RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Notes to the Consolidated Annual Financial Statements

Figures in Rand thousand

Group

Rand Water

2023

2022 Restated *

2023

2022 Restated *

42. Financial instruments

Capital Management

The overall objective of the Group’s capital management strategy is to maintain a capital base to maintain stakeholder and market confidence as well as to sustain future development of the business. The Group considers long‑term debt, cash reserves, and accumulated income as its capital. Long‑term debt and cash reserves are managed through the process of reviewing all associated risks, including liquidity, credit, and interest rate risks. It is also the policy of the Group to maintain a healthy debt‑to‑equity and interest cover ratio as this plays an important role in the Group’s credit rating which positively impacts on the cost of funding. The Group maintains a interest cover ratio of a minimum of 3 times and a healthy debt‑to‑equity ratio within the set target of below 50% as prescribed in the National Treasury Borrowing Limit approval. Accumulated funds are managed through several initiatives and processes including planning and budgeting for long‑term operational growth, capital expansion, and maintaining or improving cost efficiencies. The overall strategy remains unchanged from the previous year.

Debt to equity ratio Interest bearing borrowings

4 384 986 4 384 355 35 678 512 32 156 260 12,29% 13,62%

Equity

Actual: Debt to equity %

Interest cover ratio Finance cost

485 122

472 412

Earnings before interest, tax, depreciation, and amortisation (EBITDA)

3 304 416 3 390 698

Interest cover ratio (times) Net debt Interest bearing borrowings

6,81

7,18

4 384 986 4 384 355 (7 711 838) (7 201 954)

Less: Cash reserves ‑ Cash and cash equivalents and term deposit investments

Net (cash)/debt

(3 326 852) (2 817 599)

The Group manages the planning of the water revenue process closely as it is the Group’s policy to reasonably recover all current and future operational and capital expenditure for its operational existence. The water tariff is regulated by the processes as determined by the Department of Water and Sanitation. The water tariff is developed from sound financial principles and takes into consideration cost drivers as well as the difficult environment of the water industry, including a financial analysis of previous trends and current and future environmental and economic conditions. The Group’s policy is to fund the capital expenditure programme through internal resources, that being; accumulated incomes and cash reserves after providing for the group’s liquidity requirements. Additional funding requirements will be funded through the debt capital market and other external funding. The Group’s focus is to re‑establish itself in the domestic capital markets. The funding plan will also place more emphasis on moving towards an active portfolio management strategy. This strategy should see the Group introducing new funding instruments that will lead to the achievement of the following objectives: • establishing liquid benchmark bonds; • lengthening the maturity profile of the debt portfolio; • diversifying the investor base; • matching asset and liabilities cash flows and maturities; and • minimising the cost of borrowing to within an acceptable level of risk.

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