Annual Report (272943 Petards – Annual Report WEB 1)

Annual report and financial statements

31 December 2025

Registered number 2990100

Petards

Group plc

Introduction

Petards'operations remain focused upon the development, supply and maintenance of technologies used in advanced security, communications, surveillance and ruggedised electronic applications, the principal markets for which are:

• Rail - software driven video and other sensing systems for on-train applications sold under the eyeTrain brand to global train builders, integrators and rail operators; and SaaS real-time safety critical integrated software applications supporting the UK rail network infrastructure under the RTS brand;

• Traffic - Automatic Number Plate Recognition ("ANPR") systems for lane and speed enforcement and other applications; and UK Home Office approved mobile speed enforcement systems, sold under the QRO and ProVida brands to UK and overseas law enforcement agencies and commercial customers;

• Defence - engineering services relating to electronic control systems, threat simulation systems, radio systems, and other defence related equipment sold predominantly to the UK Ministry of Defence ("MOD") both directly and via its prime defence contractors; and

• Communications - critical communications and wireless technologies systems integrator serving the transport, blue light, energy, central government and construction sectors, offering an end-to-end service from initial strategy and design, through to equipment supply, providing ongoing maintenance and managed services.

1 Financial and operational highlights

2 Chairman's statement

4 Strategic report

11 Corporate governance statement

20 Directors' remuneration report

22 Directors' report

25 Statement of directors' responsibilities in respect of the annual report and the financial statements

26 Independent auditor's report to the members of Petards Group plc

32 Consolidated income statement

33 Statements of changes in equity

34 Statement of financial position

35 Statements of cash flows

36 Notes

68 Alternative performance measures glossary

69 Directors, officers and advisors

70 Notice of Annual General Meeting

Financial and operational highlights

Revenue

13.6

14.9

10.9

12.0

9.4

2021 2022 2023 2024 2025

Adjusted EBITDA*

1.5

1.2

1.0

0.3

0.4

2021 2022 2023 2024 2025

Net funds/(debt)

1.9 1.9

1.2

(1.5) (1.3)

2021 2022 2023 2024 2025

Chairman's statement

I am pleased to report that the optimism expressed for the year at the time of the Company's interim results announcement resulted in a significantly improved outturn for 2025 over the previous year.

Group revenues for the year were up 24 per cent at £14.9 million (2024: £12.0 million), with adjusted EBITDA increasing to £1.0 million (2024: £0.4 million) and net cash inflows from operating activities also growing to £1.4 million (2024: £0.2 million).

Improved trading at Petards Rail and a good performance at Affini, in its first full year as a member of the Group, were the principal drivers of the increase in revenue.

QRO, which has been an excellent performer since its acquisition in 2016, experienced a weaker than anticipated final quarter with some larger orders failing to materialise in time to influence the trading outcome for 2025. Encouragingly, several of these orders have been received post year end including QRO's first significant export order since it began specifically targeting overseas markets during the year.

Given the difficult market conditions experienced by both Rail and Defence in recent years, it is pleasing that order intake in the second half year for both Petards Rail and Petards Defence were at levels not seen for several years. Of particular note were the contract awards from the MOD, Rheinmetall BAE Systems Land ("RBSL") and BAE Systems in the last two months of the year totalling £3.5 million.

The largest of these was the £2.2 million order from RBSL which is for the provision of initial electronic design and obsolescence management services in support of RBSL's Challenger 3 Upgrade Programme, for which the main deliverables are scheduled for the current year. Following on from this we are well positioned to extend our involvement into the manufacturing phase of the Programme.

These orders culminated in an increased closing order book of £9.2 million (2024: £7.1 million), the Group's largest year end order book for the past few years, of which £7.7 million is scheduled for delivery during 2026.

On behalf of our shareholders and the Board, I would like to thank all of our employees for their hard work, support and commitment throughout the year.

Their collective effort, teamwork, and innovation support the progress we are making and positions the Group well for the future. The Board is confident that together we will continue to build on the momentum generated in the year ahead.

I am pleased to announce that effective from 15 April 2026, Ben Gillam is to be appointed Group Finance Director.

Ben joined Petards in March 2022 as Group Financial Controller and Company Secretary since when he has become an integral and committed member of the management team. I look forward to welcoming him to the Board and I am confident that he will make a significant contribution during the next stage of the Group's development.

The Group continues to implement ESG principles commensurate with a group of its size and nature and continues to monitor and adapt its approach when appropriate.

Our objective remains to develop and grow our business both organically and by targeting complementary acquisitions of products or businesses that would increase the Group's presence within its current markets, or if beneficial, in new related markets.

Potential acquisitions are kept under regular review. When considering the value proposition they offer, the Board focusses upon how their technology and skills would complement those within the Group, and their likely contribution to making a sustainable improvement to the Group's future earnings and cash flow.

While Petards is not exposed any more than similar companies of our size, we are understandably cautious in terms of the impact that current events in the Middle East might have on both supply chains and our customers plans, should the situation remain unresolved over an extended period. At this stage it is difficult to predict what the short and medium term outcome may be.

Nevertheless, the Group's £9.2 million opening order book and its revenue coverage for 2026 is encouraging and provides a solid base from which the business can progress.

We enter 2026 in a stronger position than has been the case in the past few years. While customer order placement decisions continue to be taking some time, I am pleased to report that 2026 has started well with first quarter Group earnings in line with the Board's expectations. Given the strength of the opening order book and its cover for 2026, the Board is confident that the Group is well placed to deliver a continued improvement in its trading performance in the coming year.

Chairman

14 April 2026

Strategic report Business review

Petards' operations remain focused upon the development, supply and maintenance of technologies used in advanced security, communications, surveillance and ruggedised electronic applications, the principal markets for which are:

• Rail - software driven video and other sensing systems for on-train applications sold under the eyeTrain brand to global train builders, integrators and rail operators; and SaaS real-time safety critical integrated software applications supporting the UK rail network infrastructure under the RTS brand;

• Traffic - Automatic Number Plate Recognition ("ANPR") systems for lane and speed enforcement and other applications; and UK Home Office approved mobile speed enforcement systems, sold under the QRO and ProVida brands to UK and overseas law enforcement agencies and commercial customers;

• Defence - engineering services relating to electronic control systems, threat simulation systems, radio systems, and other defence related equipment sold predominantly to the UK Ministry of Defence ("MOD") both directly and via its prime defence contractors; and

• Communications - critical communications and wireless technologies systems integrator serving the transport, blue light, energy, central government and construction sectors, offering an end-to-end service from initial strategy and design, through to equipment supply, providing ongoing maintenance and managed services.

Our objective remains to develop and grow the Group's business on a sustainable basis by focussing on increasing profitability and free cash flow predominantly for re-investment in the growth of the Group. We seek to do this through the ingenuity and efforts of Petards' primary asset, its people, working ethically and in close partnership with our customers, suppliers and stakeholders with the objective of delivering above average returns for our investors.

It was encouraging that 2025 saw a clear improvement in Group trading in terms of order intake, revenue, cash generation, gross margin and profitability.

While extended timescales in terms of customer decision making and order placement continued to be seen, it was satisfying that several projects the Group has had in its Rail and Defence order prospect pipeline for some considerable time came to fruition in the second half of the year.

The levels of revenues of a recurring nature also held up well during the year, with over 50 per cent of Group revenues continuing to be generated from service and engineering support, spares, repairs and managed services.

We also continued to develop and launch new products and engineering services during the year, secured multi-year customer framework agreements, as well as investing in the opportunity to develop international markets for those Group products that lend themselves to sale through integration partners.

During its first full year as a member of Petards Group, Affini was a strong contributor to revenues and profitability, and provided a good platform from which it can grow its business. Having delivered a larger volume of installation and engineering services revenues, its gross profit margin was up on that achieved in 2024.

Affini also continued to generate a strong stream of recurring revenues from managed services and maintenance contracts across its customer base, an attractive attribute that featured in Petards decision to acquire the business. The multi-year renewal of a key customer's framework agreement for the provision of services of this nature was an important win during the year. The contract was extended until at least the end of 2029 and is anticipated to generate annual revenues of over £1 million over that period.

Affini operates in some interesting market sectors that present growth opportunities and having taken some incremental actions post year end to increase its operational efficiency, we believe that its contribution to the Group will grow over time and overall, we are satisfied with its performance since its acquisition.

We experienced a slightly more mixed year with our ANPR focussed QRO products, with revenues later in the year being affected by delays in the receipt of some larger expected orders.

