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O R D I N A R Y

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O R D I N A R Y

E X T R A -

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VIRGIN MOBILE LISTED ITS SHARES ON THE LONDSTOCK EXCHANGE IN JULY 2004, JUST FOUR ANDA HALF YEARS AFTER LAUNCH. THE COMPANY HAGROWN FROM AN UNTRIED IDEA, INTO A THRIVIN

PROFITABLE BUSINESS WITH MORE THAN FIVEMILLION CONNECTIONS.

VIRGIN MOBILE HOLDINGS (UK)PLC

ANNUALREPORT&ACCOUNTS 2005

WELCOME

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Virgin Mobile Holdings(UK)plcAnnual Report & Accounts 2005

Why we do what we do2 A different kind of mobile company

Why were different4 Different corporate culture6 Different brand

8 Different products10 Different customer service12 Different business model

Operating and financial review14 Financial summary16 A word from the Chairman18 A word from the Chief Executive Officer20 Operating review26 Financial review36 Risk factors

38 Corporate responsibility44 The Board of Directors

Accounts46 Directors report48 Corporate governance54 Remuneration report61 Statement of Directors responsibilities62 Independent Auditors report64 Consolidated profit and loss account65 Consolidated balance sheet66 Company balance sheet

67 Consolidated cash flow statement68 Notes to the Accounts94 Cautionary statement

96 Glossary98 Corporate information99 Share information

100 IndexIBC Contacts

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WE HAVE CONTINUED TO GROW BY WINNINGCUSTOMERS WHO ARE ATTRACTED TO THEEXCEPTIONAL CONSUMER EXPERIENCEASSOCIATED WITH THE VIRGIN BRAND.

OUR REPUTATION FOR DOING THINGSDIFFERENTLY AND GIVING OUR CUSTOMERSMORE VALUE, MORE SERVICE, AND MOREFUN, HAS MEANT THAT OUR BUSINESS

HAS CONTINUED TO GAIN MARKET SHAREFROM OUR MAJOR COMPETITORS.

THIS ANNUAL REPORT EXPLAINS THE KEYTO OUR SUCCESS OUR FOCUS ON BEING

A DIFFERENT KIND OF MOBILE COMPANY.

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2 Virgin MobileAnnual Report & Accounts 2005

A DIFFERENT KIND OF

MOBILE COMPANY

All of these qualities are what makes the Virgin Mobilebrand distinctive. We had a huge advantage when welaunched; we simply took an iconic consumer brand alreadyknown for challenging convention, and brought it to themobile market. The story of Virgin Mobile demonstratesthe rewards to be gained from a bold, fresh approach.

How were differentThere are five key areas that best illustrate how ourbusiness philosophy our focus on an absolutely uniqueexperience, both internally and externally sets usapart from the crowd:

At our company, as well as in our marketplace, we focusonpeople, not just numbers. We have a singular companyculture, fuelled by excitement and passionate commitment.We believe our people should always come first: happystaff treat customers well, which helps to grow thebusiness, creating shareholder returns. Simple.

WHYWE DO WHATWE DO

IN OUR FIRSTFIVE YEARS OF BUSINESS WEVE GONE FROM STRENGTHTO STRENGTH. AS THE LEADING MOBILE VIRTUAL NETWORK OPERATORIN THE UK, WEVE PROVED THE VALUE OF BEING DIFFERENT.

What sets us apart?Pretty much everything about Virgin Mobile singles usout as an extraordinary mobile operator.

When we set up the business in 1999, the UK mobilemarket was already one of the most competitive around.But in just five short years, weve proven that a freshapproach to service and a new way of thinking aboutwhat consumers really want can pay dividends literally!

Theres no great mystery to Virgin Mobiles approach.We are a marketing and service business: we focus on

customers, not engineering; we focus on the brandexperience, not technology. We give our customerswhat they want not whats easiest for us to provide.And what our customers want is exactly what westand for: value for money, outstanding service,great products and a sense of fun.

VIRGIN MOBILE

Launches as UKs firstvirtual operator

1999 2000 2001NOVEMBER APRIL

Launches the worlds firstMP3 phone

NOVEMBER

Wins Best Network award at theMobile Choice Consumer Awards

Passes 500,000 connectionsmilestone

Launches in Northern Ireland

EBITDA positive

Reaches 1 millionconnectionsJUNE

APRIL

AUGUST

Wins Best Customer ServiceAward and Best Prepay PackageMobile Choice Consumer Awards

OCTOBERA B R I E F H I S T O R Y O F

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Dont follow the crowdAt Virgin Mobile, we wanted to getaway from blinkered, restrictivethinking about what makes asuccessful mobile telecomsoperator to find a new approachto business that would give ourcustomers the freedom to bewho they are and not who wewant them to be.

Our products dont keep ourcustomers penned in. The sheerdelight we bring them has made usthe most successful mobile virtualnetwork operator in the UK.

C O N V E N T I O N AL


U N

Surpasses 3 millioncustomers

Reaches 5 millionconnections!

Launches into contract marketwith Virgin Mobile Pay Monthly

2002 2003 2004 2005

Wins Best Customer ServiceAward and Best Prepay Package Mobile Choice Consumer Awards,for the third year running

OCTOBER

SEPTEMBERWelcomes 2 millionconnections

Wins Best Customer ServiceAward and Best Prepay Package Mobile Choice Consumer Awards,for the second year in a row

DECEMBER

Reports full year profit

APRIL

Voted one of Britains Top 50workplaces by the FT

AUGUST

Launches own-brand stores inpartnership with VirginMegastores

APRILAttracts 4 millionconnections

Voted one of Britains Top 50workplaces by theFinancial Times again!

JULY

Successfully floats on the LondonStock Exchange

DECEMBER

MARCH

Voted one of the UKs Top 100 BestPlaces to Work by Sunday Times

MAY

Wins Most Satisfied PrepayCustomers in the UK by JD Powerfor the 2nd year running

TheVirgin brand gives us a prominent profile in acrowded marketplace. The strong heritage andreputation of our brand is a powerful competitiveadvantage, and our distinctive approach to advertising,packaging, point-of-sale marketing and sponsorshiphas won many fans.

Ourproducts are innovative and industry-defining. Wegive our customers exactly the features and functionalitythey want, because we listen to what they have to say andtailor our offer accordingly. Weve worked hard to makeour service easy to sell, easy to buy, and easy to use.

And we back everything up with market-leading, award-winningcustomer service . On pages 10 and 11, you can seewhat our customers themselves have to say about theVirgin Mobile approach.

We have a different business model , which providesscalability and high cash returns in an industrytraditionally characterised by accelerating capitalinvestment. Our low-cost business model gives us a solidfoundation of consistent profitability from our existingbase, while being flexible enough to accommodate newand exciting areas of growth with minimal investment.

Over the following pages, we look at each of these fivekey Virgin Mobile differences in more detail.

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Wish you were here

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DIFFERENT

CORPORATE CULTUREWE PUTOUR PEOPLE FIRST. AS A RESULT, VIRGIN MOBILE HAS AGAINBEEN VOTED ONE OF THE BESTPLACES TO WORK IN BRITAIN.THE FUN STARTS HERE

Nowadays, statements like Our most important assetis our people have become clichs, drained of any realvalue. Lots of companies say it we mean it. Virgin Mobilespeople really are the heart and soul of the business whichis the reason creating a truly distinctive corporate culturehas been integral to our strategy from day one.

In most companies, the acknowledged priority isshareholder returns. They work backwards from thebottom line, and their people are merely a commodity toget the job done. At Virgin Mobile, our focus is on peopleabove all. We believe that if you put people first, everything

else falls naturally into place. Happy, committed peopledeliver outstanding customer service; and outstandingcustomer service drives exceptional businessperformance, which in turn delivers strong shareholderreturns. Thats the Virgin Mobile approach.

We make every effort to acknowledge the value of ourpeople by making a real difference to their workingenvironment. We encourage our team to get the mostout of their careers, and to enjoy being part of asuccessful company.

Our corporate culture encourages entrepreneurialthinking, as well as the ability to react quickly andcreatively to changing market trends. Our recruitment,training and promotion procedures are all designed tomake sure that our people are selected and rewarded onthe basis of their merits and abilities. As a result, our staff

are a highly-talented and motivated group of people.

This means going beyond basics like clear and fair termsof employment. We also provide a healthy, stimulating,working environment, competitive remuneration, a pensionscheme in which well match employee contributions up to7.5% of salary, a subsidised healthcare scheme, enhancedmaternity and paternity benefits, and an annual bonusbased on company and individual performance.

WHY WERE DIFFERENT


TOP 10 0P LAC ES

T O W ORK IN BRIT AIN T HREE Y EARS RUNNING

V OT ED ONE OF T HE

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Our staff enjoy a funenvironment, an activedevelopment programme anda generous leave entitlement.We also encourage ouremployees to help rewardtheir colleagues includingnominating one another forexceptional work to win aEuropean weekend break eachmonth, all expenses paid.Que bueno!

HAPP YP EOP LE

=HEALT HY

BUSINESS

COMING FROM A RE TAIL BACKGR

O UND

WHERE C U S TOMER SER VICE WA S

N TA

BIG PRIORI T Y, WORKING A T VIRG

IN MOBILE

I S A REAL BREA TH OF FRE SH AIR.

