TIDMHGEN
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 >GBP500m 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
>GBP100m
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
GBP54 million;
-- At 31 December 2022, GBP102.9 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 GBP102.8m as of 31 December 2021 to
GBP125.4 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 GBP33 million;
-- Despite challenging market conditions, HGEN raised net GBP21
million of additional capital from both existing and new investors
in April 2022;
-- The Company has retained a cash position of GBP18 million as at 31 December 2022; and
-- The Company also completed its first GBP2 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;
-- GBP102.9m 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 31 December % change
2022 2021
------------------------------------------ -------------- ----------- --------
NAV per Ordinary Share 97.31p 95.75p 1.6%
NAV(2) GBP125.4m GBP102.8m 21.9%
Ordinary Share price 79.3p 119.5p (33.6)%
Market capitalisation(2) GBP102.2m GBP128.3m (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 GBP102.9m GBP48.6m 111.7%
GHG emissions avoided 42,716 tCO(2) N/A N/A
e
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 GBP20.9 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 GBP21 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 GBP103.1 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 GBP33m 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 GBP7
million in Private Hydrogen Assets. This includes GBP1.4 million
into Cranfield Aerospace Solutions Ltd, a pioneer in
hydrogen-powered passenger flight, marking the final tranche of the
GBP7 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 GBP2.5 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 GBP500 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
The Company is targeting a Net Asset that affect the hydrogen sector
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 * Investment performance
to 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 Please refer ESG section of the Annual
policy integrated in investment decisions Report for further details.
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 The Board reviews compliance
established KPIs Avoided with the ESG policy ahead
GHG 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 GBP102.9 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
GBP23bn, 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
Value of investment
Company Country of incorporation GBP'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
--------------------------------------------------------- -------------------
Market
Company Country of main listing value GBP'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 GBP54.3
million (FY2021: GBP48.6 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 GBP107 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 GBP33m 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: GBP33m
(+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 GBP20.2m
----------------------------- -------------------------------------------------------------
% 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 >GBP40bn (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 EUR195 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 GBP20.5m
size
------------------- -------------------------------------------------------------
% 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 >GBP40bn (by 2030)
Market
------------------- -------------------------------------------------------------
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 GBP10.0m
size
------------------- -------------------------------------------------------------
% 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 >GBP40bn (by 2030)
Market
------------------- -------------------------------------------------------------
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 GBP8 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 GBP9.1 m
size
------------------- ------------------------------------------------------------
% 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 GBP800m (2025 UK/EU) to >GBP20bn (2030 globally)
Market
------------------- ------------------------------------------------------------
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 GBP1.5m
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 GBP9.5m
---------------------- ------------------------------------------------------------
% 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 c. GBP700m (2030) to >GBP1.7b (2040)
Market
---------------------- ------------------------------------------------------------
Value catalysts
* Grow revenues from energy transition including
hydrogen to over 50% by 2025
---------------------- ------------------------------------------------------------
Performance since
investment * Strohm completed a EUR29m investment round with a
EUR10m 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(TM) 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 GBP10.0m
size
------------------- ------------------------------------------------------------------
% 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(TM) - 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 >GBP100bn (by 2030)
Market
------------------- ------------------------------------------------------------------
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(TM)) for the
automotive sector in the UK
* Milestone achieved with first 10kW PCBFC(TM) 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 GBP40 million Red Diesel
Replacement competition; and
* Won the Scale-up Readiness Validation, SuRV,
competition which will aid Bramble Energy's PCBFC(TM)
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 GBP7.0m
size
-------------------- -------------------------------------------------------------
% 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 GBP1.4bn (by 2030)
Market
-------------------- -------------------------------------------------------------
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 GBP5.1m
size
-------------------- -------------------------------------------------------------
% 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 >GBP100bn (based on German government forecasts for green
Market 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 GBP3.5m
----------------------------- -------------------------------------------------------------
% 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 >GBP100bn
----------------------------- -------------------------------------------------------------
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
GBP1.5 billion with minimum market capitalisation of GBP200
million. The aggregate investment in these listed companies was
GBP9.5 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 GBP0.1 million.
