REG - HydrogenOne Cap Gwth - Annual Financial Report
04/04/2023 07:00
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RNS Number : 1988V HydrogenOne Capital Growth PLC 04 April 2023
LEI: 213800PMTT98U879SF45
HydrogenOne Capital Growth plc
ANNUAL REPORT & ACCOUNTS
For the year ended 31 December 2022
www.hydrogenonecapitalgrowthplc.com
HydrogenOne Capital Growth plc is pleased to announce its audited results for
the year ended 31 December 2022.
Company Overview
About us
HydrogenOne Capital Growth Plc ("HGEN", "the Company") is the first
London-listed fund investing in clean hydrogen for a positive environmental
impact.
The Company was launched in 2021 with an investment objective to deliver an
attractive level of capital growth by investing, directly or indirectly, in a
diversified portfolio of hydrogen and complementary hydrogen focussed assets
whilst integrating core ESG principles into its decision making and ownership
process. The Company is an Article 9 climate impact fund under the Sustainable
Finance Disclosure Regulation (the "SFDR").
· A unique offering to investors - leadership in a new green energy
technology sector from the first London-listed hydrogen fund.
· Strong orientation to ESG mandates, investing capital in
low-carbon growth and enabling the avoidance of GHG emissions.
· Significant pipeline of >£500m of potential investments to
deliver 10-15% average NAV growth*.
· First mover advantage in the Hydrogen sector, which is
accelerating faster than anticipated with positive growth outlook.
· Investment Adviser's track record in energy and capital markets.
* For an investor in HGEN at IPO. The total NAV return target is a
target only and not a profit forecast
>£100m
Deployed in low-carbon growth for avoided GHG
125.4m
Net Asset Value
SFDR Article 9
Climate impact fund
>42,000 tonnes
CO2e emissions avoided in FY2022
Investing in clean hydrogen for a climate-positive impact
Highlights
Financial and operational
· During the year, the Company successfully completed investments
in six Private Hydrogen Assets, offering diversified exposure to the entire
clean hydrogen value chain and deployed £54 million;
· At 31 December 2022, £102.9 million has been deployed since IPO
in 2021;
· HGEN's portfolio has continued to perform in line with the
expectations of the Board and the Investment Adviser.
· NAV increased by 22% from £102.8m as of 31 December 2021 to
£125.4 million as of 31 December 2022, with NAV per share increasing by 1.6%
to 97.31p during the same year;
· Revenue generated by Private Hydrogen Assets during the year of
£33 million;
· Despite challenging market conditions, HGEN raised net £21
million of additional capital from both existing and new investors in April
2022;
· The Company has retained a cash position of £18 million as at 31
December 2022; and
· The Company also completed its first £2 million investment in a
private hydrogen project (Thierbach project in Germany), post year end.
Environmental, Social and Governance ("ESG")
· Classified as an Article 9 Fund under the SFDR;
· Completed EU taxonomy for sustainable activities (the "EU
Taxonomy") assessment on Private Hydrogen Assets - 89% alignment at 31
December 2022;
· Published the first reporting of the Company's performance in
accordance with the SFDR and the draft International Sustainability Standards
Board (the "ISSB") frameworks, and avoided GHG emissions disclosure;
· £102.9m deployed in low-carbon growth;
· 42,716 tonnes of Greenhouse Gas (tCO2e) emissions avoided in
FY2022 and 50,579 tCO2e since IPO;
· Potential 201,000 MWh lifetime clean energy capacity in FY2022
and 226,000 MWh since IPO;
· The Company was carbon neutral in 2022;
· 1,135 jobs supported;
· HGEN's Board independence (100%) and diversity (50% female);
· Became signatory of United Nations Principles for Responsible
Investment ("the PRI"); and
· Continued stewardship activity with portfolio companies to
further enhance ESG credentials and reporting.
Key statistics as at 31 December 2022 At 31 December 2022 31 December 2021 % change
NAV per Ordinary Share 97.31p 95.75p 1.6%
NAV(2) £125.4m £102.8m 21.9%
Ordinary Share price 79.3p 119.5p (33.6)%
Market capitalisation(2) £102.2m £128.3m (20.3)%
Share price premium/(discount) to NAV(1) (18.5)% 24.8% (43.3%)
Ongoing Charges(1) 2.51% 2.06% 26.7%
Cumulative capital deployed in low-carbon growth since inception £102.9m £48.6m 111.7%
GHG emissions avoided 42,716 tCO(2)e N/A N/A
The EU taxonomy alignment 89% N/A N/A
1 Alternative Performance Measures ("APMs"). The disclosures above
are considered to represent the Company's APMs. Definitions of these APMs and
other performance measures used by the Company, together with how these
measures have been calculated, can be found in the Annual Report.
3 Includes April 2022 fundraise proceeds of £20.9 million net of
costs
Chairman's Statement
"On behalf of the Board, I am pleased to introduce our second annual report
since the Company's listing on the London Stock Exchange in 2021. It has been
a very busy period for the Company as we continued with our focus on
delivering a diversified portfolio of clean hydrogen investments, which as a
result has grown significantly."
Simon Hogan Chairman
The last year has been marked by dramatic changes in the macro environment,
turbulent markets, the war in Ukraine, and the energy crisis. The energy
crisis has resulted in extreme power price volatility, putting pressure on the
economy, contributing to inflation and higher interest rates. The global
downturn has also affected our planned capital raising during the second half
of the year, having completed an equity raise of £21 million in April 2022.
Share prices, including the Company's, have seen considerable pressure over
the last year. Listed funds have come under scrutiny from investors regarding
the valuation of invested private portfolios. The Company applies a consistent
approach to portfolio valuation, centred on discounted cash flows, using the
International Private Equity and Venture Capital Valuation 2022 ("IPEV")
Guidelines. Share prices in the listed markets are reflected in the valuation
of the Company were we own listed assets. The valuation of Company's entire
private portfolio is reviewed and approved by the Board on a quarterly basis,
and reviewed by the Company's auditor annually. The private portfolio is
valued using either the DCF method, or a combination of the DCF method and the
price of recent investment. The DCF valuations are also benchmarked against
listed peer group valuations in the Company's valuation process. The Company's
discount rates are calculated using market parameters for each investment
domicile. The portfolio average discount rate for December 2022 was 12.9%,
compared to 12.5% in 2021. The resulting private valuation we have set out in
this report has an implied forward revenue multiple of 6 times 2024 expected
revenues, which is some 40% lower than listed hydrogen sector multiples.
The Board meets quarterly with the Company's Investment Adviser and holds
meetings to review all of the Company's investment valuations, four times a
year. We also have regular contact with the Investment Adviser outside of
formal Board meetings. I and other Board members attended the Company's
Capital Markets Day earlier this year, and met some of our investors and
analysts, and the management teams of all the private companies that we have
invested in. The Investment Adviser has a dedicated investment team, and is
represented on all of the boards of the private assets.
The Board and Company is committed to the aim of the Company that seeks to
generate NAV returns of 10-15% over time, whilst investing in clean hydrogen
for a climate-positive impact.
Our diversified portfolio approach has provided resilience and our investment
case has been reinforced further by macro tailwinds and supportive regulatory
regimes in the clean hydrogen sector, particularly in the EU and the USA. More
than ever before, we remain confident that the Company is investing in a
sector with a favourable outlook and a substantial growth potential. Macro
events have refocused efforts on the need to reduce global reliance on fossil
fuels, with the Company well positioned to continue investing in low-carbon
growth, aimed at reducing harmful emissions, improving energy security and
driving the energy transition.
Performance
During the year, six new acquisitions of equity in clean hydrogen companies
were completed. Further details of these investments are provided in the
Investments Adviser's Report in the Annual Report. In early 2023, we made our
first investment in a clean hydrogen project, at Thierbach in Germany, being
developed by HH2E, one of our investee companies, and should reach final
investment decision later this year, subject to funding and further technical
studies. We expect this to be the first of a number of hydrogen production
projects, where the Company has exclusivity on multiple opportunities in
several countries.
At 31 December 2022, the Company's Private Hydrogen Assets comprised nine
investments in hydrogen assets in the UK and Europe with an aggregate value
of £103.1 million, as well as a small allocation to strategic listed hydrogen
companies.
Seven of the Company's private investments, representing 89% of its invested
portfolio by value, are revenue-generating, producing equipment and technology
solutions for clean hydrogen production. The aggregate revenue from these
investments was £33m in the 12-month period to 31 December 2022, an increase
of 110% from 31 December 2021.
At 31 December 2022, the NAV per share of the Company was 97.31 pence,
representing an increase of 1.56 pence per share (1.6%) in the 12 month
period. The increase was driven primarily by valuation uplifts to the
Company's portfolio of private investments, positively contributing 6.75 pence
per share to the NAV.
A number of milestones have been achieved by our Private Hydrogen Assets, as
detailed in the Investment Adviser's report, which gives us confidence in
future prospects and value creation.
Despite this growth delivery from our Private Hydrogen Assets companies, the
Company's share price ended the year on a discount to NAV, in line with the
Investment Trust sector, due to generally weak equity market conditions.
ESG
Our commitment to positively contribute to climate change mitigation, whilst
integrating core ESG principles into our decision making and ownership
process, is at the core of everything that we do as a company. In just over a
year, we have seen the conversation around hydrogen's potential for fuelling
the global energy transition move to the top of the climate and political
agenda. During 2022, as part of our sustainability commitment, we were
classified as an Article 9 Fund, the highest classification under the SFDR
regulation. We also became a signatory of the PRI, a United Nations supported
network of financial institutions that promote sustainable investments. In
collaboration with our portfolio companies, we will push forward with our
sustainable investment objectives as we continue to deploy capital in
low-carbon growth.
For the first time since launch, we are pleased to be publishing the external
reporting of the Company's performance in accordance with the SFDR and draft
ISSB frameworks, including EU taxonomy alignment of our portfolio companies
and avoided GHG emissions disclosures, which can be found in the ESG section
of this Annual Report.
Board matters
During the year, Abigail Rotheroe joined our Board as a Non-Executive
Director, to replace Caroline Cook. Abigail brings a wealth of experience in
sustainable and impact investing. Roger Bell, the INEOS Energy appointed
director was replaced by David Bucknall, the CEO of INEOS Energy. INEOS Energy
remains one of our core shareholders and supporters.
Annual general meeting
The Annual General Meeting will be held on 23 May 2023 at 11:30am at the
Company's registered office, 6th floor, 125 London Wall, London EC2Y 5AS, and
we look forward to welcoming shareholders to the event in person.
The meeting will consider the formal business of the AGM, as set out in the
Notice of the AGM, and thereafter the Investment Adviser will provide a
presentation on the Company's portfolio.
Events after the reporting period
Since the end of 2022, the Company has invested a further £7 million in
Private Hydrogen Assets. This includes £1.4 million into Cranfield Aerospace
Solutions Ltd, a pioneer in hydrogen-powered passenger flight, marking the
final tranche of the £7 million investment by the Company, as previously
announced. HH2E AG, a German green hydrogen project developer, announced its
second major green hydrogen production project at Theirbach, in Germany.
HydrogenOne committed to invest £2.5 million (EUR 2.8 million) into further
maturing this project, ahead of final investment decision, alongside other
institutional investors and HH2E.
The Board continue to monitor wider market events as they relate to the
Company, including the share price volatility in the market price of its
shares and the discount to NAV at which the shares have traded through 2023.
The Board is not aware of company-specific factors that have led to the recent
decline in the Company's share price and believes this is primarily driven by
wider market events including the sudden, material rise in interest rates and
an unfavourable macroeconomic backdrop.
The Investment Adviser has an attractive pipeline of potential investment
opportunities under review, including exclusive opportunities to acquire
minority interests in hydrogen supply projects in Germany and Norway. As
stated in the Prospectus published by the Company on 26 September 2022, no
ordinary shares will be issued at a price less than the NAV per share at the
time of their issue. At 31 March 2023 the market price per ordinary share in
the Company was 47.23 pence, representing a discount of 51.5% to the NAV per
share as at 31 December 2022 of 97.31 pence. Accordingly, the Company is
currently unable to raise additional equity capital through the issuance of
new ordinary shares, thereby limiting its ability to make additional
investments. The Board and the Investment Adviser are exploring options to
address the current share price discount to NAV, as well as potential
alternatives that would enable the Company to finance additional investments
and further diversify the Company's portfolio.
Outlook
Despite uncertainty caused by war in Ukraine and the energy crisis, our
investment case has become more attractive as governments around the world
advanced efforts to achieve energy security and reach net-zero commitments.
Strong macro tailwinds continue to drive the hydrogen sector, with 6GW of
green hydrogen under development globally, a four times increase in 2030
hydrogen targets in the EU and ground-breaking funding and tax credits in the
United States. Our investment strategy is fully aligned with these goals.
We have assembled a differentiated portfolio of the world's leading clean
hydrogen companies, spanning project developers, electrolyser, fuel cell,
transport and distribution, and applications such as clean flight. Climate
change mitigation remains at the core of our sustainability objective and we
hope to continue to grow our impact as we drive investment in low carbon
growth and reducing harmful emissions.
Whilst market sentiment towards growth companies is outside of our control, we
anticipate the continued solid performance of our portfolio, revenue growth
and delivery of key milestones will be catalysts for appreciation in our share
price.
All of this underpins our targets to deliver 10-15% annual NAV growth over
time, and I believe that our Investment Adviser, whose principals have over 60
years of combined specialist experience and track record, is well placed to
deliver on these projected targets.
On behalf of the Board, I would like to thank all of our shareholders for
their support, as we continue to grow our unique portfolio of the world's
leading clean hydrogen investments, not available for equity investors
elsewhere.
Simon Hogan
Chairman
3 April 2023
The role of clean hydrogen in the energy transition
About Clean Hydrogen
· Clean hydrogen displaces fossil fuels, reducing CO2 emissions and
improving air quality
· Some 90 million tonnes per day of hydrogen is used today in
manufacturing of oil products, chemicals and steel. The demand pull to replace
this polluting 'grey' hydrogen with clean hydrogen underpins the clean
hydrogen sector
· Clean hydrogen can replace fossil fuels in hard to decarbonise
sectors such as power generation and transport
· Clean hydrogen is an energy carrier, that can store and
distribute intermittent renewable electricity at a large scale
· Hydrogen combined with renewables such as wind and solar provides
a domestic energy supply option for many countries, reducing reliance on
imported energy.
Putting all this together, clean hydrogen demand could increase by over 200
times between 2019 and 2030 as the energy transition gathers pace, abating
some 6billion tonnes/year of CO2 emissions by 2050. With the adoption of
legislated Net Zero targets by governments around the world, the focus has
shifted to how exactly these targets can be met. Clean hydrogen plays a key
role in many corporate and country plans for Energy Transition.
Decarbonising the energy system
Clean hydrogen is a Net Zero gas and this has been recognised in the plans
adopted to date by the EU, USA, India and over 39 countries - all of which
have committed to the use of clean hydrogen to decarbonise industry and to
improve air quality. They have backed this commitment with multi-billion
dollar funding to kick-start the process. Other countries are expected to
follow suit.
This means that markets for clean hydrogen, and its production processes, are
growing fast and accelerating. The potentially large market to replace
hydrogen produced from hydrocarbons in the current hydrogen supply chain is
being addressed already by the falling costs of renewable energy and
electrolysis as well as by carbon capture and storage pilots.
By 2050, the global hydrogen market could reach $2.5 trillion, dominated by
hydrogen producers, electrolyser and fuel cell manufacturers. Replacing
today's c.$175 billion 'grey' hydrogen market with clean hydrogen could
mitigate over 800 million tonnes per annum of greenhouse gas emissions. Some
20 billion tonnes per annum of GHG emissions can be addressed with clean
hydrogen over time, which is over one third of all GHG emissions today.
Investment objective, policy, process and strategy
Investment objective
The Company's investment objective is to deliver an attractive level of
capital growth by investing, directly or indirectly, in a diversified
portfolio of hydrogen and complementary hydrogen focussed assets whilst
integrating core ESG principles into its decision making and ownership
process.
Investment policy
The Company will seek to achieve its investment objective through investment
in a diversified portfolio of hydrogen and complementary hydrogen focussed
assets, with an expected focus in developed markets in Europe, North America,
the GCC and Asia Pacific, comprising:
i. assets that produce clean hydrogen;
ii. large scale energy storage assets;
iii. carbon capture, use and storage assets;
iv. hydrogen distribution infrastructure assets;
v. assets involved in hydrogen supply chains, such as electrolysers and
fuel cells; and
vi. businesses that utilise hydrogen applications such as transport, power
generation, feedstock and heat (together "Hydrogen Assets").
The Company intends to implement its investment policy through the acquisition
of hydrogen and complementary hydrogen focussed assets.
Private Hydrogen Assets
The Company invests in unquoted Hydrogen Assets, which may be operational
companies or hydrogen projects (completed or under construction) ("Private
Hydrogen Assets"). Investments are expected to be mainly in the form of
equity, although investments may be made by way of debt and/or convertible
securities. The Company may acquire a mix of controlling and non-controlling
interests in Private Hydrogen Assets, however the Company intends to invest
principally in non-controlling positions (with suitable minority protection
rights to, inter alia, ensure that the Private Hydrogen Assets are operated
and managed in a manner that is consistent with the Company's investment
policy).
Given the time frame required to fully maximise the value of an investment,
the Company expects that investments in Private Hydrogen Assets will be held
for the medium to long term, although short term disposals of assets cannot be
ruled out in exceptional or opportunistic circumstances. The Company intends
to re-invest the proceeds of disposals in accordance with the Company's
investment policy.
The Company observes the following investment restrictions, assessed at the
time of an investment, when making investments in Private Hydrogen Assets:
· no single Private Hydrogen Asset will account for more than 20
per cent. of Gross Asset Value;
· Private Hydrogen Assets located outside developed markets in
Europe, North America, the GCC and Asia Pacific will account for no more than
20 per cent. of Gross Asset Value; and
· at the time of an investment, the aggregate value of the
Company's investments in Private Hydrogen Assets under contract to any single
Offtaker will not exceed 40 per cent. of Gross Asset Value.
The Company will initially acquire Private Hydrogen Assets via HydrogenOne
Capital Growth Investments 1 LP (the 'HydrogenOne Partnership'), a wholly
owned subsidiary undertaking of the Company structured as an English limited
partnership which is controlled by the Company and advised by the Investment
Adviser. The HydrogenOne Partnership's investment policy and restrictions are
the same as the Company's investment policy and restrictions for Private
Hydrogen Assets and cannot be changed without the Company's consent. In due
course, the Company may acquire Private Hydrogen Assets directly or by way of
holdings in special purpose vehicles or intermediate holding entities
(including successor limited partnerships established on substantially the
same terms as the HydrogenOne Partnership) or, if the Company is considered a
'feeder fund' under the Listing Rules, other undertakings advised by the
Investment Adviser and, in such circumstances, the investment policy and
restrictions will also be applied on a look-through basis and such
undertaking(s) will also be managed in accordance with the Company's
investment policy.
Listed Hydrogen Assets
The Company also invests in quoted or traded Hydrogen Assets, which will
predominantly be equity securities but may also be corporate debt and/or other
financial instruments ("Listed Hydrogen Assets"). The Company is free to
invest in Listed Hydrogen Assets in any market or country with a market
capitalisation (at the time of investment) of at least US$100 million. The
Company's approach is to be a long-term investor and will not ordinarily adopt
short-term trading strategies. As the allocation to Private Hydrogen Assets
grows the Listed Hydrogen Assets are expected to include strategic equity
holdings derived from the listing of operational companies within the Private
Hydrogen Assets portfolio over time.
The Company observes the following investment restrictions, assessed at the
time of an investment, when making investments in Listed Hydrogen Assets:
· no single Listed Hydrogen Asset will account for more than 3 per
cent. of the Gross Asset Value;
· the portfolio of Listed Hydrogen Assets will typically comprise
no fewer than 10 Listed Hydrogen Assets at times when the Company is
substantially invested;
· each Listed Hydrogen Asset must derive at least 50 per cent. of
revenues from hydrogen and/or related technologies; and
· once fully invested, the target allocation to Listed Hydrogen
Assets will be approximately 10 per cent or less of Gross Asset Value, subject
to a maximum allocation of 30 per cent of Gross Asset Value.
Cash
During the initial Private Hydrogen Asset investment period after a capital
raise and/or a realisation of a Private Hydrogen Asset, the Company intends to
hold the relevant net proceeds of such capital raise/realisation in cash (in
accordance with the Company's cash management policy set out below) pending
subsequent investment in Private Hydrogen Assets.
Investment restrictions
The Company, in addition to the investment restrictions set out above, comply
with the following investment restrictions when investing in Hydrogen Assets:
· the Company will not conduct any trading activity which is
significant in the context of the Company as a whole;
· the Company will, at all times, invest and manage its assets
i. in a way which is consistent with its object of spreading investment
risk; and
ii. in accordance with its published investment policy;
· the Company will not invest in other UK listed closed-ended
investment companies; and
· no investments will be made in companies or projects that
generate revenues from the extraction or production of fossil fuels (mining,
drilling or other such extraction of thermal coal, oil or gas deposits).
Compliance with the above restrictions is measured at the time of investment
and non-compliance resulting from changes in the price or value of Hydrogen
Assets following investment will not be considered as a breach of the
investment policy or restrictions.
Borrowing policy
The Company may take on debt for general working capital purposes or to
finance investments and/or acquisitions, provided that at the time of drawing
down (or acquiring) any debt (including limited recourse debt), total debt
will not exceed 25 per cent of the prevailing Gross Asset Value at the time of
drawing down (or acquiring) such debt. For the avoidance of doubt, in
calculating gearing, no account will be taken of any investments in Hydrogen
Assets that are made by the Company by way of a debt investment.
Gearing may be employed at the level of a special purpose vehicle ("SPV") or
any intermediate subsidiary undertaking of the Company (such as the
HydrogenOne Partnership) or, if the Company is considered a 'feeder fund'
under the Listing Rules, other undertakings advised by the Investment Adviser
in which the Company has invested or the Company itself. The limits on debt
shall apply on a consolidated and look-through basis across the Company, the
SPV or any such intermediate holding entities (such as the HydrogenOne
Partnership) or, if the Company is considered a 'feeder fund' under the
Listing Rules, other undertakings advised by the Investment Adviser in which
the Company has invested but intra-group debt will not be counted.
Gearing of one or more Hydrogen Assets in which the Company has a
non-controlling interest will not count towards these borrowing restrictions.
However, in such circumstances, the matter will be brought to the attention of
the Board who will determine the appropriate course of action.
Currency and hedging policy
The Company has the ability to enter into hedging transactions for the purpose
of efficient portfolio management. In particular, the Company may engage in
currency, inflation, interest rates, energy prices and commodity prices
hedging. Any such hedging transactions will not be undertaken for speculative
purposes.
Cash management
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short-term investments in money market type
funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for the Company
to have a significant Cash and Cash Equivalents position. In particular, the
Company anticipates holding cash to cover the near-term capital requirements
of the Pipeline of Private Hydrogen Assets and in periods of high market
volatility. For the avoidance of doubt, the restrictions set out above in
relation to investing in UK listed closed-ended investment companies do not
apply to money market type funds.
Investment process
The Company follows a proven and successful process in order to access and
execute its distinctive deal flow. The Investment Adviser has specialist
insights and strong industry and market networks to access potential
investment opportunities. The Company typically invests alongside some of the
world's largest industrial corporations and investors. The Investment
Adviser's clear investment and ESG policies underpin and guide everything that
it does. The Investment Adviser, the Advisory Board, the technical advisors,
regulatory and legal counsel all combine to deliver the optimal deal
structures for the shareholders.
Strategy
A highly differentiated strategy, 100% focussed on clean hydrogen
Clean hydrogen has arrived as a key element of decarbonisation, as
governments, companies and society come together to address the climate change
underway today caused by human activities, particularly the burning of fossil
fuels. The 2015 Paris Agreement set out a pathway for the world to address
these challenges, and this, combined with further government commitments on
emissions, is driving an energy transition to a low carbon economy. Further
momentum at the 2021 COP26 and 2022 COP 27 meetings have added to the
imperative for clean hydrogen. The "Breakthrough Agenda", launched at COP26,
includes a 'hydrogen breakthrough' goal, which is to ensure affordable
low-carbon hydrogen is globally available by 2030. Hydrogen has a vital role
to play in the energy transition, in air quality and in energy security.
Recent (2022) EU announcements on energy security ("REPowerEU"), triggered by
the Russia-Ukraine war, include plans for a substantially increased role for
clean hydrogen - now expected to reach 20 million tonnes per year in 2030,
compared to 5.6 million tonnes projected earlier in the 'Fit for 55' plan. The
scale of the challenge, and the impetus to move faster, cannot be understated.
The Company strategy is to provide investors with opportunities in clean
hydrogen and energy storage for the energy transition, for a positive
environmental impact.
The Company offers distinctive access to private investments, across the full
hydrogen value chain, and across the OECD. The investment objective is to
deliver an attractive level of capital growth by investing, directly or
indirectly, in a diversified portfolio of hydrogen and complementary hydrogen
focussed assets whilst, as a SFDR Article 9, PRI and Green Economy Mark
company, integrating core ESG principles into our decision making and
ownership process.
As the first UK listed investment company specialising in this sector, the
Company has a clear competitive advantage as an early mover into a complex
sector, and offers its investors a unique window into the private hydrogen
asset market. With its emphasis on Private Hydrogen Assets, the Company,
offers investors access to a diversified portfolio of private hydrogen
companies with strong growth potential, through a listed structure offering
daily dealing.
A focus on material ESG factors, and especially the deployment of capital to
deliver the energy transition to a low carbon economy, is at the heart of what
the Investment Adviser does, running hand in hand with a strategy to deliver
the target 10-15% average NAV growth for the investors over time.
The Investment Adviser is a specialist investor in this complex and
rapidly-developing growth sector. The Company believes that this specialised
approach is a competitive advantage that will only grow over time. Today the
Investment Adviser has a pipeline of potential investments in excess of £500
million.
An investment in the Company offers exposure to the broader hydrogen sector
whilst, at the same time, diversifying risk for an investor. By targeting a
diversified portfolio of investments across different jurisdictions and
different technologies, the Company seeks to spread some of the key underlying
risks relating to clean hydrogen.
The UK and Europe are currently seeing a high level of political and societal
support for Net Zero and the role of hydrogen in delivering that goal. The
Company currently intends to focus its investments in these jurisdictions as a
priority.
By excluding companies or projects that generate revenues from the extraction
or production of fossil fuels (mining, drilling or other such extraction of
thermal coal, oil or gas deposits) from the portfolio and taking on further
ESG screens, the portfolio is expected to be an early mover to Net Zero in the
energy transition, and will not be encumbered by the legacy greenhouse gas
emissions inherent in other players in the hydrogen sector.