WE HA VE

A COMMI TMEN T TO C U S TOMER S

ER VICE

THA TR UN S DEEP THRO UGH ALL

DEPAR TMEN T S HERE

J E S S I CA H I L L

IT S T HE LIT T LE T HINGS T HAT MAK E IT W ORT HW HILE W ORK ING HERE, LIK E RECEIV ING A CHRIST MAS CARD F ROM RICHARD BRANS ON IT MAK ES ME F EEL V ALUED BY T HE W HOLE COMP ANY

LAU R A C OGGINS

T EA M MA NAG E R

C U ST OME R SE R V IC E SP E C IALIST

We also offer a few extrasFor example, all our employees receive a free Virgin Mobilephone as a matter of course; and all are members of theVirgin Group Tribe scheme, which offers a range ofdiscounts on products and services from across the VirginGroup, as well as other organisations. We offer threeadditional days holiday after three years service and afterone year, our people are entitled to take a three month(unpaid) break. We encourage our staff to get involvedin charity and community work, and provide an additionalfive sabbatical days each year for employees to take attheir discretion.

We offer a confidential employee support line whichprovides advice and counselling services on everythingfrom financial problems to personal issues. And the VirginMobile Learning Zone gives our people the chance tofurther their education across a broad range of subjectareas. We also operate a thank you scheme called SHOUT!,which lets our people nominate colleagues whove done aparticularly good job. These exceptional employees get achance to win a European weekend city break every month!

Were proud to have been recognised in 2003 and 2004 asOne of the Top 50 Companies to Work for in the UK by theFinancial Times, being ranked 22nd in both years, and in2005 to have been included in The Sunday Times Top 100Best Places to Work in Britain.

The biggest, and for many of our people, the best ThankYou we offer is our annual staff conference, at whicheveryone in the company gets together for a day toremember. The day is part work, part fun, and includes astrategy briefing and Q&A with top management, wherestaff get a chance to quiz the executive team on anything

and everything. Then its topped off by a party, over theweekend, where our people can celebrate our successwith each other, their family and friends.

And were always proud of the comments our own peoplehave made about the difference the Virgin Mobilecorporate culture makes to their lives.

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A D V E R T I S I N G

O u r a w a r d w i n n i n g T V a d v e r t i s i n g ,

a l o n g w i t h p r e s s a n d p o i n t o f s a l e

m a r k e t i n g , a

r e a n i n t e g r a l p a r t

o f o u r s t r o n g b r a n d . T h i s m e a s u r e d

m i x o f m e d i u m s e n a b l e s u s t o

a c h i e v e m a x i m u m r e t u r n s w i t h

m i n i m u m i n v e s t m e n t .

P U T T H E

K E T T L E

O N

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D I S T R I B U T

I O N

O u r e v e r - i n c r e a s i n g d i s t r i b u t i o n

n e t w o r k h a s b e e n k e y t o o u r s u c c e s s

o v e r t h e p a s t f i v e y e a r s . O u r e f f e c t i v e

a p p r o a c h a l l o w s u s t o h a v e a

p r o m i n e n t p r e s e n c e o n t h e h i g h

s t r e e t , w

i t h m i n i m a l i n v e s t m e n t . W e

n o w h a v e 1 0 4 V i r g i n M o b i l e S t o r e s

t h r o u g h o u t t h e U K

, a n d o u r p r o d u c t s

a r e a v a i l a b l e i n o v e r 6

, 0 0 0 o u t l e t s .

B R E E D I N G

L I K E

R A B B I T S

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S P O N S O R S H I P

S a l t a n d p e p p e r , c

h e e s e a n d t o m a t o ,

h a m a n d e g g s s o m e t h i n g s

a r e j u s t m e a n t t o g o t o g e t h e r .

O u r s p o n s o r s h i p s f o c u s o n a c t i v i t i e s

t h a t i d e a l l y c o m p l e m e n t o u r d y n a m i c

a n d e x c i t i n g b r a n d . F r o m S u p e r b i k e s

t o m u s i c f e s t i v a l s w e s t r i v e t o

c o n n e c t w i t h p e o p l e w i t h p l e n t y

o f g e t - u p - a n d - g o .

M A D E F O R

E A C H O T H E R

V F e s t i v a l 2 0 0 5 w i l l f e a t u r e s u c h

s t e l l a r n a m e s a s S c i s s o r S i s t e r s ,

F r a n z F e r d i n a n d , M a r o o n 5

a n d O a s i s

.

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WHY WERE DIFFERENT

THE VIRGIN BRAND IS ONE OF THE BEST-KNOWN IN THE UK. ITEMBODIESA FASHIONABLE, EXCITING AND IMAGINATIVE APPROACH TO BUSINESSAND THE MORE EXCITING THINGS IN LIFE.

The Virgin brand is stylish, provocative, irreverent a trueoriginal. But its also well established, and has an aura ofstrength and credibility. It has a tremendous marketheritage: people of all ages respond to it. This is animportant asset for us because we can achieve maximumreturns from our advertising for a minimum investment.

AdvertisingOur TVadvertising has always been some of the most savvyand entertaining on the small screen. In January 2005,Busta Rhymes, one of the stars of our The Devil MakesWork For Idle Thumbs campaign, picked up the Best

Celebrity Gadget award from What Mobile magazine. Thecampaign also won the 2004 Mobile News award for BestNational PR/Advertising Campaign a coveted gong wepreviously picked up in 2000 and 2001. And its a tribute tothe power of our market presence that readers of MobileNews also voted Virgin Mobile Best Network Operator even though we dont operate our own network!

DistributionEffective and targeted distribution has been key to ourperformance over the past five years. In a short spaceof time, weve built up a distribution network of around

6,000 sales outlets, with another 50,000 outlets sellingour airtime.

We capitalise on the value of the Virgin brand by puttingdedicated Virgin Mobile stores within stores inside96 Virgin Megastores nationally. The majority of thesestores are staffed by dedicated, expert Virgin Mobilepeople; and each store stocks the entire range of ourproducts. This high-profile, high footfall presence is aneffective marketing channel for us, consistently bringingin valuable customers. Our store within a store concepthas proved itself so successful, we have introduced Virgin

Mobile Stores into several WH Smith outlets. We now

have a total of 104 Virgin Mobile Stores throughout the UK.We are excited about potentially developing the concessionfranchise further.

The Virgin Mobile brand is also distinctive online and ourwebsite provides a 24 hour shop window for customers,consistently proving an efficient route to market. A numberof recent Internet-based marketing initiatives have metwith great success, and we will continue to develop thisimportant, cost-effective distribution channel.

Virgin Mobile phones are available in specialist mobile

retailers such as Carphone Warehouse, Phones 4U andThe Link, and in such well-known high street stores asWoolworths, Comet, Argos, Sainburys, Tesco, and Asda.

SponsorshipHigh-profile sponsorship keeps Virgin Mobile in the publiceye. Our sponsorships focus on music and sports onactivities which are entirely at home with the Virgin brand:dynamic and exciting, and which create opportunities forbright new talent. We currently support a British Superbiketeam and the R6 cup, which is designed to find and promoteyoung, up-and-coming talent to the main Superbikes circuit.

Virgin Mobile Louder is the name we use for all our musicsponsorship activity. Through our partnership with Barfly,we help give promising bands a leg up. Each month, we givea band the chance to tour all five Barfly venues on the VirginMobile Louder Tour. One of these bands will be given theopportunity to play at this years VFestival.

Every summer, hundreds of thousands of music fans flockto the VFestival, for which we have acted as sponsor for thepast five years. During that time, weve brought VFestival-goers innovations such as Text the Fest on the main stage

screens, and free beer for Virgin Mobile customers.

DIFFERENT

BRAND


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We currently support a BritishSuperbike team and the R6 cup, whichis designed to find and promote young,up-and-coming talent to the mainSuperbikes circuit.

Our Devil Makes Work For Idle Thumbscampaign starring Busta Rhymes wonthe 2004 Mobile News award for BestNational PR/Advertising Campaign.

Our distinctive point of sale and storebranding has helped us establish

a strong high street presence.

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NO HIDDEN COSTS

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YOU COULDNTRESISTWE SAID THERE WERE NO HIDDEN COSTS

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DIFFERENT

PRODUCTS

TXT4UWhichever phone customerschoose from our fashionable range,we charge only 3p for a textmessage sent to any other VirginMobile phone in the UK.

1 picture = 1,000 wordsMost of our phones feature state-of-the-art cameras and picturemessaging technology. Easier thankeying in a thousand words

Flex your musclesOur prepay Flex offering givesour customers the freedom tochoose the way they want to pay now thats power.

OUR OFFER GIVES VIRGIN MOBILE CUSTOMERS EXACTLYWHATTHEYRE LOOKING FOR HONESTY, FLEXIBILITY, AND GREATVALUE PLUS, OF COURSE, A LITTLE FUN.

