2nd UPDATE: Atos Origin Keeps Goals; Government Spending Cuts Risk
28 Juli 2010 - 12:00PM
Dow Jones News
IT services group Atos Origin (ATO.FR) Wednesday kept its
full-year targets and said a steady recovery in its markets is
likely to lead to a return to revenue growth next year, even as it
said it would cut some jobs in the U.K. due to government spending
cuts.
"Activities continue to improve progressively," Deputy Chief
Executive Gilles Grapinet said in a conference call with reporters.
Grapinet said that he expects the group's revenue to stabilize in
the second half of the year and hopefully return to growth in early
2011.
For this year, Atos still expects organic revenue to decline
slightly, largely due to the bankruptcy of German retailer
Arcandor, one of its clients. Organic revenue declines should be
slower than in 2009, the group said.
Along with rivals Capgemini (CAP.FR) and U.K.-based Logica PLC
(LOG.LN), the company has faced tough market conditions since last
year, as big customers delayed investment and purchasing plans amid
the financial and economic crisis. But there have been signs of
recovery since the start of the year, signalling that the crisis
may have been shorter than expected for the IT services
industry.
However, concerns have arisen in past weeks that Atos or peers
like Capgemini could be hit by public spending cuts. Those concerns
intensified after Cable & Wireless Worldwide PLC (CW.LN) last
week issued a profit warning directly linked to the U.K.
government's austerity budget.
"Will we be impacted by public sector spending cuts? Obviously,
yes," Chief Financial Officer Michel Alain Proch said.
Proch said the bulk of Atos's public sector business comes from
multi-year contracts that are unlikely to see major cancellations.
Still, to prepare for the anticipated slowdown in public sector IT
spending, Atos Origin said it plans to cut about 5% of its staff
working in U.K. public sector activities.
The public sector accounts for about EUR1.1 billion of Atos's
annual revenue, of which about 50% is generated in the U.K. and 25%
in France, Proch said.
The financial sector, on the other hand, is recovering strongly
and growth in the manufacturing sector is also strong, Proch said.
He said the group's pipeline has been strong and it should land
some major contracts in the second half.
Atos's closely-watched book-to-bill ratio was 114% in the first
half compared with 112% in the same period last year.
The Paris-based company, which is managing the IT systems for
the 2012 Olympic Games in London, confirmed it still expects to
improve its earnings before interest and tax, or EBIT, margin by 50
to 100 basis points this year and that its plan to improve its EBIT
margin by at least 250 basis points between 2008 and 2011 is on
track.
The group 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.
EBIT for the six months ended June 30 rose to EUR150.1 million
from EUR119 million in the same period last year, above an average
EUR134 million forecast by five analysts polled by Dow Jones
Newswires. This gave the group an EBIT margin of 6%, an improvement
of 110 basis points on the same period last year.
Net profit for the first half rose sharply to EUR60 million from
EUR18 million last year while revenue fell to EUR2.49 billion from
EUR2.59 billion last year, in line with analysts' forecasts.
On an organic basis, stripping out acquisitions, disposals and
currency movements, revenue fell 4.6%.
At 0927 GMT, Atos shares were trading down 1% at EUR33.37,
shedding earlier gains, while the French CAC-40 index was up
0.6%.
"Public sector cuts are a big risk," WestLB analyst Jonathan
Crozier said, noting that the market doesn't yet seem to fully
believe in a second-half improvement.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54;
ruth.bender@dowjones.com
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