Vodafone is interested in more deals in emerging markets, the UK mobile phone group said on Tuesday as it reported a 4 per cent increase in operating profit in 2006-07.

The group’s shares closed up 5.5 per cent at 159.7p, their highest level since January 2002, after Vodafone said operating profit would be potentially flat in 2007-08. The guidance was better than stock market forecasts.

Vodafone has been at the centre of fevered market speculation about consolidation in the telecommunications sector. But people close to AT&T dismissed market rumours that the US company was planning a bid for the UK group.

Arun Sarin, Vodafone’s chief executive, insisted there was no logic to breaking up the group, and instead said it was willing to look at more selective acquisitions in Africa, Asia and eastern Europe. Vodafone completed its third-largest transaction earlier this month after paying $10.9bn (€8.1bn) for control of Hutchison Essar, the Indian mobile operator.

Mr Sarin said Vodafone could be interested in buying the 50 per cent of its South African mobile joint venture that it does not own. Telkom, South Africa’s leading telecoms company that owns the other 50 per cent of Vodacom, is reviewing its participation in the venture.

Mr Sarin said: “If they come to us and say would we be interested, we will certainly look at that asset.”

With net debt at £24.1bn on a pro forma basis following the Hutchison Essar transaction, Vodafone is willing to see its A- credit rating go to BBB+ temporarily if it identifies an appropriate target in emerging markets.

Vodafone reported revenue of £31.1bn for 2006-07, up 4.3 per cent on an organic basis, and adjusted operating profit of £9.5bn, up 4.2 per cent.

It recorded a pre-tax loss of £2.4bn, partly because of £11.6bn of impairment charges that reflected fierce competition and regulatory pressure in some of its core European markets.

The full year dividend was 6.76p, up 11.4 per cent. Investors welcomed how Vodafone will over the next two years raise its dividend above a payout target of 60 per cent of adjusted earnings per share.

The move will offset the dilutive earnings impact of the Hutchison Essar transaction.

Mr Sarin said Vodafone’s margin on earnings before interest, tax, depreciation and amortisation was expected to fall in 2007-08, but by less than the decline of 0.9 percentage points in 2006-07.

Vodafone outlined £600m of savings in capital and operating expenditure in 2007-08.

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