JSE-listed Blu Label Unlimited is banking on recouping lost electricity revenue for municipalities through Cigicell, to improve earnings and increase margins, co-CEO Mark Levy said during the company’s results presentation for the six months to November.
Stripping out the R5.2 billion hit from when Blu Label Unlimited – BLU – needed to change how it accounted for Cell C following its listing and the shift in value of its stake on its books, the listed company this morning reported net profit after tax of R389 million.
This translated into headline earnings of 44.17c and earnings per share of 43.22c. Cigicell was not individually mentioned in the company’s financial statements, although Mark Levy explained that it was battling declining margins.
Cigicell historically operated as a major distributor of prepaid electricity tokens on behalf of municipalities and Eskom, processing between R3 billion and R4 billion per month. It is embedded in 95 municipalities.
Brett Levy, co-CEO, adds that growing the product mix remains central to the broader business strategy. “The secret is in the product line. We need our merchants to do more of our product. We need our customers to buy more of our product,” says Brett Levy.
Mark Levy says that while Cigicell’s prepaid electricity business remains significant, increasing volumes have not translated into proportional earnings growth. “Because we get paid per kilowatt hour, our turnover started to decrease.’
Billions owed
To counter lower margins at Cigicell, Blu Label Unlimited sought smart metering opportunities through National Treasury’s R2 billion RT29 transversal programme.
National Treasury has set itself the target of installing 250 000 smart electricity meters by the end of the 2027 financial year and, as of the beginning of September last year, had installed 67 000 meters at a total cost of R500 million.
The rationale behind the installation of smart meters is to aid Eskom and municipalities in recouping lost money for power through billing accuracy, transparency and revenue collection, while also helping reduce opportunities for loss and tampering.
Towards the end of last year, Eskom was owed R103 billion by municipalities, a figure that it warns could reach R300 billion within the next eight years. BLU offered municipalities a solution through which Cigicell only gets paid if it recoups money due to city authorities.
Mark Levy says Blu Label Unlimited has “been screaming off the treetops for many, many years” about revenue assurance – terminology the company developed for at-risk earnings – and that the model is now gaining momentum.
Speaking during the results presentation, Mark Levy said: “30% of electricity is lost or stolen... you’re talking about tens of billions of rands.”
Mark Levy notes that if a municipality recovers even 40% of uncollected revenue over 10 years, the uplift could reach R19 billion, which would also translate into additional tax revenue and improved payments to Eskom.
“We are proud to say we have signed two agreements in the space. One is with Ekurhuleni for a 10-year revenue assurance programme, and the other is for Tshwane on a three-year revenue assurance programme. We really look forward to getting cracking, getting going, employing people, and actually solving for a problem,” says Mark Levy.
Cigicell is complementary to BluEnergy, which secured a multi-year energy trading licence from the National Energy Regulator of South Africa after the end of the period under review.
The licence enables BluEnergy to deliver renewable energy solutions across the energy value chain by connecting municipalities, independent power producers and energy users, ensuring energy supply for local communities.
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