The Investment Adviser expects the hydrogen market to grow substantially in
the coming years, and for the production scale of individual hydrogen projects
to increase over time. The Company is well positioned to take advantage of
this growth, by deploying capital in the best quality companies and assets,
and adopting a long term investment approach.
The clean hydrogen industry in the short term is dominated by bespoke sources
of supply, financed by specialised offtakers, typically at 5MW to 100MW scale.
In the period from 2025 to 2030 the Investment Adviser expects these
facilities to be upscaled to 100MW to 500MW scale, and ultimately to 1GW to
5GW. The Investment Adviser also believes that energy storage and Carbon
Capture and Storage ("CCS") projects will also increase in scale in this
timeframe, with the development of compressed air energy storage followed by
hydrogen storage and long-distance transport through pipelines, as liquid
hydrogen or as ammonia on ships.
Business model and KPIs
Business model
The Company is an investment company and its purpose, strategy, investment
objective and policy are set out in the Annual Report. Any material change to
the investment policy requires shareholder approval.
The Company is the first UK listed investment company with a mandate to invest
in a diversified portfolio of hydrogen and complementary hydrogen focussed
assets principally in developed markets in Europe, North America, the GCC and
Asia Pacific. The Company's differentiated strategy provides exposure to the
broader hydrogen sector whilst, at the same time, diversifying risk for an
investor, through a diversified portfolio of listed and private investments
across different jurisdictions and different technologies.
The Company makes its investment in unquoted Hydrogen Assets ("Private
Hydrogen Assets") through HydrogenOne Capital Growth Investments (1) LP (the
"HydrogenOne Partnership" or the "Limited Partnership"), in which the Company
is the sole limited partner. The Company may also acquire Private Hydrogen
Assets directly or by way of holdings in special purpose vehicles or
intermediate holding entities.
The General Partner of the Limited Partnership is HydrogenOne Capital Growth
(GP) Limited (the "General Partner"), a wholly owned subsidiary of the
Company. Details of the Company and Group structure are given in note 1 to the
Parent and Consolidated Financial Statements (the "Financial Statements").
Other than where specified, references to the Company in this document refer
to the Company together with its wholly-owned subsidiary and investment as
sole limited partner in the Limited Partnership.
The Company is governed by a Board of Directors (the "Board"), all of whom are
non-executive, and it has no employees. The business model adopted by the
Board to achieve the Company's objective has been to contract the services of
FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management
(Guernsey) Limited) as the alternative investment fund manager of the Company,
pursuant to the AIFM Agreement (the "AIFM"). The AIFM has appointed
HydrogenOne Capital LLP to provide investment advisory services in respect of
the Company (the "Investment Adviser"). The Investment Adviser will advise on
the portfolio in accordance with the Board's strategy and under its and the
AIFM's oversight. The Principals of the Investment Adviser responsible for the
day-to-day monitoring of the portfolio are Dr John Joseph "JJ" Traynor and
Richard Hulf. The Board and the AIFM monitor adherence to the Company's
investment policy and regularly reviews the Company's performance in meeting
its investment objective.
All administrative support is provided by third parties under the oversight of
the Board. Company secretarial and administration services have been delegated
to Apex Listed Companies Services (UK) Limited (formerly Sanne Fund Services
(UK) Limited) ("Apex" or the "Administrator"); custody services to Northern
Trust Company ("Northern Trust"); registrar services to Computershare Investor
Services plc ("Computershare"); and effective 12 January 2023, the Company's
broker is Barclays Bank PLC ("Barclays" or the "Broker"). Prior to this date
the Company's broker was Panmure Gordon (UK) Limited.
The Board reviews the performance of the AIFM, the Investment Adviser and
other key service providers on an ongoing basis. Further details of the
material contracts of the Company are given in note 14 to the Financial
Statements.
KPIs
Objectives Principal risks
1 To deliver an attractive level of capital growth · Changes in the legislative and regulatory framework that affect
the hydrogen sector
The Company is targeting a Net Asset Value total return of 10 per cent to 15
per cent per annum over the medium to long-term. · Operational risks in the portfolio
· Valuation risks (energy prices/inflation/ operational
performance)
· Investment process fails to identify new opportunities
· Lack of future pipeline and/or funding
· Increased competition for assets
2 A diversified portfolio of hydrogen and complementary hydrogen focussed · Lack of future pipeline and/or funding
assets
· Increased competition for assets
· Changes in the legislative and regulatory framework that affect
the hydrogen sector
3 Maintenance of a reasonable level of premium or discount of share price to · Investment performance
NAV
· Changes in the legislative and regulatory framework that affect
the hydrogen sector
· Lack of future pipeline and/or funding
4 Maintenance of a reasonable level of ongoing charges · Costs are inadequately controlled
· Failed investment processes leads to high level of abort costs
5 Environmental, Social and Governance policy integrated in investment Please refer ESG section of the Annual Report for further details.
decisions and asset
monitoring
KPIs Review
NAV per share NAV Total return per annum The Board monitors both the NAV and share price performance. A review of
performance is undertaken at each quarterly Board meeting and the reasons for
relative under and over performance against various comparators is discussed.
97.31p 1.6%*
2021: 95.75p 2021: (2.3)%*
Share price return Index
(33.6)%* (46.6)%
2021: 19.5%* 2021: (13.2)%
Return relative to Solactive Hydrogen Economy Index for year ended 31 Dec 2022
Number of investments Number of geographies The Board monitors the portfolio at each quarterly Board meeting and the
reasons for relative under and over performance of sectors and geographies
invested in, and performance of listed vs. private.
25 7
2021: 22 2021: 6
Invested portfolio split by value (Private: Listed)
97%:3%
2021: 83%:17%
Premium or (discount) of share price to NAV The Board monitors the premium or discount on an ongoing basis.
(18.5)%*
2021: 24.8%*
Ongoing charges ratio Board meetings. The Board reviews the ongoing charges on a quarterly basis and
considers these to be reasonable in comparison to peers.
2.51%*
2021: 2.06%*
Robust ESG policy with established KPIs Avoided GHG The Board reviews compliance with the ESG policy ahead of each investment
decision, and in the Company on an on-going basis. The Board additionally
monitors developments in the ESG landscape more broadly.
42,716 tCO2e avoided
* The figures above are considered to represent the Company's
APMs. Definitions of these APMs and other performance measures used by the
Company, together with how these measures have been calculated, can be found
in the Annual Report.
Investment Adviser's Report
Introduction
The Company's Alternative Investment Fund Manager ("AIFM"), FundRock
Management Company (Guernsey) Limited (formerly Sanne Fund Management
(Guernsey) Limited), (part of Apex Group), has appointed HydrogenOne Capital
LLP as the Investment Adviser to the AIFM in respect of the Company. Its key
responsibilities are to originate, analyse, assess and recommend suitable
investments within the hydrogen sector, and advise the AIFM accordingly.
Additionally, the Investment Adviser performs asset management services in
relation to the investments in the portfolio or, to the extent asset
management is delegated to third parties, oversees and monitors such asset
management.
HydrogenOne Capital LLP was founded in 2020 as an alternative investment firm
focussed specifically on investing in hydrogen assets and their role in the
energy transition. As a responsible investor, HydrogenOne Capital LLP is
committed to contributing to the energy transition through the financing of
sustainable investments and by providing investment solutions that reduce
carbon emissions.
HydrogenOne Capital LLP employs a fully integrated investment and asset
management approach and integrates its focus on ESG criteria throughout the
entire investment process.
The Principals of the Investment Adviser
The Principals of the Investment Adviser have in excess of 60 years of
combined experience and a track record of success in the energy industry and
capital markets which are directly applicable to the hydrogen industry,
including acquisitions, mergers and divestments, development of growth energy
projects, supervision of profitable energy production, ESG track record,
investments in both listed and private companies and board advisory. Their
biographies are included in the annual report.
The Investment Adviser's team
The Principals have assembled an experienced team to support the Company. This
group brings a mixture of finance, technical and sector skills to support the
Investment Adviser in its day-to-day activity. The Investment Adviser has
established a team which is responsible for financial modelling, corporate and
asset valuation analysis, and opportunity assessment for the Company. The
Principals anticipate a further increase in headcount as the Company continues
to grow its activities.
Advisory Board of the Investment Adviser
The Principals of the Investment Adviser are supported by an experienced team
which comprises the Advisory Board.
The Advisory Board has been carefully selected to provide expert advice to the
Investment Adviser on the hydrogen sector, project finance and capital
markets. The Investment Adviser has appointed the members of the Advisory
Board to provide it with advice from time to time. No members of the Advisory
Board are directors, officers, employees or consultants of the Company, the
AIFM or the Investment Adviser. It is envisaged that the Advisory Board will
evolve over time, with additional experts being added or substituted as and
when required.
Capital Deployment since IPO and Pipeline
The Company has invested £102.9 million in nine Private Hydrogen Assets and a
portfolio of listed equities since its 2021 IPO to 31 December 2022, directly
or via the HydrogenOne Partnership. At the time of its IPO, the Company had an
investible universe of c. 120 Private Hydrogen Assets of private companies and
hydrogen production projects. The strategy then was to focus on supply chain
companies, particularly electrolyser and fuel cell manufacturers in the early
years, followed by investment in hydrogen production projects beginning in
2023-24.
Since the IPO, the Company has seen significant expansion of its opportunity
set in both private companies and hydrogen production projects. As an
indication of this, the investible universe at the end of 2022 contained over
200 opportunities totalling at least £23bn, nearly double the number of
opportunities since the IPO.
Alongside this expansion in the opportunity set, the Company has seen the
arrival of multiple industrial investors into the hydrogen sector. This is
typically by incumbent consumers of grey hydrogen, and companies seeking to
access clean hydrogen supplies and technologies. The Company is invested
alongside multiple industrial strategic investors today.
Investing alongside blue-chip industrials and funds
Since its 2021 IPO, the Company has seen an acceleration of policy support and
funding for clean hydrogen from Governments. Particularly in the aftermath of
the election of President Biden in the USA, and the Russia invasion of
Ukraine, there has been considerable movement in Government support for clean
hydrogen in the EU and the USA. This has resulted in earlier hydrogen
production opportunities for the Company than envisaged at the time of the
IPO.
Overall, the Company has, at the end of 2022, invested in two hydrogen
production developer companies, two transport and distribution businesses, and
a number of electrolyser, fuel cell and applications businesses. The Company
has particularly focused on diversifying its exposure to different
technologies and geographies. As an example of this, the Company has invested
in both solid oxide, alkaline and pyrolysis electrolyser producers, and in
both onshore and offshore hydrogen transport equipment manufacturers, and
hydrogen production businesses in Norway and Germany.
Portfolio summary
Company Country of incorporation Value of investment £'000
Private Hydrogen Assets held by the Limited Partnership at 31 December 2022
Sunfire GmbH Germany 21,763
HiiROC Limited United Kingdom 12,914
NanoSUN Limited United Kingdom 11,519
Bramble Energy Limited United Kingdom 10,032
Gen2 Energy Norway 3,421
Cranfield Aerospace Solutions Limited United Kingdom 6,296
Elcogen plc United Kingdom 20,430
HH2E AG Germany 5,134
Strohm The Netherlands 11,606
Total 103,115
Company Country of main listing Market value £'000 % of net assets
Listed Hydrogen Assets held by the Company at 31 December 2022
SFC Energy AG-BR Germany 572 0.4
Hexagon Purus ASA Norway 375 0.3
Doosan Fuel Cell Co Ltd South Korea 366 0.3
Hydrogen-Refueling-Solutions SA France 361 0.3
S-Fuelcell Co Ltd South Korea 301 0.2
McPhy Energy SA France 297 0.2
Aker Horizons AS Norway 234 0.2
Fuelcell Energy Inc United States 207 0.2
AFC Energy plc United Kingdom 197 0.2
Cell Impact AB Sweden 151 0.1
Ceres Power Holdings plc United Kingdom 148 0.1
Ballard Power Systems Inc Canada 136 0.1
Green Hydrogen Systems A/S Denmark 132 0.1
ITM Power plc United Kingdom 96 0.1
Powercell Sweden AB Sweden 79 0.1
Enapter AG Germany 15 0.0
Total listed investments 3,667 2.9
Private assets investment held by the Company at 31 December 2022
HydrogenOne Capital Growth Investments (1) LP United Kingdom 103,006 82.2
Total investments 106,673 85.1
Cash 18,192 14.5
Other net assets/(liabilities) 488 0.4
Total net assets 125,353 100.0
All investment is in equity securities unless otherwise stated.
Portfolio review, performance and valuation
Portfolio review
During FY2022, the Company has invested a total of £54.3 million (FY2021:
£48.6 million) in Hydrogen Assets, which are the foundation of a diversified,
multi-asset portfolio for investors in clean hydrogen and related
technologies.
At 31 December 2022, the Company's portfolio comprised nine private
investments and 16 listed investments in hydrogen assets in the UK and Europe
with an aggregate value of £107 million.
During the year, the portfolio continued to perform in line with the
expectations of the Investment Adviser. Seven of the Company's private
investments are revenue-generating, producing equipment and technology
solutions for clean hydrogen production and consumption. Aggregate revenue
from these investments was £33m in 2022, an increase of 110% from 2021 on a
pro-forma basis. The remaining two private investments were made into hydrogen
developers in Norway and Germany, which are expected to be cash generative
around the middle of the decade, as production comes online. The Company's
ownership of equity in the project developers comes with follow-on investment
rights directly into very large-scale green hydrogen projects.
Growing value for investors
Annual revenue of portfolio companies
Segments on NAV basis, HGEN invested stake in portfolio as of Dec 2022. 2024E
revenues
10-15% average NAV growth target(1)
· Growth delivery in invested companies
· Follow-on investment at higher valuation
· Exit via IPO or trade sale
% of portfolio 2021-22 revenue Target holding
(31.12.22)
growth (%)
period (years)
Early stage 22% n/a >5
Mid stage 45% +364% 3-5
Late stage 33% +77% <3
2022: £33m
(+110% vs 2021)
Private company revenues, pro-forma. 100%. Source: Investment Adviser)
1 For an investor in HGEN at IPO, the total NAV return target is a
target only and not a profit forecast. There can be no assurance that this
target will be met, or that the Investment Trust will make any distributions
or returns at all and it should not be taken as an indication of the
Investment Trust's expected future results. The Investment Trust's actual
returns will depend upon a number of factors, including but not limited to the
size of the Investment Trust, currency exchange rates, the Investment Trust's
net income and level of ongoing charges. Accordingly, potential investors
should not place any reliance on this target in deciding whether or not to
invest in the Investment Trust and should decide for themselves whether or not
the target total NAV return is reasonable or achievable. The illustrative
returns has been calculated on the basis of various assumptions and inputs.
There can be no assurance that these assumptions and/or inputs will be correct
or that the associated potential revenues and returns will be generated.
Our portfolio
Sunfire GmbH
Word from the top
"We aim for replacing fossil fuels with renewables in all areas of life -
creating a sustainable future for generations to come. We deliver on our
purpose through developing, manufacturing and servicing high-quality
electrolysis solutions. By providing renewable hydrogen and syngas as
substitutes for fossil energy sources, we enable the transformation of
carbon-intensive sectors towards net zero."
Nils Aldag, CEO
www.sunfire.de
A German industrial electrolyzer producer, which offers both pressure alkaline
(AEL) and solid oxide electrolisers (SOEC).
Total investment size £20.2m
% of NAV 17.5%
Date of investment October 2021
Co-investors Planet First Partners, Lightrock, SMS, Neste, Copenhagen Infrastructure
Partners, Carbon Direct Capital Management, Blue Earth Capital, Amazon Climate
Pledge Fund
Why invested · Industry-leading electrolyser manufacturer, investing for growth
and technology development
· Material alkaline and solid oxide business, with revenues from a
growing international customer base in the global industrial electrolyser
market
· Strong product credentials backed by existing customer base and
generated by high quality in-house engineering and product design
· 500MW / annum electrolyzer production site in EU - with a further
extension to gigawatt-scale already in planning
Total Addressable Market >£40bn (by 2030)
Value catalysts · >GW scale alkaline + SOEC manufacturing scale up
· Conversion of strong revenue growth to EBITDA to underpin
eventual exit for investors
Performance since investment · Sunfire has delivered strong growth momentum in 2022 Sunfire
continued to scale its alkaline electrolysis manufacturing capacity in Germany
and Switzerland
· Planning is underway to further increase Sunfire's production
capacity from megawatt to gigawatt-scale, providing key industrial customers
with access to large scale hydrogen generation plants
· In April 2022, Sunfire secured further growth capital, partnering
with Copenhagen Infrastructure Partners, Blue Earth Capital, increasing its
Series D capital to €195 million. In addition, the company received another
investment from Amazon's Climate Pledge Fund in July 2022
· In October 2022, Sunfire officially announced the successful
completion of the EU-funded GrInHy2.0 ("Green Industrial Hydrogen") project.
As part of this project, Sunfire installed the world's first multi-megawatt
high-temperature solid oxide electrolyzer, which produced a record of nearly
100 tons of green hydrogen for the climate-neutral production of green steel
· Sunfire continues to consolidate their EU and global market
position with increased order book
Elcogen plc
Word from the top
"We believe the fuel of the future is green hydrogen and our technology is a
key enabler in making this transition affordable for everyone. We develop and
manufacture the world's most efficient solid oxide technology, allowing our
customers and partners to deliver emission-free electricity, green hydrogen
and energy storage solutions. This investment from HydrogenOne will enable us
to continue to develop our cutting-edge technology, grow our customer base and
revenues, and scale production to drive net-zero ambitions forward."
Enn Õunpuu, CEO
www.elcogen.com
Fuel cell and electrolyser manufacturer with presence in Estonia and Finland
Total investment size £20.5m
% of NAV 16.4%
Date of investment May 2022
Co-investors Biofuel OÜ, VNTM Powerfund II
Why invested · Industry-leading innovator and supplier of solid oxide cells and
stacks, with manufacturing facilities in Finland and Estonia, ready for
expansion
· High end offering based on advanced solid oxide (SO) technology
with low operating temperatures and superior economics
· Developed a reversible ceramic technology that converts hydrogen
into emission-free electricity and vice versa
· Over 10-year track record
· Over 60 established industrial customers worldwide
Total Addressable Market >£40bn (by 2030)
Value catalysts · Expansion of manufacturing facilities from 100MW/year, rising to
200MW/year
Performance since investment · Elcogen progressed with the factory expansion with plans
initiated and finalised
· The company strengthened the management team with key C-suite
hires CFO, COO and CTO
· Elcogen's order book continued to increase, with multiple
agreements signed during the year
· Post year end, Elcogen has signed Memorandum of Understanding
("the MOU") with Korea Shipbuilding and Offshore Engineering (KSOE), a member
of Hyundai Heavy Industries Group ("HHI Group"), and the Germany based
Fraunhofer Institute for Ceramic Technologies and Systems (IKTS)
HiiROC Limited
Word from the top
"HiiROC's technology brings a truly differentiated proposition to the hydrogen
story. We will produce low cost, zero emission hydrogen, delivered to
customers on a modular, scalable basis at the point of demand, avoiding
transportation and storage costs. We're building the infrastructure and
working with our strategic partners to allow deployment of the initial pilot
units in selected industry segments. The recent funding ensures we're well
positioned to move forward with both the technical and commercial development
of the business."
Tim Davies, CEO
www.hiiroc.com
UK-based thermal plasma electrolysis developer, with world-leading
(IP-protected) technology for low-cost, zero-emission hydrogen, also enabling
flare/waste gas mitigation and CO2 capture using biomethane.
Total investment size £10.0m
% of NAV 10.4%
Date of investment November 2021
Co-investors Melrose Industries, Centrica, Hyundai, Kia, Wintershall Dea, VNG, Cemex
Why invested · Proprietary technology to convert natural gas, flare gas and
biomethane into hydrogen and solid carbon black
· Multiple applications across all sectors of hydrogen use from
blending in natural gas grids to industrial decarbonisation to transport
· Opportunity to support methane reduction targets through the
global imperative to halt gas flaring and venting
· Industrial off-takers of the product such as Centrica, Hyundai
and CEMEX also on the shareholder register
· Highly scalable modular solution, producing 100kg / day of
hydrogen from a single unit through to large plants capable of 100's of tonnes
/ day of hydrogen, alongside carbon black
Total Addressable Market >£40bn (by 2030)
Value catalysts · Demonstrator deployed in 2022. Pilot units contracted for
deployment through 2023 across a range of hydrogen use cases
Performance since investment · HiiROC made solid progress against the objectives for 2022, with
demonstrator deployed, pilot phase and certification plan on track
· As part of Government grants and projects, HiiROC and Centrica,
won the first UK project to inject Hydrogen at Brigg Gas Fired Power station,
as part of the Net Zero Technology Centre's £8 million Open Innovation
Programme
· HiiROC won the KPMG Global Tech Innovator 2022 award, overcoming
fierce competition from over 1250 applicants across 22 countries and
jurisdictions during the national stages, and was also awarded the FT's Tech
Champion for Energy 2022. At COP 27, HiiROC entered into an MOU with Egypt's
EGAS for flare gas mitigation
NanoSUN Limited
Word from the top
"NanoSUN's mission is to accelerate the adoption of hydrogen fuel as key
element of the transition to clean energy. Our strategy is to bridge the gap
between low-cost, green sources of hydrogen and hydrogen vehicles by providing
operators with safe, low-cost and convenient refuelling products and
services."
Dean O'Connor, CEO
www.nanosun.co.uk
UK-based developer of hydrogen distribution and mobile refueling equipment
Total investment size £9.1 m
% of NAV 9.2%
Date of investment December 2021
Co-investors Westfalen Group
Why invested · NanoSUN technology allows for shipping of clean hydrogen from
production sites to customers, both cheaply and safely
· Provides flexible and low-cost connection between hydrogen
customers such as truck stops, and concentrated hydrogen supply sources
· Flat-bed solution with 60% lower cost than alternative systems
· Accelerating large-scale roll out of fleets of hydrogen buses,
trucks, vans and forklifts
· High quality order book with clients such as Westfalen, and
Octopus Hydrogen
Total Addressable Market £800m (2025 UK/EU) to >£20bn (2030 globally)
Value catalysts · Continued roll out and delivery of pioneer units to hydrogen
refueling customers, driving financial growth
· Germany distribution agreement pending
· Pathway to market entry across Europe, in Asia and US
Performance since investment · NanoSUN achieved a key milestone by completing the first serial
production and delivery unit of its enhanced Pioneer Mobile Hydrogen Refueling
Stations
· Solid progress has been made in research and development for the
next generation refueler which will be lower cost, higher capacity and more
easily adapted to penetrate markets outside of Europe
· Received significant funding from the Department for Business,
Energy & Industrial Strategy (BEIS) to develop its Pioneer Mobile Hydrogen
Refuelling Station (HRS) as a low-carbon alternative to red diesel
applications
· NanoSun has a strong order book for 2023-2024
· Post year end, HGEN signed an agreement for £1.5m Convertible
Loan facility with NanoSUN
Strohm Holding B.V
Word from the top
"We recognised the fit between clean hydrogen and offshore wind at an early
stage, and developed a compelling pipe solution to support it. TCP can
transfer up to nine times the amount of energy compared to a cable, and can be
used to store hydrogen, thereby increasing the uptime of offshore wind farms.
The pipe's flexibility, lack of corrosion, fatigue and embrittlement make it
the superior pipeline solution for offshore wind farms, generating hydrogen.
The investment by HydrogenOne allows us to increase our capacity to service
this exciting and growing market."
Martin van Onna, CEO
www.strohm.eu
The Netherlands-based hydrogen pipeline company
Total investment size £9.5m
% of NAV 8.7%
Date of investment August & December 2022
Co-investors Shell Ventures, Chevron Technology Ventures, Evonik Venture Capital, ING
Corporate Investments
Why invested · Industry leaders in offshore hydrogen and CO2 pipelines, where we
see significant market growth
· Thermoplastic Composite Pipe ("TCP") has c.50% less greenhouse
gas emissions than metal. Can transfer up to nine times the amount of hydrogen
energy compared to a cable
· TCP's flexibility, lack of corrosion, fatigue and embrittlement
make it the superior pipeline solution for offshore wind farms, generating
hydrogen
Total Addressable Market c. £700m (2030) to >£1.7b (2040)
Value catalysts · Grow revenues from energy transition including hydrogen to over
50% by 2025
Performance since investment · Strohm completed a €29m investment round with a €10m
investment by ING Corporate Investments
· The company increased its order book and signed a Memorandum of
Understanding with State Power Investment Corporation of China
· In November 2022, Strohm was awarded a contract from ECOnnect to
provide more than 11km of TCP for the TES Wilhelmshaven Green Gas Terminal in
Germany. These pipes will be used for CO2 export, following an initial usage
period for natural gas import
· Post year end, Strohm secured its largest order in history from
ExxonMobil to supply more than 24 of its TCP 'Jumpers on Demand' for
ExxonMobil's offshore operations in the Americas
Bramble Energy Limited
Word from the top
"At Bramble Energy we aim to enable the transition from diesel to hydrogen by
providing high-performance, affordable technology solutions. PCBFC™ is the
first of our platform technologies to reach the market and we continue to
develop core offerings in sensing and electrolysis."
Tom Mason, CEO
www.brambleenergy.com
UK-based fuel cell and portable power solutions company
Total investment size £10.0m
% of NAV 8.1%
Date of investment February 2022
Co-investors IP Group, BGF, Parkwalk, UCL Technology Fund
Why invested · Pioneering revolutionary fuel cell design and manufacturing
techniques
· Novel printed circuit board design PCBFC™ - low cost, scalable
and recyclable fuel cell modules
· Leading global automotive businesses working closely with Bramble
to scale up product offering
· Developing high-power density, mobility fuel cell systems
Total Addressable Market >£100bn (by 2030)
Value catalysts · Upgraded to a new facility as part of scaling up of units to
30kw-100kw
· Mobility technology development and testing of novel printed
circuit board design by end users in automotive
Performance since investment · Launched the Software-defined everything (SDX) portable power
unit into the market targeting remote lighting & surveillance targeting
the 15W-60W low power segment
· With funding from the Advanced Propulsion Centre UK (APC) will be
developing a robust and detailed business case to manufacture Bramble Energy's
printed circuit board fuel cell (PCBFC™) for the automotive sector in the UK
· Milestone achieved with first 10kW PCBFC™ and control system
being integrated into a donor BEV light commercial vehicle
· Awarded government funding from:
· Department for Business, Energy & Industrial Strategy (BEIS)
as part of the £40 million Red Diesel Replacement competition; and
· Won the Scale-up Readiness Validation, SuRV, competition which
will aid Bramble Energy's PCBFC™ pilot-scale-up Clean Maritime Demonstration
Competition (CMDC) to design a hydrogen powered, zero emission Uncrewed
Surface Vessel (USV)
Cranfield Aerospace Solutions Limited
Word from the top
"Phase 1 of Cranfield Aerospace Solutions' zero emissions aircraft roadmap is
"Project Fresson" - the conversion of a Britten-Norman Islander 9-seat
aircraft from conventional fossil fuel to that of gaseous hydrogen propulsion.
