2Material accounting policies

Presentation of these financial statements

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”).

Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, as modified by the revaluation of certain financial assets and liabilities (including financial liabilities at fair value through profit and loss) which are recognized at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the company’s accounting policies.

The functional currency of the Company is US Dollars (‘$’ or ‘USD’) and the functional currency of VAGL is pounds sterling (‘£’ or ‘GBP’). The financial statements are presented in pounds sterling (‘£’ or ‘GBP’), which is the Group’s presentation currency. Items included in the financial statements are measured using the currency of the primary economic environment in which the entity and its subsidiaries operate (“the functional currency”). Cumulative translation adjustments resulting from translating foreign functional currency financial statements into GBP are reported within other reserves.

Basis of consolidation

Vertical Aerospace Ltd is the parent of the Group and has 100% ownership interest and voting rights of Vertical Aerospace Group Ltd, which is its only material subsidiary.

The consolidated financial statements incorporate the financial positions and the results of operations of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated.

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2Material accounting policies (continued)

Summary of material accounting policies and key accounting estimates

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Going concern

Management has prepared a cash flow forecast for the Group and has considered the ability for the Group to continue as a going concern for the foreseeable future, being at least 12 months after approving these financial statements.

The Group is currently in the research and development phase of its journey to commercialize eVTOL and hybrid-electric technology. Commensurate with being in the development phase, the Group has invested heavily in research to support the development of its aircraft. The Group is not currently generating revenue and has incurred net losses (excluding fair value movements on financial liabilities at fair value through profit and loss) and net cash outflows from operating activities since inception.

As of December 31, 2025, the Group had £69 million of cash and cash equivalents on hand and a net shareholders’ deficit of £121 million and as of the issuance of these financial statements, the Group had approximately £43 million of cash and cash equivalents on hand.

To position itself to deliver upon its stated operational objectives, management currently projects its net cash outflows from operations within the next 12 months after issuance of these financial statements to be approximately £145 million, which will be used primarily to fund the testing of its prototype aircraft, as well as to further the development of its certification aircraft.

Accordingly, the Group projects that its current existing resources will only be sufficient to fund its ongoing operations to the middle of 2026 and the Group requires additional capital to continue to fund its ongoing operations beyond that point.

The Group’s strategy for obtaining sufficient additional financing to deliver upon its stated operational objectives for the next 12 months is linked to the achievement of certain technical and program milestones, including the timely completion of its piloted transition test flight campaign. Access to required capital may be influenced by progress against these milestones. Management has developed detailed technical plans, schedules, and resource allocations intended to support the execution and delivery of its piloted transition test flight campaign.

Management’s piloted flight test program consists of four phases, with the first three phases (tethered, thrustborne, and wingborne) of this program successfully completed between September 2024 and September 2025. The fourth and final phase of the piloted test flight program (transition), which involves the Group’s prototype aircraft transitioning between thrustborne (“helicopter mode”) and wingborne (“airplane mode”) flight, and vice versa, is underway.

The novel and innovative nature of our prototype aircraft means that our program is inherently complex, and forecasting the timing of the achievement of these milestones requires significant judgment and is subject to variability. The successful completion of these milestones is inherently uncertain and subject to technical, regulatory, and operational risks.

The occurrence of delays or technical challenges may result in the Group’s current cash resources not being sufficient to fund operations through the completion of these technical and program milestones, and there can be no assurance that the Company will achieve them before its liquidity is exhausted, or at all.

Management’s fundraising strategy is to pursue financing following the achievement of these milestones, which intends to optimize financing terms and overall transaction outcomes. Consistent with this approach, management has prioritized the completion of its piloted transition test flight campaign and has deferred plans for a significant capital raise through the capital markets until such milestones have been achieved.

2Material accounting policies (continued)

Subject to market conditions, the Group remains positioned to execute a capital raise within sufficient proximity of the achievement of these milestones, with internal resources poised for execution. However, there can be no assurance that financing will be available after the completion of such milestones on acceptable terms, or at all.

