Eircom needs sales growth to sell an IPO

Launching a flotation while your revenue is sinking is a pretty hard sell, as Eircom could find out soon enough. The company insists it hasn't yet ditched the idea of returning to the stock market, but the clock is ticking.

Eircom says by the end of the year it will make a decision on whether it will float, seek a buyer or pursue some other avenue. Its full-year results yesterday – stable earnings but revenue down 6 per cent – don’t bode well for a flotation.

When companies come to list on the stock market they must have a story to tell, a vision to promote, a positive financial trajectory to highlight.

What is Eircom’s story?

The company’s big message from its results briefing yesterday was that it has demonstrated eight consecutive quarters of earnings stability. As positive stories go, it ain’t exactly a Hans Christian Andersen classic.

There are two ways to stabilise earnings: grow sales or cut costs. As other Irish companies, notably Grafton, report an improvement in their domestic operations, Eircom is still slashing to compensate for its 6 per cent sales decline.

Its annual cost savings target of €100 million was exceeded by 10 per cent. It also announced a new €50 million – non- payroll – cost-cutting programme over the next three years. That will maintain earnings stability, sure, but it’s not the sort of story you can easily sell to investors when you’re trying to float a company. What happens to your earnings when you run out of things to cut?

Eircom, which is still heavily indebted, needs top-line sales growth, and fast. To be fair to it, it has been through the wringer in recent years and through hard graft by management and sacrifices by staff it has survived, if not quite thrived.

Cognisant of the fact that it needs growth to secure its future, Eircom is investing heavily in new high-speed fibre to “future-proof” its offerings and attract new customers. Its 21,000 television subscribers is a good start, as is the 7.5 per cent increase in broadband subscribers, but it needs more.

Its focus on innovative product bundling should also pay dividends in terms of more revenue, in time. But in time to announce a flotation by the end of this year? A tall order.