This development is set to deliver the world's first fully certified, truly
green, passenger-carrying aircraft using hydrogen fuel cell technology. The
end solution will deliver emissions-free commercial air travel and is planned
to be certified for passenger flight in 2026."
Paul Hutton, CEO
www.cranfieldaerospace.com
UK-based passenger flight innovator, powering turboprop flight with hydrogen
Total investment size £7.0m
% of NAV 6.2%
Date of investment March 2022
Co-investors Safran Ventures, Tawazun Strategic Development Fund, Motus Ventures
Why invested · Cranfield is a technology leader in delivering hydrogen powered
turboprop flight
· Market leader in the design and manufacture of new aircraft
design concepts, complex modifications to existing aircraft and integration of
cutting-edge technologies
· Working on CAA certification of the Britten-Norman Islander
passenger aircraft using hydrogen powered fuel cells supplying electricity to
DC motors for rotational power
Total Addressable Market £1.4bn (by 2030)
Value catalysts · Test flight 2024
· Commercial certification 2026
Performance since investment · Achieved the preliminary design milestones for 2022
· Continued to increase the customer order book by signing numerous
commitments for modification kits to convert Britten-Norman Islanders to
hydrogen-electric power
· Secured further investment from the Strategic Development Fund
(SDF), the investment arm of the Tawazun Economic Council of the UAE, and
Motus Ventures
HH2E AG
Word from the top
"HH2E is a new green energy company in Germany established to change the game
of energy. HH2E's technology mix can turn a fluctuating input of solar or wind
energy into a constant supply of green hydrogen, heat, and carbon-free
electricity at competitive prices to serve local industries and communities."
Alexander Voigt, Founder of HH2E AG
www.hh2e.de
German green hydrogen project developer with a focus on industrial customers
Total investment size £5.1m
% of NAV 4.1%
Date of investment May 2022
Co-investors Foresight Group LLP
Why invested · A prominent leader in Germany focused on green hydrogen and
battery storage project development
· HH2E has secured attractive German brownfield sites close to
hydrogen offtake with grid connections capable of 1 GW capacity
· Provides HGEN with investment rights in multiple large-scale
green hydrogen based decarbonization projects
· The battery and alkaline electrolyser combination enables
near-constant production using the cheapest hours of renewable electricity
supply
Total Addressable Market >£100bn (based on German government forecasts for green hydrogen demand by
2045)
Value catalysts · First hydrogen projects Thierbach and Lubmin expected to reach
Final Investment Decision in 2023, for mid-decade commercial launch
Performance since investment · HH2E continued to develop projects throughout the year, with
focus on Thierbach and Lubmin but also a strong pipeline of 2nd wave projects
· Technology innovation using batteries and electrolysers
side-by-side, to capture the advantage of price volatility in renewable power
· Investment of 1m euros into Stoff2, an early stage technology
firm developing a combined battery-electrolyser product which HH2E could
deploy from 2026 onwards
· Signed purchase agreement with Nel for 120MW electrolyzer
Gen2 Energy
Word from the top
"We target to develop, build, own and operate large scale facilities for
production of zero emission green hydrogen and develop an integrated hydrogen
value chain. Norway, our home market, has a strong advantage for hydrogen
production with both cheap and base load renewable energy available, and our
large-scale facilities allows for economies of scale while transporting the
volumes to Europe."
Jonas Meyer, CEO
www.gen2energy.com
Norwegian green hydrogen project developer
Total investment size £3.5m
% of NAV 2.7%
Date of investment March 2022
Co-investors HyCap, Vitol, Hoegh LNG, Knutsen Group
Why invested · The leading Norwegian green hydrogen project developer, with
clear plans to convert low-cost hydroelectric power to hydrogen, for export
and domestic use
· Up to 700MW green hydrogen projects in Norway, with expected
production in 2025‑2027
· Specialist in low-cost 24/7 hydroelectric power
· Co-invested with Norwegian LNG and ship operators that provides
input to the Gen2 hydrogen export solution
· HGEN has follow-on investment rights in multiple project SPVs
Total Addressable Market >£100bn
Value catalysts · Final Investment Decision at Mosjoen project expected 2024
· 100MW green hydrogen
Performance since investment · Continued to mature green hydrogen development projects, with
core focus on the c.100MW plant at Nesbruket in Mosjøen
· Completed a feasibility study of the plant, demonstrating that
the business case of green hydrogen production based on cheap renewable energy
in Northern Norway and exporting it to Europe is attractive
· The project is currently in a front-end engineering and design
(FEED) phase, with expected completion in the first half of 2023
· Gen2E's business case is to build multiple hydrogen production
sites, and in November 2022, the company signed an agreement with Åfjord
municipality for large-scale production and shipping of green hydrogen,
increasing the total portfolio to approximately 900MW
Listed Hydrogen Assets
The Company invested in 19 global hydrogen sector listed equities in the prior
year with an average market capitalisation of £1.5 billion with minimum
market capitalisation of £200 million. The aggregate investment in these
listed companies was £9.5 million at the time of investment. These companies
are key players in the electrolysis, fuel cell and clean hydrogen projects
sectors.
During the year, three of these holdings have been sold at a gain of £0.1
million.
Post year-end investments
Since 1 January 2023, the Company has made further investments in Private
Hydrogen Assets amounting to £7m, including in the green hydrogen production
project at Thierbach:
Thierbach project
Word from the top
"Domestic green hydrogen production is essential to secure cost-competitive
energy supply and deliver energy sovereignty and decarbonisation. Building a
plant in Thierbach (Saxony), on the site of a former coal power station, is a
tangible step towards sustainable green energy in Germany."
Mark Page, CFO HH2E AG and Managing Director HH2E Thierbach
Green hydrogen production project in Germany
Total investment size £2.4m
Date of investment January 2023
Co-investors Foresight Group LLP, HH2E
Why invested · First direct project investment by the Company
· Large-scale green hydrogen production opportunity with leading
players in the mobility sector, energy and industrial consumers as potential
offtakers
· The technology mix and design developed by the operator (HH2E AG)
enables constant production of cost-competitive green hydrogen without a
permanent supply of power
Total Addressable Market Via pipeline connections Thierbach will be able to serve the German market
(value >£100bn) but its customers will be mainly based in central/eastern
Germany
Value catalysts · Confirmation of key regulatory dimensions (e.g. RED II, GHG
certificates, pipeline admixture)
· Final Investment Decision - 2023
· Phase 1 (100MW): c.6,000 Htpa ~ 60,000tpa avoided GHGs
Performance since investment · Preliminary Investment Decision (PID) approved by the consortium
of HH2E, Foresight and HydrogenOne. Enables detailed technical planning,
stakeholder engagement, planning/permit applications and engagement with key
component suppliers and offtakers
Performance
Our portfolio is revenue generating and has produced consistent growth
· Seven of our private investments, representing 89% the invested
portfolio by value, are revenue-generating
· The aggregate revenue from these investments was c. £33min for
2022, an increase of 110% from 2021 on a pro‑forma basis
· A further two private hydrogen production companies, representing
8% of the invested portfolio, located in Norway and Germany, are expected to
generate material cash flow from the middle of the decade as projects come on
line
· Additional investment in strategic, global hydrogen equities
representing 3% of the invested portfolio, in revenue generating businesses
Growth delivery and outlook
· We see significant financial growth potential from our portfolio
companies. This is driven by expansion of production volumes in supply chains
such as electrolysers, fuel cells and transportation equipment
The projections stated are projections only and not profit forecasts. The
projections are internal based on estimates and assumptions and information
sourced from third parties. The projections are unaudited and inherently
subject to significant uncertainties and contingencies. There can be no
assurance that these projections will be met.
Valuation
As set out in note 3 of the Financial Statements, the Investment Adviser has
carried out fair market valuations of the Private Hydrogen Assets at 31
December 2022, which have been reviewed by the Valuation Committee, and the
Directors have satisfied themselves as to the methodology used, the discount
rates and key assumptions applied, and the valuation.
The Private Hydrogen Assets at 31 December 2022 have been valued using either
the discounted cash flow ('DCF') methodology or a combination of the
discounted cash flow methodology and the Price of Recent Investment
methodology as described by IPEV.
HGEN valuation methodology
Valuations using IPEV Guidelines
Our approach to valuation remains consistent
· Valuations updated for all Private Hydrogen Assets on a quarterly
basis, approved by the AIFM and Board
· The Private Hydrogen Assets are principally valued using either
the DCF method, or a combination of the DCF method and the price of recent
investment. The DCF valuations are also benchmarked against listed peer group
valuations.
· Discount rates are calculated using market parameters for each
investment domicile. The portfolio average discount rate for December 2022 was
12.9%, compared to 12.5% in 2021
· HGEN's valuation is audited annually by KPMG
Listed Hydrogen Assets are valued at fair value, which is the bid market
price, or, if bid price is unavailable, last traded price on the relevant
exchange.
Analysis of financial results
The Financial Statements of the Company for the year ended 31 December 2022
are set out in the Annual Report.
Net assets
Net assets increased from £102.8 million at 31 December 2021 to £125.4
million at 31 December 2022. In April 2022 the Company completed an
accelerated bookbuild, raising £21m net of fees. The remainder of the
increase in net assets was driven primarily by an increase in the value of the
Private Hydrogen Assets, offset by the fall in global stocks generally and the
hydrogen sector more specifically.
The net assets of £125.4 million comprise £106.7 million portfolio value of
investments, including the holding in the HydrogenOne Partnership, and the
Company's cash balances of £18.2 million, and other net assets of £0.5
million.
The Limited Partnership's net assets of £103.0 million comprise £103.1
million portfolio value of investments, cash balances of £1.5 million, and
other net liabilities of £1.6 million.
Cash
At 31 December 2022, the Company had a total cash balance of £19.7 million
(2021: £55.5 million), including £1.5 million in the HydrogenOne
Partnership, which is included in the Company's balance sheet within
'investments held at fair value through profit or loss'.
Profit for period
The Company's total profit before tax for the year ended 31 December 2022 is
£1.6 million (period ended 31 December 2021: loss of £2.4 million),
generating a return per Ordinary Share of 1.27 pence (period ended 31 December
2021: losses of 3.78 pence per share).
In the year to 31 December 2022, the gains on fair value of investments were
£3.2 million (period ended 31 December 2021: loss of £1.6 million).
The expenses included in the income statement for the year were £1.7 million,
in line with expectations. These comprise £0.3 million Investment Adviser
fees and £1.4 million operating expenses. The details on how the Investment
Adviser fees are charged are as set out in note 6 to the Financial Statements.
Ongoing charges
The 'ongoing charges' ratio is an indicator of the costs incurred in the
day-to-day management of the Company.
The ongoing charges percentage for the year to 31 December 2022 was 2.51%
(period to 31 December 2021: 2.06%). The ongoing charges have been calculated,
in accordance with AIC guidance, as annualised ongoing charges
(i.e. excluding acquisition costs and other non-recurring items) divided by
the average published undiluted Net Asset Value in the period. The calculation
is provided in the annual report. The ongoing charges percentage has been
calculated on the amalgamated basis and therefore takes into consideration the
expenses of HydrogenOne Partnership as well as the Company.
Market commentary and outlook
Policy makers and industry are converging on clean hydrogen as a core
technology to deliver Net Zero, improved air quality and energy security. The
Paris Agreement has led 39 countries to set out hydrogen policies and over $70
billion of funding as part of Net Zero targets to deliver the Energy
Transition to a low carbon economy.
In the Sustainable Development Scenario of the International Energy Agency,
which models future energy systems consistent with delivery of the 2016 Paris
Agreement, clean hydrogen supply is expected to grow from 0.36 million tonnes
per annum ("mtpa") in 2019 to up to 7.92 mtpa in 2030. A 200x increase in
clean hydrogen supply is anticipated from 2019 to 2030, and 500x to 2050, as
the scale-up of renewable power alongside the phase-out of fossil fuels takes
effect. Under the Net Zero Scenario of the International Energy Agency, 2050
demand for clean hydrogen could exceed 600 mtpa by 2050 and over 20% of final
energy demand.
Delivering this pathway will require significant and sustained investment and
policy support for clean hydrogen and strong growth in the supply chains
behind it. The Investment Adviser believes that clean hydrogen supply could
reach in excess of 200 mpta by 2050, representing over US$1 trillion in annual
sales by 2040 and potentially US$2.5 trillion in 2050.
Hydrogen supply and current position
Hydrogen is a naturally occurring gas which has been widely used for decades
as a feedstock in industrial manufacturing processes such as oil refining and
ammonia production. Today's hydrogen feedstock market is large in size and
global in reach, at least 90 mtpa, manufactured almost entirely from the
reforming of fossil fuels, with consequent greenhouse gas emissions estimated
to be c.830 mtpa.
A series of fundamental geopolitical and economic changes are underway in
energy markets which the Investment Adviser believes are having a significant
and positive impact on the outlook for the hydrogen industry.
At the same time, new technologies have matured that can manufacture hydrogen
without GHG emissions, use hydrogen as a way to store energy derived from wind
and solar power and as an energy carrier for distribution over long distances,
and as a fuel to make electricity using fuel cells and turbines.
2016 Paris Agreement and Net Zero targets
In the aftermath of the 2016 Paris Agreement, governments and regions are
setting out plans and targets to decarbonise their economies and deliver 'net
zero' GHG emissions. At the end of 2022, at least 39 countries have published
hydrogen roadmaps, and governments have announced over US$70 billion in
funding for hydrogen. All of this is to mitigate the impact of anthropogenic
climate change. Critical to these plans is a growing consensus that hydrogen
can have a material impact as a fuel in the clean-up and balancing of
hard-to-decarbonise energy systems, such as heavy and long-distance transport,
power generation and heating, as well as the clean-up of today's hydrogen
feedstock supply.
Despite some 45 years of commercial operation and strong growth, modern
renewables such as wind and solar power represent less than five per cent. of
world-wide primary energy supply, with the remainder met by traditional
biomass, nuclear, hydro and fossil fuels.
Decarbonising the energy system and achieving the goals set out in the 2016
Paris Agreement represents a daunting task for policy makers, corporations and
society, and is driving a significant acceleration of clean energy policy and
investment, and multiple sources of clean energy supply.
Impetus to improve air quality
According to the World Health Organisation (the "WHO"), some 4.2 million
deaths per year are caused by poor ambient air quality, and 91 per cent. of
the world's population live in places which do not meet the WHO's air quality
guidelines. Much of this pollution is as a result of emissions from internal
combustion engines ("ICE") and fossil fuel power plants.
Many countries and cities have announced relatively near-term plans to phase
out ICE from transport, to improve urban air quality, as well as to contribute
to GHG reduction plans.
More than 20 countries have announced sales bans on ICE vehicles before 2035.
More than 35 cities covering over 100 million cars are setting new, stricter
emission limits, and over 25 cities have pledged to buy only zero-emission
buses from 2025 onwards. Globally, countries anticipate having 4.5 million
fuel electric cell vehicles by 2030, with China, Japan and Korea leading the
roll-out. In parallel, stakeholders are targeting 10,500 hydrogen refuelling
sites ("HRS") by 2030 to power these vehicles. As an example, the United
Kingdom has banned the sale of new ICE vehicles from 2030, as have Denmark,
Sweden, the Netherlands and Ireland.
These legislative changes are requiring the transport industry and fuel supply
chain to adapt quickly to low-emissions solutions. In particular, this is
resulting in the increasing penetration of battery electric vehicles for light
and short distance routes, alongside hydrogen fuel cell vehicles for heavier
trucks and trains and over longer distances and reduction of the use of heavy
fuel oil and coking coal in industry generally. In the medium term, there is
also potential for hydrogen converted to ammonia to decarbonise shipping fuel
and for fuel cells and synthetic fuel derived from hydrogen to decarbonise
flight.
Improving energy security
The 2022 Russian invasion of Ukraine has compelled decision makers across the
world to focus on the importance of sustained investment and policy support
for domestic energy production and, crucially, less reliance on energy imports
from overseas. This new drive is further amplifying the demand pull for clean
hydrogen from energy transition and air quality needs. As a result,
governments and industries have responded with new initiatives in 2022 to
deliver affordable, secure, and sustainable low-carbon energy, with clean
hydrogen set to play a vital role.
Many countries are now focusing on developing energy supplies that are not
reliant on imports from Russia, and at the same time an acceleration of the
transition to low carbon energy, from renewable power and clean hydrogen.
Alongside this, 2022 has seen a significant increase in fossil fuels prices,
with Brent oil prices for example increasing from between US$60 and US$80 per
barrel to between US$100 and US$120 per barrel. This change, combined with
similar increases in regional natural gas prices, has improved the relative
economics of clean hydrogen compared to grey hydrogen, which is currently the
lowest cost and most polluting form of hydrogen supply. Whereas the cost of
fossil fuel feedstocks used to make grey hydrogen has increased, the cost
outlook for clean hydrogen continues to improve, with larger scale and more
efficient electrolysers coming to the market.
In 2022, the EU reshaped its energy policy to the REPowerEU 2030 plan, which
calls for over 300GW of clean hydrogen by 2030, compared to 80GW in previous
plans. Some EUR 5.4 billion in hydrogen subsidies have recently been approved
under Important Projects of Common European Interest ("IPCEI"), which are
expected to unlock a further EUR 8.8 billion of private investment. The
Hy2Tech scheme, also announced in 2022, links 41 projects and 35 companies
building out the hydrogen sector, and has qualified for IPCEI funding.
In the United States, the Department of Energy has announced a US$8 billion
programme to develop clean regional hydrogen hubs across the country, as part
of net zero ambitions by 2050. The 2022 Inflation Reduction Act set aside
US$369 billion for climate and energy proposals. Within this Act, there is a
tax credit for clean hydrogen of US$0.6/kg to US$3/kg, depending on life cycle
emissions. This is expected to make green hydrogen cost competitive with grey
hydrogen, and make US clean hydrogen amongst the lowest cost in the world.
In India, in early 2023, the Government announced the Strategic Interventions
for Green Hydrogen Transition Programme (SIGHT). This programme envisages c.
$100bn of investment to 2030, 60-100GW of electrolyser capacity, resulting in
5 million tonnes per annum of green hydrogen production. This is initially
planned to address GHG emissions from the fertiliser, refining and iron and
steel sectors, by replacing grey hydrogen there.
In the UK, 2030 clean hydrogen targets have been doubled this year to 10GW.
The UK Government has recently announced a national clean hydrogen subsidy
scheme called Hydrogen Business Model ("HBM"), which will use a
contracts-for-difference style set-up to help fund an initial 1GW of clean
hydrogen projects in 2023, as part of the target to reach 10GW of low-carbon
hydrogen by 2030, in a potentially £9 billion sector. This is in addition to
the Net Zero Hydrogen Fund ("NZHF") with up to £240 million of grant funding
to support the upfront costs of developing and building low carbon hydrogen
production projects.
In Denmark, a Hydrogen and Power-to-X strategy was announced in March 2022,
calling for 4GW to 6GW of installed hydrogen electrolysis by 2030, using wind
and solar power, putting DKK 1.25 billion of subsidy funding in place, and the
policy and regulatory frameworks that are required for this.
As a further example, in 2019 the Netherlands set targets for 3GW to 4GW of
electrolysis by 2030 with multi-billion-euro funding support announced by the
Netherlands government. The government is providing EUR 750 million of funding
support for a 'hydrogen backbone', retrofitting existing natural gas pipelines
to transport hydrogen between five industrial clusters in the Netherlands, and
at cross-border connection points.
Access to clean hydrogen is a priority for refiners and steel and ammonia
producers as they address GHG emissions. These heavy industries are under
tremendous pressure to reduce or eliminate grey hydrogen from processes, to
reduce the GHG emissions that result from this.
Most of today's demand for clean hydrogen is for a clean-up of grey hydrogen.
In the future, the Directors believe that clean hydrogen can displace fossil
fuels in hard to decarbonise sectors, either by burning it in power plants to
replace natural gas, coal, and oil, or by converting it to electricity through
hydrogen fuel cells.
Water vapour is the only by-product of using hydrogen as a fuel. Hydrogen can
store and transport intermittent renewable power at a grid scale. As wind and
solar become a large percentage of electricity supply over time, the electric
grid will need large scale electricity storage to offset periods of low wind
and low light. By converting electricity to hydrogen, the energy can be stored
over long periods of time either in pipelines and tanks, or in underground
salt caverns.
A series of technology developments in recent decades are rapidly reaching the
stage where they can be deployed commercially, and at scale, to clean up
today's hydrogen feedstock sector and to use hydrogen as a low emission fuel.
Grey hydrogen: over 95 per cent. of today's industrial hydrogen is
manufactured by reforming of fossil fuels - coal, oil and, particularly,
natural gas. This source of hydrogen is generally termed "grey" hydrogen, and
is made in large scale industrial sites using techniques such as steam methane
reforming ("SMR").
Blue hydrogen: capturing the GHG emissions derived from SMR and other
manufacturing processes and storing them geologically using Carbon Capture and
Storage ("CCS") results in a cleaner form of hydrogen, known as "blue"
hydrogen.
Green hydrogen: in order to manufacture hydrogen without the use of fossil
fuels as a feedstock, the "green" hydrogen process takes electricity sourced
from renewables such as wind and solar, and uses electrolysis to split water
into oxygen and hydrogen. These technologies are well established and the
Investment Adviser believes that the industry is on the cusp of a significant
phase of growth.
A combination of factors is driving strong growth in the uptake of green
hydrogen for the future, including upscaling and consequent lower unit costs
in renewable electricity and electrolysers, increased penalties and regulatory
barriers to further growth in fossil fuels and the potential to use green
hydrogen as a storage medium for intermittent renewable power and as a
long-distance energy carrier.
Turquoise hydrogen: methane pyrolysis (or "turquoise" hydrogen) which uses
pyrolysis of natural gas to make hydrogen with a solid carbon by-product.
Emerging clean hydrogen technologies: there are a number of emerging
technologies that could result in low-cost clean hydrogen supplies in the
future. These include, atmospheric distillation, SMR with CCS facilities,
gasification or plasma processes applied to city and agricultural waste to
produce methane and hydrogen. Surplus electricity from nuclear power plants
can be converted to hydrogen via electrolysis ("yellow" hydrogen). The
Investment Adviser intends to monitor these developments for potential
investment by the Company in the longer term.
Outlook
At the end of 2022, the Investment Adviser identified an Investible Universe
of over £23 billion in Private Hydrogen Assets, in operational companies and
hydrogen projects. This large and distinctive opportunity set has only
continued to grow, with over 200 Private Hydrogen Assets opportunities now
identified, compared to 120 at the time of the 2021 IPO, and the sizes of
potential investments has also increased. The Investment Adviser believes that
the Investible Universe represents less than 25% of the total worldwide
hydrogen opportunities and represents a 'long list' of potential investments
for the Company that have been reviewed by the Investment Adviser.
Today the Company has an active Pipeline of over £500 million of private
opportunities for potential investment including a near term pipeline in
excess of £200 million of potential transactions under Non-Disclosure
Agreement ("NDA"). This is a strong and distinctive opportunity set for
investors and underscores the Company's strong growth potential.
The Investment Adviser continues to monitor the development of the green
hydrogen production sector.
Some 240 projects, totalling 0.8 GW electrolyser capacity and c. 120 tonnes
per year of hydrogen output, are online globally today, the capacity of which
is dwarfed by the development pipeline of new projects.
At the end of 2022, there were c. 620 projects planned in this decade costing
c. US$3 trillion globally. From this, about 60 projects totalling 6GW are
currently under development, incurring significant third-party spend such as
Front-End Engineering Design ("FEED"), or undergoing construction having taken
final investment decision, and could cost over US$13 billion to build. These
projects should consume 28 GWh/year of power, produce 840k tonnes/year of
green hydrogen and result in 7.2 million tonnes of CO2 per year of avoided GHG
emission.
The other 560 projects, totalling 1,230 GW of power input, are at an earlier
stage, and could ultimately cost over US$2.5 trillion. These could add 470
tonnes per day of clean hydrogen by 2030 and offset over 1.4 trillion tonnes
of CO2 per year.
HydrogenOne has investment rights on >7GW of green hydrogen projects in
Germany and Norway
Case study - Germany leading the way in green hydrogen development and
production in Europe
Germany has recently taken the lead in hydrogen policy in Europe. The need to
replace 55 billion cubic metres of Russian natural gas imports every year has
greatly accelerated the energy transition in Germany, in a way that most
people only a year ago thought impossible.
Biogas Quota reduction
In January 2023, the German government announced a draft bill on the planned
amendment to the GHG quota reduction act. If the bill gets approved as
currently drafted, it will no longer be possible to use conventional biofuels
from agricultural feedstocks such as corn, grain, rape, or sunflowers to meet
the national GHG quota from 2030.
The draft bill also calls for a four-fold credit for electric vehicle charging
power and a three-fold credit for green hydrogen and electricity-based fuels.
The GHG quota will also be modified from 2024 to 2026, or potentially even
increased further. If this law is enacted, which it is expected to be by the
latest autumn 2023, it will have a significant impact on the viability of
green hydrogen companies - the faster phase-out of biofuels will drive up
demand for GHG certificates from green hydrogen and overall demand for green
hydrogen molecules.
Hydrogen infrastructure
Germany has set a goal of having 125,000 commercial hydrogen/fuel cell
vehicles on the road by 2030 and has mandated that hydrogen filling stations
must be located every 100 km or less on the Autobahn and along the major four
lane state roads. Each station must always keep a minimum sales capacity of
two tonnes of hydrogen a day.
In December 2022, Germany announced its first dedicated hydrogen pipeline. The
pipeline, which is set to become operational in mid-2025, will be 1150 km in
length and will run through many of Germany's major cities and industrial
areas, making use of over 900 km of existing gas pipelines that will be
retrofitted.
Gas blending with Hydrogen
In December 2022, the German parliament decided to allow the mixing of green
hydrogen into existing gas networks at a maximum of 10% vol. share, while
maintaining the "green hydrogen" identity throughout the network, distribution
and exit point. This policy will be in effect until 2032 and is expected to be
a major demand driver for energy players seeking to decarbonise their existing
gas operations.
