Reading the Nairobi Hospital tea leaves

What does a read of The Nairobi Hospital, which is probably the top hospital in East Africa, tell us about the state of medical investments here? The Nairobi Hospital (NH) was founded in 1954, and it, alongside Aga Khan Hospital,  is where top leaders, politicians from Kenya and the East Africa region are treated. It is also where middle-class Kenyans, tourists, and anyone with private medical insurance is treated or operated on.

Nairobi Hospital room

But treatment at Nairobi Hospital is not cheap; , a few days stay without surgery will cost about Kshs 300,000 (about $3,000) and a night in the intensive care unit (ICU ) is about Kshs 500,000!
Kenyans who have medical conditions have discovered that traveling to India for surgery, medicine, and other complex treatment procedures is a better option, even after one factors in the cost of travel for patient and relatives who oversee the patient.
Anyway, how does the Nairobi Hospital (officially registered as the Kenya Hospital Association) in 2016 compare to a few years earlier with the hospital’s 2009 report?
  • Turnover was Kshs 8.79 billion (~$88 million), up from 8.0 billion in 2015.
  • They had a surplus of Kshs 1.3 billion  ($13 million) up from Kshs 1.06 billion, but below the Kshs 1.4 billion in 2014.
  • Some income items: Pharmacy income was 2.5 billion (a 13% growth on the previous year) and the pharmacy had 60% growth in chemotherapy sales thanks to NHIF package (partnership with NHIF has opened doors to our brothers and sisters who would otherwise have not received world class health services. This has seen a rise in number of patients accessing their preferred health care in our Cancer Center, Renal Unit and Catheterization Laboratory. Laboratory income was Kshs 1.4 billion (they have also implemented o shore reporting from India for CT scan, MRI and mammography). Physiotherapy revenue was Kshs 246 million, and accident and emergency revenue was Kshs 374 million (53% of visits were done in 75 minutes and they plan to reduce the waiting time).
  • Some expense items: The Nairobi Hospital paid salaries of Kshs 2.5 billion (compared to Kshs 2.1 billion in 2015) and they added 276 staff in the year (including 128 nurses), a CEO, Company Secretary, and a Security Manager. Key management compensation dropped from Kshs 130 million to Kshs 93 million (in 2015) – and does that difference correspond to the salary of the outgoing CEO who left to become Kenya’s Cabinet Secretary for Health? They also bought medicine worth Kshs 1.7 billion, paid cleaning costs of Kshs 71M, Oxygen with 41M and paid Kshs 21 million to credit card companies
  • The Nairobi Hospital invested Kshs 2.1 billion in projects such as pharmacy, water storage, parking, nurses accommodation, roads, fencing, and kitchen improvements. They also hired a marketing agency to improve the image and awareness about services at the hospital and participated in news interviews, features, and social media.  
  • Some operational numbers for the hospital: They had 154,760 visits to accident & emergency centre, carried out 685,802 lab tests, handed out 354,296 prescriptions, and did 98,198 radiology procedures. They had 18,386 admissions, had 2,730 births (a 17% decline from the year before), and did 7,990 major operations and 1,975 minor ones. They also an occupancy level of 79%, which was down from 81% on their 299  beds, and they retained their customer satisfaction measure of 89%.  The relocation of their ICU / HDU units temporarily reduced capacity from 356 to 299 beds. 
  • On the finance side, they had cash and equivalents of Kshs 2.7 billion (down from 3.5 billion) but still a very healthy liquidity position. They also had Kshs 399 million at Imperial Bank and had Kshs 280 million of doubtful debts (up from 240 million), and Kshs 24 million in foreign exchange losses from currency fluctuations.  
  • The new Nairobi Hospital CEO wrote that his strategy would revolve around talent, technology, turnaround and territory (new location to enhance service). On the health industry, which contributes 6% to GDP, he wrote that income at the Kenya government’s National Hospital Insurance Fund (NHIF) had more than doubled to Kshs 28.5 billion in 2016 thanks to new rates levied on Kenyan workers and that there were 172,706 health personnel in Kenya in 2016.
 
Website of the Nairobi Hospital.  

Kengen the Geothermal Powerhouse

Kenya is the only African country that has successfully tapped the green energy potential of geothermal power and is ranked number eight in the world. Kenya’s 676MW geothermal output trails that of the USA (3,567MW) Philippines, Indonesia, New Zealand, Italy, Mexico, Turkey, and ahead of Iceland, and Japan.

The bulk of this geothermal power comes from the Kenya Electricity Generating Company (Kengen) which supplies 1.6GW (80%) of the country’s 2.3GW electricity output. Of that 533MW is from geothermal energy, primarily from the Olkaria area near Naivasha, where the first wells were dug in 1950 and their deployment and production accelerated after 2007.