Having trebled its revenues under Petards ownership and having developed its own range of ANPR camera systems suitable for sale through distribution partners, QRO took the decision in late 2024 to make an investment in additional overhead to expand into overseas markets. This included taking stands at international ANPR exhibitions and undertaking product performance trials with prospective customers. Good progress was made in the year in identifying both markets and customers best suited to concluding early wins. However, initial significant tangible orders have taken a little longer to secure than we first anticipated, taking until early 2026 for this milestone to be achieved. We are hopeful that further wins will follow over the course of the coming year.

A demonstration of our confidence in QRO's prospects was the securing in December of new larger leased premises at Kimbolton a few miles from its existing facility. The move to its new location was successfully completed in the early part of 2026 and provides it with the additional space and facilities needed to support its future growth.

QRO's first deliveries of Harrier Mini ANPR camera systems were made in the second quarter of 2025 and we have been pleased with customers' response to its launch. While revenues in the latter part of 2025 were affected by delays in order placement by customers, the present indications are that revenues will regain momentum in 2026, benefiting from some important framework agreement awards secured in 2025 and revenues from overseas prospects.

The modest progress in Petards Rail's order intake seen in the latter part of 2024 continued into 2025. Order levels for eyeTrain services, spares and repairs were maintained year-on-year and were supplemented by an increase in the value of eyeTrain systems orders for retro fitment to customer fleets. As a result, Petards Rail saw an overall increase in revenues and related gross profit margin percentage for the year, and we anticipate its revenues will continue to grow in 2026.

The Railways Bill put before Parliament in November enables the establishment of Great British Railways which will operate the majority of UK passenger services under public ownership and control. It has been some time in the making and will hopefully provide the certainty for customers to make investment decisions more quickly, which has been lacking in recent years. Time will tell whether this proves to be the case and whether it will lead to sustained growth in rail investment, or whether as is often the case, constraints in the public purse will affect that going forward. Petards has positioned itself to be able to deal with either scenario.

One of the most pleasing developments in the year was the increase in the revenues and profitability of Petards Defence, accompanied by a significant upturn in order intake. In the last two months of the year we announced three major orders from the MOD, RBSL and BAE Systems totalling £3.5 million.

At the time of the announcement of the 2024 results we expressed confidence that Petards was well placed to benefit from the MOD's Challenger 3 main battle tank upgrade programme. We were therefore delighted that this was well founded with the receipt of the

£2.2 million order from RBSL for its Challenger 3 Upgrade Programme. This is for the provision of initial electrical engineering design and obsolescence management services, the majority of which should be delivered in 2026. Following on from this we are well placed to extend our participation into the next stages of the Programme.

Another important development was the three year extension by the MOD to a contract for the continued support of Royal Air Force ("RAF") communication infrastructure. The core contracted value for the three years is £0.65 million, with the potential for this to increase to over

£1 million for the provision of supplementary supplies.

Petards Defence's year closed with BAE systems placing an order also worth £0.65 million for Petards own Mk6 products which provide electrical safety assurance in military aerospace applications. Some initial deliveries were made from stock prior to the year end, with the majority of the equipment due for shipment in 2026.

Operating performance

Group revenues increased to £14,947,000 (2024: £12,016,000) and reflect a full year of revenue from Affini following its acquisition in June 2024. The year saw improved revenues for the Group's Rail and Defence products and services, although delays in expected orders at QRO, some of which have now been received in 2026, led to its revenues being below those achieved in the prior year.

Strategic report (continued)

Gross profit margin was up across the Group increasing to 49.7 per cent (2024: 45.3 per cent) and particularly within Rail, Defence and Affini.

Overheads were £7,865,000 (2024: £6,215,000 before exceptional costs of £491,000) with the increase relating almost entirely to a full year of ownership of Affini.

Earnings before interest, tax, depreciation, amortisation, exceptional items, acquisition costs and share based payment charges ("adjusted EBITDA"), increased to £1,002,000 (2024: £410,000).

Net financial expenses increased to £242,000 (2024: £171,000), reflecting a full year of interest costs following the draw down of borrowing facilities to fund Affini's acquisition in June 2024.

The tax credit of £271,000 (2024: £309,000) comprised a current tax credit of £79,000, and a net deferred tax credit of £192,000. The current tax credit predominantly related to the surrender of previously unrecognised enhanced tax deductions for R&D tax credits in respect of 2024, that were recognised in 2025. Claims for 2025 R&D activities are expected to be made and recognised in 2026 if the claim is successful. In accordance with the merged R&D expenditure (RDEC) scheme this would be recognised as government grant income. The main elements of the deferred tax credit arose from the origination of in-year timing differences of £101,000, recognition of previously unrecognised tax assets of £60,000 and a net £19,000 from the recognition of current year losses and derecognition of prior year losses.

The overall result for the Group for the year was a loss after tax of £406,000 (2024: loss of £1,127,000), representing a diluted and undiluted loss per share of 0.67p (2024: loss per share 1.91p).

Research and development

The Group continued to invest in its internally developed software and hardware solutions during the year. That investment totalled

£309,000 in 2025 (2024: £341,000), of which £271,000 was capitalised (2024: £304,000). Around 64 per cent of the capitalised development costs related to our ANPR camera products and related software, with the balance relating to the ongoing development of the Group's Rail products.

Cash, cash flow and net debt

The Group again recorded a cash generative operating performance with net cash inflows from operating activities increasing significantly to £1,384,000 (2024: £194,000).

Net cash flows used for investing activities were £591,000 (2024: £2,508,000), which included capitalised development costs of £271,000 and the acquisition of radio equipment to support Affini's managed service business.

Net financing outflows were £597,000 (2024: £462,000) including £427,000 of repayments of principal and interest on lease liabilities, and

£138,000 of overdraft interest.

The Group's net debt at 31 December 2025 was £1,339,000 (2024: net debt £1,535,000) before deducting IFRS 16 lease liabilities of £1,061,000 (2024: £855,000). The largest element of the increase in lease liabilities arose on the acquisition of QRO's new larger premises leased in December 2025.

The Group continues to maintain its £2.5 million overdraft facility on an "evergreen" basis, for use in funding both the Group's working capital, and additionally, any other purpose to which its bankers agree.

Our business, business model and strategy

Petards Group plc was listed on AIM in 1997 and during 2025 the Group provides security, surveillance and communication technology solutions, to four key markets.

Rail - software driven video and other sensing systems for on-train applications sold under the eyeTrain brand to global train builders, integrators and rail operators; and SaaS real-time safety critical integrated software applications supporting the UK rail network infrastructure under the RTS brand;

Traffic - Automatic Number Plate Recognition ("ANPR") systems for lane and speed enforcement and other applications; and UK Home Office approved mobile speed enforcement systems, sold under the QRO and ProVida brands to UK and overseas law enforcement agencies and commercial customers;

Defence - engineering services relating to electronic control systems, threat simulation systems, radio systems, and other defence related equipment sold predominantly to the UK Ministry of Defence ("MOD") both directly and via its prime defence contractors; and

Communications - critical communications and wireless technologies systems integrator serving the transport, blue light, energy, central government and construction sectors, offering an end-to-end service from initial strategy and design, through to equipment supply, providing ongoing maintenance and managed services.

The Group's customer base mainly comprises international 'blue chip' and government agencies and their strength, often global, gives rise to the opportunity to develop Petards' business through the provision of good quality professional service in support of its existing and future product ranges.

The Group develops its own products and services for sale to the Rail and Traffic markets whereas within the Defence market it is primarily a supplier of defence related electronics and specialist engineering services, and it serves the Communications market as a systems integrator providing ongoing maintenance and managed services.

The Board believes that the Group operates in growth areas and that it has the products and services plus available technical and technological skills to develop new products as well as the sales and marketing abilities to become a larger and more successful operator in each of the sectors in which it operates.

The Group's overriding objective is to achieve attractive and sustainable rates of growth and returns for shareholders and its strategy to achieve this objective is:

• to focus upon the Group's core products and services which are used in the rail, defence, traffic and communications industries;

• to continue to invest in developing technologies to enhance its product portfolio;

• to increase revenues both organically by exploiting the synergies within the Group and by acquisition;

• to expand revenues globally into the Group's target markets; and

• to improve operating margins through cost management.

Key performance indicators

The Group uses a number of key performance indicators (KPI's) to monitor its progress against its objectives. These KPI's, have been identified as measures that key stakeholders find useful, and which have a focus on those that provide a measure of business growth, cash generation, total indebtedness and that requiring servicing within one year and comparability with similar businesses.

