CGEMY Capgemini SE (PK)

IT services group Atos Origin (ATO.FR) Wednesday said its organic revenue will return to growth next year as the risk of losing revenue from government spending cuts fades and the situation across its markets continues to improve.

Having been hit hard by the financial crisis and resulting economic downturn, which led to big customers delaying investment and purchasing plans, Atos Origin has seen its clients start to recover since the start of the year.

"The signs of recovery are becoming increasingly stronger," said Deputy Chief Executive Officer Gilles Grapinet.

He added that worries about losing revenue because of government spending cuts, in particular in the U.K., are now "behind us." The group in September signed a memorandum of understanding with the U.K. government, which will allow it to continue to deliver all its existing IT contracts with the government.

However, some significant contract renewals in the U.K. were postponed into the fourth quarter due to negotiations with the U.K. government amid spending cuts, Atos said.

The situation in Spain continued to be difficult in the third quarter, but France returned to growth and the situation in the Beneleux is also improving as prices for new contracts in the financial services sector are stabilizing, the group said.

Atos expects strong orders for the fourth quarter, aiming to reach a book-to-bill ratio of at least 120%, which should lead to a full-year book-to-bill ratio of 109%.

Order entries in the third quarter totaled EUR1.09 billion, representing a book-to-bill ratio of 90%, compared to 89% in the same period last year, Atos said.

The group, which competes with larger French rival Capgemini (CAP.FR) and U.K.-based Logica PLC (LOG.LN), also slightly raised its cash flow target for the year. Chief Financial Officer Michel Alain Proch said the group should post net operational cash flow of around EUR140 million this year. It had previously targeted cash flow to be flat from last year at around EUR117 million.

Atos aims to bring its net debt close to zero by the end of the year, unless it makes an acquisition, Proch said.

Atos confirmed its other targets for 2010. It 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. It also still expects to improve its earnings before interest and tax, or EBIT, margin by 50 to 100 basis points this year.

Still, third quarter revenue fell as consulting and managed services business continued to suffer, notably due the hit from Arcandor.

Revenue for the three months ended Sept. 30 totaled EUR1.21 billion, down from EUR1.23 billion in the same period last year. A poll of 13 analysts provided by the company had forecast revenue at EUR1.21 billion.

On a like-for-like basis, excluding currency fluctuations, disposals and acquisitions, revenue fell 3.5% in the third quarter.

Atos shares Tuesday closed at EUR33.44.

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

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