2nd UPDATE: Atos Origin Order Intake Underscores Recovery

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 as orders improved sharply and confirmed its full-year targets.

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.

However, there are now clear signs of recovery, with France leading the way, Deputy Chief Executive Gilles Grapinet said, as he forecast 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," Grapinet said.

Order intake rose 17% on an organic basis to EUR1.58 billion in the first quarter, and the group's book to bill ratio was 128% compared with 104% in the same period last year.

"Atos Origin's strong order intake seems to confirm a progressive recovery of the IT services sector...and highlights the group's capacity to transform its pipe into orders," said brokerage CM-CIC, which has a buy rating on the stock.

The positive order development sent shares in Atos Origin and Capgemini higher and at 1044 GMT, Atos shares were trading up 3.8% to EUR39.2, while Capgemini was trading up 5.4% to EUR38.73.

In London, Logica was up 4.6%, or 6p, to 144 pence, making it the second-highest riser on the FTSE 250 index.

Paris-based Atos Origin, 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.

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.

Net operating cash flow was EUR29 million in the first quarter compared with EUR8 million last year, and Atos said for 2010 it aims to generate a net operating cash flow similar to that for 2009.

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 in the European payment segment...and there are many," Grapinet said.

-By Ruth Bender, Dow Jones Newswires; [phone]; [e-mail]

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