Strategic report (continued)

In addition to on time delivery and quality standards, the main KPI's, which have been reported on in the Financial Review, are:

1 Adjusted EBITDA comprises operating profit/(loss) adjusted to remove the impact of depreciation, amortisation, exceptional items, and acquisition costs. A reconciliation of Adjusted EBITDA to operating profit/(loss) is included on the face of the consolidated income statement. An Adjusted EBITDA KPI is considered useful to the Board since by removing exceptional items, and acquisition costs, the year-on-year operational performance comparison is more transparent.

See Alternative Performance Measures Glossary on page 68 for a full list of Alternative Performance Measures.

Principal risks and uncertainties

The management of the business and the execution of the Group's strategy is subject to a number of risks. The main business risks affecting the Group are outlined below:

The Group may face increased competition - the Group may face greater competition including that from competitors with greater capital resources than those of the Group.

The Group may need future access to capital - the Group's capital requirements depend on numerous factors. In order to make future acquisitions and to fund growth, the Group may require further financing. This may not be able to take place if financing is not available.

The financial results of the Group can be materially affected by the timing of large contracts - the Group's revenue is generated from a mix of longer and shorter lead time orders. The timing of order placement and delivery of the larger orders is inherently difficult to predict potentially causing material fluctuations in actual results compared with expectations or plans.

Government expenditure - many of the industries that utilise the Group's products receive funding from central and local governments. The levels of funding for those industries may impact on demand for the Group's products. The Group has sought to mitigate this potential exposure by increasing its customer base and by supplying a range of products and services.

Dependence on key personnel - the Group's performance depends to a significant extent upon a limited number of key employees. The loss of one or more of these key employees and the inability to recruit people with the appropriate experience and skills could have a material adverse effect on the Group. The Group has endeavoured to ensure that these key employees are incentivised, but their retention cannot be guaranteed.

Technological changes - the Group's product offerings may be under threat should technologies be developed by competitors that render those products either redundant or uncompetitive. This could potentially result in a reduction in revenues generated by the products affected. The Group also incurs expenditure in developing new products and services. Should such development projects not be successfully completed or result in offerings that are not attractive to customers, the costs incurred may not be fully recoverable.

Geopolitical and macroeconomic uncertainty - Macroeconomic uncertainty triggered by invasion, war, and conflicts on a global basis might adversely impact both supply chains and customer demand.

Further details regarding the key accounting estimates and judgements are included in note 1.

Directors' Statement under Section 172 (1) of the Companies Act 2006

This section serves as our section 172 statement and should be read in conjunction with the rest of the Strategic Report set out on pages 4 to 10 (inclusive).

The Board is collectively responsible for the decisions made towards the long-term success of the Company and the directors are fully aware of their duty to promote the success of the Company in accordance with section 172 of the Companies Act 2006. Section 172 requires directors to take into consideration the interests of various stakeholders in their decision making, have regard, amongst other things, to:

• the likely consequences of any decision in the long-term;

• the interests of the Company's employees;

• the need to foster the Company's business relationship with suppliers, customers and others;

• the impact of the Company's operations on the community and environment;

• the desirability of the Company maintaining a reputation for high standards of business conduct; and

• the need to act fairly as between members of the Company.

Petards' employees are one of the primary assets of its business and the Board recognises that the Group's employees are the key resource which enables delivery of the Company's vision and goals. Pay reviews are carried out to determine whether all levels of employees are benefitted equally and to retain and encourage skills vital for the business. Employee interests and welfare continued to be at the forefront of directors' minds during 2025.

The Board acknowledges that a strong business relationship with suppliers and customers is a vital part of the Group's growth prospects. Whilst day to day business operations considering suppliers and customers are delegated to local executive management, the Board sets directions and evaluates policies with regard to new business ventures and investing in research and development. The Board upholds ethical business behaviour and encourages management to seek comparable business practices from all suppliers and customers doing business with the Company. We value the feedback we receive from our stakeholders and we take every opportunity to ensure that where possible, their wishes are duly considered.

The Board seeks to uphold high standards of care towards the community and environment and is conscious of the fact that the nature of the Company's business may require measures to help protect the environment. The Group has various recycling and waste reduction programmes and when developing new electronic products seeks to reduce their power consumption. A cycle to work scheme is operated in the Group's largest site and all sites monitor energy and water usage monthly targeting reductions. Community engagement included the support of apprenticeships and the recruitment of appropriately skilled staff from within the communities in which the Group's operations are based.

The Company is incorporated in the UK and governed by the Companies Act 2006. The Company has adopted the Quoted Companies Alliance Corporate Governance Code 2023 (the 'QCA Code') and the Board recognises the importance of maintaining a high level of corporate governance, which together with the requirements to comply with the AIM Rules ensures that the interests of the Company's stakeholders are safeguarded. The Company's expectation of honest, fair and professional behaviour is reflected by this and there is zero tolerance for bribery and unethical behaviour by anyone relating to the Company. The importance of making all staff feel safe in their environment is maintained and policies are in place to enable staff to confidentially raise concerns freely and to discuss any issues that arise. The Board continue to review the Group's control environment on an annual basis and continue to be satisfied that strong financial controls are in place, and these are documented in the Group Controls Framework.

The Board places equal importance on all shareholders and recognises the significance of transparent and effective communications with its investors. As an AIM listed company there is a need to provide fair and balanced information in a way that is understandable to all stakeholders and particularly our shareholders. The primary communication tool with our shareholders is through the Regulatory News

Strategic report (continued)

Service, ("RNS") on regulatory matters and matters of material substance. The Company's website provides details of the business, details of the Board and Board Committees, changes to major shareholder information, QCA Code disclosure and updates under AIM Rule 26. Changes are promptly published on the website to enable the shareholders to be kept abreast of Company's affairs. The Company's Annual Report and Notice of Annual General Meetings (AGM) are available to all shareholders. The Interim Report and other investor presentations are also available for at least the last six years and can be downloaded from our website. The Board acknowledges that encouraging effective two-way communication with shareholders encourages mutual understanding and better connection with them. The benefits include improved information on the business and its performance, appropriate consideration of all shareholders views, as well as instilling trust and confidence to allow informed investment decisions to be made.

In the year to 31 December 2025 the main strategic activities of the Board were:

Significant events/decisions

Key Section 172 matters affected

Actions and impact

Secured a position on UK MOD's Challenger 3 Upgrade Programme as subcontractor to the UK MOD's prime contractor Rheinmetall BAE Systems Land ("RBSL"), under which RBSL will deliver 148 Challenger 3 Main Battle Tanks to the British Army.

Shareholders, customers and employees

Initial £2.2 million order provides the opportunity for follow on work as the Programme progresses to production phase and broadens the Group's scope for future Defence revenues.

Shareholder value expected to increase.

Invested in new ANPR products suitable for export as well as QRO's existing UK market.

Shareholders and customers Completed development and successfully launched

QRO's new Harrier Mini AI powered camera.

Commenced development of user alert software application suitable for both existing UK market as well as markets with less developed ANPR infrastructure.

Shareholder value expected to increase. Improved customer service.

Investment in overhead to identify and support new overseas markets for QRO's range of ANPR products.

Shareholders, customers and employees

Through market engagement identified geographies likely to yield best traction leading to initial sales focus on several key prospects in Europe and Australasia.

First sales made in 2025, with first six figure sale made in first quarter of 2026.

Widening the customer base outside QRO's traditional UK market increases revenue potential and reduced dependence on UK Government spending.

Shareholder value expected to increase.

Signed on behalf of the Board

Group Chief Executive 32 London Road

Guildford

Surrey GU1 2AB

14 April 2026

Corporate governance statement

The Board is collectively responsible for Corporate Governance and I, as Chairman of the Board, am ultimately responsible for ensuring that a high level of Corporate Governance is embedded in the Company's culture.

As a company whose shares are traded on the Alternative Investment Market ("AIM") of the London Stock Exchange, Petards Group plc recognises its responsibility for the proper management of the Company and the importance of sound corporate governance, commensurate with the size and nature of the Company and the interests of its shareholders. In accordance with AIM Rule 26, which requires AIM companies to comply with a recognised code of Corporate Governance, the Board believes that the Quoted Companies Alliance Corporate Governance Code 2023 (the "QCA Code") provides a suitable framework by which it is able to continue to commit to maintaining high standards of corporate governance. Accordingly, the Company complies with the 10 principles of the QCA Code where considered relevant and appropriate, having regard to the size, current stage of development and resources of the Company.