Environmental, Social and Governance ("ESG")
Simon Hogan
Chairman
3 April 2023
Introduction from the Chair
Our commitment to investing in clean hydrogen for a positive environmental
impact is at the core of everything we do at HydrogenOne. In just over a year,
we have seen the conversation around hydrogen's potential for fueling the
global energy transition jump to the top of the climate and political agenda.
As a climate impact fund, the greatest contribution we can make to achieving
the goals of the Paris Climate Agreement is through our investing activities
and engagement with portfolio companies to promote our ESG principles.
A key focus of 2022 was classification as an Article 9 fund, the highest
classification under EU SFDR. This means our investments align with the EU
taxonomy, and we have begun collecting baseline data for our ESG KPIs. I am
delighted that we were able to achieve this classification status and to be
presenting to the shareholders our first reporting in alignment with the SFDR
and the draft ISSB frameworks.
We were also pleased our Investment Adviser became a signatory of the PRI.
With our new certifications and signatories, we will push forward with our
sustainable investment objective as we continue to deploy capital in the
low-carbon growth opportunities and deliver meaningful climate change
mitigation through the reduction of harmful emissions.
ESG highlights:
HGEN is a climate impact fund with an ESG policy integrated in investment
decisions and asset monitoring;
The Company is classified as an Article 9 Fund under the SFDR and EU Taxonomy
Regulation;
Completed EU taxonomy alignment assessment on the Private Hydrogen Assets -
89% of which aligned with EU taxonomy regulation at 31 December 2022;
The Investment Adviser became a signatory of the PRI in 2022. The first PRI
reporting will be published during 2023;
Published the first reporting of the Company's performance in accordance with
the SFDR and the draft ISSB frameworks;
Continued stewardship activity with portfolio companies to further enhance ESG
credentials and reporting; and
The Company was carbon neutral in 2022.
The Company's Board diversity (50% female).
Our Impact:
£102.9 million
deployed in low-carbon growth;
+42,716 tCO2e
emissions avoided in FY2022 (73% by Sunfire, 24.3% by NanoSun, 2.5% by Elcogen
and 0.2% by Strohm) and 50,579 tCO2e since IPO (77% by Sunfire, 21% by NanoSun
and 2% by Elcogen);
201,000 MWh
Potential MWh lifetime clean energy capacity in FY2022 and 226,000 MWh since
IPO;
3.4 MW
of units sold (fuel cells and electrolysers) in FY2022 and 3.8 MW since IPO -
all adjusted for the Company's shareholding;
1,135
jobs supported;
Displace fossil fuels
Most of the Company's investments either directly or indirectly displace
fossil fuels, making a clear contribution to achieving the Paris Accord's
target of limiting global temperature rises to below 2 degrees and ideally
limit them to 1.5 degrees; and
Established methodology to measure the avoided emissions
The Company has put in place a consequential methodology to measure the
avoided emissions achieved based on the International Financial Institution
Framework for a Harmonized Approach to Greenhouse Gas Accounting, which
incorporates the Greenhouse Gas Protocol guidance on Estimating and Reporting
Avoided Emissions.
Metrics and methodology
Metrics
Greenhouse gas emissions:
Scope 1 48 tCO2e
Scope 2 28 tCO2e
Scope 3* 134 tCO2e
Carbon footprint 1.9 tCO2e / £m
GHG intensity 823.36 kgCO2e / £m
Avoided 2022 42,716 tCO2e
Avoided cumulative 50,579 tCO2e
Energy use - UK** 93,383 kWh
Energy use - Global 750,563 kWh
The greenhouse gas emissions set out above have been calculated in line with
the requirements of EU SFDR. This means that the Scope 1 - 3 metrics are the
sum of Private Hydrogen Assets emissions for those scopes (adjusted for the
Company's equity holding in them). Ordinarily, these would be considered scope
3 to the Company. The Company itself does not have any scope 1 - 2 emissions
since it is an investment trust with no employees or operational activities.
More detail on the methodology is set out below. The avoided emissions are
calculated using a consequential methodology which means lifetime emissions of
products sold are recognised. In the current year no projects directly
producing hydrogen were operational, avoided emissions from such projects will
be disclosed in future years. The KWh energy use is in accordance with UK
Streamlined Energy and Carbon Reporting requirements using the equity share
methodology (e.g. if the Company owns 10% of the equity then 10% of the
energy/emissions are reported). Data supporting this disclosure was collected
as part of the greenhouse gas calculations. The quality of data supporting
energy usage in particular was considered high and is typically taken directly
from utility bills.
The scope 1 and 2 greenhouse gas emissions are relatively low. A number of
portfolio companies are at an early stage of growth, so we would expect
absolute emissions to increase in future, assuming no mitigation action is
taken. Several portfolio companies have pro-actively sought to reduce their
emission by securing renewable energy supply, this is reflected in the scope 2
metric.
There are some limitations, in the form of estimates or data gaps, in the
scope 3 metric. This is within expectations for the first period of reporting
and the Company is working with the Private Hydrogen Assets to enhance the
data quality for these emissions.
The avoided emissions clearly demonstrate the Company's impact on achieving
its sustainable investment objective. Nevertheless, the Company is engaging
with the Private Hydrogen Assets to reduce the actual emissions.
Methodology
The greenhouse gas emissions have been calculated in accordance with the
Greenhouse Gas Protocol equity share approach. Each portfolio company has been
engaged during the year to develop a greenhouse gas inventory. This process
includes the identification of appropriate data sources for each inventory
item. Data has been collected, reviewed and processed to calculate the
emissions by an external provider. In line with expectations there are
limitations to data (gaps or quality), these are addressed in accordance with
the Greenhouse Gas Protocol via the use of estimates and each portfolio
company receives feedback on data quality based on relevance, completeness,
availability, consistency, transparency and accuracy. Recommendations to
improve quality are also provided and their implementation will be monitored
on a quarterly basis as data is collected throughout the year.
Estimates form a necessary part of the greenhouse gas emission process and
emission factors are central to this. Primarily the UK Department for
Environment Food and Rural Affairs ("DEFRA") emission factors have been used
or, where more appropriate, the Intergovernmental Panel on Climate Change
("IPPC") emission factors can be relied upon. Both of these sources are
recognised by the Greenhouse Gas Protocol.
Avoided emissions have been calculated on a consequential basis using the
International Financial Institution Framework for a Harmonised Approach to
Greenhouse Gas Accounting. The membership behind this approach includes the
United Nations Climate Change Secretariat, the World Bank, the European
Investment Bank and many others constituting 25 financial institutions. This
standard also produces and updates a data set on grid emissions for many
countries, this has been used as a key input into the estimation process. In
accordance with the framework, portfolio companies who provide products (e.g.
fuel cells or electrolysers) take the expected lifetime emissions of those
products as sold. During the year, no projects were operationally producing
hydrogen yet as they are still under development. When they do the annual
avoided emissions from the hydrogen produced will be reported.
(*) Notwithstanding any mitigation action in the respective supply chains, we
expect that scope 3 emissions will increase as data gaps are closed and use of
estimates are reduced as more reliable data from Private Hydrogen Assets
becomes available.
(**) Statutory Streamlined Energy and Carbon Reporting (SECR) disclosure.
Strategy
Strategy
Hydrogen and climate change mitigation
The Company's sustainable investment objective is to deliver an attractive
level of capital growth by investing, directly or indirectly, in a diversified
portfolio of hydrogen and complementary hydrogen focused assets whilst
contributing to climate change mitigation by integrating core ESG principles
into its decision making and ownership process.
The sustainability opportunity in hydrogen is set out in the Company's
strategic report and benefits from the transition to a net zero greenhouse
gas economy. There are also sustainability risks which the Company considers
through the investment and ownership process. These are specific to each
investment but include a focus on the scope 1, 2 and 3 emissions of portfolio
companies, the management of waste during manufacturing processes and human
rights in the supply chain. Physical risk resulting from climate change has
also been considered in the short (< 5 years) and medium (5-10 years) term
but no specific risks have been identified that would materially impact the
cash flows of portfolio companies.
The risk management section sets out the Company's approach to managing these
risks and currently there is no expectation of a material impact to the
business model or cash flows of portfolio companies arising from them.
To implement the Company's ESG strategy, the Board have taken two key actions
in the year: classifying the Company under Article 9 of the EU SFDR; and
becoming a signatory to UN Principles of Responsible Investment ("UN PRI").
Classification under Article 9 of EU SFDR has led the Company to set a target
for the portfolio to be at least 75% aligned with the EU Taxonomy at the time
of investment. This provides a balanced assessment of the sustainability
impacts of each portfolio company to ensure that they align with the goal of
climate change mitigation and, do no significant harm to any of the other
sustainable objectives set out in the EU Taxonomy. In addition, the Company
must consider the portfolio's compliance with minimum safeguards set out in
the EU Taxonomy which focus on human rights, anti-corruption, fair taxation
and competition.
The UN PRI requires a commitment to six principles. These require the Company
to integrate sustainability into the investment decision making progress,
monitor sustainability performance post-acquisition and promote the
integration of sustainability within portfolio companies.
Together, the EU SFDR regulation and the UN PRI initiative provide a framework
for the Company to implement its sustainable investment objective - climate
change mitigation.
Alignment with Paris Accord's target
The sustainable investment objective of climate mitigation is aligned with the
Paris Accords target of limiting global temperature rises to below 2 degrees
and ideally limit them to 1.5 degrees. The Company does this through
engagement with portfolio companies.
During the year, the Company has required its Private Hydrogen Assets to
measure their scope 1, 2 and 3 greenhouse gas emissions. This is the first
step towards reducing emissions. The Company will continue to engage with
portfolio companies to develop and implement carbon reduction plans.
Avoided emissions are the primary sustainability opportunity from the
investments. Many of the Company's investments either directly or indirectly
displace fossil fuels, making a clear contribution to achieving the Paris
Accord's target. The Company has put in place a methodology to measure the
avoided emissions achieved based on the International Financial Institution
Framework for a Harmonized Approach to Greenhouse Gas Accounting.
Case Study - Sunfire
17.36% 31,199 200,963
NAV tCO2e MWh
Investment size Avoided emissions (adjusted for the Company's holding) Total lifetime MWh of units sold (Company's share)
Profile
Sunfire is a global leader for industrial electrolysers. Their innovative and
proven solutions are addressing a key challenge of today's energy system:
Providing renewable hydrogen and Syngas as substitutes for fossil energy
sources.
Their electrolysers enable the transformation of energy-intensive sectors such
as the chemical, fuel and steel industries. Sunfire employs more than 500
people in Germany and Switzerland.
Electrolysers
An electrolyser splits water into hydrogen and oxygen gas using electricity.
The hydrogen produced with renewable electricity can then be used to
decarbonize industries through substituting fossil resource inputs. Sunfire
produces two types of electrolysers, alkaline and solid oxide (applicability
depends on steam availability). Both have a modular design which can scale to
meet demand.
Energy-intensive industries are increasingly opting for green hydrogen as part
of their decarbonization efforts - however, the necessary equipment to produce
the gas is still in short supply. Sunfire is now one of the first companies to
start series production of electrolyzers.
In 2021 Sunfire provided Europe's largest single-stack pressurized alkaline
electrolyzer which went into operation in 2022. Electrolysis cells - core
components of the electrolyzers - are metal-coated in the electroplating
lines. This step is crucial for the efficiency, robustness, and durability of
Sunfire's electrolyzers and therefore differentiates the company from other
suppliers.
To bring the core process of manufacturing alkaline electrolyzers in-house,
Sunfire acquired electroplating specialist MTV NT GmbH in January 2022. The
long-established company coated components for the mining industry for decades
and is now embarking on a green future within the electrolysis business.
(1)https://www.sunfire.de/en/news/detail/demo4grid-project-partners-successfully-install-a-3-2-mw-pressurized
(2)https://www.sunfire.de/en/news/detail/hydrogen-pioneer-sunfire-launches-serial-production
Leveraging existing competencies
Sunfire will reach its annual production capacity for alkaline electrolyzers
of 500 MW before the end of 2023. Expansion into the gigawatt scale is already
in planning. One reason for the rapid expansion of Sunfire's manufacturing
capacity is the hydrogen pioneer's forward-looking scaling strategy: "We're
not starting from scratch by constructing a greenfield factory but are
initially building on existing expertise and facilities along the entire value
chain," explains CEO Nils Aldag. The Solingen site is a prime example.
Sunfire invests EUR 30 million in its Solingen site
Sunfire is investing around EUR 30 million in expanding its Solingen site. The
company is also to receive financial support from the Important Projects of
Common European Interest (IPCEI). The funds are to be provided by both the
German Federal Ministry of Economics and Climate Protection and the federal
state of North Rhine-Westphalia.
In March 2023 Sunfire celebrated the launch of industrial production at their
site in Solingen with high-ranking guests from politics and industry.
Avoided emissions:
Below is an example of the avoided emissions for one 10 MW Alkaline
electrolyser.
195 90,000 Germany 313 184,570
kg/h hours gCO2/kWh tCO2e
Net production rate Lifetime Location Grid emission factor Lifetime avoided emissions
Sunfire's total avoided emissions for the year was 732,383 tCO2e, of which the
Company's share was 31,199 tCO2e.
These represent the lifetime emissions from 80MW of electrolysers sold during
the year.
Environmental, Social and Governance ("ESG")
ESG policy
The Company has set out that ESG criteria will be fully considered in its
investment and divestment decisions, and in its asset monitoring. The Board
has oversight of and monitors the compliance of the AIFM, and the Investment
Adviser and any undertaking advised by the Investment Adviser in which it
invests, with the Company's ESG policy, and ensures that the ESG policy is
kept up-to-date with developments in industry and society.
The Company has embedded the following ESG principles into its policy:
Allocating capital to low-carbon growth
The Company is focused on investing for a climate-positive environmental
impact, accelerating the energy transition and the drive for cleaner air. The
Directors will prioritise this long-term goal over short-term maximisation of
shareholder returns or corporate profits. The Company will enable investors to
back innovators in low carbon industries by supporting the access of such
companies to the capital markets.
Screening and due diligence
Prior to investment, the Company will undertake an initial screen of the
prospective investment's economic activity. This will focus on core services
or products, to establish provisional alignment with the EU Taxonomy. During
the detailed sustainability due diligence stage, the turnover, operating
expenses and capital expenditure will be assessed for alignment with the EU
Taxonomy environmental objectives. The relevant "do no significant harm" and
minimum safeguard requirements will also be assessed.
Once EU Taxonomy compliance is established, the principle adverse indicators
(as defined in the Regulatory Technical Standards to the EU Sustainable
Finance Disclosure Regulation) will be considered, to the extent possible, for
their potential impact. The performance of the prospective investment against
these criteria will be considered by the investment committee.
Engagement to deliver effective boards
The Company prioritises positive and proactive engagement with the boards of
its Private Hydrogen Assets. The Directors recognise that structure and
composition cannot be uniform but must be aligned with long term investors
while supporting managements to innovate and grow. The presence of effective
and diverse independent directors is important to the Company, as are simple
and transparent pay structures that reward superior outcomes.
Encourage sustainable business practices
The Company expects its Hydrogen Assets to be transparent and accountable and
to uphold strong ethical standards. This includes a demonstrated awareness of
the interests of material stakeholders and engagement to deliver positive
impacts on the environment and society. Hydrogen Assets should support the
letter, and spirit, of regional laws and regulations. The Company and the
Investment Adviser will encourage the adoption of initiatives, including but
not limited to, the Task Force on Climate-related Financial Disclosures and EU
Sustainable Finance Taxonomy and will encourage transparency and alignment of
lobbying activities.
During 2023, the Private Hydrogen Assets will be engaged with to report
against principle adverse indicators.
ESG in the Company
Given the nature of its investments, the Company has committed to disclosing
key performance metrics ("KPIs") that describe the environmental impact of its
portfolio, guided by frameworks and regulations such as the draft ISSB
standards and SFDR. The Company is particularly focused on the greenhouse gas
emissions from investments and the emissions that have been avoided ("avoided
emissions") as a result of the investments, and has actively engaged with
portfolio companies to adopt an appropriate reporting framework.
The Company frames its investments around positive contributions to UN
Sustainable Development Goals ("UN SDGs") and works within responsible
frameworks such as those promoted by the UN Global Compact ("UN GC"), the
London Stock Exchange's Green Economy Mark, and the UN Principles for
Responsible Investment ("UN PRI").
The Company has no direct employees, operations or permanent office space. As
a result, there are no scope 1 or 2 emissions. Material scope 3 emissions are
that of the investment portfolio of the Private Hydrogen Assets which are the
focus of this report. As is typical of scope 3 measurements, we note that
there are some data gaps and use of estimates when the Private Hydrogen Assets
report these figures. Efforts are ongoing to enhance data quality in this
reporting.
Mandatory disclosures under Streamlined Energy and Carbon Reporting are made
in the Annual Report and subject to the methodology outlined in the Annual
Report.
ESG KPIs
KPIs 2022 progress
Environmental
Investing capital in low-carbon growth £102.9 million invested in low-carbon growth during the year.
GHG emissions avoided 42,716 tCO2e avoided during the year and 50,579 tCO2e avoided since IPO.
GHG emissions on a look-through basis (aggregate scope 1 and 2 of portfolio 76 tCO2e (Scope 1 - 48 tCO2e and Scope 2 - 28 tCO2e).
companies) - see the Annual Report for methodology
Lifetime clean energy capacity developed 201,000 MWh in FY2022 and 226,000 MWh since IPO.
The Company's share of MW 3.4 MW in FY2022 and 3.8 MW since IPO.
capacity sold in fuel cells and electrolysers
Social
Jobs supported Backing innovators in low carbon industries - six new investments completed
during the year.
In aggregate, the Company's Private Hydrogen Assets were employing 1,135
full-time staff at 31 December 2022.
The Company's Board Independence and Diversity The Company appointed a Board of independent, non-executive directors to
represent shareholder interests and promote the success of the company.
Diversity is considered a key component of a successful Board and the Company
currently has two male and two female Board members.
HGEN's Board independence (100%) and diversity (50% female).
Portfolio Companies Board Independence and Diversity The Company continued to promote the benefits of independence and diversity on
Private Hydrogen Asset Boards through engagement. Currently, 78% of Private
Hydrogen Asset Boards have at least one independent Board member and 56% have
female representation.
Women accounted for 17% of senior roles (excludes directorships) across our
Private Hydrogen Assets.
Work on human rights A review of the human rights policies in place at each Private Hydrogen Asset
was undertaken and recommendations made for improvement. These primarily focus
on human rights in the supply chain.
Governance
Engagement to deliver effective boards Positive and proactive engagement with the boards:
Upon initial investment, the Investment Adviser representative would typically
be appointed either as a director or a Board Observer to the boards of the
invested Private Hydrogen Assets and would be actively engaged in ESG matters
in these businesses. As the invested company reaches a certain level of
maturity, the Investment Adviser representative may step down from their
position as a director or a Board Observer at an appropriate time.
The Investment Adviser representatives were appointed as Directors on eight
Private Hydrogen Assets and as an observer on one Private Hydrogen Asset (100%
representation).
The Company and the Investment Adviser continue to support the UK Stewardship
code issued by the Financial Reporting Council.
The Investment Adviser voted on behalf of the Company at all meetings where
they were able to exercise the Company's vote. During the year, the Company
was represented at 100% ofPrivate Hydrogen Asset board meetings and votes.
Site visits 28 site visits on invested positions were completed during the year as part of
the oversight and stewardship approach. This covered 89% of the Private
Hydrogen Assets.
Simple and transparent pay structures that reward superior outcomes Strong linkage to long-term value creation ahead of short-term outcomes by use
of share options and other incentive programmes.
Encourage sustainable business practices and ethics Each Private Hydrogen Asset had been through a review process covering their
supply chain due diligence, waste management and circular economy
considerations.
Recommendations for improvement were made and implementation will be monitored
going forward.
Stewardship Each Private Hydrogen Asset had been engaged with during the year to begin the
reporting process on principle adverse indicators and key metrics to support
our climate change mitigation investment objective.
Data quality and process recommendations were made to improve this information
going forward. For example, the capture of business travel, supplied goods
delivery and landlord-supplied energy are all areas where improved processes
are being implemented.
The governance structures within each Private Hydrogen Asset had been reviewed
and policy recommendations made to strengthen safeguards in key areas, such as
anti-bribery/corruption, human rights and tax risk.
HydrogenOne's approach to ESG
Our approach to ESG
The Company closely monitors developments in sustainability reporting
standards and supports the progress being made by the International
Sustainability Standards Board ("ISSB"). The Company is not directly in scope
for mandatory reporting under the Task Force on Climate-related Financial
Disclosures ("TCFD") but notes the close alignment with ISSB and the UK
Government's stated intent to make ISSB the backbone of future sustainability
reporting. Although these standards are still being developed, the draft
General Requirements for Disclosure of Sustainability-related Financial
Information (S1) has been followed in the preparation of this report,
including its structure under the pillars of Governance, Strategy, Risk
Management and Metrics. The Company intends to adopt future ISSB standards as
they are finalised, which will align with TCFD and other initiatives.
Governance
Structure
The Board maintains overall responsibility for the oversight of sustainability
related risks and opportunities. The Board consists of four non-executive
Directors who are independent of the Investment Adviser to ensure appropriate
oversight. The Board's gender diversity through 2022 was 50% male and 50%
female. The Alternative Investment Fund Manager ("AIFM") is kept informed of
any key risks and compliance with sustainability regulation such as the EU
Sustainable Finance Disclosure Regulation ("EU SFDR"). During the year, the
Board and AIFM met six times to discuss sustainability related matters
(including the Company's recent conversion to an Article 9 classification
under the EU SFDR).
To assist in the execution of sustainability related matters the Board
delegates to the Investment Adviser. The Investment Adviser operates an
internal governance process to appoint and oversee an executive responsible
for sustainability. That individual engages directly with the Portfolio
Company's nominated leads on sustainability and also with any third‑party
consultants and advisors as required.
Governance structure
The Investment Adviser has appointed Dr JJ Traynor as the ESG Lead, whose
relevant experience includes establishment of Shell's ESG practice, reporting
and engagement with markets 2005-2017, including:
· Climate change policy and emissions reporting. Introduced
reporting of Shell's strategy for energy transition, asset resilience to
climate change and CDP;
· Clean energy strategy - strategy team that designed Shell's New
Energies business;
· Human rights, environmental policy and fringe community relations
in Nigeria, Russia, Canada, Alaska, Ireland, including multiple site visits
with stakeholders and community engagement. Spanned a period where Shell had
multiple challenges from stakeholders and NGOs in these very complex themes;
· Engagement with Norway Council on Ethics and other stakeholders
regarding Shell's human rights and oil spills track record in Nigeria;
· Multiple visits to Alaska North Slope and the Aleutian Islands,
including assessment of a drilling rig damaged by a towing accident, and
engagement with local politicians;
· Development of Shell's principles for fracking operations
including water, land use and chemicals;
· Engagement with multiple local and international stakeholders
regarding the impact of oil sands mining on CO2 emissions and boreal forest
footprint;
· Executive compensation and improving the linkage to delivery of
performance targets; and
· Vedanta Resources and WintershallDea 2017-21: senior advisor for
ESG policy and reporting. Included launch of WintershallDea's first
Sustainability Report and climate change targets (2020).
Board oversight responsibilities
The Board exercises its oversight responsibilities through the review and
approval of the Company's sustainability strategy and risk management
approach. To ensure appropriate skills and competencies are utilised in the
execution of strategy and risk management, third party advisors and
consultants are engaged as appropriate.
The Board is kept up to date on progress via regular reporting from the
Investment Adviser and, from relevant third parties directly in order for the
Board to challenge the approach and maintain its oversight.
During the year, the Board met to consider the Company's sustainable
investment objective and classification under the EU SFDR. As part of this
process the Board received reporting on the portfolio's alignment with the EU
Taxonomy regulation and, for all future major transactions, will receive
reporting on the alignment of potential acquisitions with the EU Taxonomy.
Broader sustainability risks and opportunities related to acquisitions are
also considered by the Investment Adviser as part of the acquisition due
diligence process and outcomes are reported to the Board.
In classifying the Company under Article 9 of EU SFDR the Board set a target
that the Company's portfolio at the time of investment will be a minimum of
75% aligned with the EU taxonomy and that the remaining 25% will do no
significant harm to any of the EU Taxonomy sustainable objectives. The Board
monitors compliance with this target on a regular basis and will consider
further sustainability related targets for the portfolio in the future as
appropriate.
Investment Adviser responsibilities
The Investment Adviser has delegated responsibility for the execution of the
strategy and risk management. The Principals of the Investment Adviser
oversee this process and are accountable to the Board. An executive of the
Investment Adviser has day to day responsibility for these matters and engages
directly with portfolio companies and external advisors. The Investment
Adviser also has oversight of the data collection and reporting process for
the monitoring of performance. This has been outsourced to a third-party
service provider.
Risk Management
Pre-investment
The Company incorporates sustainability risks and opportunities into the
investment process. The Board delegate this to the Investment Adviser who
operates a screening and due diligence process as well as considering
regulatory compliance, in particular with the EU SFDR. The results of this
work are considered by the investment committee prior to making a
recommendation to the Board.
ESG screens
Allocating capital to low carbon growth
· >50% revenue from hydrogen & related technologies
· Contributes to avoided GHG emissions
· Excludes fossil fuels extraction
Engagement for effective boards
· Effective board
· Alignment with long term minorities
· Alignment of executive pay with long term shareholders
· Independence of AC
· Board qualifications (skills, tenure, diversity)
Encourage sustainable business practices
· Board oversight of Health, Safety, Security & Environment
("HSSE") process and reporting
· Transparency
· Company policy and disclosure of supply chain practices
· The United Nations Global Compact principles
· Bloomberg ESG score (where available)
Article 9 Compliance
· Investment portfolio is >75% aligned to EU Taxonomy
· Principle adverse indicators have been reviewed
· Investee agrees to provide data for SFDR periodic disclosure
Mapping vs UNSDGs
· 3.9 Reduce deaths from pollution
· 7.1 Increase access to electricity
· 7.2 Increase renewables in the energy mix
· 7.3 Increase energy efficiency
· 9.4 Upgrade industries for sustainability
· 9.5 Increase R&D in industrial technologies
· 11.6 Reduce environmental impact of cities
· 12.6 Adopt sustainable practices and reporting
· 14.3 Reduce acidification (water)
· 15.3 Desertification and land degradation
ESG in the Company
· KPIs including avoided emissions
· Mapping vs UNSDGs
· Manage the Company's own carbon footprint
Screening and due diligence
At origination the investment characteristics are positively screened for
alignment with the Company's sustainable investment objective, being climate
change mitigation through hydrogen and complementary hydrogen focused assets.
