3rd UPDATE: Atos Origin Shares Fall On Government Spending Cuts Risk
28 July 2010 - 9:54PM
Dow Jones News
Shares in IT services group Atos Origin (ATO.FR) fell Wednesday
after the company said it would cut some jobs in the U.K. due to
government spending cuts, highlighting the risk IT services
companies face as governments are pressured to reduce their public
deficits.
At 1114 GMT, shares in Atos were down 3.3% to EUR32.4,
underperforming a 0.2% rise in the CAC-40 index, after the group
said it plans to cut about 250 staff, or 5% of its workforce in
U.K. public sector activities to prepare for the anticipated
slowdown in public sector spending.
Despite recent signs of recovery in the IT services industry,
concerns have arisen in past weeks that Atos and peers like
Capgemini (CAP.FR) or U.K.-based Logica PLC (LOG.LN) could be hit
by public spending cuts.
Such 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.
In May, the U.K. government outlined GBP6.25 billion in cuts,
with more to come, saying it wanted to save GBP1.7 billion from
stopping projects and renegotiating large government contracts with
suppliers.
"Will we be impacted by public sector spending cuts? Obviously,
yes," Chief Financial Officer Michel Alain Proch said in a
conference call. He said the bulk of Atos's public sector business
however comes from multi-year contracts that are unlikely to see
major cancellations.
The public sector accounts for about EUR1.1 billion of Atos's
annual EUR5.13 billion revenue, of which about 50% is generated in
the U.K., 25% in France and 15% in Benelux, Proch said.
"Public sector cuts are a big risk," WestLB analyst Jonathan
Crozier said, noting that the market doesn't yet seem to fully
believe in the second-half revenue improvement Atos Origin is
predicting.
The group, which is managing the IT systems for the 2012 Olympic
Games in London, said a steady recovery in its markets is likely to
lead to a return to revenue growth next year.
"Activities continue to improve progressively," Deputy Chief
Executive Gilles Grapinet said. 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.
Atos said the financial sector is recovering strongly and growth
in the manufacturing sector is also strong after customers last
year delayed investment and purchasing plans amid the financial and
economic crisis. Proch said the group's pipeline has been strong
and it should land some major contracts in the second half.
The group's closely-watched book-to-bill ratio was 114% in the
first half compared with 112% in the same period last year.
Atos also 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 analysts'
forecasts of EUR134 million. 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.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54;
ruth.bender@dowjones.com
Order free Annual Report for LogicaCMG plc
Visit http://djnweurope.ar.wilink.com/?ticker=GB0005227086 or
call +44 (0)208 391 6028
Capgemini (PK) (USOTC:CGEMY)
Historical Stock Chart
From Jun 2024 to Jul 2024
Capgemini (PK) (USOTC:CGEMY)
Historical Stock Chart
From Jul 2023 to Jul 2024