The QCA Code is applied by the Company primarily through its Board process, which includes regular meetings covering financial as well as non-financial matters which affect not only the Company's shareholders but other significant stakeholders, including employees. The Board process and corporate governance is enhanced by the establishment of Audit, Remuneration and Nominations Committees.

The Board believes that, having regard to the size of the Group, its stage of development and the resources it has available, its governance structures and practices are in compliance with the expectations of the QCA Code.

Set out below are the 10 principles of the QCA Code, together with a summary under each heading explaining how the Company has applied these. In fulfilling their responsibilities, the directors believe that they govern the Company in the best interests of its shareholders, whilst having due regard to the interests of other stakeholders in the Group including, in particular, customers, employees and creditors.

1. Establish a purpose, strategy and business model which promote long-term value for shareholders

   Application

   The Board must be able to express a shared view of the Company's purpose, business model and strategy.

   A company's purpose is its essential reason for being. The business model and strategy should fall out of this. A board should be able to explain, beyond a simple description of products and corporate structures, how the company intends to deliver shareholder value in the medium to long-term.

   It should have specific long-term objectives against which it can determine if the company is succeeding and in so doing delivering on its purpose.

   The Board should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the Company from unnecessary risk and securing its long-term future.

   Compliance

   The Company's vision is to invest in and develop its business to deliver long-term, sustainable growth in shareholder value. This may come from organic growth, acquisitions or divestments.

   The strategy for achieving this focuses on maintaining acceptable gross profit margins, underpinned with sensible cost and cash management, having regard to perceived risks within the industry market and sector parameters, as well as the macro-economic environment.

   The Chairman's Statement and Strategic Report include detailed analysis of the Group's strategy, financial performance, principal risks and uncertainties and future expectations.

2. Promote a corporate culture that is based on ethical values and behaviours

   Application

   The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours, and which is supportive of the delivery of the Company's established purpose, strategy and business model.

   The desired culture should be reflected in the actions and decisions of the Board and executive management team. Corporate values should guide the objectives and strategy of the Company.

   Corporate governance statement (continued)

   The culture should be visible throughout the Company's operations, including recruitment, nominations, training, and engagement. The performance and reward system throughout the company should reflect and reinforce the maintenance of this culture.

   The corporate culture should be recognisable throughout the disclosures in the annual report, website, and any other communications by the Company, both internal and external.

   Compliance

   The Board is committed to embodying and promoting a sound corporate culture and has endorsed various policies which require ethical behaviour of staff and relevant counterparties (such as those mandating anti-corruption, anti-counterfeiting, fair treatment and equality of opportunity).

   The Board and management conduct themselves ethically at all times. The Group values its reputation for ethical behaviour and has a set of values that are at the core of its business philosophy.

3. Seek to understand and meet shareholder needs and expectations

   Application

   Directors must develop a good understanding of the needs and expectations of all elements of the Company's shareholder base. The Board must manage shareholders' expectations and should seek to understand the motivations behind shareholder voting decisions.

   Compliance

   The Board recognises and understands that it has a fiduciary responsibility to the shareholders. The Board is aware of the need to protect the interests of minority shareholders and balancing these interests with those of any more substantial shareholders. The Chairman is responsible for ongoing dialogue and relationships with shareholders supported by the other directors. As such, members of the Board meet with the Company's larger shareholders during the course of the year. The Annual General Meeting is always an opportunity for the Board to communicate with shareholders and the Board welcomes the attendance and participation of all shareholders.

   This communication allows the Board to understand the shareholders' views, and to ensure that the strategies and objectives of the Group are aligned with shareholders. In its decision-making, the Board will have regard to the ascertained expectations and needs of its shareholders (as appropriate in accordance with its statutory and fiduciary duties).

   The Group's website (https://www.petards.com) allows shareholders access to information including; contact details, major shareholders and external advisors. In addition, all announcements issued since 2014 via RNS are available, together with an archive of recent financial reports and accounts and interim statements.

   The resolutions to be put to a vote at each AGM can be found at the back of the relevant Annual Financial Report and the Financial Reports and Circulars section of the Company's website for any forthcoming AGM. Past AGM resolutions can be found at the back of each Annual Financial Report with the results published in the RNS section.

4. Take into account wider stakeholder interests, including social and environmental responsibilities, and their implications for long-term success

   Application

   Long-term success relies upon good relations with a range of different stakeholder groups.

   The Board should periodically identify the Company's key stakeholders - for example, suppliers, customers, employees, communities, regulators, or others. The Board should understand their needs, interests, and expectations.

   Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholders.

   The Company should devote particular attention to its workforce and ensure that its practices towards its employees (direct and indirect) are consistent with the Company's values. Arrangements should be in place to enable employees to raise concerns in confidence and processes to ensure that such matters are considered and where appropriate actions are taken.

   The governance and appropriate oversight of a company's approach towards relevant environmental and social issues is a responsibility of the board. Matters that relate to the company's impact on society, the communities within which it operates, or the environment - including those relating to or stemming from climate change - have the potential to affect the company's ability to deliver shareholder value over the medium to long-term. These matters must be integrated into the company's strategy, risk management and business model.

   Compliance

   The Group's responsibilities to stakeholders including staff, suppliers and customers and the wider society are also recognised as important to the delivery of the Company's business objectives.

   The Company is committed to a series of Corporate Social Responsibility principles that provide a reference point for all stakeholders on the elements that define the conduct of the Company's business and relationships in the geographical markets in which it operates.

   These principles are subject to periodic review and cover the following areas; ethics and business conduct, employees (including our supply chain), health and safety, environment and community.

   The environmental impact of the Group's activities is carefully considered, and the maintenance of high environmental standards is a priority. The Group is committed to reducing that impact as far as reasonably possible through full regulatory compliance, recycling programmes and other initiatives.

   The Board has regard to the feedback of relevant stakeholders in its decision-making and the formulation of strategy.

5. Embed effective risk management, internal controls and assurance activities, considering both opportunities and threats, throughout the organisation

   Application

   The Board needs to ensure that the Company's risk management framework identifies and addresses all relevant risks in order to execute and deliver on its stated purpose and strategy. Companies need to consider not only the enterprise view but also their extended business, including the Company's entire supply chain, other material third-parties (including suppliers of outsourced services) and any reliance on strategic partners.

   Setting strategy includes determining the extent of exposure to the identified principal risks that the Company is able to bear and willing to take (risk tolerance and risk appetite). The Company should ensure that a balanced view of risk is achieved, and, as well as threats should consider opportunities and the potential for value creation.

   The Board should ensure that all potential risks are considered, on a proportionate and material basis, including those relating to climate change.

   The Board should review and consider whether the Company's enterprise-wide internal controls are sufficiently robust to manage the identified risks adequately.

   To achieve effective risk management, the Board, and in particular the Audit Committee, must ensure that there are appropriate assurance activities in operation. This may be based on access to internal resources, or particularly in specialist or technical areas, the utilisation of external experts.

   It is important to ensure that the Company auditor is and is seen to be sufficiently independent of management. Compliance

   The Board has established Audit and Remuneration Committees full details of which are contained in principle 7, below.

   The Company also receives feedback from its external auditors on the effectiveness of its internal control structure.

   The Audit Committee has reviewed the requirement for an internal audit function for the Group and has determined that at this time considering the size of the Group, it's composition and the close involvement of senior management over the Group's accounting systems, it is not currently required. However, the Committee will keep this matter under review in the event that circumstances warrant an internal audit function in the future.

   Corporate governance statement (continued)

   In addition to the activities of the Board's sub-committees, the Board approves the annual budget each year. This process allows the Board to identify key performance targets and risks expected during the upcoming year. The Board also considers the agreed budget when reviewing trading updates and considering expenditures throughout the year. Progress is monitored via monthly reporting of actual financial performance against budget. Where appropriate, forecasts are prepared to further appraise any risks arising during the year.

   The Group has clear authority limits deriving from the list of matters reserved for decision by the Board, including capital expenditure approval procedures.

   The Board regularly reviews and monitors Key Performance Indicators, including those related to banking covenants.

6. Maintain the Board as a well-functioning, balanced team led by the Chair

   Application

   Directors must commit the time necessary to fulfil their roles. The Board members have a collective responsibility and legal obligation to promote the interests of the Company and are collectively responsible for defining corporate governance arrangements. The Board should not be dominated by one person or a group of people, and each director must be able to commit the time necessary to fulfil their role. Ultimate responsibility for the quality and effectiveness of the Board lies with the Chair.

   Shareholders should be given the opportunity to vote annually on the (re-) election of all individual directors to the Board.