Post year-end investments
Since 1 January 2023, the Company has made further investments
in Private Hydrogen Assets amounting to GBP7m, 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 GBP2.4m
size
------------------- -------------------------------------------------------------
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 Via pipeline connections Thierbach will be able to serve
Market the German market (value >GBP100bn) 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. GBP33min
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 GBP102.8 million at 31 December 2021
to GBP125.4 million at 31 December 2022. In April 2022 the Company
completed an accelerated bookbuild, raising GBP21m 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 GBP125.4 million comprise GBP106.7 million
portfolio value of investments, including the holding in the
HydrogenOne Partnership, and the Company's cash balances of GBP18.2
million, and other net assets of GBP0.5 million.
The Limited Partnership's net assets of GBP103.0 million
comprise GBP103.1 million portfolio value of investments, cash
balances of GBP1.5 million, and other net liabilities of GBP1.6
million.
Cash
At 31 December 2022, the Company had a total cash balance of
GBP19.7 million (2021: GBP55.5 million), including GBP1.5 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 GBP1.6 million (period ended 31 December 2021:
loss of GBP2.4 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 GBP3.2 million (period ended 31 December 2021:
loss of GBP1.6 million).
The expenses included in the income statement for the year were
GBP1.7 million, in line with expectations. These comprise GBP0.3
million Investment Adviser fees and GBP1.4 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 GBP9 billion sector. This is in addition to the Net
Zero Hydrogen Fund ("NZHF") with up to GBP240 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 GBP23 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 GBP500 million
of private opportunities for potential investment including a near
term pipeline in excess of GBP200 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:
GBP102.9 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 / GBPm
------------------- --------------------
GHG intensity 823.36 kgCO2e / GBPm
------------------- --------------------
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 Total lifetime MWh of
for the Company's holding) 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 90,000 313 184,570
kg/h hours Germany gCO2/kWh tCO2e
-------------- -------- -------- -------------------- ----------------
Net production Lifetime Location Grid emission factor Lifetime avoided
rate 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 GBP102.9 million invested in low-carbon growth
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 76 tCO2e (Scope 1 - 48 tCO2e and Scope 2 - 28 tCO2e).
basis (aggregate scope 1
and 2 of portfolio companies)
- see the Annual Report
for methodology
-------------------------------- -------------------------------------------------------------
Lifetime clean energy capacity 201,000 MWh in FY2022 and 226,000 MWh since IPO.
developed
-------------------------------- -------------------------------------------------------------
The Company's share of 3.4 MW in FY2022 and 3.8 MW since IPO.
MW
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 The Company appointed a Board of independent, non-executive
and Diversity 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 The Company continued to promote the benefits of
Independence and Diversity 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 Positive and proactive engagement with the boards:
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 Strong linkage to long-term value creation ahead
pay structures that reward of short-term outcomes by use of share options
superior outcomes and other incentive programmes.
-------------------------------- -------------------------------------------------------------
Encourage sustainable business Each Private Hydrogen Asset had been through a
practices and ethics 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
---- -------------------------------------------------------- ------------------------------------------------------
Fuel cell vehicles to displace diesel and fuel oil.
* Reduce deaths from pollution (3.9) Direct use in industrial activities to
displace fuel oil and coal. Demonstrated through
avoided emissions.
---- -------------------------------------------------------- ------------------------------------------------------
Enable the expansion of renewable energy through
* Increase access to electricity (7.1) direct use of clean hydrogen and as a form
of energy storage. Exclude those involved in the
production of fossil fuels.
* Increase renewable energy in the global energy mix
(7.2)
* Increase energy efficiency (7.3)
---- -------------------------------------------------------- ------------------------------------------------------
Enabling the decarbonisation of processes in heavy
* Upgrade industries for sustainability (9.4) industry and enhancing innovation in transport
and for a more circular economy.
* Increase R&D in industrial technologies (9.5)
---- -------------------------------------------------------- ------------------------------------------------------
Enabling the adoption of cleaner fuels for
* Reduce the environmental impacts of cities (11.6) transportation and in heavy industry to reduce
pollution and advance a more sustainable economy.
