Rand Water | Integrated Annual Report 2025

INTEGRATED ANNUAL REPO

Consolidated Annual Financial Statements for the year ended 30 June 2025

3.6 Financial instruments (continued) Expected credit losses calculation considers the probability of expected credit loss occurring by looking at the probability of default of the applicable counterparties which the Group had exposure with at reporting date. The Group assessed and recognised expected credit losses relating to financial assets measured at amortised cost and fair value through other comprehensive income using the table below. ECL Stage Definition Type of investment Stage 1

Call deposits, fixed deposits, notice deposits, treasury bills, Sovereign bonds and state-owned entity (SOE) bonds promissory notes, investments in money market instruments with financial institutions, fixed deposits, promissory notes deposits and

No significant increase in credit risk of the counterparty since recognition. Loss allowance measured at an amount equal to 12 months expected credit losses and interest revenue is calculated on the gross carrying amount of the asset. Stage 2 Significant increase in credit risk of the counterparty since recognition with a likelihood or risk of a default occurring. Loss allowance measured at an amount equal to lifetime expected credit losses and interest revenue is calculated on the gross carrying amount of the asset.

Relates to performing and low credit risk investments with no default history.

Relates to under-performing investments which have experienced increase in credit risk investments. Key indicators of these risks for stage are but not limited to the list below: Distressed counterparty - adverse change in regulatory, economic, or technological environment which may result in inability to meet its obligation when they become due. Defaulting and servicing coupon/ interest payment outside contractual terms. Significant change in external credit rating. Relates to non-performing investments which have been credit impaired due to: Counterparty under curatorship/ administration Defaulting counterparty with miniature prospect to honour principal/interest payment when they become due.

Treasury bills and approved financial instruments

Stage 3 When there is objective evidence of credit impairment at the reporting date. Loss allowance measured at an amount equal to lifetime expected credit losses and interest revenue is calculated on the net carrying amount (that is, net of credit allowance).

Derecognition The Group derecognised financial assets when the rights to receive cash flows from the assets have expired or substantial risks and rewards of ownership have been transferred. Financial liabilities are derecognised by the Group when the obligations specified in the contracts are extinguished, cancelled or expire. Loans receivable at amortised cost Classification Loans to employees are classified as financial assets subsequently measured at amortised cost. Recognition and measurement Loans receivable are recognised when the Group becomes a party to the contractual provisions of the loan. The loans are measured, at initial recognition, at fair value. Loans receivables consist of micro loans granted to qualifying employees. Subsequent to initial recognition, loan receivables are measured at amortised cost using the effective interest rate method, less any accumulated impairment losses.

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Rand Water | Integrated Annual Report 2025