   In order to uphold the quality of Board independence, the Board should be comprised of an appropriate balance between executive and non-executive directors. The independent non-executive directors should comprise at least half of the board. The Chair, if independent upon appointment and still considered independent, can be included in this calculation. However, as a minimum there should be at least two non-executive directors whom the Board considers to be independent.

   Key committees, in particular the Audit Committee and Remuneration Committee, should comprise at least a majority of independent NEDs and ideally aim for full independence. The Company should consider whether it is appropriate to have a senior independent director.

   Boards should be sensitive to both real and perceived impediments to independence. Consideration should be given to those factors which may impede independence which include (but are not limited to): length of board tenure; size of shareholding; prior and/or current commercial or contractual relationships with the Company; prior and/or current commercial or contractual relationships with executive directors; and significant incentive pay arrangements beyond a director's fee.

   Compliance

   The principal risks faced by the Group are addressed by the appointment of an experienced executive Board supported by experienced independent non-executive directors and a team of appropriately qualified professional advisers.

   The executive directors are closely involved in the day to day operations of the Group and report to the Board in detail, typically on a monthly basis. Their reports include the status and trends of agreed Key Performance Indicators that are noted in the Group's Annual Financial Report in the Strategic Report and Financial and Operational Highlights.

   Eight main Board meetings were held during 2025. The Board records attendance at all Board meetings and the table below shows attendance by each director.

   	Main Board Meetings	Audit Committee	Remuneration Committee
   Raschid Abdullah	8/8	N/A	N/A
   Osman Abdullah	8/8	N/A	N/A
   John Wakefield	8/8	2/2	N/A
   Geraint Davies	8/8	2/2	N/A

   The Board considers itself sufficiently independent. The QCA Code suggests that a board should have at least two independent non-executive directors. The Board have considered each non-executive directors' length of service and interests in the share capital of the Group and consider that Mr Wakefield and Mr Davies are independent of the executive management and free from any undue extraneous influences which might otherwise affect their judgement. All Board members are fully aware of their fiduciary duty under company law and consequently seek at all times to act in the best interests of the Company as a whole.

   The role of the independent non-executive directors is to bring independent judgement to Board deliberations and decisions. The independent non-executive directors have no personal financial interest, other than as shareholders, in the matters to be decided. Whilst the Company is guided by the provisions of the QCA Code in respect of the independence of directors, it gives regard to the overall effectiveness and independence of the contribution made by directors to the Board in considering their independence and does not consider a director's period of service in isolation to determine this independence.

   The Board has sub-committees appointed to review the specific matters of Audit, Remuneration and Nominations. The Audit Committee is chaired by Mr Davies and the Remuneration and Nominations Committees are chaired by Mr Wakefield. Further details are provided under principle 7, below.

   The Board is confident that each current member has the necessary skills, experience and knowledge to discharge his duties and responsibilities effectively and that each commits the time necessary to fulfil his role.

   The Code's expectation is that all directors should stand for re-election annually. The Board has considered this carefully but believes that, at the present time, a staggered three year re-election cycle, as set out in the Company's Articles of Association, is more appropriate for the Company given its stage of development, the importance of experience, continuity in oversight and decision-making.

   The Board considers that its current approach supports effective governance by promoting stability and the consistent execution of the Company's long-term strategy, while remaining accountable to shareholders through regular engagement, board evaluation and the continued oversight of independent non-executive directors. The Board will keep this position under review as the Company develops.

7. Maintain appropriate governance structures and ensure that individually and collectively the directors have the necessary up-to-date experience, skills and capabilities

   Application

   The Company should maintain governance structures and processes in line with its desired corporate culture and appropriate to its:

   • size and complexity; and

   • capacity, appetite and tolerance for risk.

     The governance structures, processes and policies should evolve over time in parallel with its size, strategy and business model to reflect its maturity and stage of development.

     The Board should be supported by committees - typically at least an audit, remuneration and nomination committee - that also have the necessary skills and knowledge to discharge their duties and responsibilities effectively.

     The Board should ensure that it has the necessary skills and experience to fulfil its governance responsibilities, including among other things with respect to cyber security, emerging technologies, and relevant sustainability matters such as climate change. The board should consider any need to establish further dedicated sub-committees and, where appropriate, seek input from external advisers on such matters.

     All directors should continually update their skills and knowledge. As a company and the external environment evolves, the mix of skills and experience required on the board will change. The board should consider its training and development needs in this context, plan ahead and structure such provision accordingly.

     The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The Board should consider this and the design and implementation of its decision-making processes to ensure they are effective.

     Corporate governance statement (continued)

     Compliance

     Collectively the directors have a wealth of knowledge and experience of the Group's business operations and financial management, and of the market sector in which it operates.

     The Board is collectively aware of its need to consider and review its composition, in terms of individual personalities, diversity and gender. Having regard to the size and stage of development of the Group and of its internal resources and management support structure beneath it, the Board believes that it currently has an appropriate mix of personal qualities, experience and capability.

     Whilst the Company recognises the importance of high standards of Corporate Governance, the Board has sought to address the matter in a proportionate way having regard to the size and resources of the Group.

     The principal risks faced by the Group are addressed by the appointment of an experienced executive Board, supported by experienced independent non-executive directors, an experienced, capable and diverse operational management support structure and a team of appropriately qualified external professional advisers.

     The Board aims to hold at least eight formally constituted meetings per annum at which it typically reviews the Group's financial performance and risk profile and considers strategies for future growth.

     The Board is supported by the Company Secretary who records and distributes minutes of the meetings on a timely basis.

     In support of its aim of maintaining governance structures and processes, the Board has sub-committees appointed to review the specific matters of Audit, Remuneration and Nominations.

     Audit Committee

     The Audit Committee is responsible for ensuring that the financial performance of the Group is properly reported on and monitored and for meeting the auditors and reviewing their reports in relation to the accounts and the audit. It holds a formal meeting with the external auditors at least twice a year.

     The Audit Committee evaluates the independence and objectivity of the external auditor and takes into consideration all United Kingdom professional and regulatory requirements. Consideration is given to all relationships between the Group and the audit firm including in respect of the provision of non-audit services. The Audit Committee considers whether those relationships appear to impair the auditor's judgement or independence. The Audit Committee believes they do not.

     The Audit Committee have considered the key judgemental areas of going concern, carrying value of intangible assets, deferred tax asset, parent company investments and goodwill and determined that they have been appropriately reflected in these financial statements.

     The Audit Committee have reviewed the requirement for an internal audit function for the Group and have determined that at this time considering the size of the Group, it's composition and the close involvement of senior management over the Group's accounting systems, it is not currently required. However, the Committee will keep this matter under review in the event that circumstances warrant an internal audit function in the future.

     Remuneration Committee

     The Remuneration Committee is responsible for setting the scale and structure of the executive directors' remuneration. It also recommends the allocation of share options to directors and other employees.

     The responsibilities of both the Audit and Remuneration Committees are undertaken by the Company's independent non-executive directors, who seek independent advice from external advisors as he feels is appropriate and necessary.

     Nominations Committee

     The whole Board undertakes the Nominations Committee responsibilities. The remit comprises all new appointments of directors and senior management throughout the Group; nominations, interviewing, taking up references and considering related matters.

8. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

   Application

   The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.

   The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.

   The annual review can be carried out internally and should, ideally, be supplemented periodically by an external independent third-party review.

   It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for boards. No member of the Board should become indispensable.

   Succession planning for both the executives and non-executives is a vital task for boards. This should extend to contingency planning for the absence of key staff. There should be a robust process for the orderly appointment of new directors to the board and senior management positions. Consideration should be given to establishing a nomination committee to help with the process and ensure a diverse pipeline - both internally and externally - for succession. The skills, experience, capabilities and background required for directors and senior management to support the next stage of the company's development should be identified and factored into succession planning.

   Compliance

   The Board undertakes regular monitoring of personal and corporate performance using agreed key performance indicators and detailed financial reports.

   Key performance indicators include: revenues, Adjusted EBITDA, pre-tax (loss)/profit, cash generation, net cash, net assets and earnings per share.

   The Board considers the need for refreshing its membership and is also responsible for succession planning. Having regard to the size and stage of development of the Group and of its internal resources and management support structure beneath it, the Board believes that it currently has an appropriate mix of personal qualities, experience and capability and that it undertakes sufficient procedures to review its own effectiveness and performance as a unit, as well as that of its committees and individual members.

