Friday, July 31, 2009

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Capgemini cuts sales target

Capgemini SA cut its 2009 sales outlook on Thursday, saying it was unsure signs that activity might be stabilising in some regions would translate into a full-blown recovery for the battered technology sector.

But its shares jumped 8 percent as investors focused on solid first-half bookings, notably in outsourcing, good cash levels and a profitability goal in-line with market expectations. Europe's largest computer consultancy told investors it would strive to limit the decline in operating margin this year to around 7 percent of sales thanks to tighter cost control. This was roughly in line with a market consensus that the French group and analysts say is at 6.9 percent for operating margin, and compares to the 8.5 percent achieved in 2009.

"We're a bit more cautious than others. The second quarter was a bit tougher than we expected," Chief Executive Paul Hermelin told a conference call. "There are signs activity is stabilising in North America and sectors such as financials are improving but we can't say these recovery signs are widespread."

Capgemini plans to hold onto its 576 million euro cash pile in the tough current economic times and resume big acquisitions only once trading activity has stabilised, Hermelin said. Capgemini, which competes for IT budgets with US giant Accenture and France's Atos Origin, now expects like-for-like 2009 sales to slip 3 to 4 percent, after they fell 2.2 percent in the first half.

It had previously forecast a sales drop of around 2 percent. Capgemini's cautious tone contrasted with SAP, the world's biggest maker of business management software, which lifted its operating margin goal on Wednesday, giving Europe's battered technology sector a glimmer of hope. Overall, Capgemini sales were expected to decline by between 4 percent and 6 percent in the second half 2009.

"Our teams feel that 2010 should a be a bit better," Hermelin said when asked about sales prospects for next year, giving no further details.

Solid bookings, cash
Capgemini shares opened down 2.5 percent but by 0925 GMT the stock was 8.4 percent higher at 31.25 euros as investors focused on what analysts deemed relatively resilient first-half results.

"Strong first-half earnings offset the slight erosion in the top-line perspective for the second half," one trader said. "Capgemini remains the best-positioned company within Europe with the most evolved global delivery model," Credit Suisse said, also pointing at "solid" first-half bookings of 4.433 billion, driven by a 35 percent jump in outsourcing.

Capgemini's half-year operating profit fell to 167 million euros from 288 million, hit notably by a 102 million euros restructuring charge. The group still forecasts restructuring charges of 220 million euros for full year but plans to curtail these charges to below 100 million euros in 2010.

Revenue reached 4.38 billion euros, with consulting taking the biggest hit, down 13.4 percent. The closely-watched operating margin fell to 6.6 percent from 7.6 percent a year ago. Analysts polled by Reuters had expected first-half sales of 4.39 billion euros and an operating margin of 6.5 percent.

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