Paris: Europe’s largest computer consultancy, Capgemini, on Thursday predicted profits and sales would slip further this year but stuck to its longer-term outlook amid signs of improving economic conditions.
Last year’s earnings came slightly ahead of expectations but investors initially focused on the 2010 margin outlook, which disappointed those who had banked on a smaller decline.
Capgemini shares fell as much as 4.1% but then reversed course to trade nearly 5% higher after the company reaffirmed its long-term outlook. The stock outperformed a little changed DJ technology index.
The French company, which competes for technical services budgets with the likes of US giant Accenture and France’s Atos Origin, cut its 2009 dividend to €0.80 per share from €1, as 2009 sales fell 5.5% and profit margins suffered compared to a lesser degree.
Investors initially focused on the lower margin outlook but those fears eased after a conference call in which execuitves confirmed its 2011 outlook. Several analysts said that the results were slightly ahead of expectations and showed the group’s resilience to cris.
Capgemini forecast 2010 sales would contract by 2 to 4% on a like-for-like basis. It expects it operating margin to narrow to between 6-6.5% from 7.1% last year and 8.5% in 2008.
“Consensus for the 2010 margin is 6.9%,” analysts said.
Chief executive Paul Hermelin said that the outlook was cautious in a market he described as still rather soft but nevertheless stabilising during 2010’s first half.
“Positive signs included stabilising prices, an upturn in demand from financial services, a more dynamic US market and an increasing appetite from clients for larger projects,” he said.
“These signals should gather speed in the second half 2010 when we expect to return to positive growth,” Hermelin said.
Capgemini’s cautious outlook contrasted with that of French peer Atos Origin who said on Wednesday that it would further improve its profitability this year by resorting to cost cuts to cushion against a still challenging economic climate and lower revenue.
“Unlike Atos, Capgemini had little additional room for more cost cuts this year, which partly explains why its margin will narrow,” chief financial offficer Nicolas Dufourcq said.
Keeps longer-term forecast
Chief executive officer Hermelin reiterated that Capgemini was aiming for an operating margin of 8% in 2011, assuming that the global IT services market returns to usual growth rates of 4-6%.
That compares favourably to the average outcome of eleven analysts polled by Reuters. Collectively, they are looking for a 7% operating margin on revenues of 8.357 billion.
Capgemini’s revenue reached €8.371 billion in 2009, down 5.5% versus 2008, meeting the group’s guidance.
Consulting, which is highly sensitive to the economic climate, was the worst hit with sales down 14.7% like-for-like. Outsourcing, which accounts for roughly 36% of revenue, grew a feeble 0.3%.
“These FY 2009 results were marginally ahead of expectations, due to tight control of costs, the guidance of 2010 appears weaker than expected,” analysts from brokerage PiperJaffray said in a note.
With net cash of €1.3 billion at end-2009, Capgemini, which earlier this month bought Swedish software group IBX, remained on the lookout for small acquisitions. The company did not disclose the terms of the IBX deal.
“It plans to continue to expand in software services in North America and in emerging countries,” Hermelin said.