Rand Water | Integrated Annual Report 2025

Consolidated Annual Financial Statements for the year ended 30 June 2025

NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

42.Financial instruments (continued)

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 expected credit losses of R2 917 million (2024: R2 531 million) 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 for the year: Group Rand Water Figures in Rand thousands 2025 2024 2025 2024 Opening balance 2 530 979 2 148 648 2 530 941 2 148 648 Impairment reversal (121 858) (72 278) (121 858) (72 278) Impairment recognised 508 051 454 609 508 051 454 571 2 917 172 2 530 979 2 917 134 2 530 941

ECL not related to trade receivables: Contract assets expected credit losses Loans receivable expected credit losses

9 660

17 126

9 660

17 126

110

74

110

74

Gross ECL for receivables

2 926 942 2 548 179 2 926 904 2 548 141

The Group observed an increment of 18% from the previous year. The non-performing municipalities are the major drivers to the expected credit loss increase made up of the top 5 defaulting municipalities as disclosed above.

Macro-economic factors impacting credit management.

Several macroeconomic pressures have continued to place immense strain on South Africa’s economy and labour market, with the national unemployment rate recently rising again. This directly affects Rand Water’s customer base, particularly municipalities, which depend heavily on consistent payments from communities for municipal services in order to sustain positive cash flows and meet their creditor obligations. The prolonged weakness in employment prospects also raises concerns about a rise in structural unemployment, as many of the jobs lost in recent years may not be recovered. Globally, ongoing geopolitical conflicts most notably the wars in Ukraine and Gaza have disrupted international trade flows, elevated fuel and energy prices, and contributed to sustained inflation. These pressures are transmitted domestically, eroding household disposable incomes and weakening consumer demand. This results in downstream challenges for municipalities in collecting revenue and, consequently, in honouring bulk water accounts with Rand Water.

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Rand Water | Integrated Annual Report 2025