Rand Water | Integrated Annual Report 2025

INTEGRATED ANNUAL REPO

Consolidated Annual Financial Statements for the year ended 30 June 2025

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.Financial instruments (continued)

The following assumptions are made on the expected credit losses calculation: • Expected credit loss constitute what is eventually written-off for the respective segments; • 100% of outstanding balances from the performing and under-performing segment are eventually settled thereby making TVM loss the expected credit losses on the segment; • The applicable discount rate is the prime rate of lending for South Africa as at the measurement date; • Cash flows to settle some of the debt between time buckets settles the earlier bucket first then the later bucket if the payment exceeds the former when calculating 90 days' roll rate for debtors; and • Where it is evident that collectability is not probable based on the payment patterns and customer engagement, the Group assume 100% loss rate. The time value of money loss approach is based on the premise that all debtors will be collected as described under assumptions, the time value of money loss is the ultimate IFRS 9 impairment and there is no write-off. To incorporate forward-looking information (FLI), as an enhanced information set that includes credit information pertaining to future developments (including for example macroeconomic developments). To incorporate the impact of forward-looking information (FLI) in determining the expected credit loss, the relationship between the historical quarterly Loss Rates and identified macroeconomic factors is first established by determining the correlation coefficients between the Loss Rates and each macroeconomic factor. Then, regression is used to predict reasonable and supportable expected Loss Rate as informed 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.

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Rand Water | Integrated Annual Report 2025