Management has considered the Group’s previous ability to access capital markets, including the completion of the January 2025 Offering and the July 2025 Offering, with several such offerings executed following the achievement of significant technical or program milestones.

The Company launched the January 2025 Offering and the July 2025 Offering, which culminated in the closing of a $90 million (approximately £72 million) underwritten public offering on January 24, 2025, and the closing of a $69 million (approximately £51 million) underwritten public offering on July 10, 2025, respectively, before deducting underwriting discounts and commissions and other offering expenses.

Whilst this demonstrates the Group’s prior ability to raise capital in connection with program progress, the Group’s ability to obtain additional financing remains subject to market conditions, investor demand, and the Group’s continued achievement of development objectives.

In September 2025, the Company established an “at the market” equity offering program, pursuant to which it may issue and sell its ordinary shares, having an aggregate offering price of up to $100 million (approximately £74 million), from time to time. The Company will pay commissions of up to 3% of the gross proceeds of any ordinary shares sold through the program under the sales agreement. As of the date of issuance of these financial statements, the Company had sold ordinary shares under this program, totaling $21.3 million (approximately £16.2 million), net of commissions.

The Group has discretion to establish a minimum price below which shares will not be sold. While this provides control over pricing parameters, it may also limit or preclude sales during periods when the market price of the common stock is below the specified threshold. Sales under the program, if any, are made at prevailing market prices and are subject to customary conditions, including market demand, trading volume, share price, and the Company’s compliance with applicable regulatory requirements.

If the Group is required to access capital markets before the achievement of program milestones, it may be required to do so under less favorable market conditions. Sufficient capital may not be available on acceptable terms, or at all, if sought earlier than anticipated.

If adequate funds are not available, management may need to reconsider its expansion plans or limit its activities, which could have a material adverse impact on its business prospects and results of operations, including being required to delay, reduce or eliminate some of its research and development programs, or materially impact the Group’s ability to certify its aircraft pursuant to its base case plan targeting certification in 2028 or continue as a going concern. As part of the going concern assessment, Management has considered and evaluated any potential impact of the complaint disclosed in note 29.

The Group’s ability to continue as a going concern is highly dependent on the success of certain milestones and in turn its ability to secure funds from additional funding rounds before it utilizes all existing resources to finance the Group’s ongoing operations. Management is committed to continue to raise additional funds and may seek to issue further equity in doing so.

Although the Group plans to raise additional funds before it utilizes its existing resources there can be no assurance that the Group will be able to raise additional funds on acceptable terms (or on necessary timelines) to provide sufficient funds to meet the Group’s ongoing funding requirements.

2Material accounting policies (continued)

The Convertible Senior Secured Notes Indenture contains a covenant requiring the Group to maintain a minimum cash balance of at least $10 million (approximately £7.4 million) at all times. The Group currently projects that it will breach this covenant towards the middle of 2026 unless additional capital is raised. Such a breach, if uncured, would result in an event of default occurring under the Indenture, which would permit the Convertible Senior Secured Notes Investor to accelerate the maturity of the Convertible Senior Secured Notes and ultimately claim against its collateral. An event of default would result in the Convertible Senior Secured Notes being due immediately to which the Group does not have sufficient funds to repay.

The dependency on raising additional capital indicates that a material uncertainty exists that may cast significant doubt (or raise substantial doubt as contemplated by PCAOB standards) on the Group’s ability to continue as a going concern and therefore the Group may be unable to realize the assets and discharge the liabilities in the normal course of business. The consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business and do not include any adjustments that would result if the Group were unable to continue as a going concern.

Changes in accounting policy

The Group adopted the amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates, for the first time during the year commencing January 1, 2025.

The amendments above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods.

No accounting standards and interpretations, that have been published but not effective for the year ending December 31, 2025, have been early adopted by the Group or are expected to have a material impact on the Group.