Our success over the past five years reflects the fact thatwere committed to giving our customers exactly whatthey want. Were particularly proud of having the mostsatisfied mobile customers in the UK for two yearsrunning, according to research published by JD Power &Associates in May 2004 and 2005. This independent studyput Virgin Mobile straight in at number one for customersatisfaction among the UKs prepay mobile customers.Our lead in overall satisfaction was supported by beingnumber one for customer service, cost of service, andofferings and promotions. A little extra care goes a longway and we believe weve got our customer service

just right.

At Virgin Mobile, we see our role as a Consumer Champion:putting consumers first by making our offer as clear andstraightforward as we can. We believe that offeringexceptional value isnt just a question of money; its alsoabout making life simpler.

For example, we were the first operator in the UK to abolishpeak rates, as well as being the first to offer prepay airtimebundles where unused minutes roll over to the next month.And where Virgin Mobile leads, others often follow.

FlexibilityOur customers have many ways to run and pay for theiraccount with us but all offer the same core tariff andexceptional value for money.

Our standard pay-as-you-go tariff, Flex, lets customerstop up when they need to with vouchers that never expire* or they can use e-top ups, credit or debit cards. We offercustomers the option of paying by direct debit each month, just as though they are on a contract, but without havinganything to sign.

Virgin Mobile Bundles a range of pre-paid bundledmonthly airtime and texts offers customers even bettervalue airtime, and cheaper calls to other mobile networks,than our standard tariff.

And unlike other prepay operators, we let our customerscarry over unused airtime for an extra month. VirginBundles start at just 7.50 for 40 minutes airtime or100 texts (or 20 minutes and 30 texts), up to 24 for200 minutes or 800 texts (or 100 minutes and 200 texts).

* While connected to the network

WHY WERE DIFFERENT


3 P TEX TS F R O M

1p

1p1p

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All singing, all dancingPolyphonic and MP3 ringtonespersonalise customersphones with a distinctivemusical signature.

A little snackVirgin Mobile Bites offers ourentertainment-starved customersa way to bust boredom, with thehottest celebrity gossip andsports information sent straightto their phones.

Coming soonVirgin Mobile will be launchingphones and services that use 3Gduring 2005. Bringing our uniqueview of the market to the latestin consumer technology

MUL TIMEDIA T O

FUN & GAMES

3G

Virgin Mobile BitesThe launch of Virgin Mobile Bites in August 2004 gave ourcustomers a revolutionary new form of entertainment bite-sized boredom busters delivered straight to theirphones, any time, day or night. Virgin Mobile Bites lets ourcustomers keep abreast of all the hottest celebrity gossipand the latest stories and opinions from the worlds ofmusic, entertainment and sport.

Virgin Mobile Pay MonthlyOn 1 May 2005, Virgin Mobile launched a new offertargeting the contract market. Again, were challenging

convention in favour of the consumer. Our new offer is theUKs only consumer contract offer that guarantees userseither a reduction in their monthly charge, or the optionto renew and receive a new phone at the end of theircontract term. No other provider automatically reducesrates for their customers. Many let their customerscontinue paying the same fee beyond their initial contractterm, even though theyve paid for their handset.

The UK contract market is very strong, so it makes goodbusiness sense for us to extend our offer some 20 millionconsumers in all, with a higher average spend profile than

prepay customers. The contract market, representingapproximately one-third of customers and two-thirds oftotal mobile revenues in the UK, is a substantial avenue forgrowth for Virgin Mobile .

The phonesWe offer an extensive range of the very latest, most stylishmobile phones many include cameras and music players at sensible prices. Our proven business model andever-growing customer base gives us valuable purchasingpower with all of the leading manufacturers.

Our new Hassle-free packages make things easy buy thephone together with a monthly airtime and text allowancefor a set price. The first package we launched offered eightmonths worth of minutes and texts with the latest phones.

LobsterWere also about to launch our own Virgin Mobile brandedphones! Our exclusive Lobster range will offer cutting-edge handsets at competitive prices under the VirginMobile brand. The first of these due in June 2005 will be one of the smallest flip handsets available in Europe.

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############################

BEST INDUCTION TRAINING

EUROPEAN CALL CENTREAWARDS 2002############################

BEST CUSTOMER SERVICEMOBILE CHOICE AWARDS2001, 2002, 2003 & 2004############################

SERVICE EXCELLENCE AWARD,BEST RETAIL & CONSUMERSERVICES CATEGORY, 2002,UNISYS/MANAGEMENT TODAY

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############################

JD POWER & ASSOCIATES

NO.1 CUSTOMER SATISFACTIONUK PREPAY 2004 & 2005############################

100 BEST COMPANIESTO WORK FOR IN THE UK SUNDAY TIMES 2005############################

OUTSTANDING SERVICE TO THECOMMUNITY BUSINESS AWARDS,WEST OF ENGLANDBUSINESS AWARDS

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OUR PRODUCTS AND BRAND ARE BACKED UP BYTHE BESTCUSTOMERSERVICE IN THE INDUSTRY. BUTYOU DONTHAVE TO TAKE OUR WORD FORIT YOU CAN SEE WHATOUR CUSTOMERS THEMSELVES HAVE TO SAY

DIFFERENT

CUSTOMER SERVICE

WHY WERE DIFFERENT

The key to delivering a truly unique customer experienceis customer service. Superior customer care is the mostimportant aspect of our operations and were delightedto say that it shows!

Attention to the needs of our customers in our role as theConsumer Champion is at the heart of everything we do.

As well as abolishing the distinction between peakand off-peak call charges, we were the first mobilecommunications provider in the UK to offer a dailydeclining tariff. Our customers can text each other for

just 3p per message; our products reflect our abilityto understand our customers needs.

This is supported by great service. Were proud to havewon many awards for our dedication to customer care. Weconsistently rate highly in customer satisfaction surveys,and we have won the Best Customer Service award fromMobile Choice magazine for each of the past four years.

Our customers are the most satisfied in the industry,according to JD Power & Associates. This independentsurvey ranked Virgin Mobile as number one for customersatisfaction for prepay in the UK, and our customer servicescores were miles ahead of our nearest competitor. This isthe second year that Virgin Mobile has been eligible toparticipate in this survey and has come out a clear winnertwo years running an exceptional achievement.

Further evidence of our commitment to providing greatservice is reflected in the fact that Virgin Mobile becamea founding member of Otelo, the Telecommunications

Ombudsman. This is an independent body set up to helpcustomers resolve any problems with their service, ifthe need arises.

10Virgin MobileAnnual Report & Accounts 2005

I R EA L L Y F E L T L I K E T

H E P E R S O N O N T H E

O T H E R E N D O F T H E P

H O N E WA N T E D T O

H E L P M E W I T H M Y P R

O B L E M.

J E R O M E MA S O N

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I M NO T ONE TO U S UALL Y SA Y AN Y THING

ABO U T SER VICE B U T VIRGIN M

OBILE S

I S FAN TA S TIC. KNO WLEDGEABL

E,

FRIENDL Y AND NE VER P U SH Y.

P E T E R F AI R W E AT H E R

I T S G O O D T O K N O W T H AT I M I N C AP AB LE ,

C AR I N G H AN D S . Y O U D O N T C O M E AC R O S S

T O O M AN Y C O M P AN I E S N O W AD AY S T H AT

I N S P I R E T R U S T , B U T Y O U R S D O E S .

G AR Y C O LLI N S

THI S I S THE FIR S T TIME I VE BEEN

SO

IMPRE S SED B YA COMPAN Y S S

HOP THA T

I VE HAD TO WRI TE AND TELL TH

EM ABO U T

I T. FAN TA S TIC !

R E B E C CA J A M E S

Virgin Mobile Stores offer customers a unique experienceand are the perfect environment to showcase our productsand services. Customers feel relaxed and our staff make apoint of being friendly but not salesy. Our experts are open,honest and knowledgeable, and they help bring VirginMobile to life. Customers can try before they buy to see ifthe phones right for them; they can set up Bites or Bundles,and our interactive kiosks show them what we have to offer.

We hand-pick our Virgin Mobile Stores staff. Theyre warmand friendly, they always give their best, they like talking topeople and were proud of them!

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90-DAY ACTIVE CUSTOMER GROWTH REVENUESm

AVERAGE COST PER CUSTOMER

All according to planUnlike most of the competition, Virgin Mobile had theadvantage of designing its business for the mass consumermarket from a blank sheet of paper. Without the concernsof network constraints, rollout and investment, we wereable to focus on the consumer from day one a focus thatsstill the same today. Leveraging our understanding of theconsumer market and the burgeoning prepay market,we have developed and implemented a business modelthat gives us a unique, consumer-focused position in thevalue chain, and a structural advantage over other majormobile operators.

As a mobile virtual network operator (MVNO), we benefitfrom a capital-light business model: we dont need toinvest in network hardware, because through ourpartnership with T-Mobile, we have access on excellentcontractual terms for both sides to billions of poundsworth of state-of-the-art mobile network assets. Thismeans that we enjoy the scale benefits of the networkoperators, without the investment and technology risk.

From strength to strengthThe combination of our low cost-base, efficient access tonetwork technology, award-winning customer service andextensive, powerful sales and distribution network providesa solid platform for profitable growth.

The proof is in our financial track record: while revenueshave grown from 76.2 million to 521.3 million over thepast five years, profit margins have also expanded, withour EBITDA margin reaching 19.2%* in 2005, and ouroperating free cash flow margin reaching 16.2%.

