UPDATE: Carphone Warehouse Demerger On Track; Repeats Fiscal Year View

U.K. mobile retailer and broadband provider Carphone Warehouse PLC (CPW.LN) Thursday said it is increasingly confident of completing a demerger by March 2010, as it reiterated full year guidance and reported better-than-expected performance in both of its businesses.

In the last two years the group has reshaped its business, spinning off its mobile phone retail offering into a joint venture with Best Buy Co. Inc (BBY) and building a fixed line broadband business, TalkTalk, from scratch into the largest residential broadband provider in the U.K. following its recent acquisition of Tiscali U.K.

The company is preparing to demerge Best Buy Europe from TalkTalk and said Thursday it is increasingly confident of completion by the end of March 2010.

Carphone also reiterated its full year guidance for 10% growth in headline earnings per share, excluding one-off items and some amortization associated with its acquisitions, and GBP150 million of free cash flow.

TalkTalk added 77,000 new broadband customers in the second quarter, excluding its recent acquisition of Tiscali U.K., well ahead of the company's consensus forecast for 41,000 net new additions.

Still, the company lost 62,000 Tiscali customers in the same period, in line with its expectations, and said after completing the acquisition it found that Tiscali had 160,000 fewer customers than previously indicated.

But this won't hurt the company's goal of hitting between 4.1 million and 4.2 million broadband customers by the year-end, and it will receive an undisclosed payment for the lower subscriber base.

Carphone is targeting synergies of between GBP40 million and GBP50 million from the Tiscali acquisition, which brought an additional 1.3 million broadband customers to the business after accounting for the 160,000 shortfall.

Meanwhile, Best Buy Europe grew total connections by 2.0% in the period against a tough comparative last year when sales were helped by the launch of Apple Inc.’s (AAPL) 3G iPhone.

Best Buy Europe now has a total of 3.17 million connections, ahead of company consensus forecasts for 3.11 million subscribers.

The joint venture with Best Buy includes Carphone’s existing network of mobile and electronics stores across Europe with a plan to roll out large-format consumer electronics stores, first in the U.K. and then across the continent, targeting 100 stores across Europe by 2013.

The company said Thursday that the rollout of its Big Box out-of-town stores is on track to launch in the U.K. in the spring "and we are making strong progress on finalizing further store openings next year."

Best Buy Europe also includes a U.S. venture Best Buy Mobile, which operates mobile stores within Best Buy's electronics shops, and Carphone said it remains confident this business will provide a significant contribution in the current financial year.

Carphone shares closed Wednesday at 205p.

-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; [e-mail]