9. Establish a remuneration policy which is supportive of long-term value creation and the company's purpose, strategy and culture

   Application

   It is the Board's responsibility to establish an effective remuneration policy which is aligned with the company's purpose, strategy and culture, as well as its stage of development.

   A remuneration policy should motivate management and promote the long-term growth of shareholder value. Remuneration practices across the company, in particular for senior management, should support and reinforce the desired corporate culture and promote the right behaviours and decisions.

   Pay structures for senior management should be simple and easy for participants to understand and foster alignment with shareholders through the building and holding of a meaningful shareholding in the Company.

   The remuneration committee should, as necessary, consult with other board committees in order to set appropriate incentive targets and to appraise performance in respect of those targets.

   The annual remuneration report should be put to an advisory shareholder vote. Where not mandated to be put to a binding vote, remuneration policies should at least be put to an advisory vote. Larger companies may wish to follow best practice and put their remuneration policy to a binding shareholder vote. Given the significance and dilutive impact of such plans, new (or significant amendments to existing) share schemes or long-term incentive plans should be put to a shareholder vote.

   Corporate governance statement (continued)

   Compliance

   The Board has established a remuneration policy which is designed to support the Company's strategic objectives, long-term value creation, purpose and culture.

   To implement this principle the Company has adopted the following approach:

   • Alignment with strategy and culture: Our remuneration policy for executive directors and senior management is structured to support the execution of the Company's purpose and strategic priorities, while reinforcing behaviours aligned with our values and longterm performance.
   • Simplicity and transparency: Pay structures are kept straightforward and easy for shareholders and stakeholders to understand.
   • Stakeholder and shareholder engagement: Material changes to share-based incentive plans or the introduction of new schemes will also be subject to shareholder approval in accordance with best practice.
   • Market competitiveness and risk management: Remuneration levels and terms are reviewed periodically to ensure they remain competitive, fair and appropriate for the Company's stage of development, whilst avoiding incentives that encourage excessive risk-taking.
   • Governance oversight: The Remuneration Committee, comprised predominantly of independent non-executive directors, reviews and recommends the remuneration policy and its application to the Board for approval. The Committee ensures that remuneration outcomes are linked to performance and the Company's long-term interests.
10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

    Application

    A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the Company. Board members, in particular the chair, should be proactive in their effort.

    In particular, appropriate communication and reporting structures should exist between the Board and all constituent parts of its shareholder base. This will assist:

    • the communication of shareholders' and other key stakeholders views to the Board; and

    • the shareholders' and other key stakeholders understanding of the unique circumstances and constraints faced by the Company.

      Boards should ensure that corporate disclosures, in particular through annual reporting, are appropriate to satisfy the reporting needs of investors, including, but not limited to, sustainability matters.

      It should be clear where these communication practices are described. Compliance

      The Board is conscious of the need to engage with shareholders and other stakeholders so that interested parties have sufficient information

      on which to make informed decisions about the Company.

      The Company's Annual Financial Report provides information on a number of key areas, including the following:

    • corporate governance, including reference to the QCA Code;

    • operational and financial review;

    • a summary of the business, the business model and strategy;

    • significant risks and uncertainties;

    • significant accounting policies and particularly areas which are subject to judgements, estimates and assumptions; and

    • a Remuneration Committee Report.

      No separate Audit Committee Report is provided as its Chairman considers that its activities are adequately set out within Principle 7 above. The Company's website provides further information on a number of key areas, including the following:

      • material on the Company's corporate governance framework;

      • the AGM Statement and results of voting at the AGM;

      • regulatory news; and

      • historical Annual Financial Reports.

Both this Annual Financial Report and the Company's website provide information on forthcoming AGMs and a list of external advisers.

Further details regarding the communication between the Company and its shareholders is explained in the disclosure above against principle 3.

Directors' remuneration report

The Remuneration Committee is presently comprised of the two non-executive directors, chaired by Mr J Wakefield.

The Remuneration Committee reviews the performance of executive directors and sets the scale and structure of their remuneration and other benefits. Individual rewards and incentives are aligned with the performance of the Group and the interests of the shareholders and are set at an appropriate level in order to attract, retain and motivate executives who are expected to meet challenging performance criteria.

At 31 December 2025 the number of options to subscribe for ordinary shares of 1p held by directors was as follows:

The share price at 31 December 2025 was 10.25p and the share price ranged during the year from 6.50p to 10.50p.

Fees for the non-executive directors are determined by the Board as a whole having regard to the time devoted to the Company's affairs. The non-executive directors are not part of any pension, share option or bonus schemes of the Group.

Director

14 April 2026

Directors' report

The directors present their report and financial statements for the year ended 31 December 2025.

The Board currently comprises an executive Chairman, one other executive director and two non-executive directors as follows:

Raschid Abdullah - Executive Chairman

Raschid was appointed Executive Chairman in January 2013 and until its purchase by Petards was also Executive Chairman of Water Hall Group plc, which was listed on AIM.

He was previously Executive Chairman of Evered Holdings plc, a fully listed public company specialising in industrial and quarry related products, from 1982 to 1989. Raschid started his commercial life within the construction industry in the areas of building product supplies and the provision of specialist subcontracting services starting his first business in 1971 which he sold to a competitor in 1976. He then joined the family business providing a range of services to clients in the Middle East.

Osman Abdullah - Group Chief Executive

Osman Abdullah was appointed to the Board in September 2010 as a non-executive director, becoming executive chairman of the Group's principal trading subsidiary in 2013 and was appointed as Group Chief Executive in January 2016.

He was formerly Group Chief Executive of Evered Holdings plc, a fully listed public company specialising in industrial manufacturing, distribution and quarry mining related products from 1981 to 1989. He subsequently served as a non-executive director of Umeco plc from 1993 to 2005 a fully listed company specialising in component distribution and the manufacture of composite material-based products principally to the aerospace industry.

John Wakefield - Non-Executive Director

John Wakefield was appointed in February 2023 and is an experienced quoted company director and corporate adviser. He qualified as a solicitor with McKenna & Co (now CMS) before moving into corporate finance, first with Williams de Broe Limited and then at Rowan Dartington & Co. Limited, where he was a founder director and shareholder and head of corporate finance. He was a corporate finance director of WH Ireland Limited from 2009 until 2016.

He has been a member of the AIM Advisory Group, chairman of the London Stock Exchange Regional Advisory Group for the South West and chairman of South West Angel and Investor Network Limited (SWAIN) from 2008 until 2016. He is Chair of AIM listed Croma Security Solutions Group Plc and senior independent non-executive director of Acuity RM Group plc.

John is senior independent non-executive director, Chairman of the Remuneration Committee and a member of the Audit Committee.

Geraint Davies - Non-Executive Director

Geraint Davies was appointed to the Board in November 2023. He is a Fellow of the Institute of Chartered Accountant with over 30 years' experience, working with global national and local organisations in the private and public sector. Prior to his appointment, Geraint held senior leadership roles in EY's practices in the Channel Islands, the UK, and most recently in Malta, and has also previously held roles with PwC and Deloitte. He is presently senior independent non-executive director of AIM listed CT Automotive Group plc and an independent non-executive director of Solent Freeport Consortium Ltd.

He is Chairman of the Audit Committee and a member of the Remuneration Committee.

The Group is committed to research and development activities to secure competitive advantage in the markets in which it operates. An amount of £271,000 (2024: £304,000) has been capitalised during the year which relates to the development of the new Harrier AI Mini camera in our traffic business and the ongoing development of the Group's rail products. In addition, the Group expensed other development expenditure totalling £38,000 (2024: £37,000) directly to the Income Statement.

The Group presently finances its operations through a mixture of cash resources, bank overdraft, retained earnings and share capital. Its principal financial instruments comprise cash and bank overdraft together with trade receivables and trade payables.

The Group's other financial instruments arise from its day to day operations and comprise primarily of short term debtors and creditors and, where deemed appropriate, forward currency contracts.

Further details of the Group's financial instruments are given in note 21 to the financial statements and the directors consider the principal risk associated with the Group's financial instruments to be liquidity risk.

The Group has established policies to comply with the relevant legislation and codes of practice regarding employment and equal opportunities. It keeps its employees informed of matters affecting them as employees through regular team briefings throughout the year and has a policy that training, career development and promotion opportunities should be available to all employees.

It is the Group's policy to give full and fair consideration to applications for employment by people who are disabled, to continue wherever possible the employment of staff who become disabled and to provide equal opportunities for the career development of disabled employees.

The Board is committed to fostering good relationships with stakeholders and its approach is outlined in the Section 172 Statement on page 9.

The directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

At 14 April 2026 the Company was aware of the following interests in three per cent or more of its issued share capital.

Directors' report (continued)

The loss for the year after tax was £406,000 (2024: loss of £1,127,000). The directors do not recommend the payment of a dividend.

After making detailed enquiries, the Board has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly continues to prepare the financial statements on a going concern basis. Further details relating to going concern are provided at note 1 on page 36 to the financial statements.

In accordance with section 489 of the Companies Act 2006, a resolution for the reappointment of HaysMac LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting

By order of the Board

Director Parallel House

32 London Road

Guildford

Surrey GU1 2AB

14 April 2026

Statement of directors' responsibilities in respect of the annual report and the financial statements

The directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with UK adopted international accounting standards and have elected to prepare the parent Company financial statements in accordance with UK adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable, relevant and reliable;

• state whether applicable UK-adopted International Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

• and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report and a Directors' Report that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Independent auditor's report to the members of Petards Group plc

We have audited the financial statements of Petards Group plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2025 which comprise the consolidated income statement, the group statement of financial position, the group statement of changes in equity, the group statement of cash flows, the company statement of financial position, the company statement of changes in equity, the company statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards.

In our opinion, the financial statements:

• give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2025 and of the group's loss for the year then ended;

• have been properly prepared in accordance with UK adopted international accounting standards; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

All audit procedures, including work performed over significant components, was carried out by the Group audit team. Full scope audit procedures were performed over five components of the group being Petards Group plc, Petards Joyce-Loebl Limited, QRO Solutions Limited, RTS Solutions Limited and Affini Technology Limited. The remaining components of the group are not subject to statutory audit and were not in the scope of the group audit as there was considered to be limited or no aggregation risk associated with them individual or on an aggregate basis.

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Fraud in revenue recognition

The Group's revenue recognition policy is detailed within the accounting policies in note 1, and the amounts of revenue recognised at a point in time and over time are set out in note 2.

The Group recognised revenue from the sale of goods when control of those goods passes to the customer.

For services provided to customers by the Group over time, revenue is either recognised on a 'straight line' basis for maintenance and support contracts, or where the Group's assets are made available for use by customer, or with reference to the stage of completion in the case of specific engineering projects.

There is a risk that revenue may be materially misstated as a result of fraud or error through its recognition before performance obligations have been discharged, either via

recognising revenue from the sale of goods before control has passed to customers, or recognising revenue in relation to services to a greater extent than those service obligations have been discharged.

Impairment of intangible assets, including goodwill Included in the Group statement of financial position are intangible assets of £4.6m (2024: £5.0m).

The losses incurred by the Group indicate a risk that the intangible assets including goodwill are impaired and materially overstated in the financial statements.

The estimated recoverable amount of the intangible assets is material to the Group. There is a risk that these balances are materially overstated if an impairment should be recognised in addition to any amortisation charged in the year.

Impairment reviews relating to these balances are subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows and assumptions made in relation to future market demand and revenue levels, gross margins and overhead rates.

The effect of this is that the recoverable amount of intangible assets including goodwill carries a high degree of estimation uncertainty and a potential range of reasonably possible outcomes greater than materiality for the financial statements. Therefore, there is a risk that they may require impairment.

Our audit work included, but was not restricted to, the following:

• We obtained management's analysis and accounting memorandum for the key revenue streams across the group and examined application of the provisions of IFRS 15;

• A sample of contracts were selected for inspection to ascertain appropriate application of IFRS 15's 5-step approach to ensure management's interpretation and application of contract terms is in line with the revenue standard;

• We substantively tested a sample of transactions from the relevant component's accounting ledgers to receipts and third party evidence of delivery of goods or the service being provided;

• We assessed the population of revenue transactions using data analytics techniques for presence of unusual transactions posted outside of the expected flow of double entry patterns associated with accounting for revenue;

• We critically assessed management's project revenue accounting, specifically challenging the proposed method and ensuring we obtained appropriate corroborating evidence to demonstrate satisfaction of performance obligations on an input or output basis where relevant;

• We substantively tested transactions around the reporting date whereby a sample of transactions, including those that were material, unusual or unexpected revenue transactions (where applicable) were agreed to supporting documentation to ascertain appropriate timing for revenue recognition; and

• Our review also included an assessment of the appropriateness of the recognition of trade receivables, contract assets and liabilities.

  Our audit work included, but was not restricted to, the following:

• We obtained management's impairment assessment and scrutinised the forecasts and key inputs in the value in use calculations;

• We reviewed each group of assets with reference to internal and external impairment indicators noted per IAS 36;

• We reviewed and challenged management's identification and allocation of carrying values to cash generating units assessment to ensure it was appropriate;

• We conducted a review of the forecasts prepared by management against actual results after the reporting date to determine management's ability to accurately prepare forecasts;

• We assessed sensitivity analysis presented by management to detail the headroom for each category of intangible asset;

• We performed our own sensitivity analysis to assess the level of headroom regarding each category of intangible assets;

• We critically assessed the significant estimates and judgements in impairment of Intangibles including Goodwill and obtained sufficient evidence in line with IAS 36 to corroborate the supporting value carried by management.

Independent auditor's report to the members of Petards Group plc (continued)

Recoverability of investments in subsidiaries and intercompany receivables (parent company financial statements)

Included in the Parent Company's Statement of Financial Position are investments in subsidiaries of

£15.7m (2024: £15.7m) and intercompany receivables of

£0.2m (2024: £0.2m).

There is a risk that the investments in subsidiaries and intercompany receivables are materially overstated if the recoverable amount is lower than the carrying value due to the loss-making positions of the subsidiaries and the carrying values exceeding the market capitalisation of the Group.

The impairment review of these balances is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows and assumptions. This therefore increases the risk that the recoverable value of investments and intercompany receivables may be less than their stated carrying values.

Our audit work included, but was not restricted to, the following:

• We obtained and critically assessed management's impairment assessments, including challenging the allocation of cash flows between entities;

• We have challenged in detail key inputs into the future forecasts in preparing the discounted cashflow;

• We reviewed the forecasts to actual results after the reporting date, to determine the appropriateness of management's forecasting;

• We conducted sensitivity analysis on the forecasts presented to determine whether there is sufficient headroom in the forecasts to support the outcome of management's assessment;

• We reviewed management's responses to queries raised, and ensured the appropriateness of responses; and

• Where supporting documentation was obtained for inputs, we ensured these were appropriate and in line with management's forecasts.

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our audit procedures to evaluate the Director's assessment of the Group's and the Parent Company's ability to continue to adopt the going concern basis of accounting included, but were not limited to:

• Undertaking an initial assessment at the planning stage of the audit to identify events or conditions that may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern;

• Evaluating the methodology used by the Directors to assess the Group's and Parent Company's ability to continue as a going concern;

• Reviewing the Directors' going concern assessment and evaluating the key assumptions used and judgements applied;

• Reviewing liquidity headroom by applying a number of sensitivities to the base forecast and plausible worst-case forecast, prepared by management, to provide comfort over there being sufficient cash to pay debts as they fall due throughout the going concern period;

• Reviewing forecasts from a short-term, medium-term, and long-term perspective to assess any liquidity issues in the group;

• Verifying the existence of and terms relating to debt facilities available to the Group, and the expected remaining term of the facilities availability;

• Reviewing post year end bank statements to assess cashflow performance of the Group, including reviewing documentation;

• Performing stress tests including sensitivity analysis to model the effect of changing assumptions made or amending key data used in management's cash flow forecasts and considering the impact on the group's ability to adopt the going concern basis; and

• Reviewing the appropriateness of disclosures in the financial statements.

  Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

  Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

  Other information

  The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

  In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

  Opinions on other matters prescribed by the Companies Act 2006

  In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Independent auditor's report to the members of Petards Group plc (continued)

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

  Responsibilities of directors

  As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

  In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

  Auditor's responsibilities for the audit of the financial statements

  Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

  Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

  Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Based on our understanding of the Group, we identified that the principal risks of non-compliance with laws and regulations related to UK adopted international accounting standards, the Companies Act 2006, relevant tax legislation in the jurisdictions the Group operates and

  regulatory requirements for AIM listed companies, and we considered the extent to which non-compliance might have a material effect

  on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such including from those relevant laws and regulations listed above.

