CGEMY Capgemini SE (PK)

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

Atos Origin was hit hard by the financial crisis and resulting economic downturn, which led to big customers delaying investment and purchasing plans, but its clients have started to recover since the start of the year.

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

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

Grapinet said that concerns about loss of 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 that will allow it to continue to deliver all its existing IT contracts with the U.K. government.

In 2011, the decline in U.K. public sector revenue should be limited to around 3% and Atos is planning to offset this decline by adding new contracts, Grapinet said.

He also said that the group cut around 150 staff in the U.K. over the summer, instead of the planned 250 job cuts announced in July, as restructuring plans were halted early after the agreement with the government.

However, some significant contract renewals in the U.K. were postponed into the fourth quarter due to the negotiations, hitting third-quarter order entries, Atos said.

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

Atos expects to catch up on orders in 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%.

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 as it aims to bring its net debt close to zero by the end of the year, unless it makes an acquisition. It had previously targeted cash flow to be flat from last year at around EUR117 million. For 2011, the group aims to post cash flow above EUR200 million, the CFO 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 should decline around 3.5% this year, compared with a decline of around 3.7% last year, Grapinet said.

Atos 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.

At 1022 GMT, shares in Atos were trading up 2% to EUR34.09, outperforming a 1.4% rise in the SBF 120 index.

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

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