---- -------------------------------------------------------- ------------------------------------------------------
Engagement for good governance and transparency across
* Adopt sustainable practices and reporting (12.6) the portfolio.
---- -------------------------------------------------------- ------------------------------------------------------
Enabling the replacement of fossil fuels, to reduce
* Reduce acidification (14.3) CO(2) emissions and the corresponding
negative impacts on ocean chemistry.
---- -------------------------------------------------------- ------------------------------------------------------
Enabling the replacement of fossil fuels to reduce GHG
* Combatting desertification and land degradation emissions and the associated acceleration
(15.3) 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.
Key topics of
engagement
Why is it and decisions
Stakeholder important How has the Board made
group to engage? communicated and engaged? by the Board
------------------ ----------------- ------------------------------------------------------------ -----------------
Shareholders The significant Shareholder
shareholders * Annual and Interim Reports; engagement
of the Company was rewarded by
are support
set out in the * Quarterly factsheets; for the
Annual Company's growth
Report. and
The Investment * Market announcements, including quarterly NAV diversification
Adviser announcements; strategy through
and the Board the
believe issue of new
that * Investor webcasts and presentations (through the shares
Shareholders and Investment Adviser); in April 2022
their support is and shareholder
critical approval at a
to the * Institutional investor meetings (one-to-one and general
continuing group), primarily through the Investment Adviser and meeting held in
existence corporate broker; October
of the business 2022 for the
and Share
delivery of its * Regular institutional investor feedback received from Issuance
long- the Investment Adviser and corporate broker; Programme.
term investment
strategy.
It is important * Research analyst presentations through the Investment
to Adviser.
the Company's
continued
success to have * AGM;
the
potential to
access * Website;
equity capital
in order
to expand the * First Capital Markets Day held in February 2023.
Company's
portfolio over
time
in order to
further
diversify the
investment
portfolio and
create
economies of
scale.
------------------ ----------------- ------------------------------------------------------------ -----------------
Investment The Investment In addition to
Adviser Adviser * Board and Committee meetings; all
is the most matters related
significant to
service provider * Regular reports and presentations from the Investment the execution of
to Adviser; the
the Company and Company's
a description Investment
of its role can * Ad hoc meetings and calls. Objective, the
be Board
found in the engaged with the
Annual Investment
Report. Adviser in
regards
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
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 The AIFM is
critical * Board and Committee meetings; responsible
service provider for monitoring
for the
the Company's * Regular reports and presentations from the AIFM. risks faced by
long- the
term success and Company and
engages these are
with the Board regularly
and discussed
the Investment at meetings.
Adviser
for the purpose
of
providing
investment
advisory
services to
the Company.
The Board
regularly
monitors the
Company's
investment
performance
in relation to
its
objectives,
investment
policy and
strategy.
------------------ ----------------- ------------------------------------------------------------ -----------------
Other key The Company does The feedback
service providers not * Board and Committee meetings; given
have any direct by the service
employees providers
and works * Ad hoc meetings and calls; is used to
closely with review the
a number of key Company's
service * Annual review of performance based on a policies
providers, questionnaire; and procedures
including to ensure
the open lines of
Administrator, * The Company undertakes regular reviews of all communication,
Company material contracts for service quality and value and operational
Secretary, through the activities of the Management Engagement efficiency.
auditor and Committee. The Company is
corporate able
broker. to identify and
The resolve
independence, problems with
quality service
and timeliness provider
of their relationships,
service should they
provision is arise,
critical to the via this
success process.
of the Company. During the
Company's
annual report
production,
the Audit and
Risk
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 The Board As at 31
investments considers * The Company's Board is presented with potential December 2022,
each proposal investment opportunities that have been identified by over 82% of the
against the Investment Adviser and which have undergone a capital
the Company's process of analysis, including considerations raised was
investment relating to environmental, social and governance invested.
objective, and issues. 6 new
investment investments were
policy as completed during
disclosed * The Board reviews the financial and operating the
in the Annual performance of the Company's portfolio companies on a year. Other
Report regular basis. investment
and with opportunities
consideration were
for the wider * In many cases, investments in Private Hydrogen Assets reviewed but
group are linked to operational and financial targets, were rejected
of stakeholders. which the Board monitors. as they did not
pass
the investment
* A quarterly update on performance of portfolio screening
companies is provided in the Investment Adviser's process.