The investment is also passed through an initial assessment of the significant
contribution criteria to climate-mitigation-aligned activities in the EU
Taxonomy.
As the acquisition process advances, detailed due diligence is undertaken. As
part of this assessment the Principle Adverse Indicators ("PAIs"), which are
sustainability metrics defined by the EU SFDR to detect harm, are considered.
There are over 60 PAIs set out in EU SFDR, the majority of which are
considered only when material. The PAIs cover climate (e.g. GHG emissions),
nature (e.g. pollutants and hazardous waste), human rights (e.g. compliance
with global standards), social impact (e.g. gender pay gap) and many more.
There is not always sufficient data to undertake a comprehensive review; in
this scenario estimates and judgments are used to consider the likely impact
of these indicators. This work not only informs the acquisition decision but
also the ownership priorities if acquired.
Consideration of PAI's is a new process introduced during 2022 as part of the
Company's classification under Article 9 of EU SFDR. A finding resulting from
this process does not immediately lead to withdrawing from the acquisition
process. The finding is reviewed for potential mitigation that could be
implemented with the investee during the ownership period.
EU Taxonomy alignment
Following the initial screen, a detailed assessment of alignment with the EU
Taxonomy is undertaken. This considers the potential investment's economic
activity (turnover, operating expenses and capital expenditure) against the
technical screening criteria in the EU Taxonomy. Once substantial contribution
criteria are established, an assessment of the do no significant harm
criteria is undertaken to ensure the other sustainability objectives in the EU
Taxonomy are not inadvertently harmed by the investment's activities.
Aggregate EU Taxonomy Alignment
Engagement with the potential investee's management team is required to
complete this assessment as it typically requires data that is not available
publicly. Some inputs into this work are also qualitative and interviews with
management provide the most insight.
The final step in this assessment is consideration of the minimum safeguards.
The EU Taxonomy requires compliance with the OECD Guidelines for Multinational
Enterprises and UN Guidelines for Business and Human Rights. Guidance from the
EU Commission is applied in reviewing this. A significant part of this review
covers social considerations, with a focus on human rights. All portfolio
companies provide affirmation that they have no convictions for any human
rights offences and all operate in developed jurisdictions with labour law
compliance obligations. During the review, a focus was placed on the policies
and procedures each company had in place to detect human rights abuses in the
supply chain. This led to recommendations for improvement in some companies,
an example would be the introduction of enhanced supplier due diligence.
During the year, the Company assessed its material existing investments for
compliance with the EU Taxonomy as part of its classification as Article 9
under EU SFDR.
At the time of the assessment, the Company was compliant with the 75% minimum
threshold it has set for alignment. As at 31 December 2022 the Company
remains compliant with the portfolio 89% aligned with the EU Taxonomy. The 11%
of non-alignment has been assessed against the relevant do no significant harm
criteria in the EU Taxonomy and complies with these requirements. The
non-alignment primarily relates to pre-existing revenue streams in one
portfolio company that is separate from the core hydrogen focus.
Post-investment
The Company establishes an engagement and monitoring process to ensure the
sustainability strategy is achieved and that any findings from the
pre-investment due diligence process are addressed.
The Company has set its key metrics for achieving its sustainable investment
objective as scope 1, 2 and 3 greenhouse gas emissions and avoided emissions.
These metrics form the basis for monitoring the performance of the portfolio,
in addition the relevant PAIs will be tracked.
In order to monitor these metrics, the Company has undertaken a significant
engagement strategy with its material portfolio companies during the year.
This has sought commitment from these companies to collect and provide data.
The Company has also engaged a third party to assist with the data
collection, processing and reporting of these metrics. For many portfolio
companies this represents the first year that their greenhouse gas emission
will be calculated, making it the baseline. The work undertaken during the
year will enable greenhouse gas reduction strategies to be developed over the
next 12 months.
Environmental, Social and Governance ("ESG")
Case Study - Strohm
"It is in our genes to disrupt, innovate and lead for the better. This
includes working toward a net zero society" - Martin van Onna, Strohm CEO.
9.26% NAV 105 tCO2e
Investment size Avoided emissions (adjusted for the Company's holding)
Profile
Strohm is the world's first and leading manufacturer of fully bonded,
Thermoplastic Composite Pipe.
The lightweight, high strength and corrosion-resistant composite pipes provide
cost and, operational benefits in renewable energy and conventional oil and
gas applications. These pipes displace a traditional carbon steel alternative.
Strohm has been carbon neutral since 2020 and continues to reduce its
operational emissions.
Decarbonising the oil and gas sector
It is widely recognised that there is a need for fossil fuels in the short
term to meet energy demand and, in the long term, within the global carbon
budget. This industry, like all others, must play its part in the transition
to net zero and that requires the decarbonisation of operational activity.
There are various workstreams to address this issue, including work from the
Science Based Targets Initiative to develop a net zero standard for the
sector. Low carbon technologies, such as Strohm's Thermoplastic Composite
Pipe, play a central role in helping this sector to decarbonize.
Thermoplastic Composite Pipe
Strong, lightweight, spoolable and corrosion resistant, Thermoplastic
Composite Pipe provides a wide variety of financial, operational, and
environmental benefits in subsea production and oil field service
applications. An ISO 14067 lifecycle greenhouse gas assessment has been
conducted on the pipe. Comparing it to the alternative technology, carbon
steel pipe, shows the Thermoplastic Composite Pipe to be 55% lower in carbon.
The superior corrosion resistance properties of the pipe also reduce the risk
of leaks and pollution to the environment.
Application to renewables
As offshore wind developments increase their distance from shore to access
better wind resources, the loss of power and high cost of High Voltage Direct
Current Cable is restrictive. A viable solution is to convert the power to
hydrogen at the offshore location and transport that instead. One
Thermoplastic Composite Pipe can transfer up to 10 times (order of magnitude)
as much energy as an equivalent cable can, and it can store the energy.
Application to transporting green hydrogen is a key growth strategy for
Strohm.
Case Study - Thierbach project (post year-end acquisition)
Regenerating former coal mining sites and decarbonising the industry
The Thierbach green hydrogen development project is located in the region of
Borna, near Leipzig in Germany. The project is scheduled to reach final
investment decision in 2023 subject to technical and commercial studies, and
funding.
The region of Borna played an important role in the industrialisation of
Germany during the 19th century, with several historic brown-coal mines
located here. For the last 20 years, there have been significant efforts to
revegetate this landscape by flooding these opencast pits and creating new
lakes, as well as planting thousands of trees. In addition, large solar power
generation parks are being built, from where the renewable power needed to
produce green hydrogen in the region will come.
A step up in these regeneration activities is underway, driven by Thierbach
green hydrogen production site. The project will be built and operated by
HH2E, a specialist in developing projects to decarbonise industry using green
hydrogen. Once completed, it will serve green hydrogen customers and
offtakers, including leading players in the mobility sector, large-scale
energy and industrial consumers such as the chemical industry and commercial
air and road transport operators. According to federal government's
estimation, green hydrogen demand in Germany is expected to grow from current
1.65 million tonnes per year to 13-20 million tonnes per year by 2045.
The technology mix developed by HH2E harnesses the volatility of renewable
energy production by combining an alkaline electrolyser with a high-capacity
battery, which enables constant production of cost-competitive green hydrogen
without a permanent supply of power. This way, HH2E can effectively utilize
surplus renewable power to produce green hydrogen and green heat, making use
of all the installed renewable power generation capacity and not just a
percentage of it. This will not only boost green hydrogen production at
competitive costs, it will also help stabilize power grids and prevent energy
waste.
The Thierbach project will be built on site of the demolished coal power
station, benefiting from the existing infrastructure including critical power
and water supply. Green hydrogen production can play an important role in
repurposing locations such as Thierbach and can act as an economic spur to
attract various other industries and enterprises and generating new jobs and
opportunities.
Thierbach is projected to have the capacity to produce c.6,000 tonnes of green
hydrogen per year by 2025, displacing fossil fuels and, therefore, avoiding
harmful greenhouse gas emissions. Further expansion phases could increase
production to more than 60,000 tonnes in the medium term, which could result
in over 10 million tonnes of GHGs avoided over the life of the project.
ESG Credentials
United Nations Sustainable Development Goals
In 2015, the member states of the United Nations adopted Agenda 2030. A key
component of the Agenda 2030 are the seventeen UN SDGs. These long-term goals
are designed to end poverty, improve health and education, reduce inequality,
create sustainable economic growth and combat climate change. They are
intended to create incentives to implement measures in the interests of
people, the planet and prosperity, and therefore contribute to changing the
world significantly by 2030.
The Company's investment objective and investment policy is closely aligned
with seven of these goals, namely Good Health and Wellbeing (Goal 3),
Affordable and Clean Energy (Goal 7), Industry, Innovation and Infrastructure
(Goal 9), Sustainable cities and communities (Goal 11), Responsible Production
and Consumption (Goal 12) Life Below Water (Goal 14), and Life on Land (Goal
15).
Goal UN SDG target The Company's focus
· Reduce deaths from pollution (3.9) Fuel cell vehicles to displace diesel and fuel oil. Direct use in industrial
activities to displace fuel oil and coal. Demonstrated through avoided
emissions.
· Increase access to electricity (7.1) Enable the expansion of renewable energy through direct use of clean hydrogen
and as a form of energy storage. Exclude those involved in the production of
· Increase renewable energy in the global energy mix (7.2) fossil fuels.
· Increase energy efficiency (7.3)
· Upgrade industries for sustainability (9.4) Enabling the decarbonisation of processes in heavy industry and enhancing
innovation in transport and for a more circular economy.
· Increase R&D in industrial technologies (9.5)
· Reduce the environmental impacts of cities (11.6) Enabling the adoption of cleaner fuels for transportation and in heavy
industry to reduce pollution and advance a more sustainable economy.
· Adopt sustainable practices and reporting (12.6) Engagement for good governance and transparency across the portfolio.
· Reduce acidification (14.3) Enabling the replacement of fossil fuels, to reduce CO(2) emissions and the
corresponding negative impacts on ocean chemistry.
· Combatting desertification and land degradation (15.3) Enabling the replacement of fossil fuels to reduce GHG emissions and the
associated acceleration of global warming.
Principles for Responsible Investment
As part of its commitment to sustainable investing, during the year the
Investment Adviser has signed the United Nations‑supported Principles for
Responsible Investment ("PRI"). PRI is recognised as the leading global
network for investors who are committed to integrating ESG considerations into
their investment practices and ownership policies. The Company will be
publishing disclosures required under PRI during 2023.
LSE Green Economy Mark
The Company has been awarded the London Stock Exchange's Green Economy Mark,
which recognises companies that derive 50% or more of their total annual
revenues from products and services that contribute to the global green
economy. The underlying methodology incorporates the Green Revenues data model
developed by FTSE Russell, which helps investors understand the global
industrial transition to a green and low carbon economy with consistent,
transparent data and indexes.
SDR
The Company closely monitors regulatory developments that it may be in scope
for. In October 2022 the Financial Conduct Authority issued a consultation on
Sustainability Disclosure Requirements (SDR) and investment labels.
This regulation will introduce general anti-greenwashing rules and creates
three labels for different types of sustainability fund (Transitioning,
Aligned and Impact). The Company supports measures to reduce greenwashing and
clarify sustainability for investors. These proposed rules are expected to be
finalised by June 2023 and the Company will review the final version before
deciding on its response.
Carbon Neutral
The Company achieved a carbon neutral status for the year to 31 December 2022
through the offsetting (at portfolio and Company level) of scope 1 and 2 CO2e
emissions. The Company considers the term carbon neutral in line with the
UN Climate Change secretariat guidance, being the offsetting of emissions for
the period. Whilst the Company is actively working on setting a net zero
target through carbon reduction, it is important to recognise the emissions
that have already occurred and take action to address these. The Company does
not believe offsetting is the long-term solution to climate change, however it
is part of the action that can be taken in the short to medium term as
reduction actions are implemented. To achieve the offset, the Company
purchased credits from certified carbon removal projects where there is
transparency over the measurement and allocation of sequestration.
Total scope 1 and 2: 76 tCO2e
Offset by Private Hydrogen Assets: 30 tCO2e
Offset by the Company: 48 tCO2e
Annex 5
Periodic disclosures required under EU SFDR (Annex 5) are now available on the
Company's website: https:// hydrogenonecapitalgrowthplc.com/sustainability/
sustainability-related-disclosures/.
Stakeholder engagement (Section 172 Statement)
The Directors have a statutory duty to promote the success of the Company,
whilst also having regard to certain broader matters, including the need to
engage with employees, suppliers, customers, and others to their interests.
The Company has no employees and no customers in the traditional sense. In
accordance with the Company's nature as an investment trust the Board's
principal concern is the interests of the Company's shareholders taken as a
whole. In doing so, it has due regard to the impact of its actions on
shareholders, the environment and the wider community.
The Investment Adviser (in addition to the Board) has significant dealings
with our stakeholders and, therefore, is an integral point of contact between
the Company and our stakeholders. The Company's Corporate Broker, Barclays
Bank PLC, are also an integral point of contact between the Company and our
shareholders and, together with the Investment Adviser ensure that any
shareholder feedback or observations are collated.
The following disclosure describes how the Directors have had regard to the
matters set out in section 172(1)(a) to (f) when performing their duty under
s172 of the Companies Act 2006 and forms the Directors' statement required
under section 414CZA of the Companies Act 2006.
Stakeholder group Why is it important to engage? How has the Board communicated and engaged? Key topics of engagement and decisions made by the Board
Shareholders The significant shareholders of the Company are set out in the Annual Report. - Annual and Interim Reports; Shareholder engagement was rewarded by support for the Company's growth and
diversification strategy through the issue of new shares in April 2022 and
The Investment Adviser and the Board believe that Shareholders and their - Quarterly factsheets; shareholder approval at a general meeting held in October 2022 for the Share
support is critical to the continuing existence of the business and delivery
Issuance Programme.
of its long- term investment strategy. - Market announcements, including quarterly NAV announcements;
It is important to the Company's continued success to have the potential to - Investor webcasts and presentations (through the Investment Adviser);
access equity capital in order to expand the Company's portfolio over time in
order to further diversify the investment portfolio and create economies of - Institutional investor meetings (one-to-one and group), primarily
scale. through the Investment Adviser and corporate broker;
- Regular institutional investor feedback received from the Investment
Adviser and corporate broker;
- Research analyst presentations through the Investment Adviser.
- AGM;
- Website;
- First Capital Markets Day held in February 2023.
Investment The Investment Adviser is the most significant service provider to the Company - Board and Committee meetings; In addition to all matters related to the execution of the Company's
and a description of its role can be found in the Annual Report.
Investment Objective, the Board engaged with the Investment Adviser in regards
Adviser - Regular reports and presentations from the Investment Adviser; to the Company's SFDR reporting and Article 9 classification as well as the
Company's capital raise in April 2022. The Board held a strategy day in early
- Ad hoc meetings and calls. 2023 to which the Investment Adviser was invited to present and discuss with
the Board the Company's future strategy.
AIFM The AIFM is a critical service provider for the Company's long- term success - Board and Committee meetings; The AIFM is responsible for monitoring the risks faced by the Company and
and engages with the Board and the Investment Adviser for the purpose of
these are regularly discussed at meetings.
providing investment advisory services to the Company. - Regular reports and presentations from the AIFM.
The Board regularly monitors the Company's investment performance in relation
to its objectives, investment policy and strategy.
Other key service providers The Company does not have any direct employees and works closely with a number - Board and Committee meetings; The feedback given by the service providers is used to review the Company's
of key service providers, including the Administrator, Company Secretary,
policies and procedures to ensure open lines of communication, and operational
auditor and corporate broker. - Ad hoc meetings and calls; efficiency.
The independence, quality and timeliness of their service provision is - Annual review of performance based on a questionnaire; The Company is able to identify and resolve problems with service provider
critical to the success of the Company.
relationships, should they arise, via this process.
- The Company undertakes regular reviews of all material contracts for
service quality and value through the activities of the Management Engagement During the Company's annual report production, the Audit and Risk Committee
Committee. has engaged with the Company's external auditors to obtain feedback on the
quality and accuracy of the reporting and to ensure the reporting process was
undertaken effectively by all service providers.
The Board sought advice from the Company's corporate broker in respect of
various matters, including equity raise.
Portfolio investments The Board considers each proposal against the Company's investment objective, - The Company's Board is presented with potential investment As at 31 December 2022, over 82% of the capital raised was invested. 6 new
and investment policy as disclosed in the Annual Report and with consideration opportunities that have been identified by the Investment Adviser and which investments were completed during the year. Other investment opportunities
for the wider group of stakeholders. have undergone a process of analysis, including considerations relating to were reviewed but were rejected as they did not pass the investment screening
environmental, social and governance issues. process.
- The Board reviews the financial and operating performance of the As part of the ongoing portfolio performance monitoring, the feedback given by
Company's portfolio companies on a regular basis. the Investment Adviser is used to review the Company's policies and procedures
to ensure open lines of communication, and operational efficiency regarding
- In many cases, investments in Private Hydrogen Assets are linked to its Portfolio Companies.
operational and financial targets, which the Board monitors.
- A quarterly update on performance of portfolio companies is provided
in the Investment Adviser's Report within the Board Packs.
Society and the environment Ensuring our investment positively contributes to climate change mitigation See ESG section of the Annual Report. See ESG section of the Annual Report.
with an ESG policy integrated in investment decisions and asset monitoring.
Other Matters
Modern slavery disclosure
The Company is committed to maintaining the highest standards of ethical
behaviour and expects the same of its business partners. The use of slavery
and human trafficking is unacceptable and entirely incompatible with its
ethics as a business. The Company believes that all efforts should be made to
eliminate it from its supply chains.
The majority of services supplied to or on behalf of the Company are from the
financial services, energy and construction industries and other services
associated with those industries. Given what the Company understands to be a
low risk profile of anyone supplying it with services being involved in
slavery and/or human trafficking, it believes its current procedures and
ability to rely on regulatory oversight in relation to professional services
are sufficient in this regard.
Social, community and human rights issues
The Investment Adviser screens the Company's Investable Universe as part of
the Environmental Social and Governance analysis for any breaches of the
principles of the UN Global Compact, including human rights, labour rights,
environmental breaches and corruption. Any non‑compliant companies are
excluded from investment.
Anti-bribery and corruption
In accordance with the UK Bribery Act 2010, the Company has developed
appropriate anti-bribery policies and procedures. The Company has a
zero-tolerance policy towards bribery and is committed to carrying out its
business fairly, honestly and openly. The anti-bribery policies and procedures
apply to all its officers and to those who represent the Company (including
its business partners). The Company expects those providing services to it, or
on its behalf, to undertake their business without bribery.
Prevention of the facilitation of tax evasion
The Criminal Finances Act (Commencement No. 1) Regulations 2017 (SI 2017/739)
brought Part 3 of the Criminal Finances Act 2017, the corporate offences of
failure to prevent facilitation of tax evasion, into force on 30 September
2017. The Company does not tolerate tax evasion in any of its forms in its
business. The Company complies with the relevant UK law and regulation in
relation to the prevention of facilitation of tax evasion and supports efforts
to eliminate the facilitation of tax evasion worldwide, and works to make sure
its business partners share this commitment.
Risk and risk management
Company information
HydrogenOne Capital Growth plc (the "Company" or "Parent") was incorporated in
England and Wales on 16 April 2021 with registered number 13340859 as a public
company limited by shares and is an investment company within the terms of
Section 833 of the Companies Act 2006 (the "Act"). The Company is listed and
began trading on the Main Market of the London Stock Exchange and was admitted
to the premium segment of the Official List on 30 July 2021 (the "IPO"). The
Company is an approved investment trust under sections 1158 and 1159 of the
Corporation Tax Act 2010 and Part 2 Chapter 1 of Statutory Instrument
2011/2999.
Asset allocation at year end
The breakdown of the structure of the portfolio at the Company's year end is
shown in the Annual Report.
Dividends and dividend policy
The Ordinary Shares carry a right to receive dividends. Interim dividends are
determined by the Board and a final dividend is subject to shareholder
approval at the AGM.
Dividend policy
The Company is targeting a Net Asset Value total return of 10 to 15% per annum
over the medium to long-term with further upside potential. The Company
intends to invest in Hydrogen Assets with cash flow typically re-invested for
further accretive growth.
The Company only intends to pay dividends in order to satisfy the ongoing
requirements under the Investment Trust (Approved Company) (Tax) Regulations
2011 for it to be approved by HMRC as an investment trust save that, in the
medium term, the Company's Hydrogen Assets may also generate free cash flow
which the Company may decide not to re-invest and, in such case(s), the
Company currently intends to distribute these amounts to Shareholders.
The Company's revenue return after tax for the year amounted to a loss of
£1,405,000 (Period from incorporation on 16 April 2021 to 31 December 2021:
£805,000). The Company made a capital gain after tax of £2,959,000 (2021:
loss of £1,612,000). Therefore the total return after tax for the Company was
a profit of £1,554,000 (2021: loss of £2,417,000). No dividends have been
paid or are proposed for the year to 31 December 2022.
Principal risks and uncertainties
The Board, through delegation to the Audit and Risk Committee, has carried out
a robust assessment of the emerging and principal risks facing the Company.
These include those that would threaten its business model, future
performance, solvency and liquidity (see Audit and Risk Committee Report in
the Annual Report). The Audit and Risk Committee reviews ongoing monitoring of
both risks and controls. This ensures heightened and emerging risks are
identified outside of the normal cycle of Board and Audit and Risk Committee
meetings. The Audit and Risk Committee undertook a comprehensive review of the
Company's risk management framework and controls during the year. The risks
are documented on a risk register and each risk is rated by impact and
probability with the assessed risk given a risk score and a residual rating.
The risk register is reviewed on an ongoing basis in an attempt to capture all
risks and put appropriate mitigation in place. The review takes into account
changing factors including, but not restricted to, changes to markets (both
macro and micro), stakeholders, operations, regulation and emerging risks. The
top risks identified by this process are set out in the table below together
with the mitigated approach, and the Board considers these to be the principal
risks of the Company.
Increasing Stable Reducing -
Principal Risks and Uncertainties Mitigation Risk Status
Regulatory The Board and Investment Adviser has significant experience in the energy Stable
sector and is familiar with its volatile political and regulatory environment.
Changes in political or environmental conditions in the hydrogen sector (for Extensive contacts across the sector inform its ongoing monitoring of these
example, changes in government policy or support) could affect the Company's risks, which are reported to the Board at least quarterly. More specific due
prospects. diligence occurs prior to any investments and during the lifetime of their
ownership.
The Administrator has a strong track record in administering listed companies
and the various rules and regulation required to be adhered to.
Policy support As noted under 'regulatory', the Investment Adviser has longstanding Stable
experience in the energy sector and monitors the policy environment closely.
The technologies required to produce and use green hydrogen need policy Such experience and awareness is also present among the Company's
support to underpin the scale needed to drive stand-alone cost Non-Executive Directors. It is the intent of the Investment Adviser to access
competitiveness. Governments worldwide are showing such support today, but a range of hydrogen projects in different countries and at different points in
that may be volatile over the investment time horizon of the Company. the emerging value chain, to further mitigate the risk of policy volatility.
Power price The Investment Adviser monitors the outlook for electricity and hydrogen Increasing
prices. The exposure to fluctuating electricity and hydrogen prices may be
The income and value of the Company's investments may be affected by changes hedged at the hydrogen project level.
in the market prices of electricity and hydrogen, both current and expected.
As a result, the Investment Adviser oversee power revenues and monitor
Risks include refinancing risk, exposure to interest rate risk due to regularly against expectations.
fluctuations in the prevailing market rates, covenant breaches and possible
enhanced loss on poor performing assets. Portfolio allocations are monitored on an ongoing basis by both the Investment
Adviser and AIFM, to ensure compliance with investment limits. Reporting by
Risk assessment has increased from volatility in electricity prices and higher the Investment Adviser and AIFM are provided to the Board at least quarterly.
interest rates and inflation.
Operational The Investment Adviser conducts a vigorous due diligence process and works Stable
very closely with external and technically skilled consultancy firms to review
Initial pre-deal due diligence may not uncover all risks associated to a all potential transactions, with an aim to provide a fully scoped and informed
transaction. recommendation.
Investments are subject to operating and technical risks. While the Company The portfolio is constantly monitored by the Investment Adviser and the AIFM
will seek investments with creditworthy and appropriately insured to address risks as they are identified.
counterparties who bear the majority of these risks, there can be no assurance
that all risks can be mitigated. Diversification in counterparties and service providers ensures any impact is
limited. Furthermore, the Company invests in a diversified portfolio.
In addition, the long-term profitability of hydrogen investments will be
partly dependent upon the efficient operation and maintenance of the assets.
Inefficiency, or limitations in the skills, experience or resources of
operating companies, may reduce revenue.
As a result, profitability of the Company may be impaired leading to reduced
returns for Shareholders.
Performance The Board reviews at least quarterly the portfolio performance as well as Increasing
underlying key asset risks identified as part of the Company's risk register
Underperforming investment or investment strategy can lead to underperformance and how those risks are actively being mitigated which include but is not
to the Company's target return and ultimate investment objective. limited to:
Risk assessment has increased from macroeconomic impacts on portfolio · Non Controlling interest risk
investments from higher inflation and interest rates.
· Market risk
· Interest rate risk
· Inflation risk
At each Board meeting a report on risks, portfolio performance and any macro
and micro considerations is provided by the Investment Adviser and the AIFM,
and reviewed accordingly with the aim to mitigate such risks.
New investment recommendations are reviewed and approved in line with the
investment policy agreed with the Company and key parties.
Future acquisitions and capital raises The Company's Broker monitors the market for the Company's shares and reports Increasing
at quarterly meetings. The Board regularly reviews the relative level of
Ongoing capital raises are intended. The Company's share price trading at an discount against the sector and has the authority to buy back shares.
excessive discount to its net asset value may mean it is difficult to raise
further capital through share issues for onward investment. The Board and AIFM oversee the investment pipeline and monitor its progress in
relation to Company targets.
Risk assessment has increased due to share price trading at a discount to net
asset value. Certain assets will be identified in advance by the Investment Adviser as
being potentially available for acquisition by the Company.
The pipeline is managed by the Investment Adviser and monitored by the AIFM,
with onward reporting to the Board.
The Board is unlikely to agree to capital raises without a strong pipeline.
Refinancing The Investment Adviser closely monitors the liquidity in the market and Increasing
portfolio valuations.