Government grants

Government grants are recognized as Other operating income and are recognized in the period when the expense to which the grant relates is incurred. Grants are only recognized when there is a signed grant offer letter or equivalent from the government body and there is reasonable assurance that the Group will be able to satisfy all conditions of the grant.

Research and development tax relief

As a Group that carries out extensive research and development activities, the Group benefits from U.K. research and development tax reliefs that support companies that work on innovative projects in science and technology.

Qualifying expenditures largely comprise R&D staff employment costs, R&D components, consumables, parts, tooling and outsourced contracting support for R&D activities and utilities costs.

A specific tax relief for investment in R&D was first introduced by the U.K. Government in April 2000, initially available to only small and medium sized enterprises (“SME”), with a large company R&D credit scheme (“RDEC”) introduced in 2002.

For the year ending December 31, 2025, the SME and RDEC schemes combined into a merged RDEC scheme, with a gross rate of 20% of qualifying R&D expenditure recognized within other operating income, alongside Enhanced R&D Intensive Support (“ERIS”) for R&D-intensive loss-making SMEs, returning a tax credit of up to 27% of qualifying R&D expenditure (not subject to corporation tax).

An R&D-intensive SME is a company with qualifying R&D expenditure that makes up at least 30% of its total expenditure. Additionally, qualifying SMEs must have fewer than 500 staff; turnover under €100m or a balance sheet total under €86m; and must be a company operating at a loss.

2Material accounting policies (continued)

For the year ending December 31, 2024, there were two R&D tax credit schemes: the Research and Development Expenditure Credit (“RDEC”) and Small-Medium Enterprise (“SME”) schemes. The RDEC scheme returned a gross rate of 20% of qualifying R&D expenditure and the SME scheme returned up to 27% of qualifying R&D expenditure (not subject to corporation tax), with company size determining access to the SME scheme.

The U.K. Government will classify a company as part of a “linked enterprise” if another company directly or indirectly controls, or has the capacity to control, the affairs of the other. In such cases, consideration needs to be given to the investor’s employee headcount, revenue, balance sheet, and any other company that the investor is ‘linked’ to when assessing company size and calculating intensity ratio.

Research and development expenses

Research expenditure is charged to profit or loss in the period in which it occurred. Development expenditure is recognized as an intangible asset when it is probable that the project will generate future economic benefit, considering factors such as technological, commercial and regulatory feasibility. Other development expenditure is charged to profit or loss in the period in which it occurred. The amounts included in research and development expenses include staff costs for staff working directly on research and development projects and for expenses directly attributable to a research project, excluding software costs.

Long-term contracts entered into prior to achievement of regulatory certification are typically subject to significant program, technical and volume uncertainties and therefore do not, on their own, support a conclusion that technical feasibility has been established nor provide sufficient evidence that probable future economic benefits will be realized. Such arrangements are accounted for in accordance with the accrual basis of accounting. The Group does not capitalize pre-production inventory. Accordingly, amounts incurred under supplier agreements in advance of regulatory certification or commencement of commercial production are typically recognized in profit or loss when the related goods or services are received or consumed. Amounts paid in advance are recognized as prepayments and expensed as the underlying goods or services are consumed class.

Finance income and costs

Finance income and costs include the fair value movement on warrants liabilities and financial liabilities held at fair value through profit and loss. Finance costs include interest payable and is recognized in profit or loss using the effective interest method. Interest income is recognized in profit or loss as it accrues, using the effective interest method.

Foreign currency transactions and balances

Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates, are recognized in profit or loss. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences arising from the consolidation of subsidiaries whose functional currency differs to the presentational currency of the group are recorded within other comprehensive income.

The most important exchange rates that have been used in preparing the financial statements are:

Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated.

2Material accounting policies (continued)

Tax

The tax expense for the year comprises current tax and deferred tax. Tax is recognized in profit or loss, except that a change attributable to an item of income or expense recognized as other comprehensive income is also recognized directly in other comprehensive income.

The current income tax charge is calculated based on tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority.

