Phones 4u sales grew 21% to £733m last year as the independent retailer continued to focus on smartphone sales.
However, insurance claims rose in the year to December 2010, hitting profits at Phones 4u's lucrative insurance division.
The independent retailer saw turnover grow 22%, from £746m to £911m, in the period, with underlying earnings rising 20% from £108m to £130m, according to its latest accounts. Connections rose by 16%.
However, the increased cost of smartphone claims meant a fall in earnings from the insurance division, along with pricing competition from other insurers, with profit before tax at the division falling from 46% to 31% of sales.
The decline in profits from £65m to £56m came despite a rise in the overall turnover of the insurance division, from £142m in 2009 to £179m in 2010.
Chief executive Tim Whiting (pictured) told The Guardian and The Times that the company’s move from charging mobile phone operators a one-off connection fee for each sale to securing a share of customer spending on phone bills had driven the rise in higher-spending customers.
He said: ‘Over the previous two or three years our deals have changed to reflect the ongoing lifetime value of a customer, which aligns us much more with the network operators.
‘I think it is much more robust in the long-term. If we deliver higher-value, higher-spending customers we both benefit from that.’
Whiting predicted tougher trading conditions for 2011. He said: ‘2010 was clearly was a very strong year for the business. And we're in a nice marketplace that sits at the cross section of technology and fashion. Having said that the economic environment is not easy so we remain cautious going forward.’
Phones 4u was sold by providence Equity Partners to BC Partners earlier this year for around £700m.
Whiting is believed to have retained a 7% stake in the company, along with his management team. He collected £1.15m in pay and long-term incentives in 2010, up from £850,000 the year before.