The operational risks of the Company including market, counterparty, credit
and liquidity risk. Should new credit not be forthcoming, liquidity may be gained through a
capital raise, or liquidation of an asset including the Company's Listed
Extreme market volatility can disrupt capital raising process and ability to Hydrogen Assets.
raise monies to repay a debt demand in full.
The Investment Adviser, AIFM and the Board continuously monitor forecast and
Investments in Private Hydrogen Assets are illiquid in nature and may take a actual cashflows from operating, financing, and investing activities to
longer period of time to realise in order to fund the Company's operations or consider payment of dividends, or further investing activities.
meet its expenses.
The Company may be forced to sell liquid assets to meet its expenses at a time
when valuations are low.
Risk assessment has increased due to market volatility and the Company's share
price trading at a discount to net asset value, delaying the Company's ability
to raise capital. Higher interest rates will increase the cost of finance to
the Company.
Service providers All counterparties to the Company are reviewed as part of the risk register. A Stable
material credit risk is that of banks holding un-invested cash, the credit
Disruption to, or failure of the Company's Administrator or other parties to rating and credit worthiness of these are considered. A review of operational
complete their role efficiently, on time and in line with expectation counterparties such as the Administrator for operational procedures, disaster
recovery and system security is undertaken.
Counterparties of Company's Special Purpose Vehicles ("SPV") and underlying
assets are carried out as part of the investment due diligence process.
Portfolio valuation The Investment Adviser has significant experience in valuation of these Stable
assets.
Risk that portfolio asset valuations published do not represent the Fair
Market Values in accordance with the accounting requirements. The discount rate used in the valuations incorporates spot gilt rates for each
free cashflow based on maturity and country which mitigates the longer term
Investment valuations are based on modelling / financial projections for the impact of rises in interest rates.
relevant investments. Projections will primarily be based on the Investment
Adviser's assessment and are only estimates of future results based on The valuation polices will be reviewed by the Valuation Committee on a
assumptions made at the time of the projection. Actual results may vary quarterly basis, together with signing off on the Private Hydrogen Asset
significantly from the projections, which may reduce the profitability of the values.
Company leading to reduced returns to Shareholders.
A rise in interest rates will lead to an increase in the Discount Rate applied
to the Private Hydrogen Assets' valuation, leading to a reduction in the
Company's net asset value.
Key person The Investment Adviser is committed to expand its business/ staffing levels in Stable
order to diversify knowledge across the expanding team.
The Investment Adviser is a newly formed Company, with minimum employees. As
such, there are significant Key Person risks at this time and should they This risk is covered in the risk register and reported on at each Board
become unavailable, this could have a negative impact on the Company's ability meeting.
to achieve its investment objective.
Tax The corporate structure of the Company is reviewed periodically by the Company Stable
and its advisors.
Breaches of Section 1158 of the Corporation Tax Act could result in loss of
investment trust status. All investments receive professional structural advice prior to investment.
Changes in tax legislation such as BEPS, WHT rules and structural requirements
result in increased tax and resulting in a drop in returns from the Company's
investments.
Political and associated economic risk The Board and Investment Adviser have reviewed the portfolio for exposure and Stable
will continue to keep this under review.
Exposure to Russia and/or Ukraine within the investment portfolio could lead
to losses on investments.
The impact on the global equity markets, and hydrogen stocks in particular, of
a prolonged downturn caused by the situation, could lead to reduced valuations
of the Company
Viability statement
The Directors have assessed the viability of the Group for the period to 31
December 2027 (the "Viability Period"). The Board believes that the Viability
Period, being approximately five years, is an appropriate time horizon over
which to assess the viability of the Group, particularly when taking into
account the long-term nature of the Group's investment strategy, of investing
in private equity stakes of unlisted companies with a 3-5 year exit plan for
each investment, the principal risks outlined in the Annual Report and the
next continuation vote.
In accordance with the Articles, the continuation of the Company is subject to
the approval of shareholders every five years, with the first vote to be
proposed as an ordinary resolution at the Company's AGM in 2026. If passed,
the Articles provide that the Directors propose an ordinary resolution that
the Company continue its business as presently constituted at each fifth
annual general meeting thereafter. Since the Company's IPO, the Company has
raised further equity capital of £21m, demonstrating the continued support
for the Company's investment objective and therefore the Directors have no
reason to believe that the vote will not pass.
In its assessment of the prospects of the Group, the Board carried out a
robust assessment of the emerging and principal risks and considered each of
the uncertainties set out in the Annual Report which included consideration of
severe but plausible downside scenarios (such as a long-term market downturn,
significantly increased costs, delays in the realisation of assets and the
liquidity and solvency of the Group). The Board also considered the Group's
income and expenditure projections and cash projections. These metrics were
subjected to stress testing of the assumptions to evaluate the potential
impact on the Group, including long term downturn of the listed equity
markets, longer investment hold periods and increased inflation. Portfolio
changes, market developments, level of premium / discount to NAV and share
buybacks / share issues are discussed at quarterly Board meetings. The
internal control framework of the Group is subject to a formal review on at
least an annual basis.
The level of the ongoing charges is dependent to a large extent on the level
of net assets, the most significant contributor being the Investment Adviser
fee. The Group's cash realisable from the sale of its investments and expected
dividend income from investments provide cover to the Group's operating
expenses, and any other costs likely to be faced by the Group over the
Viability Period of their assessment.
The Director's assessment considered the market risks associated with the
Russian invasion of Ukraine in February 2022. The ongoing market volatility
and uncertainty this has caused, including higher inflation and interest
rates, has been considered and will continue to be monitored. The Investment
Adviser has reviewed the investment portfolio for exposure and while limited
exposure has been identified the Board will keep the situation under continued
review.
Based on this assessment, the Directors have a reasonable expectation that the
Group will be able to continue to operate and to meet its liabilities as they
fall due over the Viability Period.
Employees
The Company has no employees. As at the date of this report, the Company had
four Directors, of whom two are male and two are female.
Outlook
The outlook for the Company is described in the Chairman's Statement and the
Investment Adviser's Report.
Strategic report
The Strategic Report set out in the Annual Report was approved by the Board of
Directors on 3 April 2023.
For and on behalf of the Board
Simon Hogan
Chairman
3 April 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Group
and Parent Company Financial Statements in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare Group and Parent Company
financial statements for each financial year. Under that law they are required
to prepare the Group Financial Statements in accordance with UK-adopted
international accounting standards and applicable law and have elected to
prepare the parent Company financial statements on the same basis.
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 the Group's profit or loss for
that year. 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 which are reasonable relevant and
reliable;
· state whether they have been prepared in accordance with
UK-adopted international accounting standards;
· assess the Group and Parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern;
and
· use the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and which disclose
with reasonable accuracy at any time the financial position of the 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, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement 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.
Responsibility statement of the Directors in respect of the annual report
The Directors each confirm to the best of their knowledge that:
· the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole; and
· the Strategic Report includes a fair review of the development
and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
The Directors consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
For and on behalf of the Board
Simon Hogan
Chairman
3 April 2023
Financial statements
Parent and consolidated statement of comprehensive income
For the year ended 31 December 2022
Year ended 31 December 2022 Period from incorporation on 16 April 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 4 - 3,177 3,177 - (1,608) (1,608)
Gains on currency movements - 1 1 - 1 1
Gross investment gains/ (losses) - 3,178 3,178 - (1,607) (1,607)
Income 5 97 - 97 - - -
Total gain/(loss) 97 3,178 3,275 - (1,607) (1,607)
Investment Adviser fee 6 (343) - (343) (265) - (265)
Other expenses 7 (1,159) (219) (1,378) (540) (5) (545)
(Loss)/profit before finance costs and taxation (1,405) 2,959 1,554 (805) (1,612) (2,417)
Finance costs - - - - - -
Operating (loss)/profit before taxation (1,405) 2,959 1,554 (805) (1,612) (2,417)
Taxation 8 - - - - - -
(Loss)/profit for the year/period (1,405) 2,959 1,554 (805) (1,612) (2,417)
Return per Ordinary Share (basic and diluted) 12 (1.14)p 2.41p 1.27p (1.26)p (2.52)p (3.78)p
There is no other comprehensive income and therefore the 'Profit/(loss) for
the Year/Period' is the total comprehensive income for the year or period.
The total column of the above statement is the Parent and Consolidated
Statement of Comprehensive Income, including the return per Ordinary Share,
which has been prepared in accordance with IFRS. The supplementary revenue and
capital columns, including the return per Ordinary Share, are prepared under
guidance from the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations. The following notes form an integral part of these Financial
Statements.
Parent and consolidated statement of financial position
As at 31 December 2022
31 December 31 December
2022 2021
Notes £'000 £'000
Assets
Non-current assets
Investments held at fair value through profit or loss 4 106,673 68,830
Current assets
Cash and cash equivalents 18,192 34,019
Trade and other receivables 9 641 183
Total current assets 18,833 34,202
Total assets 125,506 103,032
Current liabilities
Trade and other payables 10 (153) (246)
Total liabilities (153) (246)
Net assets 125,353 102,786
Equity
Share capital 11 1,288 1,074
Share premium account 124,928 104,129
Capital reserve 1,347 (1,612)
Revenue reserve (2,210) (805)
Total equity 125,353 102,786
Net asset value per Ordinary Share 13 97.31p 95.75p
Approved by the Board of Directors on and authorised for issue 3 April 2023
and signed on their behalf by:
Simon Hogan
Director
HydrogenOne Capital Growth plc is incorporated in England and Wales with
registration number 13340859.
The following notes form an integral part of these Financial Statements.
Parent and consolidated statement of changes in equity
For the year ended 31 December 2022
Share
Share premium Capital Revenue
Capital account reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000
Opening balance as at 1 January 2022 1,074 104,129 (1,612) (805) 102,786
Issue of Ordinary Shares 11 214 21,255 - - 21,469
Ordinary Share issue costs 11 - (456) - - (456)
Profit/(loss) for the year - - 2,959 (1,405) 1,554
Closing balance as at 31 December 2022 1,288 124,928 1,347 (2,210) 125,353
For the period from incorporation on 16 April 2021 to 31 December
2021
Share
Share premium Capital Revenue
Capital account reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000
Opening balance as at 16 April 2021 - - - - -
Issue of Ordinary Shares 11 1,074 106,276 - - 107,350
Ordinary Share issue costs - (2,147) - - (2,147)
Loss for the period - - (1,612) (805) (2,417)
Closing balance as at 31 December 2021 1,074 104,129 (1,612) (805) 102,786
The following notes form an integral part of these Financial Statements.
Parent and consolidated statement of cash flows
For the year ended 31 December 2022
Period from
incorporation
Year ended on 16 April 2021
31 December to 31 December
2022 2021
Notes £'000 £'000
Cash flows from operating activities
Investment income 97 -
Management expenses (1,734) (810)
Foreign exchange gains 1 1
Increase in trade and other receivables (445) (183)
(Decrease)/increase in trade and other payables (93) 246
Net cash flow used in operating activities (2,174) (746)
Cash flows from investing activities
Purchase of investments (36,718) (70,438)
Sale of investments 2,052 -
Net cash flow used in investing activities (34,666) (70,438)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares 11 21,469 107,350
Ordinary Share issue costs 11 (456) (2,147)
Net cash flow from financing activities 21,013 105,203
(Decrease)/increase in cash and cash equivalents (15,827) 34,019
Cash and cash equivalents at start of year/period 34,019 -
Cash and cash equivalents at end of year/period 18,192 34,019
The following notes form an integral part of these Financial Statements.
Notes to the parent and consolidated financial statements
1. General information
Company information
HydrogenOne Capital Growth plc (the "Company" or "Parent") was incorporated in
England and Wales on 16 April 2021 with registered number 13340859 as a public
company limited by shares and is an investment company within the terms of
Section 833 of the Companies Act 2006 (the "Act"). The Company is listed and
began trading on the Main Market of the London Stock Exchange and was admitted
to the premium segment of the Official List on 30 July 2021 (the "IPO"). The
Company has applied for and been accepted as an approved investment trust
under sections 1158 and 1159 of the Corporation Tax Act 2010 and Part 2
Chapter 1 of Statutory Instrument 2011/2999.
FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management
(Guernsey) Limited) acts as the Company's Alternative Investment Fund Manager
("AIFM").
Apex Listed Companies Services (UK) Limited (formerly Sanne Fund Services (UK)
Limited) (the "Company Secretary and Administrator") provides administrative
and company secretarial services to the Company.
The Company's Investment Adviser is HydrogenOne Capital LLP.
The Company's registered office is 6th Floor, 125 London Wall, London, EC2Y
5AS.
Investment objective
The Company's investment objective is to deliver an attractive level of
capital growth by investing, directly or indirectly, in a diversified
portfolio of hydrogen and complementary hydrogen focussed assets whilst
integrating core environmental, social and governance ("ESG") principles into
its decision making and ownership process.
Company structure
The Company makes its investments in unquoted Hydrogen Assets ("Private
Hydrogen Assets") through HydrogenOne Capital Growth Investments (1) LP (the
"Limited Partnership"), in which the Company is the sole Limited Partner. The
Limited Partnership registered as a private fund limited partnership in
England and Wales under the Limited Partnerships Act 1907 with registered
number LP021814. The Limited Partnership has been established pursuant to the
Limited Partnership Agreement dated 5 July 2021 as amended and restated on 26
November 2021 (the "Limited Partnership Agreement") in order to make
investments pursuant to the investment policy of the Limited Partnership. The
Limited Partnership's investment policy and restrictions are consistent with
the Company's investment policy and restrictions for Private Hydrogen Assets.
The General Partner of the Limited Partnership is HydrogenOne Capital Growth
(GP) Limited (the "General Partner"), a wholly owned subsidiary of the
Company. The General Partner was incorporated in England and Wales on 19 May
2021 with company registered number 13407844. The General Partner undertakes
the responsibility for the management, operation and administration of the
business and affairs of the Limited Partnership. The General Partner's Profit
Share for each accounting period shall be an amount equal to 1.5% per annum of
the prevailing NAV of the Limited Partnership, which shall be allocated to the
General Partner as a first charge on the profits of the Limited Partnership.
For so long as the Company is the sole Limited Partner, the General Partner's
Profit Share shall be allocated and distributed to the Company rather than the
General Partner.
The carried interest partner of the Limited Partnership is HydrogenOne Capital
Growth (Carried Interest) LP (the "Carried Interest Partner") which, in
certain circumstances, will receive carried interest on the realisation of
Private Hydrogen Assets by the Limited Partnership. The Carried Interest
Partner has been set up for the benefit of the principals of the Investment
Adviser.
Private Hydrogen Assets
The Company invests via the Limited Partnership in Private Hydrogen Assets,
which may be operational companies or hydrogen projects. Investments are
mainly in the form of equity, although investments may be made by way of debt
and/ or convertible securities. The Company may acquire a mix of controlling
and non-controlling interests in Private Hydrogen Assets, however the Company
invests principally in non-controlling positions (with suitable minority
protection rights to, inter alia, ensure that the Private Hydrogen Assets are
operated and managed in a manner that is consistent with the Company's
investment policy).
The Company acquires Private Hydrogen Assets via the Limited Partnership. In
due course, the Company may acquire Private Hydrogen Assets directly or by way
of holdings in special purpose vehicles or intermediate holding entities
(including successor limited partnerships established on substantially the
same terms as the Limited Partnership) or, if the Company is considered a
'feeder fund' under the Listing Rules, other undertakings advised by the
Investment Adviser and, in such circumstances, the investment policy and
restrictions will also be applied on a look-through basis and such
undertaking(s) will also be managed in accordance with the Company's
investment policy.
Listed Hydrogen Assets
The Company also invests directly in quoted or traded Hydrogen Assets, which
are predominantly equity securities but may also be corporate debt and/or
other financial instruments ("Listed Hydrogen Assets"). The Company has the
ability to invest in Listed Hydrogen Assets in any market or country with a
market capitalisation (at the time of investment) of at least US$100 million.
The Company's approach is to be a long-term investor and does not ordinarily
adopt short-term trading strategies.
Liquidity reserve
During the initial Private Hydrogen Asset investment period after a capital
raise and/or a realisation of a Private Hydrogen Asset, the Company intends to
allocate the relevant net proceeds of such capital raise/realisation to cash
(in accordance with the Company's cash management policy) and/or additional
Listed Hydrogen Assets and related businesses pending subsequent investment in
Private Hydrogen Assets (the ''Liquidity Reserve'').
The Company anticipates holding cash to cover the near-term capital
requirements of the pipeline of Private Hydrogen Assets and in periods of high
market volatility.
2. Basis of preparation
The principal accounting policies are set out below:
Reporting entity
These Parent and Consolidated Financial Statements (the "Financial
Statements") present the results of both the Parent; and the Parent and the
General Partner (together referred to as the "Group").
As at 31 December 2022, the statement of financial position of the General
Partner consisted of issued share capital and corresponding share capital
receivable in the amount of £1. The General Partner had no income,
expenditure or cash flows for the year.
Due to the immaterial balances of the General Partner there is no material
difference between the results of the Parent and the results of the Group. As
a result, the Financial Statements as presented represent both the Parent's
and the Group's financial position, performance and cash flows.
Basis of accounting
The Financial Statements have been prepared in accordance with UK-adopted
international accounting standards ("IFRS") and the applicable legal
requirements of the Companies Act 2006.
The Financial Statements have also been prepared as far as is relevant and
applicable to the Company and Group in accordance with the Statement of
Recommended Practice ('SORP') issued by the Association of Investment
Companies ("AIC") in July 2022.
The Financial Statements are prepared on the historical cost basis, except for
the revaluation of financial instruments measured at fair value through profit
or loss.
Fair value is the price that would be received on sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, regardless of whether that price is directly observable
or estimated using another valuation technique. In estimating the fair value
of an asset or liability, the Company and Group take into account the
characteristics of the asset or liability if market participants would take
those characteristics into account when pricing the asset or liability at the
measurement date. Fair value for measurement and/or disclosure purposes in
these Financial Statements is determined on such a basis.
The Financial Statements are presented in Pounds Sterling because that is the
currency of the primary economic environment in which the Company and Group
operate.
The principal accounting policies adopted are set out below. These policies
are consistently applied.
Accounting for subsidiaries
The Board of Directors has determined that the Company has all the elements of
control as prescribed by IFRS 10 in relation to:
1. the Limited Partnership; as the Company is the sole limited partner in
the Limited Partnership (100% of the Limited Partnership's commitments are
held by the Company), is exposed to and has rights to the returns of the
Limited Partnership, and has the ability through its control of the General
Partner to affect the amount of its returns from the Limited Partnership; and
2. the General Partner; as the Company wholly owns the General Partner, is
exposed to and has rights to the returns of the General Partner, and has the
ability through its control of the General Partner's activities to affect the
amount of its returns from the General Partner.
The Investment entities exemption requires that an investment entity that has
determined that it is a parent under IFRS 10 shall not consolidate certain of
its subsidiaries; instead, it is required to measure its investment in these
subsidiaries at fair value through profit or loss in accordance with IFRS 9.
The criteria which define an investment entity are as follows:
(i) the company obtains funds from one or more investors for the purpose
of providing those investors with investment management services;
(ii) the company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
(iii) the company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
The Company is an investment company, providing investors exposure to a
diversified portfolio of hydrogen and complementary hydrogen focussed assets
that are managed for investment purposes. The investments were made in line
with the stated objective of the Company to deliver an attractive level of
capital growth in accordance with the strategy that has been set by the
Directors.
In assessing whether the Company meets the definition of an investment entity
set out in IFRS 10 the Directors' note that:
(i) the Company has multiple investors with shares issued publicly on the
London Stock Exchange and obtains funds from a diverse group of shareholders
who would otherwise not have access individually to investing in hydrogen
focussed assets;
(ii) the Company's purpose is to invest funds for capital appreciation but
with potential for some investment income. The Limited Partnership has a
ten-year life however the underlying assets have minimal residual value
because they do not have unlimited lives, are not to be held indefinitely and
have appropriate exit strategies in place; and
(iii) the Company measures and evaluates the performance of all of its
investments on a fair value basis which is the most relevant for investors in
the Company. The Directors use fair value information as a primary measurement
to evaluate the performance of all of the investments and in decision making.
The Directors assess each new investment carefully to determine whether the
Company as a whole continues to meet the definition of an investment entity.
The Board of Directors has determined that the Company meets all the typical
characteristics of an investment entity and therefore meets the definition set
out in IFRS 10.
Accounting for the Limited Partnership
The Limited Partnership serves as an asset holding entity and does not provide
investment-related services. Therefore, when the Limited Partnership is
assessed based on the overall structure as a means of carrying out the
Company's activities, the Board of Directors has determined that the Limited
Partnership meets the definition of an investment entity. Accordingly, the
Company is required under IFRS 10 to hold its investment in the Limited
Partnership at fair value through the Statement of Comprehensive Income rather
than consolidate them. The Company has determined that the fair value of the
Limited Partnership is its net asset value and has concluded that it meets the
definition of an unconsolidated subsidiary under IFRS 12 and has made the
necessary disclosures in these Financial Statements.
Accounting for the General Partner
The General Partner provides investment related services to the Limited
Partnership on behalf of the Company. IFRS 10 requires subsidiaries that
provide services that relate to the investment entity's investment activities
to be consolidated. Accordingly, the Company is required under IFRS 10 to
consolidate the results of the General Partner.
The Directors agree that the investment entity accounting treatment outlined
above appropriately reflects the Company's activities as an investment trust
and provides the most relevant information to investors.
Going concern
The Directors consider that it is appropriate to adopt the going concern basis
in preparing the Financial Statements. In reaching this conclusion, the
Directors considered the income and expense projections and the liquidity of
the investment portfolio, and considered the impact to the Company and
portfolio of investments from the economic conditions such as higher interest
rates and inflationary pressures and market volatility arising from the
ongoing war in Ukraine and secondary effects of the COVID-19 pandemic.
The Company and Group continue to meet day-to-day liquidity needs through its
cash resources. The Company and Group had at 31 December 2022 unrestricted
cash of £18.2 million (2021: £34.0 million) as well as £3.7 million (2021:
£8.2 million) in Listed Hydrogen Assets. The Company and Group's net assets
at 31 December 2022 were £125.4 million (£102.8 million) and total expenses
for the year ended 31 December 2022 were £1.7 million (2021: £0.8 million),
which represented approximately 1.5% (2021: 0.8%) of the average net assets
value of the Company in the year to 31 December 2022 of £116.8 million
(period from the Company's IPO on 22 June 2021 to the 31 December 2021
£104.6 million).
Following the declaration of the Company's Net Asset Value as at the 31
December 2022 on the 8 February 2023, the Company's share price was 77.4p
representing a 20.5% discount to the Net Asset Value (31 December 2021:
premium of 24.8%).
At the date of approval of these Financial Statements, the Company and Group
had cash resources of £12.6 million and annual expenses are estimated to be
£3.4 million.
The Directors also recognise that the continuation of the Company is subject
to the approval of shareholders at the Annual General Meeting ("AGM") in 2026,
and every fifth AGM thereafter. The Board has considered the long term
prospects of the Company and has no reason to believe that the continuation
vote will fail.
Based on the foregoing, the Directors have adopted the going concern basis in
preparing the Financial Statements. The Directors have a reasonable
expectation that the Company and Group have adequate operational resources to
continue in operational existence for at least twelve months from the date of
approval of these Financial Statements.
Critical accounting judgements, estimates and assumptions
The preparation of Financial Statements in accordance with IFRS requires the
Directors to make judgements, estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the Financial Statements and the reported
amounts of income and expense during the period. Actual results could differ
from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision only affects that period or in the period
and future periods if the revision affects both current and future periods.
Judgements
Investment entity
In accordance with the Investment Entities exemption contained in IFRS 10, the
Board has determined that the Company satisfies the criteria to be regarded as
an investment entity and that the Company provides investment related services
and, as a result, measures its investment in the Limited Partnership at fair
value.
The Limited Partnership serves as an asset holding entity and does not provide
investment-related services. Therefore, when the Limited Partnership is
assessed based on the overall structure as a means of carrying out the
Company's activities, the Board of Directors has determined that the Limited
Partnership meets the definition of an investment entity. Accordingly, the
Company is required under IFRS 10 to hold its investment in the Limited
Partnership at fair value through the Statement of Comprehensive Income rather
than consolidate them.
The General Partner provides investment related services to the Limited
Partnership on behalf of the Company. IFRS 10 requires subsidiaries that
provide services that relate to the investment entity's investment activities
to be consolidated. Accordingly, the Board of Directors have determined that
the Company is required under IFRS 10 to consolidate the results of the
General Partner. As described in the Reporting Entity section, the Financial
Statements as presented represent both the Parent's and the Group's financial
position, performance and cash flows.
These conclusions involved a degree of judgement and assessment as to whether
the Company, the Limited Partnership and the General Partner met the criteria
outlined in the accounting standards.
Estimates
Investment valuations
The key estimate in the Financial Statements is the determination of the fair
value of the Private Hydrogen Assets, held by the Limited Partnership, by the
Investment Adviser for consideration by the Directors. This estimate is key as
it significantly impacts the valuation of the Limited Partnership at the year
end. The fair valuation process involves estimation using subjective inputs
that are unobservable (for which market data is unavailable). The key inputs
considered in the valuation are described in note 15.
Comparatives
Comparative information is included as at 31 December 2021 or for the period
since incorporation on 16 April 2021 to 31 December 2021, whereas the current
period is from 1 January 2022 to 31 December 2022. Both periods are therefore
not comparable.
New standards, interpretations and amendments adopted from 1 January 2022
Effective in the current financial year
The Board have assessed those new standards, interpretations, and/or
amendments which became effective during the financial year under review and
concluded they have no material impact to the Company.
New standards and amendments issued but not yet effective
There are a number of new standards, interpretations, and/or amendments, which
did not become effective during the financial year under review.
At the date of approval of these Financial Statements, the following standards
and interpretations were amended during the year:
· IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting
policies (effective 1 January 2023).
· IAS 8 - Definition of Accounting Estimates (effective 1 January
2023).
· IAS 12 - Deferred tax related to assets and liabilities arising
from a single transaction
The Board have assessed new but not yet effective standards applicable to the
Company and have concluded that they will not have a material impact to the
Company.
3. Significant accounting policies
(a) Financial instruments
Financial assets - Classification, recognition, derecognition and measurement
The Company and Group's financial assets principally comprise of: investments
held at fair value through profit or loss (Listed Hydrogen Assets and the
Limited Partnership); and trade and other receivables, which are initially
recognised at fair value and subsequently measured at amortised cost.
