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)

from the prior financial year mainly due to additional investments in bonds with a nominal value of R750 million and an increased probability of default.

Figures in Rand thousand Reconciliation of credit loss allowance 1 July 2022 credit loss allowance ‑ IFRS 9

Stage 1 Stage 2 Stage 3

Total

30 172

- -

- -

30 172

Increase in loss allowance

6 410

6 410

30 June 2023 credit loss allowance ‑ IFRS 9

36 582

-

-

36 582

Cash and cash equivalent and term deposit investment

The Group cash and cash equivalent and term deposit investments comprise of term deposits, notice deposits, Promissory Notes (PN), money market funds, and call deposits measured at amortised cost. The general approach was adopted by the Group towards determining the expected credit losses and the application of the ECL model remains unchanged from the prior financial year. The expected credit losses for financial assets measured at amortised is calculated as a product of Exposure at Default (EAD) x Probability of Default (PD) x Loss Given Default (LGD). The probability of default were based on directly observable information or indirectly observable information of similar counterparties. Exposure at default represents an amount still outstanding at the measurement date which includes only the principal amount and interest accrued up to the valuation date. The overall ECL decreased from the prior financial year mainly due to the improved probability of default of the respective counterparties.

Figures in Rand thousand Reconciliation of expected credit loss allowance

Stage 1 Stage 2 Stage 3

Total

1 July 2022 credit loss allowance ‑ IFRS 9

3 067 (626) 2 441

- -

- -

3 067 (626) 2 441

Decrease in expected credit loss

30 June 2023 credit loss allowance ‑ IFRS 9

-

-

Liquidity Risk

Liquidity risk is the risk that the Group’s will be unable to meet all its financial obligations on a timely basis, when due, and in the right currency without incurring above normal costs.

The Group’s approach to managing liquidity risk is to ensure there is sufficient available liquidity to meet its liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. To ensure that the Group has access and sufficient funds to meet its operational expenditures it: • Maintains a liquidity buffer of R1.9 billion. • Has committed facilities of R1,250 million (30 June 2022: R1,000 million) with various financial institutions as part of the Group’s multi‑banking strategy which R1,250 million (30 June 2022: R1,000 million) was unutilised. • Has ZAR 10 billion Domestic Medium Term Note (DMTN) programme with a headroom of R5.6 billion at 30 June 2023. The Group’s liquidity requirements are reviewed on a regular basis to ensure the organisation funding requirements are met timely. This is monitored through the use of cash flow forecasts (weekly, monthly and quarterly forecast) and maturity gap analyses to assess and monitor its liquidity requirements and risk levels. Cash flow forecasts and maturity gap analyses reports form part of the financial risk report, which is reviewed and analysed by the Treasury and Capital Investment Committee (TCIC) on a periodic basis. Part of the liquidity risk management includes a five year cash flow projection as part of the annual funding plan update. These provide a good estimate of the Group’s funding requirements to ensure that there is sufficient cash on demand in a form of liquid cash to meet operational and capital expenses.

309