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Carphone plunges on gloomy outlook, company may split

LONDON (Reuters) - British retailer Carphone Warehouse said the economic outlook was the toughest it had ever seen, sending its shares plunging by over a quarter and eclipsing news it might split off its telecoms arm.

“The next 12 months are likely to represent the most challenging economic climate we have ever operated in,” Europe’s biggest mobile phone retailer said in a statement on Tuesday.

At 7 a.m. EST, Carphone’s shares were down 16.7 percent at 108.5 pence after touching a five-year low of 95.5 pence.

Shoppers across much of the world are curbing spending following big rises in food and fuel bills and the prospect of a global recession following the financial market crisis in September.

Luxury goods group Burberry also said on Tuesday that trading was getting tougher, while British department stores group John Lewis reported a 14 percent plunge in weekly sales

Carphone Finance Director Roger Taylor told Reuters that rising unemployment meant consumers were likely to remain cautious well into next year, despite falling interest rates.

“Coming into the first half of next year, a lot of people are going to see their credit card bills hitting their doorstep in the end of January and early February and I think that’s going to add to their woes for a few more months,” he said, as Carphone met forecasts with a 15 percent drop in first-half earnings per share (EPS) before one-off items to 4.2 pence.

JP Morgan analysts warned consensus EPS estimates of 16.3 pence for this year and 19.4 pence for next year would probably have to come down. They are forecasting 16.1 pence and 16.6 pence respectively.

Carphone shares have fallen heavily in recent days, after its retail joint venture partner, U.S. group Best Buy, warned last week of “seismic changes” in consumer behavior, and top handset maker Nokia Oyj said the world’s mobile phone market would fall next year.

DEMERGER

Carphone, which sold a 50 percent stake in its retail business to Best Buy earlier this year, confirmed months of speculation by saying it would look at splitting off its fixed-line and broadband telecoms business.

Analysts have long argued the group’s share price suffered from its conglomerate structure and that it should spin off its telecoms arm to focus on the venture with Best Buy, which plans to roll out electrical goods megastores across Europe, starting in the UK next year.

Investec analysts have said that matching Carphone’s separate telecoms and retail businesses against their peers would give a combined valuation of 180 pence a share. They value Carphone’s telecoms arm at 920 million pounds.

However, Carphone said it would not make a decision until at least Spring 2009 and dampened speculation that the telecoms business might be sold.

“There’s no interest in selling the telco asset,” Taylor said in a telephone interview. “To the contrary ... we think we’re well positioned to exploit the opportunity of the asset that we’ve invested heavily in for the last two or three years.”

Mobile phone group Vodafone and pay-TV firm BSkyB have both been tipped as potential bidders. But Vodafone said it was not interested and a source familiar with the situation said it was not on BSkyB’s agenda either.

Taylor said Charles Dunstone, who founded Carphone in 1989 and is chief executive and 33-percent shareholder, would take executive positions in both businesses if a demerger proceeds.

He also said the retail venture with Best Buy, called Best Buy Europe, was “absolutely not” considering a delay to the launch of its electrical goods stores.

Carphone, whose retail business currently includes over 2,400 shops in nine countries, proposed an 8 percent rise in its interim dividend to 1.35 pence a share.

Editing by David Holmes and Chris Wickham

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