We believe weve put the pieces in place to createongoing shareholder value with a business model thatsunique to the marketplace based on growth, growth andgrowth. We are able to continue to drive industry-leadingtop-line growth while delivering strong growth at thebottom line. Our capital-light model and tight workingcapital management enable us to have very strongcash conversion.

HIGH PROFITABILITY, LOWCOST BYDESIGN

DIFFERENT

BUSINESS MODEL

MAR2003 SEPT2003


WHY WERE DIFFERENT

2,188.4

2,583.5

3,241.5

3,603.7

4,031.9

YEAR ENDED31 MARCH 2004YEAR ENDED31 MARCH 2005

462.2

521.3


2.772.13

CAPEX% SALES


3.1

2.1

MAR2004 SEPT2004 MAR2005 excludes depreciation

For definitions of terms please see pp9697

*All comparisons are betweenpre-exceptional results for this yearand pro forma, pre-exceptional resultsfor the year ended 31 March 2004, unlessotherwise noted. For a reconciliation ofaudited to pro forma results see page 34.

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but our cost-base stays low.O P E R AT I N G E X P E N S E S

H I C U S T O M

E R G R O W T H

Our strong operating leverage givesus an exceptionally solid financial base:

revenues grow with our customers

V I R T UA L

N E T W O R K

Because we re no t a ne t work opera tor,

we re free to focus on people, no t

hard ware. We focus on our o wn people,

through our singular Virgin Mobile

cul ture; and we focus on our cu

s tomers,

b y pro viding them the bes t cus tomer

ser vice in the business.

Its all in the numbersIn the 2005 financial year ended 31 March, we grew our activecustomer base to over four million by adding over 791,000net new customers. Meanwhile our service revenues grew by16.2% for the year representing industry-leading growth.These gains reflect an increase in market share in bothcustomers and revenues all with a minimum of investment.

As weve grown, weve kept our operating costs flat excluding some incremental costs associated with our listingin July 2004 driving down our average cost per customerby 23% while maintaining the best customer service in the

industry. We are committed to strict operational disciplinecoupled with high standards of service. Meanwhile, ourunique model allowed us to keep capital expenditure to just2.1% of revenues, even as we aggressively added to ourproduct range throughout the year.

Our unique ability to grow with minimal investmentresulted in operating free cash flow of 84.5 million,or a margin of 16.2%.

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FINANCIAL

SUMMARYWITH A TOTAL OF 5,359,900 CONNECTIONS, 2005 SAWRAPID GROWTHIN CUSTOMERS, REVENUES, PROFITABILITYAND CASH FLOW.*

OVER 4 MILLIONACTIVE CUSTOMERS

+24.4%

SUBSCRIBERACQUISITION COSTSSTABLE AT

26

TOTAL REVENUESOVER 500 MILLION

521.3m

SERVICE REVENUES

+16.2%OPERATING COSTSPER CUSTOMERREDUCED

-23.1%

EBITDA100.3 MILLION

+27.4%

EBITDA MARGINEXPANSION TO 19.2%

+1.8ppOPERATING PROFIT82.9 MILLION

+31.2%

OPERATING PROFITMARGIN OF 15.9%

+2.0pp

UNDERLYING EPS18.4P

+22.7%

CAPITALEXPENDITURETO SALES

2.1%

LIKE-FOR-LIKEOPERATING COSTS UP

+0.5%

RAPID DE-GEARINGNETDEBTREDUCED TO

2.3X

EBITDA14Virgin MobileAnnual Report & Accounts 2005

OPERATING AND FINANCIAL REVIEW

OPERATING FREECASH FLOW

84.5m

LIKE-FOR-LIKEOPERATING FREECASH FLOWMARGIN

20.7%

PROPOSEDINAUGURAL DIVIDENDPAYMENT PER SHARE

4.88pFor definitions of terms please see pp9697


excludes depreciation

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78.7m

100.3m

Q4 2004

147 147

Q1 2005

142 142

Q2 2005

137 138

Q3 2005

132136

Q4 2005

127134

IN FY2005, OFCOM CUTTERMINATION RATES BYMORE THAN 30%.EXCLUDING THESE CUTS, OUR UNDERLYING GROWTH WAS EVEN STRON*


ARPU AND USAGE PROFILE

Margin Margin ex Ofcom

2004 2005

63m

90m

EBITDA LESS CAPEX

REVENUE GROWTH

Margin Margin ex Ofcom

13.7%

17.2%

20.7%

Margin Like-for-like Margin

2004 2005

82.9m 84.5m

OPERATING FREE CASH FLOW

19.2%

16.2%

20.7%

2004 2005

394m

521m

453m458m

MARGIN EXPANSION

EBITDA

2004 2005

17.4%

19.2%

22.6% 63.2m

82.9m

EBIT Margin Margin ex Ofcom

OPERATING PROFIT

2004 2005

13.9%15.9%

19.5%

G Service revenueG Equipment revenue

G ARPUG ARPU exOfcom

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Dear Shareholder,

I am pleased to introduce Virgin Mobiles first AnnualReport, and the Companys first set of full-year resultssince its flotation.

Our financial and operating performance this year is veryencouraging and represents the fifth successive year ofdouble-digit revenue and EBITDA growth for the business.EBITDA was up 27.4%*to 100.3 million for the yearended 31 March 2005 and operating profit grew 31.2%to 82.9 million.

We continue to demonstrate strong growth in our coreprepay customer base, together with growing profitabilityand high levels of cash generation. Subject to shareholderapproval, we have announced a dividend payment of 40%of pre-exceptional net income, paid as a final dividend attwo thirds of the payout ratio for the year or 4.88 pence pershare. The cash generating nature of our mobile virtualnetwork operator (MVNO) model leaves us well positionedto deliver a progressive dividend policy going forward.For the financial year 2005/06, we will target a 50%payout ratio.

The Virgin Mobile business model has once again clearlydemonstrated its robustness through these results. At itscore is a commitment to deliver innovative, attractive andgreat value products and services to customers. We arerecognised as offering the best customer service in theindustry and are continually seeking new ways tostrengthen that position.

This has been an eventful time in Virgin Mobiles history.Last year we successfully concluded negotiationsto secure a new long-term contract with our networkpartner, T-Mobile. The deal we struck represents excellent

value to all parties, giving Virgin Mobile a long-termcompetitive base and the freedom and flexibility togrow our business effectively.

The new contract helped to lay the foundations for listingthe Company on the London Stock Exchange in July 2004.The Global Offering of 62.5 million shares raised grossproceeds of 125 million for the original shareholders.As well as creating a free market float of around 25%of Virgin Mobiles share capital, the Offering gave freecompany shares to all eligible employees a specialthank you to our talented and dedicated people, who

play such a central and continuing part in our success.

A WORD FROM THE

CHAIRMAN





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Turning to the future, Virgin Mobile is very well-positionedto continue to grow revenues and earnings. We expectfurther growth in the prepay segment, through thedevelopment of new products, services and innovativedistribution. Weve also broadened our offer to encompassnew areas of the market in particular the consumercontract sector. These new areas offer exciting potentialfuture growth prospects for the Company.

Virgin Mobile has a very effective business model, whichtranslates our customer insight into innovative marketingand products. As we have shown this past year, we are able

to increase sales rapidly without materially increasing ouroperating costs. This gives the business exceptionaloperating leverage. Our unique business model alsobenefits from very low levels of capital expenditure,enabling us to be highly cash generative as a business.

As a newly-floated company on the London StockExchange, my Board colleagues and I are firmly committedto delivering high standards of corporate governance.To this end, we expect to announce the appointmentof a fourth independent non-executive director in the2006 financial year.

Under the leadership of Tom Alexander and his colleagues,we are confident that the business will continue to growvalue for our shareholders. Virgin Mobile has made anexcellent start in its first year as a public listed companyand we are looking forward to building on that success

going forward.

Yours sincerely

Charles Gurassa


THIS YEAR REPRESENTS OUR FIFTHSUCCESSIVE YEAR OF DOUBLE-DIGITREVENUE AND EBITDA GROWTH FORTHE BUSINESS.

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Dear Shareholder,

Its been a privilege in times past to have been able toreport, year after year, that Virgin Mobile has had its bestever year. And with our first results as a public company,Im delighted to say the tradition has continued. In acompetitive market, our results show that the businesscontinues to enjoy consistent customer growth, efficientcost management and consequently robust and increasedprofitability, reflecting the inherent strengths andscalability of the Companys business model.

PerformanceWere very pleased to report such strong results. Totalturnover for the year surpassed the half billion poundmark for the first time. And importantly, service revenuesfor the year were up 16.2%*to 457.6 million, reflectingcontinued strong customer growth. The top-lineperformance is particularly gratifying in light of theimpact of the 30% Ofcom terminationrate cuts whichoccurred in September 2004. Excluding the impact ofthe Ofcom decision, our underlying service revenuegrowth was 23.0%.

Growth in EBITDA outpaced our revenue growth, reflectingthe strong operating leverage fundamental to our businessmodel. EBITDA was up 27.4% to 100.3 million for the yearended 31 March 2005, and operating profits grew 31.2% to82.9 million. We continued to enjoy margin improvement,with our EBITDA margin growing by 1.8pp to 19.2% and theoperating profit margin improving by 2.0pp to 15.9%.