Financial assets are recognised in the Statement of Financial Position when
the Company or Group become a party to the contractual provisions of the
instrument. Transaction costs that are directly attributable to the
acquisition or issue of financial assets (other than financial assets at fair
value through profit or loss) are added to or deducted from the fair value of
the financial assets, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets at fair
value through profit or loss are recognised immediately in profit or loss.
Subsequent to initial recognition, financial assets at fair value through
profit or loss are measured at fair value. Gains and losses resulting from the
movement in fair value are recognised in the Statement of Comprehensive Income
at each valuation point within 'gains/(losses) on investments'.
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company or Group have transferred
substantially all risks and rewards of ownership.
Financial liabilities - Classification, recognition, derecognition and
measurement
The Company and Group's financial liabilities include trade and other payables
and other short term monetary liabilities which are initially recognised at
fair value and subsequently measured at amortised cost.
Financial liabilities are recognised in the Statement of Financial Position
when the Company or Group become a party to the contractual provisions of the
instrument. Transaction costs that are directly attributable to the
acquisition or issue of financial liabilities (other than financial
liabilities at fair value through profit or loss) are added to or deducted
from the fair value of the financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of
financial liabilities at fair value through profit or loss are recognised
immediately in profit or loss. Financial liabilities are subsequently measured
at amortised cost.
A financial liability (in whole or in part) is derecognised when the Company
or Group have extinguished the contractual obligations, it expires or is
cancelled.
Valuation of Listed Hydrogen Assets
Upon initial recognition Listed Hydrogen Assets are classified by the Company
and Group 'at fair value through profit or loss'. They are accounted for on
the date they are traded and are included initially at fair value which is
taken to be their cost. Subsequently they are valued at fair value, which is
the bid market price, or if bid price is unavailable, last traded price on the
relevant exchange.
Valuation of the Limited Partnership
The Company may make investments in Private Hydrogen Assets directly, via the
Limited Partnership and/or by way of holdings in special purpose vehicles or
intermediate holding entities. These vehicles will be measured at fair value
through profit or loss based on their Net Asset Value ("NAV") at the period
end, which is principally derived from the valuation of their Private Hydrogen
Assets.
The Company and Group has determined that the fair value of the Limited
Partnership is the Limited Partnership's NAV. The NAV of the Limited
Partnership is prepared in accordance with accounting policies that are
consistent with IFRS and consists of the fair value of its Private Hydrogen
Assets, and the carrying value of its assets and liabilities.
The Investment Adviser values the Private Hydrogen Assets according to IPEV
Guidelines. The valuation techniques available under IPEV Guidelines are set
out below and are followed by an explanation of how they are applied to the
Private Hydrogen Assets:
· Discounted cash flows ("DCF");
· Multiples;
· Industry Valuation Benchmarks; and
· Available Market Prices.
The nature of the Private Hydrogen Assets will influence the valuation
technique applied. The valuation approach recognises that, as stated in the
IPEV Guidelines, the price of a recent investment, if resulting from an
orderly transaction, generally represents fair value as at the transaction
date and may be an appropriate starting point for estimating fair value at
subsequent measurement dates. Consideration is given to the facts and
circumstances as at the subsequent measurement date such as changes in the
market or performance of the investee company including whether maintainable
revenues and/ or earnings have been established. Milestone analysis is used,
where appropriate, to incorporate the operational progress of the investee
company into the valuation.
As a result, various techniques may be employed to assess the valuations.
However, an absence of relevant industry peers may preclude the application of
the industry valuation benchmarks technique and an absence of observable
prices may preclude the available market prices approach. All valuations are
calibrated and are cross-checked for reasonableness by employing relevant
alternative techniques.
As at 31 December 2022, the Private Hydrogen Assets have principally been
valued using either the DCF method; or a combination of the DCF method and the
price of recent investment. The valuations are weighted towards the DCF method
based on the time since the price of recent investment until the full DCF
valuation is applied (typically the valuations are tapered from the price of
recent investment to the full DCF valuation over four calendar quarters after
the price of recent investment). The impact of this weighted approach is that
there will be either an effective discount or a premium to the full DCF
valuation over the tapering period. The valuations derived from this approach
have been assessed for reasonableness against relevant market comparables,
where available, and calibrated against specific milestones for indications of
positive or negative performance which may impact valuations.
In a DCF valuation, the fair value represents the present value of the
investment's expected future cash flows, based on appropriate assumptions for
revenues and costs, and suitable cost of capital assumptions. Judgement is
applied in arriving at appropriate discount rates, based on the knowledge of
the market, taking into account market intelligence gained from bidding
activities, discussions with financial advisers, consultants, accountants and
lawyers and publicly available information.
A range of sources are reviewed in determining the underlying assumptions to
apply in a DCF valuation used in calculating the fair value of a Private
Hydrogen Asset. These sources include but are not limited to:
· macroeconomic projections adopted by the market as disclosed in
publicly available resources;
· macroeconomic forecasts provided by expert third party economic
advisers;
· discount rates publicly disclosed in the global renewables
sector;
· discount rates applicable to comparable infrastructure asset
classes, which may be procured from public sources or independent third-party
expert advisers;
· discount rates publicly disclosed for comparable market
transactions of similar assets; and
· capital asset pricing model outputs and implied risk premia over
relevant risk free rates. Where available, assumptions are based on observable
market and technical data.
(b) Foreign currency
Functional and presentation currency
Items included in the Financial Statements are measured using the currency of
the primary economic environment in which the entity operates, the functional
currency. The Financial Statements are presented in Pounds Sterling which is
the Company and Group's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Pounds Sterling using the
exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement of
Comprehensive Income.
(c) Income
Investment income has been accounted for on an ex-dividend basis or when the
right to the income is established. Special dividends are credited to capital
or revenue in the Statement of Comprehensive Income, according to the
circumstances surrounding the payment of the dividend. Overseas dividends are
included gross of withholding tax recoverable.
(d) Dividend payable
Interim dividends are recognised when the Company pays the dividend. Final
dividends are recognised in the period in which they are approved by the
shareholders.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses directly related
to the acquisition or disposal of an investment (transaction costs) are taken
to the Statement of Comprehensive Income as a capital item. All other
expenses, including Investment Adviser fees, are taken to the Statement of
Comprehensive Income as a revenue item.
(f) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax. The tax currently payable is based on the taxable profit for the period.
Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income because it excludes items of income or expenses that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current tax is
calculated using tax rates that were applicable at the financial reporting
date.
Where expenses are allocated between capital and revenue any tax relief in
respect of the expenses is allocated between capital and revenue returns on
the marginal basis using the Company's effective rate of corporation taxation
for the relevant accounting period.
Deferred taxation is recognised in respect of all timing differences that have
originated but not reversed at the financial reporting date, where
transactions or events that result in an obligation to pay more tax in the
future or right to pay less tax in the future have occurred at the financial
reporting date. This is subject to deferred tax assets only being recognised
if it is considered more likely than not that there will be suitable profits
from which the future reversal of the timing differences can be deducted.
Deferred tax assets and liabilities are measured at the rates applicable to
the legal jurisdictions in which they arise.
Since the General Partner does not have any income or expenditure in the
period, the Group tax position is the same as the Company tax position.
(g) Segmental reporting
The Board has considered the requirements of IFRS 8 - 'Operating Segments'.
The Company has entered into an Investment Advisory Agreement with the
Investment Adviser under which the Investment Adviser is responsible for the
management of the Company's investment portfolio, subject to the overall
supervision of the Board of Directors. Subject to its terms and conditions,
the Investment Advisory Agreement requires the Investment Adviser to manage
the Company's investment portfolio in accordance with the Company's investment
guidelines as in effect from time to time, including the authority to purchase
and sell investments and to carry out other actions as appropriate to give
effect thereto. However, the Board retains full responsibility to ensure that
the Investment Adviser adheres to its mandate. Moreover, the Board is fully
responsible for the appointment and/or removal of the Investment Adviser.
Accordingly, the Board is deemed to be the 'Chief Operating Decision Maker' of
the Company.
The Directors are of the opinion that the Company is engaged in a single
segment of business being investment into the hydrogen focussed investments.
Segment information is measured on the same basis as that used in the
preparation of the Company's Financial Statements.
(h) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, include bank
overdrafts, and short-term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to insignificant risks of
changes in value, and are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes.
(i) Nature and purpose of equity and reserves:
Share capital represents the 1p nominal value of the issued share capital.
The share premium account arose from the net proceeds of new shares issued.
Costs directly attributable to the issue of new shares are charged against the
value of the ordinary share premium.
The capital reserve reflects any:
· gains or losses on the disposal of investments;
· exchange movements of a capital nature;
· the increases and decreases in the fair value of investments
which have been recognised in the capital column of the Statement of
Comprehensive Income; and
· expenses which are capital in nature.
The revenue reserve reflects all income and expenditure recognised in the
revenue column of the Statement of Comprehensive Income and is distributable
by way of dividend.
The Company's distributable reserves consist of the revenue reserve and the
capital reserve. However any gains in the fair value of investments that are
not readily convertible to cash are treated as unrealised gains in the capital
reserve and are non-distributable.
Ordinary Shares are classified as equity.
4. Investments held at fair value through profit or loss
(a) Summary of valuation
31 December 31 December
2022
2021
£'000 £'000
Investments held at fair value through profit or loss
Listed Hydrogen Assets 3,667 8,233
Limited Partnership 103,006 60,597
Closing valuation of financial assets at fair value through profit or loss 106,673 68,830
(b) Movements in valuation
£'000 £'000
Opening valuation of financial assets at fair value through profit or loss 68,830 -
Opening unrealised loss on investments 1,608 -
Opening cost of financial assets at fair value through profit or loss 70,438 -
Additions, at cost - Listed Hydrogen Assets 137 9,461
Additions, at cost - Limited Partnership 36,581 60,977
Disposals, at cost - Listed Hydrogen Assets (1,909) -
Cost of financial assets at fair value through profit or loss at the end of 105,247 70,438
the year/period
Unrealised losses on investments - Listed Hydrogen Assets (4,022) (1,228)
Unrealised gains/(losses) on investments - Limited Partnership 5,448 (380)
Closing valuation of financial assets at fair value through profit or loss 106,673 68,830
(c) Gain/(loss) on investments
£'000 £'000
Movement in unrealised loss - Listed Hydrogen Assets (2,794) (1,228)
Movement in unrealised gains/(losses) - Limited Partnership 5,828 (380)
Realised gains on investments - Listed Hydrogen Assets 143 -
Total gain/(loss) on investments 3,177 (1,608)
Under IFRS 13 'Fair Value Measurement', an entity is required to classify
investments using a fair value hierarchy that reflects the significance of the
inputs used in making the measurement decision.
The following shows the analysis of financial assets recognised at fair value
based on:
Level 1
The unadjusted quoted price in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the
asset or liability.
Transfers between levels of the fair value hierarchy are recognised as at the
end of the reporting period during which the change has occurred. There have
been no transfers between levels during the year ended 31 December 2022 (2021:
no transfers).
The classification of the Company and Group's investments held at fair value
through profit or loss is detailed in the table below:
31 December 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed Hydrogen Assets 3,667 - - 3,667
Limited Partnership - - 103,006 103,006
3,667 - 103,006 106,673
31 December 2021
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed Hydrogen Assets 8,233 - - 8,233
Limited Partnership - - 60,597 60,597
8,233 - 60,597 68,830
The Company and Group's Level 3 investment is the investment in the Limited
Partnership. The NAV of the Limited Partnership as of 31 December 2022 is
£103,006,000 (2021: £60,597,000). The movement on the Level 3 investments
during the year/period is shown below:
31 December 2022 31 December 2021
£'000 £'000
Opening balance 60,597 -
Investment in Limited Partnership 36,581 60,977
Unrealised gains/(losses) on investment in Limited Partnership 5,828 (380)
Closing balance 103,006 60,597
Look-through financial information
The NAV of the Limited Partnership consists of the fair value of its Private
Hydrogen Assets and the carrying value of its assets and liabilities. As at
the year end, the Limited Partnership held nine Private Hydrogen Assets (2021:
three).
The following table reconciles the fair value of the Private Hydrogen Assets
and the NAV of the Limited Partnership.
31 December 2022 31 December 2021
£'000 £'000
Investment in Private Hydrogen Assets 103,115 39,231
Plus/(minus): net current assets/(liabilities) (109) 21,366
NAV of the Limited Partnership 103,006 60,597
The Level 3 Private Hydrogen Assets are valued by the Investment Adviser using
either the DCF methodology or a combination of the DCF and Price of Recent
Investment methodology, as outlined in note 3. The key inputs considered in
the valuation are described in note 15.
At 31 December 2022, the valuations of the Limited Partnership's underlying
investments in Private Hydrogen Assets were determined as follows:
Name Country of Value of Primary valuation Significant Range input
unobservable inputs
Incorporation Investment technique
£'000
Sunfire GmbH Germany 21,763 Weighted Discount rates applied in full DCF valuation 12.1%-12.4%
DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation (1)
Investment (4)%
Elcogen Group plc United 20,430 Weighted Discount rates applied in full DCF valuation 12.5%-13.0%
Kingdom DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation(1)
Investment 4%
HiiROC Limited United 12,914 DCF Discount rates 13.5%
Kingdom
Bramble Energy United 10,032 Weighted Discount rates applied in full DCF valuation 13.4%-13.6%
DCF and Price
Limited Kingdom
of Recent
Weighting between Price of Recent Investment and DCF valuation(1)
Investment
24%
NanoSUN Limited United 11,519 Weighted Discount rates applied in full DCF valuation 13.4%-13.6%
Kingdom DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation(1)
Investment
(10%)
Cranfield Aerospace United 6,296 Weighted Discount rates applied in full DCF valuation 13.5%
Solutions Limited Kingdom DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation(1)
Investment
(20%)
HH2E AG Germany 5,134 Weighted Discount rates applied in full DCF valuation 12.1%-12.4%
DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation(1)
Investment
6%
GEN2 Energy AS Norway 3,421 Weighted Discount rates applied in full DCF valuation 13.0%
DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation(1)
Investment
(10%)
Strohm Holding BV The 11,606 Weighted Discount rates applied in full DCF valuation 12.5%-12.8%
Netherlands DCF and Price
of Recent Weighting between Price of Recent Investment and DCF valuation(1)
Investment
(31%)
1This is the effective discount or premium to the full DCF valuation, as a
result of application of the weighted valuation in line with the valuation
methodology described in note 3. A negative percentage denotes that the
weighted valuation is at a discount to the full DCF valuation; whilst a
positive percentage denotes that the weighted valuation is at a premium to the
full DCF valuation.
The following table shows the Directors best estimate of the sensitivity of
the Level 3 Private Hydrogen Assets to changes in the principle unobservable
input, with all other variables held constant.
Effect on fair value of investments
£'000
Unobservable input Possible 31 December 31 December
reasonable 2022 2021
change in input
Discount rates applied in full DCF valuation +1% (6,515) n/a
-1% 7,815 n/a
Weighting between Price of Recent Investment and full DCF valuation plus one calendar quarter of tapering from Price of Recent Investment to full (324) n/a
DCF valuation
minus one calendar quarter of tapering from Price of Recent Investment to full 286 n/a
DCF valuation
The European Central Bank ('ECB') and the Bank of England ('BOE') base rates
at 31 December 2022 were 2.5% and 3.5% respectively. We anticipate that the
terminal base rate hikes (based on independent research) could reach 3.75% for
ECB and 4.75% for BOE. As such, we have performed sensitivities of +/- 1% on
the discount rate assumptions.
The valuations are weighted towards the full DCF valuation based on the time
since the price of recent investment until the full DCF valuation is applied
(typically the valuations are tapered from the price of recent investment to
the full DCF valuation over four calendar quarters after the price of recent
investment). Accordingly, we have applied a sensitivity of +/- one calendar
quarter of this weighting as this is deemed the most likely period by which
the tapering may be delayed or brought forward.
For those investments that have been fair valued using the price of a recent
investment based on unadjusted third-party pricing information, the Company is
not required to disclose any quantitative information regarding the
unobservable inputs as they have not been developed by the Company and are not
reasonably available to the Company.
5. Income
Period from
incorporation on
Year ended 16 April 2021 to
31 December 2022 31 December 2021
£'000 £'000
Overseas dividend income 1 -
Bank interest 96 -
Total income 97 -
6. Investment Adviser fee
Year ended Period from incorporation on
31 December 2022
16 April 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment Adviser fee 343 - 343 265 - 265
At 31 December 2022 an amount of £12,554 (2021: £48,349) was payable to the
Investment Adviser in respect of the Investment Adviser fee.
Additionally, the Company agreed with the Investment Adviser that the costs
and expenses of the IPO would be capped at 2% of the gross proceeds received,
with any cost above this amount to be paid by the Investment Adviser by way of
rebate of its adviser fee. At 31 December 2022, £111,432 in respect of excess
IPO issue costs is due to be received from the Investment Adviser (2021:
£141,493).
Investment Adviser fee
The Company has entered into an Investment Adviser Agreement dated 5 July 2021
between the Company, the AIFM and the Investment Adviser (the "Investment
Adviser Agreement"), pursuant to which the Investment Adviser has been given
responsibility for investment advisory services in respect of any Private
Hydrogen Assets the Company invests in directly and the Listed Hydrogen Assets
(including Listed Hydrogen Assets forming part of the Liquidity Reserve and
uninvested cash) in accordance with the Company's investment policy, subject
to the overall control and supervision of the AIFM.
Under the Investment Adviser Agreement, the Investment Adviser receives from
the Company, quarterly in advance, an advisory fee equal to:
i. 1.0% of the Net Asset Value per annum of the Listed Hydrogen Assets
up to £100 million:
ii. 0.8% of the Net Asset Value per annum of the Listed Hydrogen Assets
from £100 million (save that the Investment Adviser has agreed to reduce this
fee to 0.5% in respect of the Liquidity Reserve pending their investment in
Private Hydrogen Assets for 18 months following Admission to 30 January 2023);
iii. 1.5% of the Net Asset Value per annum of any Private Hydrogen Assets
held by the Company directly (i.e. not held by the Limited Partnership or any
other undertaking advised by the Investment Adviser where the Investment
Adviser is receiving a separate advisory fee); and
iv. for so long as the Company is not considered a 'feeder fund' for the
purposes of the Listing Rules, 1.5% per annum of the Net Asset Value of the
Private Hydrogen Assets held by the Limited Partnership.
The Limited Partnership has entered into a Limited Partnership Investment
Adviser Agreement dated 5 July 2021 (the "Limited Partnership Investment
Adviser Agreement") between the General Partner (in its capacity as general
partner of the Limited Partnership), the AIFM and the Investment Adviser,
pursuant to which the Investment Adviser has been given responsibility for
investment advisory services in respect of the Private Hydrogen Assets in
accordance with the investment policy of the Limited Partnership, subject to
the overall control and supervision of the AIFM.
Under the Limited Partnership Investment Adviser Agreement, the Investment
Adviser, if the Company was considered a 'feeder fund' for the purposes of the
Listing Rules by virtue of additional investors co-investing via the Limited
Partnership in the future, shall receive from the Limited Partnership an
advisory fee equal to 1.5% per annum of the Net Asset Value of the Private
Hydrogen Assets held by the Limited Partnership, payable quarterly in advance.
Advisory fees paid or payable by the Limited Partnership are reflected through
the NAV of the Limited Partnership.
No performance fee is paid or payable to the Investment Adviser under either
the Investment Adviser Agreement or the Limited Partnership Investment Adviser
Agreement but the principals of the Investment Adviser are, subject to certain
performance conditions being met, entitled to carried interest fees from the
Limited Partnership. Refer to 'Carried Interest Partner Fees' section below.
Carried Interest Partner Fees
Pursuant to the terms of the Limited Partnership Agreement dated 5 July 2021
as amended and restated on 26 November 2021 (the "Limited Partnership
Agreement"), the Carried Interest Partner is, subject to the limited partners
of the Limited Partnership receiving an aggregate annualised 8% realised
return (i.e. the Company and, in due course, any additional co-investors),
entitled to a carried interest fee in respect of the performance of the
Private Hydrogen Assets.
Subject to certain exceptions, the Carried Interest Partner will receive, in
aggregate, 15% of the net realised cash profits from the Private Hydrogen
Assets held by the Limited Partnership once the limited partners of the
Limited Partnership (i.e. the Company and, in due course, any additional
co-investors) have received an aggregate annualised 8% realised return. This
return is subject to a 'catch-up' provision in Carried Interest Partner's
favour. Any realised or unrealised carried interest fee paid or payable to the
Carried Interest Partner is reflected through the NAV of the Limited
Partnership. During the year there was no realised or unrealised carried
interest fee paid or payable (period to 31 December 2021: £nil).
20% of any carried interest received (net of tax) will be used by the
principals of the Investment Adviser to acquire Ordinary Shares in the market.
Any such acquired shares will be subject to a 12-month lock-up from the date
of purchase.
General Partner's priority profit share
Under the Limited Partnership Agreement, the General Partner of the Limited
Partnership shall be entitled to a General Partner's Profit Share ("GPS"). The
GPS for each accounting period shall be an amount equal to 1.5% of the
prevailing NAV of the Limited Partnership. For so long as the Company is the
sole limited partner of the Limited Partnership, the GPS shall be distributed
to the Company rather than the General Partner. The Company is currently the
sole limited partner of the Limited Partnership. Therefore, under the
Investment Adviser Agreement, the investment adviser fee in relation to the
Private Hydrogen Assets held by the Limited Partnership is settled by the
Company which for the year totalled £1,181,069 (period to 31 December 2021:
£71,558). During the year the Limited Partnership did not call any GPS from
the Company as the net effect of the calling and distributing GPS from/to the
Company is £nil (period to 31 December 2021: £nil).
7. Other expenses
Period from
incorporation on
Year ended 16 April 2021 to
31 December 2022 31 December 2021
£'000 £'000
Administration & Secretarial Fees 193 94
AIFM Fees 83 45
Directors' Fees 173 101
Custodian Charges 50 21
Brokers Fees 60 24
Registrar's Fees 23 9
Website Fees 44 -
Legal Fees 21 8
LSE Fees 11 -
Audit Fees 118 135
D & O Insurances 49 21
PR & Marketing 212 36
Printing Fees 30 -
Other expenses 92 46
Total revenue expenses 1,159 540
Expenses charged to capital:
Capital transaction costs 219 5
Total expenses 1,378 545
During the year, KPMG received £75,000 and KPMG LLP UK received £150,000
(including VAT of £25,000) for non-audit services in relation to secondary
share issuances, including the share issuance Circular and Prospectus
published in September 2022 (the "share issuance Circular and Prospectus").
Where non-audit services were carried out in relation to a secondary share
issuance that was aborted, the costs (KPMG received 75,000; and KPMG UK LLP
received £90,000 including VAT of £18,000) have been treated as a capital
expense (abort costs) disclosed in the Statement of Comprehensive Income.
Non-audit service costs applicable to the share issuance Circular and
Prospectus (KPMG UK LLP received £42,000 including VAT of £7,000) have been
treated as an other debtor and will be reclassified and included in share
issue costs disclosed in the Statement of Changes in Equity when shares are
issued; or reclassified as abort costs in the Statement of Comprehensive
Income should no shares be issued at the share issuance Circular and
Prospectus expiry date.
In the period to 31 December 2021, the KPMG UK LLP received £138,000
(including VAT of £23,000) for non-audit initial public offering services,
which were treated as a capital expense and included in 'share issue costs'
disclosed in the Statement of Changes in Equity.
Each of these services are required by law or regulation and are therefore
permissible non-audit services under the FRC Ethical Standard.
8. Taxation
(a) Analysis of charge in the year
Year ended 31 December 2022 Period from incorporation on
16 April 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas tax - - - - - -
Total tax charge for the year/period - - - - - -
Factors affecting total tax charge for the year
Year ended 31 December 2022 Period from incorporation on
16 April 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) on ordinary activities before taxation (1,405) 2,959 1,554 (805) (1,612) (2,417)
Corporation tax at 19% (267) 562 295 (153) (306) (459)
Effects of:
Non-taxable (gains)/losses on investments - (604) (604) - 306 306
Excess management expenses not utilised in year 267 - 267 153 - 153
Disallowable expenses - 42 42 - - -
Overseas tax - - - - - -
Total tax charge - - - - - -
The Company is not liable to tax on capital gains due to its status as an
investment trust. The Company and Group has an unrecognised deferred tax asset
of £600,000 (2021: £201,000) as a result of excess management expenses of
£2,400,000 (2021: 896,000), based on the long term prospective corporation
tax rate of 25%. The March 2021 Budget announced an increase to the main rate
of corporation tax to 25% from 1st April 2023. This increase in the standard
rate of corporation tax was substantively enacted on 24th May 2021.
This asset has accumulated because deductible expenses exceeded taxable income
for the year ended 31 December 2022. No asset has been recognised in the
Financial Statements because, given the composition of the Company and Group's
portfolio, it is not likely that this asset will be utilised in the
foreseeable future.
9. Trade and other receivables
31 December 2022 31 December 2021
£'000 £'000
Prepayments 37 24
Other receivables 604 159
641 183
Other receivables includes £470,000 in respect of costs applicable to the
share issuance Circular and Prospectus (£470,000) published in September 2022
and expiring in September 2023. These costs will be reclassified and included
in 'share issue costs' disclosed in the Statement of Changes in Equity when
shares are issued or reclassified as abort costs in the Statement of
Comprehensive Income should no shares be issued at the Circular and Prospectus
expiry date.
10. Trade and other payables
31 December 2022 31 December 2021
£'000 £'000
Amounts falling due within one year:
Accrued expenses 153 246
153 246
11. Share capital
31 December 2022 31 December 2021
Nominal value Nominal value
of shares
of shares
Allotted, issued and fully paid: No. of shares (£) No. of shares (£)
Brought forward 107,350,000 1,073,500.00 - -
Allotted upon incorporation
Ordinary Shares of 1p each - - 1 0.01
Management Shares of £1.00 each - - 50,000 50,000.00
Allotted/redeemed following admission to LSE
Ordinary Shares issued 21,469,999 214,699.99 107,349,999 1,073,499.99
Management Shares redeemed - - (50,000) (50,000.00)
Closing balance as at 31 December 2022 128,819,999 1,288,199.99 107,350,000 1,073,500.00
During the year 21,469,999 shares were issued by way of a Placing at an issue
price of 100 pence per Ordinary Share, raising net proceeds of £21.0 million.
The Company is permitted to hold Ordinary Shares acquired by way of market
purchase in treasury, rather than having to cancel them. Such Ordinary Shares
may be subsequently cancelled or sold for cash. No Ordinary Shares have been
repurchased during the year therefore there were no Treasury shares at the end
of the year.