Kengen has 294 drilled walls with an 80% success rate, and part of that leap has been due to a Kengen-pioneered “wellhead technology”, which was done in partnership with Green Energy, an Icelandic company. Wellhead technology allows Kengen to tap steam energy within a year or two of sinking a well and recoup their investments faster (it usually costs $6 million to dig a well). In all, Kengen generates 75MW from 7 wellhead stations at Olkaria and one at Eburu.

Kengen’s Olkaria IV geothermal power plant.

In terms of electricity generation, Kengen plans to have supply stay ahead of demand especially considering the long setup time for energy plants (about seven years). With funds raised from shareholders and investors in 2016, they plan to add 1,000 MW to reach 1,745MW by the year 2025.

Kenya has an estimated 10,000 MW of geothermal power potential, and geothermal steam allows high energy demand manufacturing such as steel, cement and glass processing take place. These are currently hampered by the high costs of electricity, but the separation processes of geothermal gases means that such companies can tap steam to use at their factories nearby and this is the strategy behind a planned Kengen industrial park at Olkaria, Naivasha. Already Oserian Flowers buys steam and pipes it to heat their greenhouses in the nearby area.

As at  June 2017, Kengen had a diversified mix of installed energy sources comprising Hydro 818 MW (including Masinga 40 MW , Kamburu 94.2MW, Gitaru 225MW, Kindaruma 72MW, Kiambere 168MW, Turkwel 106MW,  Sondu 60MW,  Sangoro 21.2MW, Tana 20MW), Geothermal 534 MW (Olkaria I 45 MW, Olkaria II 105MW, Olkaria IV 149.8MW, Olkaria I AU 150.5MW), Thermal 253.5 MW (Kipevu I 73.5MW, Kipevu III 120MW, gas turbines 60MW) and wind power 25.5MW (three phases at Ngong Hills).

Kenya has a liberated energy production market, and other private sector players in the geothermal sector who are seeking support under a private-public partnership program include Sosian Power, Quantum Power, and Akiira, as wells as Africa Geothermal and Orpower who are close by Kengen’s fields at Olkaria.

NSE Shares Portfolio February 2018

Comparing performance to six months ago a year ago, this portfolio is down 4% mainly due to shares sales, while the while the NSE 20 share index is down 7% from August 2017.

The Stable

Atlas —
Centum ↑
CIC Insurance ↓
Diamond Trust ↑
KCB ↑
Fahari  REIT↓
Kenya Airways ↑*
NIC ↑
NSE ↓
Stanbic (Uganda) ↑
TPSEA ↑
Unga ↓

In: None
Out: Bralirwa, at a 55% gain since buying in the Bralirwa IPO in 2011.edit TPSEA (Serena)
Increase: None
Decrease: None
Best performer: Kenya Airways*  (shares were diluted four times, price is up 235% from six months ago), Serena (up 36%), Diamond Trust 8%
Worst performer(s): Unga down 12%, CIC down 10% from six months ago)
Unexpected Events: (1) The offer by Seaboard to buy and de-list Unga (2) Kenya Airways restructuring impact on retail shareholders(3) Kenya bank shares resilience in their share prices even with concerns about their earnings growth in the era of interest rate caps.

Looking Forward to: (1) Banks expect interest rate caps to be re-assessed in 2018 (results in February 2018 (2) More infrastructure bonds from the government like M-Akiba (3) CIC developing a mixed-use project (Residential, commercial, educational, and recreational units) on 200 acres near Tatu City, Kiambu.

 

Seaboard and Victus offer to buy out Unga shareholders

Still, the offer of Kshs 40 per share, which value Unga at Kshs 3.03 billion, and which the Seaboard promoters state is a premium (33% above Unga’s current trading price of Kshs 30) is rather low. The share was trading at Kshs 44 per share two years ago, and one investor puts the company net asset value as at June 2017 at Kshs 52 per share, which will have gone up with the recent rise of the NSE later in the year.

IFRS9 capital provisions extension for Kenyan banks

Kenyan banks have been given more time to implement increased provisions as part of the capital compliance in new accounting rules IFRS9.

According to KPMG IFRS9 is still effective as at 1 January 2018 for all entities reporting under International Financial Reporting Standards (IFRS), which includes companies in Kenya. However, because IFRS 9 is likely to have a significant negative impact on banks’ capital adequacy ratios, CBK has given banks a 5 year period in this regard to meet the resulting capital requirements from implementation of IFRS 9. In practice, this means that CBK will allow Banks to stagger the effect of the increase in provisions on capital adequacy ratios over 5 years.

Last year, KPMG joined Barclays Kenya in unveiling IFRS 9 by giving the perspective from the auditor’s side on how they were assisting banks to prepare for the change over including reconciling the enormous amounts of data called for by IFRS9 rules and working with banks to develop models including for better management decision-making and provisions.

See the KPMG IFRS page with stories on how “All corporates need to assess the impact of IFRS 9” and “How corporates might be affected” as well as the recently issued guidelines from the Institute of Certified Public Accountants of Kenya (ICPAK) on the requirements of IFRS 9.