UPDATE 2-Capgemini cautious on 2010, but stands by ’11 goal

* Operating margin 7.1 pct vs 7 pct forecast

* Sales 8.371 bln euros vs 8.357 bln eur forecast

* Sees 2-4 pct drop in 2010 yr-to-yr sales, margin 6-6.5 pct

* Keeps guidance for 8 percent margin in 2011

* Shares up as much as 4.6 pct, reversing losses

(adds dropped word “the” in fifth paragraph)

By Dominique Vidalon

PARIS, Feb 18 (BestGrowthStock) – Europe’s largest computer
consultancy, Capgemini (CAPP.PA: ), 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 percent but then
reversed course to trade nearly 5 percent higher after the
company reaffirmed its long-term outlook. The stock outperformed
a little changed DJ technology index (.SX8P: ).

The French company, which competes for technical services
budgets with the likes of U.S. giant Accenture (ACN.N: ) and
France’s Atos Origin (ATOS.PA: ), cut its 2009 dividend to 0.80
euros per share from 1 euro, as 2009 sales fell 5.5 percent and
profit margins suffered compared to a lesser degree.

Investors initially focused on the lower margins but those
fears eased after a conference call in which execuitves
confirmed its 2011 outlook. Several analysts said the results
were slightly ahead of expectations and showed the group’s
resiliency to cris.

Capgemini forecast 2010 sales would contract by 2 to 4
percent on a like-for-like basis. It expects it operating margin
to narrow to between 6 and 6.5 percent from 7.1 percent last
year and 8.5 percent in 2008.

Consensus for the 2010 margin is 6.9 percent, analysts said.

Chief Executive Paul Hermelin told a conference call 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 U.S. 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 it would further improve
its profitability this year by resorting to cost cuts to cushion
against a still challenging economic climate and lower revenue
[ID:nLDE61E14V].

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

CEO Hermelin reiterated that Capgemini was aiming for an
operating margin of 8 percent in 2011, assuming that the global
IT services market returns to usual growth rates of 4-6 percent.

That compares favourably to the average outcome of eleven
analysts polled by Reuters. Collectively, they are looking for a
7 percent operating margin on revenues of 8.357 billion.

Capgemini’s revenue reached 8.371 billion euros in 2009,
down 5.5 percent 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 percent
like-for-like. Outsourcing, which accounts for roughly 36
percent of revenue, grew a feeble 0.3 percent.

“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 euros 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.

Stocks

(Reporting by Dominique Vidalon, editing by Marcel Michelson
and Eric Auchard)

UPDATE 2-Capgemini cautious on 2010, but stands by ’11 goal