French IT services group Atos Origin (ATO.FR) Wednesday reported a 4.9% drop in first-quarter revenue but said a recovery is now underway in the sector and confirmed its full-year targets.

The Paris-based company, which manages the IT systems for the Olympic Games, said that in 2010 it still wants to improve its operational margin by between 50 and 100 basis points, despite an expected slight drop in organic revenue this year due to the bankruptcy of German department store retailer Arcandor.

Revenue for the quarter ended March 31 was EUR1.23 billion, down from EUR1.29 billion in the same period last year, due notably to the impact of the Arcandor bankruptcy on Atos' managed services business, which accounts for 36% of group revenue, and a decline in consulting and system integration activities.

The figure was in line with an average EUR1.23 billion forecast by five analysts polled by Dow Jones Newswires.

On an organic basis, stripping out acquisitions, disposals and currency movements, revenue fell 5.5% in the first quarter.

Along with rivals Capgemini (CAP.FR) and U.K.-based Logica PLC (LOG.LN), the company has been fighting tough market conditions since last year, as big customers have delayed investment and purchasing plans amid the financial and economic crisis.

However, Atos is now observing clear signs of recovery, with France leading the way, Deputy Chief Executive Gilles Grapinet said, predicting a return to organic growth in the second half of this year.

"Our order intake is strongly up in the first quarter which shows that our clients are back to spending."

Order entries were up 17% organically to EUR1.58 billion in the first quarter.

Atos reduced its net debt to EUR130 million by March 31, compared with EUR139 at Dec. 31, and Chief Financial Officer Michel-Alain Proch said the company wants to bring net debt down "close to zero" by the end of the year.

Atos Origin has undergone a series of restructuring measures in the past two years, accelerated by Chief Executive Officer Thierry Breton when he took office at the end of 2008. Under Breton, Atos last year launched a plan to boost its profitability and wants to improve its operating margin by 250 to 300 basis points by the end of 2011.

Atos management Tuesday declined to comment on possible interest in Royal Bank of Scotland Group PLC's (RBS) Global Merchant Services business, the credit-card payment processing service for which the group is said to have submitted a bid.

"Atos systematically examines all buy opportunities...and there are many," Grapinet said.

Atos shares on Tuesday closed at EUR37.77. The stock has gained about 18% since the start of the year.

-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54; ruth.bender@dowjones.com

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