The firm has stood by its strategy to become an internet provider

It said that pre-tax profit fell less than analysts had forecast in the year to 31 March, down 9.5% at �123.1m.

However, sales rose by 31% to �3.99bn and Carphone Warehouse said it was boosting its dividend as a result.

The company also said it had addressed customer service problems that have dogged its internet business.

Rising confidence

Called Talk Talk, Carphone Warehouse's online business provides "free" high-speed internet access to those customers paying �20 a month for a landline phone.

But many customers have complained of long delays in getting connected, and of poor service and technical support.

Demand continues to be strong and customer confidence in the service is increasing Charles Dunstone, Carphone Warehouse Carphone Warehouse shares

Carphone Warehouse said on Tuesday that its online operations made a loss of �72m over the year.

Earlier this year, the firm said that it was spending an extra �10m to �15m on its customer service at Talk Talk.

The company's founder and chief executive, Charles Dunstone, explained that the problems had now been "substantially addressed".

"Demand continues to be strong and customer confidence in the service is increasing," he said.

Analysts also voiced optimism in the outlook for the company's internet business.

"We believe that last year's loss of �72m from broadband could be turned into a profit of close to �200m over the next couple of years," analysts from Numis Securities said in a note to clients.

New horizons

As well as teething troubles at the online business, Carphone Warehouse, which is an independent seller of mobile phones and contracts, has also had to deal with changes in the UK's mobile phone market.

The market is becoming increasingly saturated, with some customers already having two phones and others taking on contracts that last up to 18 months.

Those changes, coupled with the decision of Vodafone to halt selling its contracts through Carphone Warehouse outlets, have hit growth potential, analysts said.