RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Board Report 11. Going concern

As at 30 June 2023, the consolidated annual financial statements have been prepared on the going concern basis. Notwithstanding, the current economic climate coupled with the geopolitical issues, the Board is satisfied to report that Rand Water remains financially viable in terms of the Water Services Act section 34 (2)(a)‑(e), and is of the opinion that it has adequate resources to sustain its liquidity, debt, operational and investment needs for the next twelve months to medium term. The global health pandemic, geopolitical issues, slow economic growth, high unemployment, are some of the key concerns many organisations have been plagued with. In response to the changing micro and macro environment, the Group has implemented forward planning models to test the balance sheet resilience to external economic shocks and cash flow generating ability of the entity over a short to medium term. The outcome of the analysis undertaken provides comfort that the organisation will be in a position that enables the flexibility to review operational and capital expenditure plans should the need arise to ensure the going concern basis is met in the short to medium term. Key ratios to establish the going concern basis may decline when compared year on year, should the impact from these risks be realised, however Rand Water has like most of the world, undertaken various scenario analysis and stress testing for any related impact and are comfortable that these ratios will continue to be sustainable over the short to medium term. Further details are provided in Note 42 of the consolidated annual financial statements. The Group has secured access to funding on the back of the approved/gazetted borrowing limits by National Treasury. The underlying borrowing plan is developed to ensure that the Group is able to successfully fund its capital expenditure programme without breaching set financial parameters. As at 30 June 2023, the Group has access to ZAR10 billion DMTN with a headroom of R5.6 billion; • The Group has implemented a cost reflective tariff for the 2022/23 financial year amounting to 8.8%, which increased the entity’s revenue. For the 2023/24 financial year, a tariff increment of 9.2% has been approved; • The Group has access to adequate resources in the form of a liquidity buffer of R1.9 billion, as cash remains critical during a distressed economic period an additional liquidity is secured by means of committed facilities of R1.25 billion, that improves its ability to continue its operations into the foreseeable future, under both normal and stressed conditions; • The operational and financial risks of the Group have been reviewed to determine their impact on the business under various conditions. Mitigating initiatives, strategies, and controls are in place as reflected in the business and risk management plans of the Group and the Business Units; • The Group has implemented a system to closely monitor the recovery of debt to mitigate against the increasing rate of overdue debt, which has been exacerbated by the effects of Covid‑19 on the economy, as a result of non‑payment of accounts by Municipalities. Through a multi‑pronged strategy that includes amongst others: an aggressive collection strategy; intensified collaboration with partners such as Provincial Treasury and Cooperative Governance and Traditional Affairs (CoGTA); and other customer relief programmes to encourage early settlement of both old and current debt we remain committed to achieve positive results from the new solutions, partnerships and collaboration aimed to combat the negative impact of Covid‑19; • The Group’s solvency and liquidity has been assessed by the Board, and the Board is satisfied that they meet the going concern assertion. This is evidenced by the improvement in accumulated reserves of 12% compared to the previous year and the improvement in gearing ratio to 12%, well within the set corporate parameters of between 10% and 36%. The interest cover and cash interest cover are also significantly above the target of 3,0 times. On a quarterly basis, the Board has assessed the cash flow forecasts which indicate that the Group will be able to meet its obligations when they fall due; and • The Group has achieved a return on average assets of 6.2% against a prior return of 7.4% mainly as a result of increases realised in expected credit losses and revenue not recognised as a result non-payment of accounts by local authorities and worsened further because of the growth of 9% in total assets primarily as a result of an increase in investment and term deposits. The going concern assessment was undertaken, taking into consideration the following: •

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