Vodafone's profit up 9% but it warns of dip ahead

A SURGE in demand for smartphones and better-than-expected growth in the UK and emerging markets helped boost Vodafone's annual profits by 9 per cent to £9.5 billion.

However, the mobile phone giant expects a lower outcome next year due to tough trading in Spain and Italy and also the absence of its French associate SFR, which it sold in April.

Data revenues jumped by over a quarter to 5.1bn, representing 12 per cent of group service revenues as use of smartphones increased rapidly.

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Vodafone expects tablets, such as the iPad, to give the market a further boost and become mass market devices.

UK revenues, in particular, grew strongly on the back of this trend and were also helped by customers switching from "all-you-can-eat" packages to pricing plans that reflect data usage.

But the end of call termination charges, to be phased in gradually from next year, will have a "significant negative impact" on UK revenues growth in 2012.

Chief executive Vittorio Colao added that Vodafone was holding market share in all of its markets and gaining ground in some.

The strength of its key emerging markets of India and South Africa offset the weakness in southern Europe, he added, while, as data becomes more important, he expects the firm's superior network will become more important than price.

He added: "Continuing network investment is an important differentiator for Vodafone, improving the customer experience and giving us leadership in smartphone penetration and in customer take up of data plans."

Brokers praised the figures, saying the UK group is now among the best performers of all of the European mobile groups.

Steve Malcolm, an analyst at broker Evolution, said: "Given the generally dismal results reported by European telcos in the first quarter, Vodafone's full year results were mercifully free of major new scares."

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Morten Singleton at Investec added that data usage should drive growth in the near-term.