One of Virgin Mobiles key differentiators from the networkcompetitors is our very light capital needs. We kept capitalexpenditure for the year to just 2.1% of revenues whileaggressively expanding our innovative product range.Our ability to invest in growth without having to invest in anetwork infrastructure means we have one of the highestfree cash flow margins in the industry; in FY2005 ouroperating free cash flow was 84.5 million, which equatesto a margin of 16.2%. And the like-for-like margin was evenhigher, at over 20%. This very favourable cash conversionprofile allowed us to bring our net debt down to 234 million just 2.3x EBITDA, from 3.9x a year ago.

The strong financial and operating progress weve madeduring the year is very encouraging, and we believe we havethe model and targets in place to sustain ongoing growth.

OperationsThe current contract with T-Mobile, which we enteredinto before the start of the year, has ensured a thrivingpartnership. The ensuing financial year was one of manyhighlights, including our successful July flotation, and thelaunch of a number of important products and services.

At the core of our business is our peoples commitmentto deliver outstanding service and value to our customers.We were therefore particularly pleased to win theprestigious JD Power & Associates survey for having themost satisfied customers in the UK for the second yearrunning. We won first place for overall customersatisfaction for prepay customers, and our customerservice rating was head and shoulders above the rest.Were determined to build on this success and continueto excel in the future.

A WORD FROM THE

CHIEF EXECUTIVE OFFICE





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This Operating Review is intended to provide existing andpotential shareholders with a good understanding of ourbusiness. It outlines our performance during the financialyear to 31 March 2005; provides information on ourstrategy and objectives; sets out our view of the current

state and likely development of our industry; discusses theregulatory environment within which we operate; anddescribes our framework for running the business.

Overview of the UKs mobile industryGrowth in the UK mobile industry continues to exceedexpectations, driven by growth in consumer take-up ofmultiple devices, the ongoing structural shift from fixedto wireless, and increasing adoption of new services. Whilepenetration of mobile phones in the UK (measured in SIMconnections) passed 100% in 2004, these factors andongoing technological advances are expected to deliver

growth that outpaces average economic growth.

While the UK market is competitive, market conditionsare promising. Total UK wireless minutes increased by16% in 20041. Only 29% of the UKs outbound voice trafficwas carried over wireless networks in 2004, up from26% the previous year.

The shift from fixed to wireless is set to continue aparticularly important trend in the youth market, as moreand more young people turn to their mobile as their primaryphone. We think Virgin Mobile is ideally positioned to takeadvantage of this and other UK growth opportunities.

Over the past few years, there have been a number of newentrants to the UK mobile market, causing concerns aboutaggressive pricing among market commentators. Thus far,competitive pricing in the market has tended to be abouttariff headlines, achieved by slicing and dicing ratesoffered for particular types of calls or messages. Thesetypes of complex pricing initiatives do not tend to inducea cross-industry response, but rather fuel an increasingscepticism among consumers toward tariffing claims.

OPERATING REVIEW



GROWTH IN THE UK MOBILEINDUSTRYCONTINUES TO EXCEEDEXPECTATIONS, DRIVEN BYGROWTHIN CONSUMER TAKE-UP OF MULTIPLEDEVICES, THE ONGOING STRUCTURALSHIFTFROM FIXED TO WIRELESS,AND INCREASING ADOPTION OFNEWSERVICES.

REVENUE PER MINUTEUK MOBILE MARKET, 2002-2004

Q102 Q302

0.14 0.14

Q202 Q402

0.14 0.14

Q103 Q303

0.130.14

Q203 Q403

0.140.13

Q104 Q304

0.13 0.13

Q204 Q404

0.130.12

2002 2003 2004

UK WIRELESS TRAFFIC(BILLIONS OF MINUTES)

UK FIXED LINE(BILLIONS OF MINUTES)

Source: Merrill Lynch, March 2005Source: Strategy Analytics, December 2004


Wireless share of outgoing traffic

93.93106.13

122.95

2002 2003 2004

170.4 169.6 164.19

23.9%

26.0%

29.4%


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Continue strong growth in customers and revenuesVirgin Mobile has produced very robust growth in customer

numbers within a competitive environment, as a resultof our great value and innovation, superior consumermarketing, broad customer reach, strong brand and thebest customer care in the industry. Total SIM connectionsreached 5,359,900 (FY04: 3,961,500). Our active customerbase grew to 4,031,800 (FY04: 3,241,400), a 24.4%increase from a year ago.

Churn was higher at 17.5% (FY04: 14.0%), in line withindustry trends. While being a well-understood cost ofbusiness, churn is also an important growth driver forVirgin Mobile, as we continue to attract customers

away from our competitors.

During the year our growth was derived exclusively fromthe prepay market; our contract market product, VirginMobile Pay Monthly, was launched in May 2005, extendingour presence into the largest market segment by revenue.

Rapidly increasing service offeringThe expansion of our product range is a key driver of

growth for Virgin Mobile, and we have made significantprogress during the year. Our innovative approach toproduct development continues to differentiate usin the marketplace.

In August 2004 we launched Virgin Mobile BITES,our cutting edge entertainment service and the platformfor the delivery of value-added multimedia services.As a consequence, value-added services revenue roseby over 90% during the year.

In October 2004, we launched Bundles, a platform whichallows us to target a number of consumer segments. The

Bundles product offers customers high-value bundles ofvoice minutes, texts, and picture messaging. This productenables us to target high-value prepay customers, boththose new to Virgin Mobile and by offering value to ourexisting base. This important capability also serves as atechnological platform for entry into the contract market.

In November 2004, we launched our Hassle-free package,offering eight months worth of minutes and textspackaged with a range of handsets. This is yet anotherexample of our innovative approach to marketing,providing consumers with contract-type value withoutthe need to sign a contract.

The recent introduction of our Line Rental Rescue Kitserved as the next phase of development for our contractplatform, offering contract customers on other networksa simple way to transfer their phones to Virgin Mobile atan improved price.

On 1 May 2005, Virgin Mobile announced the next phaseof its evolution with the launch of Virgin Mobile PayMonthly, our entry into the contract market. This launchopens an avenue of substantial growth; the contractmarket represents approximately one third of mobilecustomers and two thirds of total mobile revenuesin the UK.



SUBSCRIBER ACQUISITION COSTS

Q32004 Q42004

24

3028

24

28

Q12005 Q22005 Q32005

23

Q42005

90-DAY ACTIVE CUSTOMER GROWTH

MAR2003 SEPT2003

2,188.4

2,583.5

3,241.5

3,603.7

4,031.9

MAR2004 SEPT2004 MAR2005

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Expanding Customer ReachEffective distribution has been key to our performance

throughout our operating history. In 2005, we continuedto expand our distribution network in a highly efficientmanner.

We grew our total distribution network by 20%, addingour products to approximately 1,000 new outlets. VirginMobile products are now available from approximately6,000 outlets throughout the UK.

Virgin Mobile Stores now number 104, from 85 at H1 FY05and just ten a year ago. This phase of the Virgin MobileStore rollout is now complete, with ongoing opportunitiesfor further expansion as the Virgin Megastores network

grows. Our Stores continue to be a very effectivedistribution channel for Virgin Mobile, attracting highvalue customers.

We expanded the Virgin Mobile Store concept in October2004 with a pilot at eight WH Smith locations. We willcontinue to explore opportunities to further expandthe Virgin Mobile Stores on the high street.

We established an independent dealer network of 600outlets, supplied through a number of distributors. Wehave also begun to distribute our products to dealersdirectly. This new channel has made a significantcontribution to connections during the year.

The Internet is also a very effective distribution point forVirgin Mobile. A number of Internet-based marketinginitiatives during the year were very successful, and wewill continue to develop this important, cost-effectivedistribution channel.

Leveraging our brand strengthVirgin Mobiles brand is an important asset for theCompany, allowing us to achieve broad consumer appealwith relatively low investment. Our total advertising andmarketing spend for FY2005 was just 4.4% of sales.We won a number of marketing awards during the period,demonstrating our brands effectiveness: The top Gold Award at the IPA Advertising Effectiveness

Awards 2004

Best Ad Campaign for Idle Thumbs at the Mobile ChoiceConsumer Awards in October 2004.

An essential component of our brand strategy is providingsuperior customer service. We consistently receive thehighest ratings in the UK mobile market for our customercare, and we are delighted to have once again beenrecognised during the year in this important area. We achieved the highest customer satisfaction rating

in the prepay market in the JD Power & Associatessurvey for 2004 and 2005, our first two years ofinclusion. Our customer service rating in the survey

was substantially ahead of all of our competitors. We also won Best Customer Service for the fourth year

in a row at the Mobile Choice Consumer Awards 2004.


VIRGIN MOBILE STORES

AN ESSENTIAL COMPONENTOF OUR

BRAND STRATEGYIS PROVIDINGEXCELLENTCUSTOMER SERVICE.

