The Bob Collymore legacy

Bob Collymore, the Safaricom #ticker:SCOM CEO who succumbed to cancer Monday, will be remembered as the leader who took over a fast-growing company and turned it into a Kenyan behemoth.

He was appointed the chief executive of Safaricom on November 1, 2010, replacing founder CEO Michael Joseph.

Inheriting an already large company by Kenyan standards, few would have predicted the Nairobi Securities Exchange (NSE)-listed firm’s subsequent success during the Collymore years.

His predecessor had launched the firm’s golden goose, the mobile-based financial service M-Pesa, in 2007.

Collymore used M-Pesa as a foundation to build a solid company.

Safaricom has during his tenure reported a sharp growth in profits, peaking at Sh63.4 billion in the year ended March. Revenue increased from Sh94 billion to Sh251 billion in the financial year ended March.

When he assumed office, the telecommunications industry was grappling with a price war that had driven voice call rates to rock bottom.

Three months before his appointment, the Communications Authority of Kenya (CA) had slashed the mobile termination rate (per minute charge paid by a telco when a customer makes a call to another mobile operator) by 50 percent.

The move inspired a price battle that cut the industry’s voice calling charges by 70 percent on average by the time the dust settled, causing investors to question growth prospects of the telecommunication firms.

On the NSE, Safaricom’s share price was on a steady decline from Sh5.75 to the rock-bottom level of Sh2.70 in December 2011. What many failed to anticipate, however, was the second-order effects.

Lower rates prompted customers to call more as subscriber numbers continued to climb. The result is that voice revenue, for Safaricom, rose from Sh64 billion in 2010 to Sh95.8 billion in the financial year ended March.

Safaricom simultaneously grew its other business lines including data and M-Pesa exponentially, reducing voice’s share of total revenue from 67 percent to 38 percent over the same period.

M-Pesa, which initially faced opposition from banks keen on protecting their turf, sucked in nearly all the lenders who created an interface with the mobile money platform.

At the depth of the bear market in 2011, retail investors and some pundits called on Safaricom to buy back its shares as a means of boosting its stock price.

The dominant narrative at the time was that the telco’s stock was too liquid – it has 40 billion units of stock — and that this was a major stumbling block to a rally above the 2008 initial public offering (IPO) price of Sh5 per share.

Safaricom rejected the argument and further noted that the law did not allow it to undertake such financial engineering. Eventually, the market woke up to the profit machine that the telco was becoming.

A large and growing market share, internally-funded capital investments and rising dividend payouts led to a major rally in the company’s share price.

Safaricom’s market capitalisation breached the Sh1 trillion mark in August 2017 as the stock soared to the current price of Sh28.15 a piece, the first time a 13-digit valuation has been associated with a private company in the country.

The share price rally allowed UK-based multinational Vodafone Plc to take profits and reduce its exposure to the Kenyan market in a two-step transaction.

On August 7, 2017, Vodafone transferred its 35 percent stake in Safaricom to its South African subsidiary, Vodacom, and got 233.5 million new shares in the Johannesburg-based firm.

A month later, the conglomerate announced that it had sold 90 million of those new shares on the Johannesburg Stock Exchange (JSE) where Vodacom is listed, earning Sh117 billion.

During Collymore’s tenure, Safaricom’s incremental dividend payout returned the entire capital of the company’s owners and left them with an additional Sh101.2 billion.

The telco went public on June 9, 2008 at an offer price of Sh5 or an aggregate value of Sh200 billion. The upcoming dividend payout of Sh74.92 billion, to be distributed on December 1, will raise Safaricom’s cumulative payouts to Sh301.2 billion since the IPO. This means that the entire capital investment by shareholders, including the Kenya government and UK’s Vodafone Group Plc and its affiliates, has been returned and exceeded by dividend payouts alone in the 11 years.