Earnings: Carphone Confirms Split, Broadband Still Growing Well

image Plans to split Europe’s largest independent mobile retailer Carphone Warehouse into two divisions are well under way. The company said today it has completed its review into creating two new companies: the retail division Best Buy Europe, operated through a 50 stake with the US retailer Best Buy, and ISP TalkTalk. While the de-merger is proving expensive, the company hopes it will save up to £60 million a year. Carphone founder and CEO Charles Dunstone will be chairman of each company, which will both be separately listed.

Aside from that, in its trading update Carphone reports strong sales across its broadband and retail divisions for the three months to March this year, its Q4, and Dunstone predicts full-year results will be in line with expectations. Full year results for the year to March 2009 are due on June 5.

Broadband push: The company’s TalkTalk ISP business added 97,000 net customers in the quarter overall. There was a net increase of 74,000 fixed line broadband connections — more than double the increase in the previous quarter — giving it a total of 2.8 million fixed-line subscribers. The company expects to add between 125,000 to 175,000 broadband subscribers in the next year.

Best Buy: BB Europe grew its mobile connections by 12 percent in the quarter, leaving it with a total of 3 million customers and Carphone expects to make between £30 million and £40 million by the year-end from the JV. Projected revenue growth for the year ahead, however, is anything from a three percent loss up to flat. Dunstone says Big Box stores will be launched in UK and Europe, along with an online retail presence, by Spring next year.

Merger: Carphone says that operationally the two divisions are already separate and have been steadily decreasing their shared management structure and overheads. But any separation can only happen when Carphone can reallocate its credit facilities and at the right cost. And demerging is itself a costly business: Carphone has spent between £8 million and £12 million on reorganising TalkTalk and between £5 million and £7 million on its share in Best Buy.

Outlook: It might be faring well, but Carphone is again giving a cautious forecast. It expects EPS and TalkTalk revenue both to be flat in the next 12 months, though TalkTalk’s EBITDA margin will “rise slightly”.

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