1General information

Vertical Aerospace Ltd (the “Company”, or the “Group” if together with its subsidiaries) is incorporated under the Companies Law (as amended) of the Cayman Islands.

The address of its principal executive office is: Unit 1 Camwal Court, Bristol, United Kingdom. The Company’s shares are listed on the New York Stock Exchange.

The ultimate controlling party is Stephen Fitzpatrick.

These financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (£’000) except when otherwise indicated. These financial statements were approved by the board of directors on July 27, 2023.

Principal activities

The principal activity of the Company and its wholly owned subsidiary, Vertical Aerospace Group Ltd (“VAGL”), is the development and commercialization of vertical take-off and landing electrically powered aircraft (“eVTOL”). The Group’s main operations are in the United Kingdom.

2Significant accounting policies

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3Critical accounting judgements and key sources of estimation uncertainty

The preparation of the unaudited condensed consolidated interim financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial information and the reported amounts of expenses during the reporting period.

The Company’s most significant estimates and judgments involve valuation of the Company’s stock-based compensation or consideration, including the fair value of common stock and market-based restricted stock units, in addition to the fair valuation of derivative liabilities.

These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Such estimates often require the selection of appropriate valuation methodologies and models and may involve significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ from those estimates under different assumptions, financial inputs, or circumstances.

In preparing these unaudited condensed consolidated interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2022.

4Other operating income

The analysis of the Group’s other operating income for the period is as follows:

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Government grants

The group receives government grants relating to specific research and development activities relating to eVTOL technologies and is recognised in the period to which the expense it is intended to fund relates. The grant is made to fund research and development expenditure and is recognised in profit or loss in the period to which the expense it is intended to fund relates.

R&D tax relief

The R&D tax relief relates to the research and development tax reliefs provided by the UK Government in support of UK companies working on innovative projects in science and technology.

5Expenses by nature

Included within administrative expenses, research and development expenses and related party administrative expenses are the following expenses.

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6Finance income

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7Loss per share

Basic earnings per share, in this case a loss per share, is calculated by dividing the loss for the period attributable to ordinary equity holders of the parent by the number of ordinary shares outstanding.

Because a net loss for all period presented has been reported, diluted loss per share is the same as basic loss per share. Therefore, all potentially dilutive common stock equivalents are antidilutive and have been excluded from the calculation of net loss per share.

The calculation of loss per share is based on the following data:

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8Trade and other receivables

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Included within Government receivables is £6,422 thousand for the R&D tax credit receivable (December 31, 2022: £7,212 thousand).

9Share capital and reserves

Allotted, called up and fully paid shares

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Ordinary shares have full voting rights, full dividend rights. The Company is authorised to issue 500,000,000 ordinary shares.

Other reserves

During the period other reserves increased by £7,107 thousand as a result of share based payment transactions and decreased by £3,874 thousand following exercise of options and other awards to staff. Other reserves also decreased by £6,922 thousand reflecting cumulative translation differences.

Nature and purpose of other reserves

The share-based payments reserve is used to recognise the grant date fair value of options issued to employees but not exercised. The translation reserve arises as a result of the retranslation of overseas subsidiaries in consolidated financial statements. The warrant reserve is used to recognise the fair value of warrants issued in exchange for a fixed amount of cash or another financial asset for a fixed number of the Company’s ordinary shares (‘fixed-for-fixed condition’).

Share Premium

On May 3, 2023 a total of 7,000,000 shares were issued, including 6,989,140 shares issued on exercise of options and other awards to staff. Resulting proceeds due totalled of £641 thousand, of which £464 thousand remained unpaid as at June 30, 2023.

10Trade and other payables

The Group’s exposure to market and liquidity risks, including maturity analysis, related to trade and other payables is disclosed in note 15 Financial risk management and impairment of financial assets.

11Warrant Liability

The following warrants are in issue but not exercised:

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Each public warrant entitles the registered holder to purchase one share of common stock at a price of $11.50 per share. Once the public warrants become exercisable, the Company may redeem the public warrants at a price of $0.01 per public warrant if the closing price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period. The public warrants expire on December 15, 2026 or earlier upon redemption or liquidation.