Property, plant and equipment

Property, plant and equipment is stated at cost, which includes directly attributable incremental costs incurred in their acquisition and installation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Depreciation

Depreciation is charged to write off the cost of assets over their estimated useful lives, as follows:

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Intangible assets

Intangible assets are carried at cost, less accumulated amortization and impairment losses.

Computer software licenses acquired for use within the Company are capitalized as an intangible asset on the basis of the costs incurred to acquire and bring to use the specific software.

2Material accounting policies (continued)

Amortization

Amortization is provided on intangible assets so as to write off the cost on a straight-line basis, less any estimated residual value, over their expected useful economic life as follows:

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Cash and cash equivalents

Cash at bank is held on deposit with financial institutions located within the United Kingdom and is immediately available. Management has assessed the financial institutions that hold the Company’s cash at bank to be financially sound, with minimal credit risk in existence. The cash at bank excludes restricted cash deposits, which are subject to restrictions and are therefore not available for general use.

Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition and are repayable with 24-hour notice with no loss of interest.

Restricted cash

Restricted cash refers to deposits held for specific reasons and is not available for immediate ordinary business use. It is presented as a separate line item on the balance sheet where relevant to the understanding of the Group’s financial position.

Trade and other receivables

Trade receivables are amounts due from third parties in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognized initially at the transaction price. They are subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for the impairment of trade receivables is established using an expected credit loss model as per the Group’s accounting policy for the impairment of financial assets.

Trade and other payables

Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade and other payables are recognized initially at the transaction price and subsequently measured at amortized cost using the effective interest method.

Borrowings

All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortized cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognized as a charge to profit or loss over the period of the relevant borrowing using the effective interest method.

Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

2Material accounting policies (continued)

Provisions

Provisions are recognized when the company has a present obligation (legal or constructive) resulting from a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

Leases

Definition

A lease is a contract, or part of a contract, which conveys the right to use an asset or a physically distinct part of an asset (‘the underlying asset’) for a period of time in exchange for consideration. Further, the contract must convey the right to the company to control the asset or a physically distinct portion thereof. A contract is deemed to convey the right to control the underlying asset, if throughout the period of use, the company has the right to:

Initial recognition and measurement

The company initially recognizes a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.

The lease liability is measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments, purchase options at exercise price (where reasonably certain), expected amount of residual value guarantees, termination option penalties (where reasonably certain) and variable lease payments that depend on an index or rate.

Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case, the Company’s incremental borrowing rate is used, being the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

The right of use asset is initially measured at the amount of the lease liability, adjusted for lease prepayments, lease incentives received, the company’s initial direct costs and an estimate of restoration, removal and dismantling costs.

Subsequent measurement

After the commencement date, the company measures the lease liability by:

Interest on the lease liability in each period during the lease term is the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. Interest charges are included in finance costs in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable standards. Variable lease payments not included in the measurement of the lease liability, are included in operating expenses in the period in which the event or condition that triggers them arises.

2Material accounting policies (continued)

Right-of-use assets

The related right-of-use asset is accounted for using the cost model in IFRS 16 and depreciated and charged in accordance with the depreciation requirements of IAS 16 Property, Plant and Equipment as disclosed in the accounting policy for Property, Plant and Equipment. Adjustments are made to the carrying value of the right-of-use asset where the lease liability is re-measured in accordance with the above. Right of use assets are tested for impairment in accordance with IAS 36 Impairment of Assets as disclosed in the accounting policy in impairment.

Short term and low value leases

The company has made an accounting policy election, by class of underlying asset, not to recognize lease assets and lease liabilities for leases with a lease term of 12 months or less (short term leases).

The company has made an accounting policy election on a lease-by-lease basis, not to recognize lease assets on leases for which the underlying asset is of low value.

Lease payments on short term and low value leases are accounted for on a straight-line bases over the term of the lease or other systematic basis. Short term and low value lease payments are included in operating expenses.

Impairment (non-financial assets)

All assets are reviewed for impairment when there is an indicator of impairment. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets are reviewed for possible reversal of the impairment at the end of each reporting period.