MAR 04

10HY05

85MAR 05

104

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Exploit our business model to continueto deliver high cash returnsHigh cash conversion is a major strength of our businessmodel. During the year, strong revenue growth and lowlevels of operational and capital expenditure generated

operating free cash flow of 84.5 million. While thisreflected a decline in operating free cash flow margin,the like-for-like margin increased by 2 percentage points,excluding the impact of a one-off employee bonuspayment of 23.5 million in 2004.

The uniqueness of our business model is highlightedby the 27% decline in our capital expenditures to10.8 million, representing only 2.1% of revenues. Wewere able to reduce our capex within a period of intensedevelopment, in which we added the bundles platformcapability and launched a number of new products,

including GPRS, MMS, Virgin Mobile BITES and Bundles.

During the year we were able to successfully grow top-linerevenue at industry-leading rates, grow bottom-line profitsat improved margins and propose a maiden dividend.We believe that our ability to invest in the future growthof our business while still growing profits and generatingreturns for shareholders is a key differentiator forVirgin Mobile.

OutlookOur strategy to drive strong growth by leveraging our

brand and differentiated approach to the market remainsat the heart of our plans for the coming year. We furtherintend to maintain the firm operational discipline we haveembedded throughout the organisation.

RevenueDuring the forthcoming year we expect to continue to takeadvantage of growth opportunities in the UK and delivermid-teens percentage year-on-year service revenuegrowth. This represents superior top-line growth. We willachieve this by continuing to drive growth in the prepaymarket while increasing our product reach and building

on our contract offer following its successful launchon 1 May 2005.

EarningsExceptional operational leverage has been a highlight ofthe Virgin Mobile business model, with excellent financialmanagement allowing us to maintain a stable operationalcost base while delivering industry-leading revenuegrowth. This leverage is forecast to continue, despite ourexpansion and additional investment into the contractmarket. We will continue to drive down the cost to serveeach customer, while remaining committed to best-in-class

customer service. And while we expect profit margins inour core prepay business to remain very strong, acquisitioninvestment into the contract market is expected to diluteEBITmargins, by between zero and one percentage pointsin the first year, with returns on that investment expectedto reap benefits in the financial year 2006/07 and beyond.

Shareholder returnsOwing to the high cash conversion of our business model,we forecast a continuing reduction of the current net debtposition. While this will bring our debt ratios down closerto those of our peers, we expect that we can deliver

growing returns to shareholders through dividendpayments. For the year ended 31 March 2005, we haveproposed a maiden dividend based on 40% of pre-exceptional net income. Upon approval, this will be paidas a final dividend, at two thirds of the payout ratio, or4.88p per share. We target a 50% payout ratio for the2005/06 financial year.


DURING THE YEAR WE WERE ABLE

TO SUCCESSFULLYGROWTOP-LINEREVENUE ATINDUSTRY-LEADINGRATES, GROWBOTTOM-LINE PROFITSATIMPROVED MARGINS ANDPROPOSE A MAIDEN DIVIDEND.

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3G StrategyThe initial rollout of 3G services in the UK market is

underway. Were encouraged to see the emergenceof these new services, however the consumerappetite for 3G is still developing gradually.

We believe there are several reasons for this gradualdevelopment, all of them related. True mass-marketadoption starts when benefits are understood andcompelling, and the product works well and is pricedappropriately. 3G services and devices have not hit thispoint yet. Consumers are being asked to take a backwardstep in product size, weight, and battery life. Servicesare not generally compelling and are highly priced.

We expect the 3G product attributes to improve through2005 and 2006. During FY2005/06, we will increasinglyroll 3G phones into our range on merit, and well evolve ourservice set as the market itself develops. We have theflexibility to monitor market developments, and toexpand when we believe consumers are ready.

We also have the same freedom with other wirelesstechnologies, for example, we aim to try mobile televisionwithin the next twelve months. We are continuallyinvestigating a variety of technological alternatives,

as we strive to provide our customers with the mostcompelling, user-friendly products on the market.

There are a great many opportunities for growth in the UKmarket, particularly for Virgin Mobile, as we expand ourproduct and service set and enter new market segments.We think this is an exciting time for the business, asopportunities and technologies develop in our core market.

DURING FY05/06, WE WILL

INCREASINGLYROLL 3G PHONESINTO OUR RANGE ON MERIT, ANDWE WILL EVOLVE OUR SERVICE SETAS THE MARKETITSELF DEVELOPS.WE HAVE THE FLEXIBILITYTOMONITOR MARKETDEVELOPMENTS,AND TO EXPAND WHEN WE BELIEVECONSUMERS ARE READY.

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FINANCIAL REVIEWWe have prepared our statutory accounts for the twelvemonths ended 31 March 2005. On 14 May 2004, we changedour year-end from 31 December to bring it in line with otherUK listed mobile operators. As a result, our comparativestatutory period is for the three months ended 31 March

2004. Operating profit for the twelve months ended31 March 2005 was 67.7 million* (including 15.2 millionof exceptional operating costs) and for the three monthsended 31 March 2004 was 22.7 million (including1.0 million exceptional turnover). Profit after tax for thetwelve months ended 31 March 2005 was 34.7 millionand for the three months ended 31 March 2004 was14.8 million.

On 29 January 2004, we entered into the TSA with ournetwork provider, T-Mobile. Until 29 January 2004, underour previous telecommunications supply agreement,

T-Mobile paid MSC, being a monthly amount based on thenumber of customers in that month, which we recognisedas turnover. From that date, instead of paying MSC,T-Mobile now passes through the inbound revenue theyreceive from third parties in respect of inbound calls,or messages sent, to our customers, which we recogniseas turnover. Also, under the new TSA, the charges we payto T-Mobile for use of their network are different to thecharges under the previous telecommunicationssupply agreement.

The following results and financial review are basedon the statutory results for the twelve months ended31 March 2005 (a period for which the new TSA was fullyoperational) compared to the results for the twelve monthsended 31 March 2004, adjusted for the impact of the new

TSA as if it had been operational from 1 April 2003 andadjusted so as to reflect a normalised effective tax rate(a reconciliation between audited results for the twelvemonths ended 31 March 2004 to the pro forma results forthe twelve months ended 31 March 2004 is shown on pages34 and 35).Each period excludes exceptional items so asto show the underlying performance of the business,unless otherwise stated.

Pro forma12 months 12 months

ended ended Change over31 March 31 March pro forma

2005 2004 prior million million period

TurnoverService revenue 457.6 394.0 16.2%Equipment revenue 63.7 59.3 7.4%Total turnover 521.3 453.3 15.0%

Gross profitService margin 280.7 246.7 13.8%Equipment margin (61.0) (51.0) 19.6%Total gross profit 219.7 195.7 12.3%

Administrative expensesbefore depreciation (119.4) (117.0) 2.1%EBITDA 100.3 78.7 27.4%Depreciation (17.4) (15.5) 12.3%Operating profit 82.9 63.2 31.2%




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Revenue growthTotal revenue increased by 15.0%*to 521.3 million

(FY04: 453.3 million), primarily due to the continuedgrowth in our customer base.

Service revenuePro forma

12 months 12 months Change overended ended pro forma

31 March 31 March prior2005 2004 period

Service revenue ( million) 457.6m 394.0m 16.2%Total connected sims (000s) 5,359.9 3,961.5 35.3%Net connected sims additions(000s) 1,398.4 1,324.4 5.6%Churn rate (%) 17.5% 14.0% 3.5ppTotal active customers (000s) 4,031.9 3,241.5 24.4%Net active customer additions(000s) 790.4 1,053.1 (24.9%)Annual ARPU () 127 147 (13.6%)Annual MOU (minutes) 775 884 (12.3%)Annual average SMS (SMS) 614 686 (10.5%)

Service revenue increased by 16.2% to 457.6 million(FY04: 394.0 million ) primarily due to our strong customergrowth. Rolling twelve month ARPU (average revenue peruser) was 127 compared to 147 at 31 March 2004,remaining above average in the prepay market. Of the 20decrease, 7 was due to a reduction in inbound revenuefollowing the Ofcom interconnect rate ruling in September2004. The balance of the reduction arises from VirginMobiles very high customer base growth during the pasttwelve months which has had the effect of diluting ARPU.This dilution of ARPU has slowed over the year with only4 of the 13 dilution occurring in the second half. Very lowincremental operating costs and low acquisition costscontinue to ensure that we enjoy attractive profitabilityfrom incremental customers.

Equipment revenueEquipment revenue increased by 7.4% to 63.7 million

(FY04: 59.3 million) driven by the increase in our customeradditions. We have continued our successful strategy wherecertain channel partners are incentivised to combine VirginMobile service packs with handsets (sourced by the channel,but approved by us), and sell the bundled package to endconsumers. Service pack only dispatches to such channelsfor the year ended 31 March 2005 were 57% of totaldispatches (FY04: 58%).

Gross profitProforma

12 months 12 monthsended ended Change over

31 March 31 March pro forma2005 2004 prior

million million periodService gross profit 280.7 246.7 13.8%Equipment gross loss (61.0) (51.0) 19.6%Total gross profit 219.7 195.7 12.3%

Service gross margin 61.3% 62.6% (1.3pp)Gross margin 42.1% 43.2% (1.1pp)

Total gross profit increased by 12.3% to 219.7 million(FY04: 195.7 million), primarily due to the growth in ourcustomer base.

