the deposits as at 31 December 2019 was 8.85%, (2018 – 9.2 %).

16 LEASE LIABILITIES

At 1 January – as previously reported - - Eﬀect of adoption of IFRS 16 640,330 -

At 1 January - restated 640,330 -

e movement in the lease liabilities is as follows:

At 1 January - restated 640,330 - Interest on lease liabilities 69,395 - Payment of lease liabilities (109,254) -

At 31 December 600,471 -

Amounts due for settlement within 12 months 55,330 - Amounts due for settlement after 12 months 545,141 -

600,471 -

70 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

16 LEASE LIABILITIES (Continued) 2019 2018 Sh’000 Sh’000 Maturity Analysis for lease liability plus interest Year 1 119,353 - Year 2 126,495 - Year 3 131,913 - Year 4 132,478 - Year 5 128,335 - Year 6 222,937 -

861,511 - Less: Unearned Interest 261,040 -

Net Lease liability 600,471 -

e Association does not face a signiﬁcant liquidity risk with regards to its lease liabilities. Lease liabilities are monitored within the Association’s ﬁnance function. All lease obligations are denominated in Kenya Shillings.

17 TRADE AND OTHER PAYABLES Trade payables 1,484,390 1,441,441 Corporate deposits 110,211 109,928 Other payables 799,789 339,661 Accrued expenses 283,127 456,501

2,677,517 2,347,531

18 CAPITAL INVESTMENT FUND (c) Fund analysis At 1 January 11,268,502 10,354,338 Transfer from operating fund (80,307) 914,163

At 31 December 11,188,194 11,268,501

Represented by

Net book value of property and equipment (note 10) 11,188,194 11,268,501

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

71 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

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

20 RELATED PARTY TRANSACTIONS Key management compensation e remuneration of key management during the year was as follows: 2019 2018 Sh’000 Sh’000

Salaries and other beneﬁts 122,413 131,728

21 OPERATING LEASE ARRANGEMENTS Operating leases, in which the company is the lessor, relate to property owned by the company with lease terms of between 5 to 10 years on extension option. e future minimum lease payments receivable under non-cancellable operating leases, with various tenants at the Nairobi Doctors Plaza are as follows: Receivable within one year 68,117 66,971 Receivable between two and ﬁve years 136,631 231,523

204,748 298,494

During the year Shs 66,971,000 (2018: Shs 70,147,000) was recognized as rental income in the proﬁt or loss.

22 COMMITMENTS AND CONTINGENCIES

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

Authorized and contracted for 881,121 1,262,032 Authorized but not contracted for 890,773 729,677

b) Contingent liabilities ere are various civil suits ﬁled against the Association by various parties in the normal course of business.

Pending lawsuits 82,358 83,640

e above claims 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

72 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

NOTES TO THE FINANCIAL STATEMENTS Continued

23 KHA MEMBERSHIP

Membership entry fee for the Kenya Hospital Association is Sh 10,000. e cost of subscription is Sh 5,000 per annum for those under 60 years and Sh 3,000 per annum for those who are 60 years and above. ose 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.

24 CURRENCY

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

25 EVENTS AFTER THE REPORTING DATE

In March 2020, the World Health Organization (WHO) officially declared the recent global outbreak of a novel strain of COVID-19 Coronavirus as a pandemic. is health hazard has resulted in significant governmental measures and caused disruption to the financial markets and global economy. At present, the market has been affected due to disruptions in demand, and this has affected the Association. e extent of the impact of COVID-19 on the business and financial results will depend largely on future developments, including the duration and spread of the outbreak and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.

e Board of management closed some of the out patients clinics and are monitoring the situation but are presently unable to quantify the impact of this matter on the aﬀairs of the Association as it is still evolving, further, the Board of management have determined that the event is non-adjusting.

e hospital has secured support from the United Nations to put up a COVID 19 Treatment Facility. A ﬁrst of its kind, the ultra-modern COVID 19 Treatment Facility gives us increased capacity to manage the diplomatic community as well as Kenyans who require specialized COVID 19 management.

e Association has performed a line-by-line analysis of the statement of ﬁnancial position to assess whether the current uncertainty may impact any of the amounts presented as at 31 December 2019 as highlighted below.

Due to the uncertainty arising from the ﬂuid nature of the situation, it is not practicable for the directors to reliably measure the impact on the balances at future reporting dates.

Expected credit loss (ECL)

e impact of this outbreak on the macroeconomic forecasts will be incorporated into the Company’s IFRS 9 estimates of expected credit loss provisions in 2020. is has no eﬀect on the company ﬁnancial Statements as at 31 December 2019.

73 Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

PROXY FORM KENYA HOSPITAL ASSOCIATION

I, of being a member of the above-named Association hereby appoint

of Mobile Number or failing him of Mobile Number as my proxy to vote for me on my behalf at the Annual General Meeting of the Association to be held on 3rd September 2020 and at any adjournment thereof.

is form is to be used in respect to Section 298 (1) of the Companies Act. Unless instructed otherwise, the proxy may vote as he thinks ﬁt or abstain from voting in respect of one or more resolutions set forth during the meeting.

Signed this ………………………………...... … day of ………………...………………. 2020

Signature: ------

Membership Number ------

Name of Member: ------

Mobile No of Member: ------

Note: 1 e 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 and four Individual Members at the same time.

Note: 3 No Individual Member 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

Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

Notes

Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

Notes

Annual Report And Financial Statements For the year ended 31 December 2019 KENYA HOSPITAL ASSOCIATION

Notes

Annual Report And Financial Statements For the year ended 31 December 2019 COVID - 19

Inform a health worker if you have a history of travel to / or residence in a country area or territory that has reported local transmission of COVID - 19 disease during the last 14 days

e Nairobi Hospital @ eNairobiHosp Argwings Kodhek Road P.O.Box 30026 - 00100 Nairobi, Kenya

Main Hospital Tel: +254 20 2845000/6000 Cell lines: +245 703 082000 / +254 0730 666000 Email: [email protected] Website: www.thenairobihospital.org

e Nairobi Hospital @ eNairobiHosp