12Share-based payments

The Group has established two employee option plans. The EMI Scheme was closed to employees during 2021, and the 2021 Incentive Plan was implemented in 2022. For more information about the option plans, please refer to the Group’s annual financial statements for the year ended December 31, 2022. The total expense recognised by the company during the year in respect of these plans is shown below:

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The summary of options granted under the plans were as follows:

EMI Scheme

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The number of options which were exercisable at June 30, 2023 was 12,463,199 (December 31, 2022: 11,317,247) with exercise prices ranging from £0.04 to £1.15.  The expected average remaining vesting period has been determined 2.09 years (December 31, 2022: 2.59 years).

2021 Incentive Plan

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13Derivative financial liabilities

Convertible Senior Secured Notes consists of the following:

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On December 16, 2021 Mudrick Capital Management purchased Convertible Senior Secured Notes of an aggregate principal amount of £151,000 thousand ($200,000 thousand) for an aggregate purchase price of £145,000 thousand ($192,000 thousand). The Convertible Senior Secured Notes are initially convertible into up to 18,181,820 ordinary shares at an initial conversion rate of 90.9091 ordinary shares per £824 ($1,000).

In accordance with IFRS 9, this is treated as a hybrid instrument and is designated it in entirety as fair value through profit or loss. The valuation methods and assumptions are shown in note 14.

The Company has elected to pay interest in-kind at 9% per annum. Interest is paid semi-annually in arrears and on June 15, 2023 the Company authorised the payment of interest by increasing the nominal amount of the outstanding Convertible Senior Secured Notes by £7,963 thousand ($9,826 thousand).

Several covenants exist including retention of $10 million cash. Accordingly, cash at bank includes £7,865 thousand retained for this purpose as at June 30, 2023.

14Financial instruments

To provide an indication about the reliability of the inputs used in determining fair value, the Company classifies its financial instruments into the three levels prescribed under the accounting standards.

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The fair value of financial instruments is deemed to be equivalent to the carrying value.

Level 1: The fair value of financial instruments traded in active is based on quoted market prices at the end of the reporting period. As such, warrants issued but not exercised are valued with reference to the observable market price as at the period end date ($0.18 per warrant).

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for the issued Convertible Senior Secured Notes.

The fair value of the convertible senior secured notes has been estimated using an option pricing model, in accordance with the International Valuation Standards definition of “market value”. The following inputs have been used:

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No changes were made during the period ended June 30, 2023 to the valuation techniques applied as at December 31, 2022. For more information about the convertible senior secured notes, please refer to the Group’s annual financial statements for the year ended December 31, 2022.

15Financial risk management and impairment of financial assets

The Group’s activities expose it to a variety of financial risks including market risk, credit risk, foreign exchange risk and liquidity risk.

Credit risk

Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations, arising principally from prepayments to suppliers and deposits with the Group’s bank.

Also included in Cash at bank is £7,865 thousand deemed to be restricted as at June 30, 2023.

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16Related party transactions

Key management personnel compensation

Key management personnel are the members of the Board.

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Aggregate gains made on the exercise of share options for the Directors during the period totalled £8,156 thousand (June 30, 2022: £nil)

Summary of transactions with other related parties

During the period ending June 30, 2023 Imagination Industries Ltd, a company wholly and solely controlled by Stephen Fitzpatrick, charged the Group management fees of £42 thousand (2022: £nil) in relation to the provision of flexible desk and office space in London, of which £42 thousand was outstanding as at June 30, 2023 (2022: £nil).

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17Events occurring after the reporting period

On August 2, 2023 Mr. Slattery resigned as chairperson and director, and Mr. Flewitt was appointed as chairperson, in each case effective as of August 3, 2023. In connection with this, the option termination agreement referred to in note 16 was amended with effect from August 2, 2023, as a result of which the remaining payment is conditional only on the Company’s maintenance of a minimum pre-order book.

Also as previously disclosed on July 3, 2023, the Company appointed Stuart Simpson as its new Chief Financial Officer, effective September 11, 2023. On August 2, 2023, Vincent Casey, who previously served as the Company’s CFO between November 2020 and February 2023 and who remained a director on the Board following his resignation as CFO, notified the Board of his resignation as a member of the Board, effective as of August 3, 2023.