Service gross profitService gross profit increased by 13.8% to 280.7 million(FY04: 246.7 million). Service gross margin declined to61.3% (FY04: 62.6%). This decline was primarily the resultof the Ofcom imposed termination rate cuts. Core servicepricing remained unchanged during the year, and ourBundles option was introduced at the half way stage. Interms of product mix, the revenue contribution of roamingand other value-added services rose by over 90%. While themargin gained on these products is lower, their contributionis regarded as incremental and not substitutional.

Equipment gross marginEquipment gross loss increased by 19.6% to 61.0 million(FY04: 51.0 million) due to the increase in grossconnections. The cost per connection as measured bysubscriber acquisition costs (SAC) was relatively stableincreasing by only 1 to 26 per connection (FY04: 25).

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Exceptional itemsWe incurred 15.2 million of operating exceptional items

during the year ended 31 March 2005: 6.3 million relatesto expenditure in respect of our group reorganisationand our IPO in the year and 8.9 million relates to theimplementation of the pre-IPO share option schemeunder which share options were granted to employeesas a reward for growing the business in the period fromlaunch until IPO.

Operating profit after exceptional items rose by 39.3%to 67.7 million (FY04: 48.6 million).

Finance charges

Finance charges were 14.5 million. This expense reflectsthe interest expense (1.6 million) on the shareholderand previous shareholder loans from 1 April 2004 to5 July 2004, on which date the loans were repaid, and theinterest charge (14.4 million) on the new credit facilityfrom July 2004. Interest received was 1.5 million.

TaxationTax is charged at our effective tax rate of 30%. We havecontinued to utilise our brought forward losses andunclaimed capital allowances and consequently have notax liability at 31 March 2005. The deferred tax asset at

31 March 2005 is 17.8 million.

DividendIn light of our continued strong cashflow generation, theBoard proposes a final dividend of 4.88 pence per share,payable on 25 July 2005 to shareholders on the registeron 10 June 2005, subject to approval of shareholders atthe Annual General Meeting on 20 July 2005. The dividendis based on 40% of pre-exceptional net income and is paidas a final dividend at two thirds of the payout ratio forthe year.

Capital expenditureCapital expenditure remained low at 10.8 million within a

period of significant development, in which we have addedplatform capability and launched a number of new products,including GPRS, MMS, Virgin Mobile BITES and Bundles.We have received excellent development support from ournetwork partner, T-Mobile, under the terms of our newsupply contract. A significant part of our capital expenditurehas been deployed to service continued customer growthand improved resilience of core ITsystems.

Cash generationPro forma

12 months 12 monthsended ended Change over

31 March 31 March pro forma2005 2004 prior

million million periodEBITDA 100.3 78.7 27.4%Change in working capital (4.3) 18.4 (123.4%)Purchase of fixed assets (11.5) (14.7) (21.8%)Operating free cashflow 84.5 82.4 2.5%Operating free cashflow margin 16.2% 18.2% (2.0pp)

The working capital movement of (4.3 million) arose fromthe one-off effect of the long-term bonus of 23.5 million,incurred in the results for the year ended 31 December 2003,but paid from cash flow during the year to 31 March 2005.Excluding this payment, working capital has improved by19.2 million demonstrating the underlying efficiency ofour working capital cycle.

Due to the payment of the long-term bonus, the operatingfree cashflow margin has reduced to 16.2%. Excluding thispayment, the like-for-like free cashflow margin is 20.7%.

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Financing31 March 31 March

2005 2004 Change

million million millionCash at bank and in hand 13.2 37.5 (24.3)Shareholder and previous

shareholder loans (76.8) 76.8Old syndicated loan (23.0) 23.0Repayment of loan from original

Virgin Mobile Telecoms Limitedshareholders (241.0) 241.0

New credit facility (250.0) (250.0)Unamortised arrangement fee 2.6 2.6Total net debt (234.2) (303.3) 69.1

As part of the group reorganisation undertaken during

the year, we entered into a new 350 million creditfacility under which we drew down 330 million (net ofa 3.3 million arrangement fee which we are recognisingin the profit and loss account over the term of the creditfacility at a constant rate on the carrying amount).

The highly cash generative nature of the business model,the strong revenue growth and low levels of operationaland capital expenditure has enabled us to rapidly reducethe debt levels. From an opening position of net debt of303.3 million at 31 March 2004, the Group has reducedborrowing substantially to 264 million at 30 September

and to 234.2 million at 31 March 2004. This rapid debtreduction and strong financial management has enabledus to bring our gearing down to just 2.3x EBITDA,compared to 3.9x at 31 March 2004.

Treasury policy and risk managementThe Groups treasury function is responsible for raising

finance for the Groups operations, together withassociated liquidity management, and the managementof foreign exchange, interest rate and counterparty risks.Treasury operations are conducted within a framework ofpolicies and guidelines authorised and reviewed by boththe Audit Committee and the Board, who receive regularupdates of treasury activity. Derivative instruments aretransacted for risk management purposes only and nospeculative transactions are allowed.

Interest rate managementThe Group has financial exposures to sterling interest

rates, arising on the 350 million facility entered into inJuly 2005. At 31 March 2005, 250 million of the term loanwas outstanding while the 100 million revolver had beenfully repaid. These exposures are managed throughhedging at least 50% of the interest rate exposure on theaggregate drawn down term loan. As at 31 March 2005,Virgin Mobile had 60% of the interest rate exposure onthe term loan hedged with an interest rate swapagreement that allows the interest rate to be fixedon a quarterly basis at a rate between an upper anda lower level.

Currency exchange ratesThe Groups revenues and costs are substantiallydenominated in sterling, although approximately one-third of handset purchases are denominated in Euros. TheGroups policy is to eliminate currency exposure on thesepurchases at the time of purchase through forwardcurrency contracts. Although these financial instrumentscan mitigate the effect of short-term fluctuations inexchange rates, there can be no completely effectivehedge against long-term currency fluctuations.

Liquidity Management

The Groups policy is to ensure the Group has sufficientfunds to meet financial liabilities while using cashefficiently to maximise returns. Working within thepolicies agreed by the Board of Directors, the treasuryfunction reviews liquidity demands on a daily basis andsurplus funds are collected and invested with approvedcounter-parties.


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Accounting policiesThe accounting policies adopted are set out on pages 68

to 71. During the year, the Group has adopted two newaccounting standards. The Group has accounted for thegroup reorganisation undertaken during the year inaccordance with Financial Reporting Standard 6 Aquisitionand Mergers (FRS 6) and has elected to adopt earlyFinancial Reporting Standard 20 Share based payments(FRS 20). For further details of these two accountingpolicies see pages 68 and 70. All other accounting policiesare consistent with those applied in previous periods.

The Group will be required to adopt International FinancialReporting Standards (IFRS) from 1 April 2005 and are

currently completing an assessment of the impact of IFRSon the results for the year ended 31 March 2005.

Contracts with Controlling ShareholderThe Group has various contracts on an arms length basisand on normal commercial terms with various membersof the Virgin Group. The most important of these are: the relationship agreement between the Company,

Bluebottle Investments (UK) Limited and others dated20 July 2004 which was entered into to comply with theListing Rules and generally governs the relationshipbetween the Virgin Group and Virgin Mobile;

the Virgin Mobile trade mark license agreement betweenVirgin Enterprises Limited and Virgin Mobile TelecomsLimited dated 2 July 2004 is an agreement that grantsVirgin Mobile the rights to use certain Virgin related andcertain Virgin Mobile marks in relation to its businessactivities; and

the retail stores agreement between Virgin RetailGroup Limited, Virgin Retail Limited and Virgin MobileTelecoms Limited with effect from 1 April 2004 pursuantto which Virgin Mobile has the right to advertise,promote and sell its products and services in specifiedVirgin Megastores in the United Kingdom.

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Unaudited half year comparatives 2

Full year First half Second halfPro forma1 Pro forma1 Pro forma1

To 31 Mar to 31 Mar To 30 Sept to 30 Sept To 31 Mar to 31 Mar2005 2004 2004 2003 2005 2004

million million % change million million % change million million % change

Financial operating data 2

Service turnover 457.6 394.0 16% 230.7 184.9 25% 226.9 209.1 9%Equipment turnover 63.7 59.3 7% 26.0 22.6 15% 37.7 36.7 3%Total turnover 521.3 453.3 15% 256.7 207.5 24% 264.6 245.8 8%

Service gross profit 280.7 246.7 14% 143.4 117.3 22% 137.3 129.4 6%Equipment gross profit (61.0) (51.0) 20% (27.5) (20.2) 36% (33.5) (30.8) 9%Total gross profit 219.7 195.7 12% 115.9 97.1 19% 103.8 98.6 5%Service gross margin 61.3% 62.6% (1.3pp) 62.2% 63.4% (1.2pp) 60.5% 61.9% (1.4pp)Gross margin 42.1% 43.2% (1.1pp) 45.1% 46.8% (1.7pp) 39.2% 40.1% (0.9pp)

Administrative expensesbefore depreciation (119.4) (117.0) 2% (60.5) (57.5) 5% (58.9) (59.5) (1%)EBITDA3 100.3 78.7 27% 55.4 39.6 40% 44.9 39.1 15%EBITDA margin 19.2% 17.4% 1.8pp 21.6% 19.1% 2.5pp 17.0% 15.9% 1.1pp