Share capital and reserves

Ordinary shares are classified as equity and share capital is carried at par value. Share capital issued meets the definition of an equity instrument as defined in IAS 32 ‘Financial Instruments’ when the contract evidences a residual interest in the assets of the Company after deducting all of its liabilities. Incremental costs directly attributable to the issue of shares are accounted for as a deduction from consideration received, and are recorded in share premium. Share premium reflects the proceeds received (net of allowable costs) in excess of the par value.

Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis.

Where the Company purchases its own equity instruments, for example as the result of a share buy-back, the consideration paid, including any directly attributable incremental costs (net of income taxes), is recorded as a reduction in stockholders’ equity, as treasury shares, until the shares are cancelled or reissued.

2Material accounting policies (continued)

Employee Benefits

A defined contribution plan is a pension plan under which fixed contributions are paid into a separate entity and the Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior year. The contributions are recognized as an employee benefit expense when they are due.

For defined contribution plans, contributions are paid into publicly or privately administered pension insurance plans on a mandatory or contractual basis. The contributions are recognized as an employee benefit expense when they are due.

Liabilities for wages and salaries, including non-monetary benefits and annual leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service, are recognized in respect of employees’ services up to the end of the reporting year and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as accruals and classified as current liabilities in the balance sheet.

Share based payments – Enterprise Management Incentive and 2021 Incentive Plan

The Company operates two equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (share options or shares). The fair value of the employee services received in exchange for the grant of shares is recognized as an expense with a corresponding increase in equity. The total amount to be expensed is determined by reference to the fair value of the shares granted:

Non-market performance and service conditions are included in the assumptions about the number of shares that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore, the grant date fair value is estimated for the purposes of recognizing the expense during the period between service commencement period and grant date.

At the end of each reporting period, the Company revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

See note 23 for further details.

Financial instruments

Financial instruments are contracts that give rise to a financial asset for one entity and to a financial liability or equity instrument for another entity. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the settlement date. The company recognizes financial assets and financial liabilities in the statement of financial position when, and only when, the company becomes party to the contractual provisions of the financial instrument. Financial assets and financial liabilities are offset, and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

2Material accounting policies (continued)

Financial assets

The Group’s financial assets include cash at bank and other financial assets. Financial assets are initially measured at fair value plus, in the case of a financial asset not measured at fair value through profit or loss, transaction costs. Trade receivables are initially measured at their transaction price.

For all financial assets the Group has the objective to hold financial assets in order to collect the contractual cash flows. The contractual terms of all the Group’s financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding amount. All financial assets are therefore measured at amortized cost.

Impairment of financial assets — expected credit losses (“ECL”)

All financial assets measured at amortized cost are required to be impaired at initial recognition in the amount of their expected credit loss (“ECL”), based on the difference between the contractual and expected cash flows.

The simplification available for financial instruments with a low credit risk (“low credit risk exemption”) is applied as of the reporting date. Factors that can contribute to a low credit risk assessment are debtor specific rating information and related outlooks. The requirement for classification with a low credit risk is regarded to be fulfilled for counterparties that have at least an investment grade rating; in this case there is no need to monitor credit risks for financial instruments with a low credit risk.

Financial liabilities

The Group’s financial liabilities include warrants, lease liabilities, convertible loans, trade and other payables, and other financial liabilities. Financial liabilities are classified as measured at amortized cost or fair value through profit or loss (“FVTPL”). All financial liabilities are recognized initially at fair value less, in the case of a financial liability not at fair value through profit or loss, directly attributable transaction costs.

Financial liabilities at FVTPL are measured at fair value and gains and losses resulting from changes in fair value are recognized in finance income/expenses. The Group only accounts for convertible loans and warrants as a financial liability at FVTPL. All other financial liabilities are subsequently measured at amortized cost.