  We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls) and determined that the principal risks were related to posting inappropriate journal entries to revenue and management bias in accounting estimates. Audit procedures performed by the engagement team included:

• Inspecting correspondence with tax authorities;

• Discussions with management including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;

• Evaluating management's controls designed to prevent and detect irregularities;

  • Identifying and testing accounting journal entries, in particular those journal entries which exhibited the characteristics we had identified as possible indicators of irregularities;

  • Challenging assumptions and judgements made by management in their critical accounting estimates, particularly relating to revenue recognition, impairment of intangible assets and investment valuation;

  • Review of minutes of meetings of those charged with governance for any instances of non-compliance with laws or regulations; and

  • Enquiry of management, the Audit Committee and those charged with governance regarding any known or suspected instances of fraud.

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

For and on behalf of HaysMac LLP Statutory Auditors

10 Queen Street Place London

EC4R 1AG

14 April 2026

*Earnings before financial income and expenses, tax, depreciation, amortisation, exceptional items and acquisition costs. See Alternative Performance Measures Glossary on page 68.

The accompanying notes form an integral part of the financial statements.

Statements of changes in equity

For year ended 31 December 2025

The accompanying notes form an integral part of the financial statements.

The accompanying notes form an integral part of the financial statements.

As permitted by section 408 of the Companies Act 2006, the parent company's income statement has not been included in these financial statements. The parent company's loss for the financial year was £612,000 (2024: loss of £860,000).

These financial statements were approved by the Board of Directors on 14 April 2026 and were signed on its behalf by:

Director

Registered number: 02990100

The accompanying notes form an integral part of the financial statements.

The accompanying notes form an integral part of the financial statements.

Notes

(forming part of the financial statements)

Petards Group plc (the "Company") is a company incorporated in the UK.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The parent company financial statements present information about the Company as a separate entity and not about its Group.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements.

In the current year, the Group has applied a number of amendments to IFRS Accounting Standards issued by the IASB that are mandatorily effective for an accounting period that begins on or after 1 January 2026. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements:

IFRS 7 & 9: Amendments to the classification and measurement of financial instruments; IFRS 7 & 9: Contracts referencing Nature-dependent Electricity;

Annual improvements to IFRS Accounting Standards - Volume 11; IFRS 1: Practice Statement 1 Management Commentary; and Disclosures about Uncertainties in the Financial Statements.

Certain standards, amendments to, and interpretations of, published standards have been published that are mandatory for the Group's accounting years beginning on or after 1 January 2027 or later years and which the Group has decided not to adopt early:

IFRS 18: Presentation and Disclosure in Financial Statements;

IFRS 19: Subsidiaries without Public Accountability Disclosures; and Amendments to IAS 21: Translation to a Hyperinflationary Presentation Currency.

There is no material impact on the financial statements or the amounts reported from the adoption of these amendments to the standards.

Statement of compliance

Both the parent company financial statements and the Group financial statements have been prepared and approved by the directors in accordance with UK adopted international accounting standards and the parent company financial statements in accordance with UK adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006. On publishing the parent company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements. The parent company's loss for the financial year was £612,000 (2024: loss of £860,000).

Basis of preparation

The consolidated financial statements are presented in GBP which is also the Group's functional currency. Amounts are rounded to the nearest thousand, unless otherwise stated.

The preparation of financial statements in compliance with UK adopted international accounting standards requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies as noted below.

Going concern

Petards is a critical supplier to many of its customers supporting the UK's police and armed forces as well as the safe running of transport networks and energy infrastructure. The main risks to the Group's cash flows identified are firstly, that customers may delay or re-schedule deliveries for orders already in the Group's order book and secondly that, in the short term, contract awards that the Group was expecting to secure for revenue in 2026 may be delayed. By their nature these risks are difficult for the Group to directly influence or control, but by keeping in close contact with our customers we are seeking to ensure that we are well-informed about their plans and prepared to secure contracts awards as and when the opportunities arise. The Group is fortunate that its customer base comprises blue chip companies, the UK Government and its agencies and its exposure to credit risk is low.

The Group currently meets its day to day working capital requirements through its own cash resources and its available banking facilities. The Group has a £2.5 million overdraft facility that may be utilised for the Group's working capital purposes, and any other purpose which its bankers may approve, on an "evergreen" basis.

The Group has prepared working capital forecasts based on its 2026 budget updated for material known changes since it was prepared. The time period reviewed is to 30 June 2027. The forecasts also consider the potential impact of contract awards that the Group is expecting to secure for revenue during the period that may be delayed or cancelled.

The Board has concluded, after reviewing the work performed and detailed above, that there is a reasonable expectation that the Group has adequate resources to continue in operation until at least 30 June 2027. Accordingly, they have adopted the going concern basis in preparing these financial statements.

Judgements and estimates

The preparation of financial statements requires the directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, and income and expenses. The key areas requiring the use of estimates and judgements which may significantly affect the financial statements are considered to be:

Key Judgements

1. Revenue recognition (note 2)

   The Group recognises revenue when it transfers control over a product or service to its customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties.

   Where a modification to an existing contract occurs, the Group assesses the nature of the modification and whether it represents a separate performance obligation required to be satisfied by the Group, or whether it is a modification to the existing performance obligation.

   The Group applies judgements and estimates to its long term contracts in order to identify specific performance obligations, the timing of transfer of control of a product or service to a customer and whether goods and services are distinct or form a single bundled performance obligation. For Affini and Petards Joyce-Loebl, there is a significant judgement and estimation applied in respect of the amount of revenue (and related contract asset) recognised in respect of contracts for services recognised over time. Amounts recognised are based on the input method of accounting with reference to work undertaken in accordance with the relevant contract and what is considered the relevant stage of completion.

2. Recognition of deferred tax assets (notes 6 and 12)

   The Group has substantial deferred tax assets relating to accumulated tax losses. Determining how much of these assets can be recognised requires an assessment of the extent to which it is probable that future taxable profits will be available. This assessment is based on management's future assessment of the Group's financial performance and forecast financial information. If sufficient future taxable profits are not available, the value of the deferred tax asset will reduce by an amount equal to 25% of any shortfall being the standard rate of Corporation tax currently enacted. The assessment of the recoverability of tax losses includes expected and realistic utilisation of other available reliefs and allowances but does not take into account deductible timing differences that may arise in future periods.

3. Impairment of intangible assets (note 10) and parent company investments (note 11)

   The Group performs annual impairment reviews in relation to goodwill and the cash generating unit to which it is allocated. For other intangible assets, impairment reviews are undertaken when there is an indication of one. Determining the recoverability of an intangible asset requires judgement in both the methodology applied and the key variables within that methodology. Key variables in the analysis include projected revenue growth, anticipated margins, and the discount rate applied. Where it is determined that an intangible asset is impaired, its carrying value will be reduced to its recoverable value with the difference recorded as an impairment charge in the income statement.

   Sensitivity analysis has been performed on the key assumptions for discount rate and forecast future cashflows to determine when impairment would occur.

   Notes (continued)

   (forming part of the financial statements)

   1 Accounting policies continued

   The Company performs impairment reviews at the reporting period end to identify any investments that have a carrying value that is in excess of its fair value. Determining the value in use of an investment requires judgement in both the methodology applied and the key variables within that methodology. The key assumptions for the value in use calculation are those regarding the growth rates, discount rates and expected changes in profit margins during the period. These are based on the approved budget for 2026 and an assumption of 3% growth thereafter applied in perpetuity (2024: approved forecasts for the next year and an assumption of 2% growth thereafter applied in perpetuity) and are based on the forecast profit margin being maintained (2024: profit margin maintained). The discount rate applied is 10% (2024: 11%). Where it is determined that an investment is impaired, its carrying value will be reduced to the higher of its value in use or fair value less costs of disposal with the difference recorded as an impairment charge in the income statement.

4. Capitalised development expenditure (note 10)

This involves judgement in the identification of development expenditure which is appropriate to capitalise and which is recoverable through future product revenue, together with an assessment of the estimated useful economic life of any asset recognised. Assets recognised in this way are also subject to impairment reviews.

The estimates and associated assumptions are based on forecasts of future product revenues, historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The impact should the actual useful economic lives of one or more of the products be shorter than estimated would be an additional amortisation charge at that time. The conservative nature of the rail industry, and the long asset lives of the rail vehicles to which the Group's products are fitted, has historically meant that no material adjustments of this nature have been required. At 31 December 2025 the net book value of capitalised development expenditure was £1,259,000 (2024: £1,523,000).

Basis of consolidation

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Inter-company balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated when preparing the consolidated financial information.

Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in the income statement.

Investments in subsidiaries

Investments in subsidiaries are carried at cost less impairment in the Company Statement of financial position.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.