Change in working capital (4.3) 18.4 (123%) (3.8) (3.6) 6% (0.5) 22.0 (102%)Purchase of tangible fixed assets (11.5) (14.7) (22%) (5.7) (8.9) (36%) (5.8) (5.8) 0%Operating free cashflow4 84.5 82.4 3% 45.9 27.1 69% 38.6 55.3 (30%)Operating free cashflow margin 16.2% 18.2% (2.0pp) 17.9% 13.1% 4.8pp 14.6% 22.5% (7.9pp)

EBITDA3 100.3 78.7 27% 55.4 39.6 40% 44.9 39.1 15%Depreciation (17.4) (15.5) 12% (8.1) (6.4) 27% (9.3) (9.1) 2%Operating profit 82.9 63.2 31% 47.3 33.2 42% 35.6 30.0 19%Operating profit margin 15.9% 13.9% 2.0pp 18.4% 16.0% 2.4pp 13.5% 12.2% 1.3pp

Underlying earnings per share5 18.4p 15.0p 23% 11.7p 7.8p 50% 6.7p 7.2p (7%)

Net debt 234.2 303.3 (23%) 264.1 355.4 (26%) 234.2 303.3 (23%)

Notes for unaudited half year comparatives and unaudited quarterly non-financial operating data1 On 29 January 2004, we entered into the TSA with our network provider, T-Mobile. Until 29 January 2004, under our previous TSA, T-Mobile paid MSC, being a monthly

amount based on the number of customers in that month, which we recognised as turnover. From that date, instead of paying MSC, T-Mobile now passes through theinbound revenue they receive from third parties in respect of inbound calls, or messages sent, to our customers, which we recognise as turnover. Also, under the new TSA,

the charges we pay to T-Mobile for use of their network are different to the charges under the previous TSA. The above results, including ARPU and non-voice serviceturnover as a percentage of service turnover, have been prepared as if the new TSA had been operational from 1 April 2003.2 All financial results are shown before exceptional items.3 Due to our low levels of capital investment, we believe that operating profit is a useful measure of profitability we achieve with our asset base. In addition, we believe it is

a useful measure for some investors to determine our operating cash flow and historical ability to meet debt service and capital expenditure requirements. EBITDA ispresented because it is a standard financial metric used in our industry. EBITDA consists of profit before finance charges (net), tax on profit on ordinary activities anddepreciation and amortisation. EBITDA is not a measure of financial performance under UK GAAP, US GAAP or IAS and should not be considered as an alternative to cashflow from operating activities, a measure of liquidity or an alternative to net profit as indicators of our operating performance or any other measures of performancederived in accordance with UK GAAP, US GAAP or IAS.

4 Operating free cash flow is defined as EBITDA before exceptional items, adjusted for changes in working capital and less capital expenditure.5 Underlying earnings per share is based on the results before exceptional items and a normalised tax charge based on our effective tax rate of 30% of pre-tax profits.6 Total connected sims/customers are shown at the relevant dates. Churn rates, ARPU, non-voice service turnover as a percentage of service turnover, annual MOU per

customer and annual SMS per customer are based on information in the preceding tweleve months from the relevant dates. Net connected sims/customer additions,SAC per gross addition and capital expenditure as a percentage of turnover are based on information during the relevant period.

7 ARPU and non-voice service turnover as a percentage of service turnover are not shown for the periods ended 30 September 2003 and 31 December 2003 as results havebeen based on pro forma results assuming the new TSA had been operational from 1 April 2003 and therefore there is not a full twelve months of information based on thenew TSA prior to these dates.


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Unaudited half year comparatives (continued)

Full year First half Second halfPro forma1 Pro forma1 Pro forma1

To 31 Mar To 31 Mar To 30 Sept To 30 Sept To 31 Mar To 31 Mar2005 2004 % change 2004 2003 % change 2005 2004 % change

Non-financial operating data 2, 6

Total connected sims (000s) 5,359.9 3,961.5 35% 4,609.0 3,183.3 45% 5,359.9 3,961.5 35%Net connected sims additions(000s) 1,398.4 1,324.4 6% 647.5 501.2 29% 750.9 823.2 (9%)Churn rate (%) 17.5% 14.0% 3.5pp 14.3% 16.0% (1.7pp) 17.5% 14.0% 3.5ppTotal 90 day active customers(000s) 4,031.9 3,241.5 24% 3,603.7 2,583.5 39% 4,031.9 3,241.5 24%Net 90 day active customeradditions (000s) 790.4 1,053.1 (25%) 362.2 395.1 (8%) 428.2 658.0 (35%)Average revenuePer User (ARPU)() 127 147 (14%) 137 N/A7 N/A7 127 147 (14%)Non-voice service turnover as apercentage of service turnover (%) 31.2% 28.0% 3.2pp 29.0% N/A7 N/A7 31.2% 28.0% 3.2ppAnnual Minutes of Use (MOU)per customer (minutes) 775 884 (12%) 831 933 (11%) 775 884 (12%)Annual SMS per customer(SMS messages) 614 686 (10%) 667 675 (1%) 614 686 (10%)Subscriber Acquisition Costs(SAC) per gross addition () 26 25 4% 26 26 0% 26 24 8%Capital expenditure as apercentage of total turnover (%) 2.1% 3.2% (1.1pp) 2.2% 4.3% (2.1pp) 1.9% 2.3% (0.4pp)

Unaudited quarterly non-financial operating data 2, 6To 31 Dec To 31 Mar To 30 Jun To 30 Sept To 31 Dec To 31 Mar

2003 2004 2004 2004 2004 2005

Total connected sims (000s) 3,678.5 3,961.5 4,248.7 4,609.0 5,025.5 5,359.9Net connected sims additions (000s) 540.2 283.0 287.2 360.3 416.5 334.4Churn rate (%) 13.8% 14.0% 15.2% 14.3% 16.2% 17.5%Total 90 day active customers (000s) 3,101.2 3,241.5 3,391.8 3,603.7 3,879.5 4,031.9Net 90 day active customer additions (000s) 517.7 140.3 150.3 211.9 275.8 152.4Average Revenue Per User (ARPU) () N/A7 147 142 137 132 127Non-voice service turnover

as a percentage of service turnover (%) N/A7

28.0% 28.7% 29.0% 29.7% 31.2%Subscriber Acquisition Costs (SAC) per gross addition () 24 30 28 24 28 23

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Pro forma results reconciliationThe following shows a reconciliation between our non-statutory audited results, as presented in our listing particulars

for our IPO in July 2004, and our unaudited pro forma results for the twelve months ended 31 March 2004: Pro formaTo 31 Mar To 31 Mar

2004 Adjustments 2004 million million Notes million

Turnover before exceptional items 470.4 (17.1) 1 453.3Exceptional turnover 17.2 (8.3) 1 8.9Turnover 487.6 (25.4) 1 462.2Cost of sales (255.8) (1.8) 2 (257.6)Gross Profit 231.8 (27.2) 1, 2 204.6Total administrative expenses before exceptional items (132.5) (132.5)Exceptional operating costs (23.5) (23.5)Administrative expenses (156.0) (156.0)

Operating profit before exceptional items 82.1 (18.9) 63.2Exceptional items (net) (6.3) (8.3) (14.6)Operating profit 75.8 (27.2) 48.6Finance charges (net) (9.6) 3 (9.6)Profit on ordinary activities before taxation 66.2 (27.2) 39.0Tax on profit on ordinary activities 27.1 (38.8) 4 (11.7)Profit for the financial year 93.3 (66.0) 27.3

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The following shows a reconciliation between our non-statutory audited earnings per share and our unaudited

pro forma earnings per share for the twelve months ended 31 March 2004: Pro formaTo 31 Mar To 31 Mar

2004 Adjustments 2004 million million million

Profit for the financial year 93.3 (66.0) 27.3

Earnings per ordinary share (pence based on 250 million shares: see note 5) 37.3p (26.4p) 10.9p

Profit for the financial year 93.3 (66.0) 27.3Exceptional items 6.3 8.3 14.6Tax effect of exceptional items (1.9) (2.5) (4.4)Underlying profit for the financial year 97.7 (60.2) 37.5Underlying earnings per ordinary share (pence based on 250 million shares: see note 5) 39.1p (24.1p) 15.0p

The following shows a reconciliation between our non-statutory operating free cash flow derived from our audited resultsand our operating free cash flow derived from our unaudited pro forma results for the twelve months ended 31 March 2004:

Pro formaTo 31 Mar To 31 Mar

2004 Adjustments 2004 million million million

Operating profit 75.8 (27.2) 48.6Exceptional items 6.3 8.3 14.6Operating profit before exceptional items 82.1 (18.9) 63.2Depreciation 15.5 15.5Change in working capital 18.4 18.4Capital expenditure (14.7) (14.7)Operating free cash flow 101.3 (18.9) 82.4

1 On 29 January 2004, we entered into the TSA with our network provider, T-Mobile. Until 29 January 2004, under the previous TSA, T-Mobile paid MSC, being a monthlyamount based on the number of customers in that month, which we recognised as turnover. From that date, instead of

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