RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Notes to the Consolidated Annual Financial Statements 42. Financial instruments (Continued)

by the relevant macroeconomic factors. The historical Loss Rates are regressed against the corresponding sets of the relevant macroeconomic factors (from the same periods as the Loss Rates) to determine the expected Loss Rate.

The following macroeconomic factors were identified as the most relevant to Rand Water business: • GDP Growth Rate. • Average prime lending interest rate. • Inflation rate. • Unemployment rate.

Effecting Forward‑Looking Information • A reasonable forecast is expected to be predicted by the socioeconomic factors with some logical correlation to the Loss Rates. • To determine the logical correlation, the correlation coefficients between each macroeconomic factor and the Loss Rates are calculated. • Then the socioeconomic factor with a correlation coefficient that follows logic is used to predict the expected Loss Rate. If two or more macroeconomic factors yield reasonable outcomes, then the average of the resultant Loss Rates is adopted as the Expected Loss Rate. • We use the FORECAST formula in MS‑Excel (which is based on regression) to predict the next point on the Loss Rate series as influenced by each relevant macroeconomic factor. • The resultant expected Loss Rate is tested against known future developments whose impact might not be embedded in the historical data. Where possible the impact is quantified and the Expected Loss Rate is adjusted accordingly. The adoption of the IFRS 9 in the 2018/2019 financial year which applies the expected credit loss(ECL) model also contributed to a high impairment amount. The high impairment amount is further caused by the municipalities with the most indigenous customers in the rural areas as well as current economic challenges and the ripple effect of Covid‑19 pandemic and the continuous effect of Loadshedding, The ongoing War in Ukraine and the other macro‑economic factors, compounding the situation where‑in cash flow is already a constraint.

The Group recorded an expected credit losses of R2,1 billion (2022: R1,6 billion) for the period ended 30 June 2023 for primary and secondary activities customers, where recovery has been assessed and determined to be doubtful.

Below is the movement in the allowance account for expected credit losses in respect of trade and other receivables during the year:

Figures in Rand thousand

Group

Rand Water

2023

2022 Restated *

2023

2022 Restated *

Opening balance

1 590 231 1 746 502 1 590 231 1 746 502

Impairment written off Impairment reversal Impairment recognised

-

-

-

-

(151 709)

(378 151)

(151 709)

(378 151)

710 126 221 880 710 126 221 880 2 148 648 1 590 231 2 148 648 1 590 231

Less ECL not related to trade receivables: Contract Assets expected credit loss Loans receivable expected credit loss

7 519

4 886

7 519

4 886

82

78

82

78

Gross ECL for receivables

2 156 249 1 595 195 2 156 249 1 595 195

307