For financial liabilities for which the fair value option is elected, the Company separately presents in Other Comprehensive Income the portion of the total fair value change attributable to Company-specific credit risk as opposed to reflecting the entire amount in the profit or loss for the year. The Company measures the portion of the change in fair value attributable to Company-specific credit risk as the excess of total change in fair value over the change in fair value that results from a change in a base market risk, including a risk-free interest rate and benchmark rates.

An embedded derivative in a hybrid contract, with a financial liability or a non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. The assessment of whether to separate an embedded derivative is done only once at initial recognition of the hybrid contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows.

2Material accounting policies (continued)

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference between the carrying amount of a transferred or extinguished financial liability and the paid consideration, inclusive of any non-cash assets transferred or liabilities assumed, is recognized in profit or loss within finance income and costs.

Convertible Loans

Convertible loans are bifurcated into a debt component and a conversion right if the latter is an equity instrument. The conversion right of a convertible loan is not an equity instrument but a liability if some conversion features of the loan lead to a conversion into a variable number of shares and this does not retain the relative rights of the ordinary shareholders and convertible loan note holders. In this case it has to be assessed if embedded derivatives need to be separated from the host contract. If this is the case, the remaining host contract is measured at amortized cost and the separated embedded derivative is measured at fair value through profit or loss until the loan is converted into equity or becomes due for repayment. The conversion features and other repayment options provided for in the contract are identified as a combined embedded derivative if they share the same risk exposure and are interdependent.

Alternatively, when a host contract contains separable embedded derivative(s), the issuer can elect to adopt fair value measurement for the entire instrument. The Group have previously taken that policy choice. Where a convertible loan note permits payment of interest as cash interest or in-kind interest, there is some judgment over whether each note issued for the in-kind interest should be assessed separately for whether it would convert into a variable number of shares, or whether the fact that the number of shares issued on conversion will change based on the period the loan note remains outstanding and to the extent that in-kind interest is chosen instead of cash interest. Certain clauses were amended or removed as a result of the supplemental indenture, and therefore the Group were required to revisit their accounting policy on recognition of the modified loan note. The option to choose cash or in-kind interest means that the holders still have a conversion right that will lead to a variable number of shares, and that conversion will not retain the relative rights of the shareholders and noteholders since recognition of the modified instrument. Therefore, the Group has concluded that the conversion right is not an equity instrument and have continued to adopt a policy of fair valuing the whole instrument.

Warrant Liabilities

Warrants are recognized as liabilities in accordance with IFRS 9 at fair value. The liabilities are subject to re-measurement at each balance sheet date until exercised. Warrants linked to sales targets are recognized within equity as these satisfy the “fix to fix” criterion within IAS 32.

Fair value measurements

IFRS 13 clarifies that fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, determined based on assumptions that market participants would use in pricing an asset or liability. A three-tier hierarchy is established as follows:

Level 1Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2Other than quoted prices included in level 1, inputs that are observable for the asset or liability, either directly or indirectly, for suitability for the full term of the asset or liability.

Level 3Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

2Material accounting policies (continued)

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

Reverse Stock Split

On September 20, 2024, the implementation of a reverse stock split at a ratio of one-for-ten shares became effective. The reverse stock split resulted in a proportional decrease in the number of authorized ordinary shares, and a proportional increase in the par value of such ordinary shares, in each case in accordance with the reverse stock split ratio. All share and per share amounts in these financial statements and related notes hereto have been retrospectively adjusted to account for the effect of the reverse stock split.

Newly adopted accounting policies

There were no new accounting policies adopted during the financial year, and the accounting policies applied are consistent with those applied in the prior year.

At the date of authorisation of these financial statements, a number of new standards and amendments to existing IFRS Accounting Standards have been issued but are not yet effective and have not been early adopted by the Group.

These include, but are not limited to:

IFRS 18 is expected to result in changes to the presentation and disclosure of the Group’s financial performance, including the introduction of defined categories of income and expenses, and new required subtotals. Adoption is expected to primarily impact presentation and disclosures rather than the recognition or measurement of underlying transactions.

The Group does not expect the other standards and amendments listed above to have a material impact on its financial statements.