Rand Water | Integrated Annual Report 2025

CREDIT RISK MANAGEMENT NAVIGATING UNCERTAINTY WITH DISCIPLINED STEWARDSHIP

Rand Water continues to confront a challenging credit environment, marked by the financial strain on several municipal customers, some operating under Municipal Financial Management Act Section 139 administration and others facing liquidity pressures or credit downgrades. In the face of these headwinds, we remain confident that deliberate risk management, innovation, and collaborative governance will safeguard the water value chain and sustain service delivery. CREDIT RISK AS A CORE FOCUS At year-end, Days Sales Outstanding reached 125 days, above the 90-day target. This reflects deeper fiscal distress among municipalities and slower payment cycles. In response, we intensified collection and risk mitigation efforts to protect cash generation and liquidity. The Expected Credit Loss (ECL) provision rose by 15% to R2.9 billion, driven by evolving payment patterns among high risk customers. This prudent step ensures we recognise potential impairments promptly and allocate resources to support recovery where possible. MITIGATION AND ENFORCEMENT ACTIONS Structured Debt Settlement Agreements: We deployed formal arrangements to resolve outstanding balances, balancing fairness with the need to preserve essential service delivery. Legal and regulatory levers: Where appropriate, we escalated recovery actions and leveraged constitutional and regulatory tools to safeguard revenue streams while upholding due process. SPV-based financing: The formation of Special Purpose Vehicles (SPVs) with government and municipal partners strengthens the governance, financing, and execution of water and sanitation projects, diversifying funding sources and reducing single point credit risk. PAJA and IRFA-aligned processes: Water flow curtailment and other emergency measures are implemented within robust legal frameworks to ensure transparency, fairness, and continuity of critical services. STRATEGIC COLLABORATIONS AND LONG-TERM RESILIENCE Ongoing collaboration with National and Provincial Treasuries, CoGTA, and DWS informs policy, funding, and reform opportunities that stabilise municipal payments and improve creditworthiness across the sector. Our focus on innovation, efficiency, and prudent governance underpins sustainable cost management and reliable price signals for customers, enabling continued investment in water infrastructure and service quality. OUTLOOK AND STAKEHOLDER VALUE Despite the macroeconomic pressures, Rand Water remains committed to responsible debt management, transparent disclosures, and strategic partnerships that bolster financial stability and operational continuity. By combining disciplined credit risk practices with forward-looking governance and collaborative action, we protect the integrity of the water value chain and deliver dependable service to the communities we serve.

Debtors’ Days

Expected Credit Loss (Rm)

125

2 917

110

109

2 530

2 149

75

77

1 747

1 590

2021

2023

2024

2025

2021

2023

2024

2025

2022

2022

100

Rand Water | Integrated Annual Report 2025