Each Ordinary Share held entitles the holder to one vote. All shares carry
equal voting rights and there are no restrictions on those voting rights.
During the year, costs of £1,145,000 were incurred in respect of secondary
share issuances, including the share issuance Circular and Prospectus
published in September 2022.
· Costs incurred in respect of shares issued by way of Placing
(£456,000) are included in 'share issue costs' disclosed in the Statement of
Changes in Equity.
· Where costs were incurred and no shares have been subsequently
issued, the costs (£219,000) have been treated as a capital expense (abort
costs) disclosed in the Statement of Comprehensive Income.
· Costs applicable to the share issuance Circular and Prospectus
(£470,000) have been treated as an other debtor and will be reclassified and
included in 'share issue costs' disclosed in the Statement of Changes in
Equity when shares are issued or reclassified as abort costs in the Statement
of Comprehensive Income should no shares be issued at the Circular and
Prospectus expiry date.
12. Return per ordinary share
Return per share is based on the weighted average number of Ordinary Shares in
issue during the year ended 31 December 2022 of 122,878,985 (period to 31
December 2021: 63,997,115).
Year ended 31 December 2021 Period from incorporation on
16 April 2021 to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) for the year/period (£'000) (1,405) 2,959 1,554 (805) (1,612) (2,417)
Return per Ordinary Share (1.14)p 2.41p 1.27p (1.26)p (2.52)p (3.78)p
There is no dilution to return per share as the Company has only Ordinary
Shares in issue.
13. Net asset value per ordinary share
31 December 2022 31 December 2021
£'000 £'000
Net Asset Value (£'000) 125,353 102,786
Ordinary Shares in issue 128,819,999 107,350,000
NAV per Ordinary Share 97.31p 95.75p
There is no diluted Net Asset Value per share as the Company has only Ordinary
Shares in issue.
14. Related party transactions and material contracts
Directors
During the year fees were payable to the Directors at an annual rate of
£65,000 to the Chairman, £55,000 to the Chairman of the Audit and Risk
Committee and £45,000 to the other Directors with the exception of Mr
Bucknall who is not remunerated for his role as a Non-Executive Director.
These fees were effective from the date of appointment of each Director being
20 May 2021 for each Board member with the exception of Mr Bucknall who was
appointed 20 May 2022 and Ms Rotheroe who was appointed 8 February 2022.
Details of the Directors remuneration paid during the year is given in note 7.
At the year end, the Directors had the following holdings in the Company:
Ordinary Shares at Ordinary Shares at
31 December 2022 31 December 2021
Simon Hogan 40,000 40,000
Afkenel Schipstra 10,100 10,100
Abigail Rotheroe(1) 10,000 -
David Bucknall(2) - -
Roger Bell(3) - -
Caroline Cook(4) - 20,100
1. Abigail Rotheroe was appointed as a Non-Executive Director on 8
February 2022.
2. David Bucknall was appointed as a Non-Executive Director on 20 May
2022.
3. Roger Bell retired as a Non-Executive Director on 4 May 2022.
4. Caroline Cook retired as a Non-Executive Director on 7 April 2022.
Investment Adviser
Fees payable to the Investment Adviser are shown in the Statement of
Comprehensive Income. Fees details of the Investment Adviser are shown in note
6. At 31 December 2022, the principals of the Investment Adviser, Dr JJ
Traynor and Mr R Hulf, each held 100,000 Ordinary Shares of the Company.
Transactions between the Company and the Investment Adviser during the year
are disclosed in note 6.
INEOS Energy
The Relationship and Co-Investment Agreement dated 19 June 2021 between INEOS
UK E&P Holdings Limited ("INEOS Energy"), the Investment Adviser, the
Company and the General Partner (acting in its capacity as the general partner
of the Limited Partnership), pursuant to which the parties agreed that: (i)
INEOS Energy would subscribe for and/or shall procure that its associates
shall subscribe for at least 25 million Ordinary Shares in the IPO; (ii) such
Ordinary Shares subscribed by INEOS Energy would be subject to a 12 month
lock-up from the date of purchase pursuant to which INEOS Energy agreed that
it will not sell, grant options over or otherwise dispose of any interest in
any such Ordinary Shares purchased by them (subject to the usual carve-outs);
(iii) INEOS Energy was entitled to nominate one Non-Executive Director for
appointment to the Board; (iv) prior to making any co-investment opportunity
in relation to a Private Hydrogen Assets that is a project to any limited
partner of the Limited Partnership, the Company and the Investment Adviser
will give INEOS Energy a right of first refusal to acquire up to 100% of such
co-investment opportunity (provided that the 'related party transaction'
requirements set out in the Listing Rules are complied with); (v) INEOS Energy
are provided with certain information rights relating to Private Hydrogen
Assets and co-investment opportunities; and (vi) INEOS Energy shall be
entitled to second one or more employees to the Investment Adviser from
time-to-time. INEOS Energy has agreed that all transactions between INEOS
Energy and its associates and any member of the Company and Group and/or the
Investment Adviser are conducted at arm's length on normal commercial terms.
At the IPO, INEOS Energy subscribed for and received 25 million Ordinary
Shares of the Company. On 31 October 2022, INEOS Energy transferred its
holding of 25 Million Ordinary Shares to its immediate parent, INEOS Offshore
BCS Limited. At 31 December 2022, INEOS Offshore BCS held 25 million Ordinary
Shares of the Company.
David Bucknall is currently Chief Executive Officer of the INEOS Energy group
of companies and was appointed as the Board representative of INEOS Energy on
20 May 2022 pursuant to the Relationship and Co-Investment Agreement entered
into between, inter alia, INEOS Energy and the Company at the Company's
launch.
Alternative Investment Fund Manager
FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management
(Guernsey) Limited is appointed to act as the Company's and the Limited
Partnership's alternative investment fund manager (the "AIFM") for
the purposes of the UK AIFM Rules. The AIFM has delegated the provision of
portfolio management services to the Investment Adviser. The AIFM, Company
Secretary and Administrator are part of the same Apex Group.
Under the AIFM Agreement between the AIFM and the Company dated 5 July 2021,
and with effect from Admission, the AIFM shall be entitled to receive from the
Company a fee of 0.05% of Net Asset Value per annum up to £250 million, 0.03%
of Net Asset Value per annum from £250 million up to £500 million and 0.015%
of Net Asset Value per annum from £500 million, in each case adjusted to
exclude any Net Asset Value attributable to any Private Hydrogen Assets held
through the Limited Partnership and subject to a minimum annual fee of
£85,000.
Under the AIFM Agreement between the AIFM and the Limited Partnership dated 5
July 2021, the AIFM receives from the Limited Partnership a fee of 0.05% of
the net asset value of the Limited Partnership per annum up to £250 million,
0.03% of the net asset value of the Limited Partnership per annum from £250
million up to £500 million and 0.015% of the net asset value of the Limited
Partnership per annum from £500 million, subject to a minimum annual fee of
£25,000. AIFM fees paid or payable by the Limited Partnership are reflected
through the NAV of the Limited Partnership.
The AIFM is also entitled to reimbursement of reasonable expenses incurred by
it in the performance of its duties.
Administration and Company Secretarial services fee
The Company has entered into an Administration and Company Secretarial
Services Agreement dated 5 July 2021 (the "Administrator and Company Secretary
Agreement") between the Company and Apex Listed Companies Services (UK)
Limited (formerly Sanne Fund Services (UK) Limited (the "Company Secretary and
Administrator")) pursuant to which the Company Secretary and Administrator has
agreed to act as Company secretary and administrator to the Company.
Under the terms of the Administration and Company Secretarial Services
Agreement, the Company Secretary and Administrator receives a fee from the
Company of 0.06% of Net Asset Value per annum up to £250 million, 0.05% of
Net Asset Value per annum from £250 million up to £500 million and 0.025% of
Net Asset Value per annum from £500 million and subject to a minimum annual
fee of £135,000 plus a further £10,000 per annum to operate the Company's
Liquidity Reserve.
Under the terms of the Limited Partnership Administration Agreement 5 July
2021, pursuant to which the Company Secretary and Administrator has agreed to
act as administrator to the Limited Partnership, the Company Secretary and
Administrator receives an annual fee from the Limited Partnership of £62,500
and of £15,000 (excluding VAT) in respect of the General Partner.
Administration fees paid or payable by the Limited Partnership are reflected
through the NAV of the Limited Partnership. For so long as the Company is the
sole Limited Partner, the administration fee in respect of the General Partner
shall be allocated settled by the Company rather than the General Partner.
Custodian fee
The Company has entered into a Custodian Agreement between the Company and The
Northern Trust Company (the "Custodian") dated 23 June 2021 (the "Custodian
Agreement"), pursuant to which the Custodian has agreed to act as custodian to
the Company.
The Custodian is entitled to a minimum annual fee of £50,000 (exclusive of
VAT) per annum. The Custodian is also entitled to a fee per transaction taken
on behalf of the Company.
Registrar fee
The Company utilises the services of Computershare Investor Services plc (the
"Registrar") as registrar to the transfer and settlement of Ordinary Shares.
Under the terms of the Registrar Agreement dated 5 July 2021, the Registrar is
entitled to a fee calculated based on the number of shareholders, the number
of transfers processed and any Common Reporting Standard on-boarding, filings
or changes. The annual minimum fee is £4,800 (exclusive of VAT). In addition,
the Registrar is entitled to certain other fees for ad hoc services rendered
from time to time.
15. Financial instruments and capital disclosures
Risk Management Policies and Procedures
The Board of Directors has overall responsibility for the establishment and
oversight of the Company and Group's risk management framework. The risk
management policies are established to identify and analyse the risks faced by
the Company and Group, to set appropriate risk limits and controls and to
monitor risks and adherence to limits. Risk management policies are reviewed
regularly to reflect changes in market conditions and the Company and Group's
activities.
The Investment Adviser, AIFM and the Administrator report to the Board on a
quarterly basis and provide information to the Board which allows it to
monitor and manage financial risks relating to its operations. The Company and
Group's activities expose it to a variety of financial risks: market risk
(including currency risk, interest rate risk and price risk), credit risk,
liquidity risk and operational risk. These risks are monitored by the AIFM.
Below is a non-exhaustive summary of the risks that the Company and Group are
exposed to as a result of its use of financial instruments:
The objectives, policies and processes for managing the risks, and the methods
used to measure the risks, are set out below:
Market Risks
(i) Currency risk
Foreign currency risk is defined as the risk that the fair values of future
cashflows will fluctuate because of changes in foreign exchange rates. The
financial assets and liabilities are predominantly denominated in Pounds
Sterling and substantially all revenues and expenses are in Pounds Sterling.
As at the 31 December 2022 and 31 December 2021, the Company and Group had
the following currency exposures, all of which are included in the Statement
of Financial Position at fair value based on the exchanges rates at the year
end.
31 December 2022 31 December 2021
Investments Cash Other assets & liabilities Total Investments Cash Other assets & liabilities Total
Currency £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Danish Krone 132 - - 132 444 - - 444
Euro 1,246 - - 1,246 1,485 - - 1,485
Korean Won 667 - - 667 957 - - 957
Norwegian Krone 609 - - 609 1,515 - - 1,515
Swedish Krona 230 - - 230 937 - - 937
US Dollar 344 - - 344 1,541 - - 1,541
3,228 - - 3,228 6,879 - - 6,879
The Company and Group mitigate the risk of loss due to exposure to a single
currency by way of diversification of the portfolio. The Limited Partnership's
non Pound Sterling denominated assets have currency exposure hedged by Forward
Exchange Contracts so that impact from currency exchange rate movements will
be mitigated. The Company and Group may in future decide not to hedge the
value of non Pound Sterling denominated investments. This would increase
foreign currency risk and may increase volatility of the Company and Group's
net asset value.
At 31 December 2022, an exchange rate movement of +/-5% against Pounds
Sterling, which is a reasonable approximation of possible changes based on
observed volatility during the year, would have increased or decreased
net assets and total return by £161,400 (2021: £344,000).
(ii) Interest rate risk
The Company and Group's interest rate risk on interest bearing financial
assets is limited to interest earned on cash balances. At the year end, the
Company and Group had cash balances of £18,192,000 (£2021: £34,019,000). An
increase in interest rates of 3.0%, which is reasonable based upon changes in
interest rates observed in the year, would impact the profit or loss and net
assets of the Company and Group positively by £545,760, with a decrease of
3.0% having an equal and opposite effect (2021: an increase or decrease of
0.5% would have had an positive or negative affect of £170,095).
The Company and Group's interest and non-interest bearing assets and
liabilities as at 31 December 2022 and 31 December 2021 are summarised below:
31 December 2022 31 December 2021
Interest Non-interest bearing Total Interest Non-interest bearing Total
bearing
bearing
£'000 £'000 £'000 £'000 £'000 £'000
Assets
Cash and cash equivalents 18,192 - 18,192 34,019 - 34,019
Trade and other receivables - 641 641 - 183 183
Investments held at fair value
through profit or loss - Listed
Hydrogen Assets - 3,667 3,667 - 8,233 8,233
Investments held at fair value
through profit or loss - Limited
Partnership - 103,006 103,006 - 60,597 60,597
Total assets 18,192 107,314 125,506 34,019 69,013 103,032
Liabilities
Trade and other payables - (153) (153) - (246) (246)
Total liabilities (153) (153) - (246) (246)
(iii) Price risk
Listed Hydrogen Assets
Price risk is defined as the risk that the fair value of a financial
instrument held by the Company or Group will fluctuate. Listed Hydrogen Assets
are measured at fair value through profit or loss. As of 31 December 2022, the
Company and Group held Listed Hydrogen Assets with an aggregate fair value of
£3,667,000 (2021: £8,233,000).
All other things being equal, the effect of a 10% increase or decrease in the
value of the investments held at the year end would have been an increase or
decrease of £366,700 in the Company and Group's loss after taxation for the
year ended 31 December 2022 and the Company and Group's net assets at 31
December 2022 (£2021: 823,300).
At 31 December 2022, the sensitivity rate of 10% is regarded as reasonable due
to the actual market price volatility experienced as a result of the economic
impact on the Listed Hydrogen Assets.
Private Hydrogen Assets
The Limited Partnership's portfolio of Private Hydrogen Assets is not
necessarily affected by market performance, however the valuations may be
affected by the performance of the underlying investments in line with the
valuation criteria in note 3.
The Private Hydrogen Assets sensitivity analysis in note 4 recognises that the
valuation methodologies employed involve different levels of subjectivity in
their inputs primarily driven by changes in discount rate assumptions and
weighting of the techniques employed.
Key variable inputs of Private Hydrogen Assets
The variable inputs applicable to each broad category of valuation basis will
vary depending on the particular circumstances of each Private Hydrogen Asset
valuation. An explanation of each of the key variable inputs is provided below
and includes an indication of the range in value for each input, where
relevant.
Selection of appropriate discount rates
The selection of an appropriate discount rate is assessed individually for
each Private Hydrogen Asset. Publicly disclosed discount rates in the relevant
sector and comparable asset classes, which may be procured from public sources
or independent third-party expert advisers or for comparable market
transactions of similar assets are used where available.
Selection of appropriate benchmarks
The selection of appropriate benchmarks is assessed individually for each
Private Hydrogen Asset. The industry and geography of each Private Hydrogen
Asset are key inputs to the benchmark selection, with either one or two key
indices or benchmarks being used for comparison.
Selection of comparable companies
The selection of comparable companies is assessed individually for each
Private Hydrogen Asset at the point of investment, and the relevance of the
comparable companies is continually evaluated at each valuation point. The key
criteria used in selecting appropriate comparable companies are the industry
sector in which they operate and the geography of the Private Hydrogen Asset's
operations.
Application of valuation basis
Each Private Hydrogen Asset is assessed, and the valuation basis applied will
vary depending on the circumstances of each Private Hydrogen Asset. DCF will
be considered where appropriate forecasts are available. The valuation will
also consider any recent transactions, where appropriate. For those Private
Hydrogen Assets where a trading multiples approach can be taken, the
methodology will factor in revenue, earnings or net assets as appropriate for
the Private Hydrogen Asset.
Estimated sustainable earnings and cash flows
The selection of sustainable revenue or earnings and cash flows will depend on
whether the Private Hydrogen Asset is sustainably profitable or not, and where
it is not then sustainable revenues will be used in the valuation. The
valuation approach will typically assess Private Hydrogen Assets based on the
last twelve months of revenue or earnings, as they are the most recent
available and therefore viewed as the most reliable. Where a Private Hydrogen
Asset has reliably forecasted earnings previously or there is a change in
circumstance at the business which will impact earnings going forward, then
forward estimated revenue or earnings may be used instead.
Application of liquidity discount
A liquidity discount may be applied either through the calibration of a
valuation against the most recent transaction, or by application of a specific
discount.
Credit risk
The Company and Group are exposed to credit risk in respect of Listed Hydrogen
Assets, Private Hydrogen Assets, trade and other receivables and cash at bank.
For risk management reporting purposes, the Company and Group considers and
aggregates all elements of credit risk exposure (such as individual obligation
default risk, country risk and sector risk).
31 December 2022 31 December 2021
£'000 £'000
Investments at fair value through profit or loss - Listed Hydrogen Assets 3,667 8,233
Investments at fair value through profit or loss - Limited Partnership 103,006 60,597
Trade and other receivables 641 183
Cash and cash equivalents 18,192 34,019
Total 125,506 103,032
At 31 December 2022 the Listed Hydrogen Assets of the Company and Group,
excluding their investment into the Limited Partnership, are held by Northern
Trust Bank (the "Custodian"). Bankruptcy or insolvency of the Custodian may
cause the Company and Group's rights with respect to securities held by the
Custodian to be delayed or limited. This risk is managed by monitoring the
credit quality and financial positions of the Custodian.
Credit risk of the Private Hydrogen Assets held by the Limited Partnership is
assessed from time to time by the Investment Adviser on a look-through basis.
The Company and Group's policy on credit risk mirrors that of the Limited
Partnership, which is to minimise its exposure to counterparties with
perceived higher risk of default by dealing only with counterparties that meet
the credit standards set out in the Company's prospectus. The Investment
Adviser seeks to manage this risk by providing diversification in terms of
underlying investments, issuer section, geography and maturity profile.
As of the 31 December 2022, nine Private Hydrogen Assets are held by the
Limited Partnership as shown in note 16 (2021: three).
The cash and cash equivalents are held with Northern Trust Bank, EFG
International Bank, Royal Bank of Scotland and through the Goldman Sachs-
Liquid reserve fund. The Fitch Rating credit rating of Northern Trust Bank is
AA (2021: AA), EFG international Bank is A (2021: A), Royal Bank of Scotland
A+ (2021: A+) and the Goldman Sachs Liquid reserve fund is AAA (2021: AAA).
At the year end there were no trade and receivables past due. The credit risk
exposure is minimised by dealing with financial institutions with investment
grade credit ratings.
Liquidity risks
Liquidity risk is the risk that the Company or Group may not be able to meet a
demand for cash or fund an obligation when due. The Investment Adviser, AIFM
and the Board continuously monitor forecast and actual cashflows from
operating, financing and investing activities to consider payment of
dividends, or further investing activities.
Financial assets and liabilities by maturity at the year end are shown below:
31 December 2022 31 December 2021
Less than 1-5 years Total Less than 1-5 years Total
1 year
1 year
£'000 £'000 £'000 £'000 £'000 £'000
Assets
Investments at fair value through
profit or loss - Listed Hydrogen
Assets 3,667 - 3,667 8,233 - 8,233
Investments at fair value through
profit or loss - Limited Partnership - 103,006 103,006 - 60,597 60,597
Trade and other receivables 641 - 641 183 - 183
Cash and cash equivalents 18,192 - 18,192 34,019 - 34,019
Total assets 22,500 103,006 125,506 42,435 60,597 103,032
Liabilities
Trade and other payables (153) - (153) (246) - (246)
Total liabilities (153) - (153) (246) - (246)
Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide
variety of causes associated with the processes, technology and infrastructure
supporting the activities relating to financial instruments, either internally
or on the part of service providers, and from external factors other than
credit, market and liquidity risks such as those arising from legal and
regulatory requirements and generally accepted standards of investment
management behaviour.
Operational risk is managed so as to balance the limiting of financial losses
and reputational damage with achieving the investment objective of generating
returns to investors. The AIFM works with the Board to identify the risks
facing the Company and the Limited Partnership. The key risks are documented
and updated in the Risk Matrix by the AIFM. The primary responsibility for the
development and implementation of controls over operational risk rests with
the Board.
This responsibility is supported by the development of overall standards for
the management of operational risk, which encompasses the controls and
processes at the service providers and the establishment of service levels
with the service providers. The Directors' assessment of the adequacy of the
controls and processes in place at service providers with respect to
operational risk is carried out through having discussions with and reviewing
reports, including those on their internal controls, from the service
providers.
Capital Management Policies and Procedures
The Company and Group's capital management objectives are to ensure that the
Company and Group will be able to continue as a going concern while maximising
the return to equity shareholders.
In accordance with the investment objective, the principal use of cash
(including the proceeds of the IPO and placings) is investing in hydrogen
focussed assets, as well as expenses related to the share issue when they
occur, ongoing operational expenses and payment of dividends and other
distributions to shareholders in accordance with the Company's dividend
policy.
The Company and Group considers their capital to comprise share capital,
distributable reserves and retained earnings. The Company and Group are not
subject to any externally imposed capital requirements. The Company and
Group's share capital, distributable reserves and retained earnings are shown
in the Statement of Financial Position at a total £125,353,000 (2021:
£102,786,000).
16. Subsidiary and related entities
Subsidiary
The Company owns 100% of HydrogenOne Capital Growth (GP) Limited as at 31
December 2022 and 31 December 2021.
Subsidiary name Effective Country of ownership Principal Issued Registered
ownership
activity
share capital
address
HydrogenOne Capital Growth 100% United General £1 6th Floor,
(GP) Limited Kingdom partner of 125 London
HydrogenOne Wall, London,
Capital Growth EC2Y 5AS
Investments
(1) LP
Related entities
The Company holds Private Hydrogen Assets through its investment in the
Limited Partnership, which has not been consolidated as a result of the
adoption of IFRS 10: Investment entities exemption to consolidation. There is
a cross guarantee in place between the Company and the Limited Partnership in
respect of margin requirements on the Limited Partnership's forward currency
contracts. At 31 December 2022 the exposure to forward exchange contracts was
£1,451,927. There are no other cross guarantees amongst related entities.
Below are details of the unconsolidated Private Hydrogen Asset held through
the Limited Partnership.
31 December 2022
Name Purpose of Country of Incorporation Value of investment £'000 Total assets Effective ownership Registered
the entity
as at 31 December
address
2022 (unaudited) £'000 (% rounded)
Sunfire GmbH Electrolyser producer Germany 21,763 137,838 4% Gasanstaltstraße 2 01237 Dresden, Germany
Elcogen Group plc Solid oxide fuel United Kingdom 20,430 22,306 11% Highdown House, Yeoman Way, Worthing, West Sussex,
cell supply BN99 3HH
HiiROC Limited Supplier of clean hydrogen production technology United Kingdom 12,914 21,423 6% 22 Mount Ephraim, Tunbridge Wells, Kent,
TN4 8AS
Bramble Energy Limited Printed Circuit Board fuel cell solutions United Kingdom 10,032 33,814 12% 6 Satellite Business Village, Fleming Way, Crawley, England, RH10 9NE
NanoSUN Limited Supplier of mobile hydrogen storage and refueling systems United Kingdom 11,519 7,150 23% Abraham Heights Farm, Westbourne Road, Lancaster, LA1 5EF
Cranfield Aerospace Solutions Limited Aviation design and maintenance United Kingdom 6,296 6,248 29% Hanger 2, Cranfield Airport, Cranfield, Bedfordshire,
MK43 0AL
HH2E AG Supplier of green electrolysis and energy storage facilities Germany 5,134 6,107 11% HRB 167243, Kaiser- Wilhelm-Straße 93, 20355 Hamburg
GEN2 Energy AS Green Hydrogen development Norway 3,421 12,065 7% Raveien 205, 3184 Borre, Norway
Strohm Holding BV Supplier of thermoplastic composite pipe The Netherlands 11,606 90,257 24% Monnickendamkade 1, 1976 EC IJmuiden
31 December 2021
Name Purpose of Country of Incorporation Value of investment £'000 Total assets Effective ownership Registered
the entity
as at 31 December
address
2021 (% rounded)
(unaudited) £'000
Sunfire GmbH Electrolyser producer Germany 20,180 141,674 5% Gasanstaltstraße 2 01237 Dresden, Germany
HiiROC Limited Supplier of clean hydrogen production technology United Kingdom 10,001 27,137 6% 22 Mount Ephraim, Tunbridge Wells, Kent, TN4 8AS
NanoSUN Limited Supplier of mobile hydrogen storage and refuelling systems United Kingdom 9,050 14,454 23% Abraham Heights Farm, Westbourne Road, Lancaster, LA1
5EF
The maximum exposure to loss from the unconsolidated entities is the carrying
amount of the financial assets held.
During the year the Company did not provide financial support and has no
intention of providing financial or other support to the subsidiary and the
unconsolidated Private Hydrogen Assets held through the Limited Partnership.
17. Post balance sheet events
At 31 December 2022, the Company had a commitment of GBP 1,400,000 to
Cranfield Aerospace Solutions Limited, in respect of second completion. This
investment was made on 5 January 2023.
On 12 January 2023, Barclays Bank PLC was appointed as the Company's sole
Broker, replacing Panmure Gordon (UK) Limited.
Since 31 December 2022, the Company has made additional investments in and
commitments to Private Hydrogen Assets amounting to £4.0m and £1.8m
respectively.
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information for the year ended 31 December 2022 is derived from the
statutory accounts for the year, which will be delivered to the Registrar of
Companies. The auditors have reported on the 2022 accounts; their report was
unqualified and did not include a statement under Section 498(2) or (3) of the
Companies Act 2006.
The Annual Report for the Period ended 31 December 2022 was approved on 3
April 2023. The full Annual Report can be accessed via the Company's website
at: https://hydrogenonecapitalgrowthplc.com
The Annual Report will be submitted to the National Storage Mechanism and will
shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the Disclosure Guidance
and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM")
The AGM of the Company will be held at 6th Floor, 125 London Wall, London,
EC2Y 5AS on 23 May 2023 at 11:30am.
Even if shareholders intend to attend the AGM, all shareholders are encouraged
to cast their vote by proxy and to appoint the "Chair of the Meeting" as their
proxy. Details of how to vote, either electronically, by proxy form or through
CREST, can be found in the Notes to the Notice of AGM in the Annual Report.
3 April 2023
For further information contact:
Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
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