Report within the Board Packs. As part of the
ongoing
portfolio
performance
monitoring, the
feedback
given by the
Investment
Adviser is used
to
review the
Company's
policies and
procedures
to ensure open
lines
of
communication,
and
operational
efficiency
regarding its
Portfolio
Companies.
------------------ ----------------- ------------------------------------------------------------ -----------------
Society Ensuring our See ESG section of See ESG section
and the investment the Annual Report. of
environment positively the Annual
contributes Report.
to climate
change
mitigation
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 GBP1,405,000 (Period from incorporation on 16 April 2021
to 31 December 2021: GBP805,000). The Company made a capital gain
after tax of GBP2,959,000 (2021: loss of GBP1,612,000). Therefore
the total return after tax for the Company was a profit of
GBP1,554,000 (2021: loss of GBP2,417,000). 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 Stable
Changes in political or environmental has significant experience in
conditions in the hydrogen sector the energy sector and is familiar
(for example, changes in government with its volatile political and
policy or support) could affect regulatory environment. Extensive
the Company's prospects. contacts across the sector inform
its ongoing monitoring of these
risks, which are reported to the
Board at least quarterly. More
specific due 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 Stable
The technologies required to Investment Adviser has longstanding
produce and use green hydrogen experience in the energy sector
need policy support to underpin and monitors the policy environment
the scale needed to drive stand-alone closely. Such experience and awareness
cost competitiveness. Governments is also present among the Company's
worldwide are showing such support Non-Executive Directors. It is
today, but that may be volatile the intent of the Investment Adviser
over the investment time horizon to access a range of hydrogen
of the Company. projects in different countries
and at different points in the
emerging value chain, to further
mitigate the risk of policy volatility.
----------------------------------------- -------------------------------------------- -----------
Power price The Investment Adviser monitors Increasing
The income and value of the the outlook for electricity and
Company's investments may be hydrogen prices. The exposure
affected by changes in the market to fluctuating electricity and
prices of electricity and hydrogen, hydrogen prices may be hedged
both current and expected. at the hydrogen project level.
Risks include refinancing risk, As a result, the Investment Adviser
exposure to interest rate risk oversee power revenues and monitor
due to fluctuations in the prevailing regularly against expectations.
market rates, covenant breaches Portfolio allocations are monitored
and possible enhanced loss on on an ongoing basis by both the
poor performing assets. Investment Adviser and AIFM, to
Risk assessment has increased ensure compliance with investment
from volatility in electricity limits. Reporting by the Investment
prices and higher interest rates Adviser and AIFM are provided
and inflation. to the Board at least quarterly.
----------------------------------------- -------------------------------------------- -----------
Operational The Investment Adviser conducts Stable
Initial pre-deal due diligence a vigorous due diligence process
may not uncover all risks associated and works very closely with external
to a transaction. and technically skilled consultancy
Investments are subject to operating firms to review all potential
and technical risks. While the transactions, with an aim to provide
Company will seek investments a fully scoped and informed recommendation.
with creditworthy and appropriately The portfolio is constantly monitored
insured counterparties who bear by the Investment Adviser and
the majority of these risks, the AIFM to address risks as they
there can be no assurance that are identified.
all risks can be mitigated. Diversification in counterparties
In addition, the long-term profitability and service providers ensures
of hydrogen investments will any impact is limited. Furthermore,
be partly dependent upon the the Company invests in a diversified
efficient operation and maintenance portfolio.
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 Increasing
Underperforming investment or the portfolio performance as well
investment strategy can lead as underlying key asset risks
to underperformance to the Company's identified as part of the Company's
target return and ultimate investment risk register and how those risks
objective. are actively being mitigated which
Risk assessment has increased include but is not limited to:
from macroeconomic impacts on * Non Controlling interest risk
portfolio 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 The Company's Broker monitors Increasing
raises the market for the Company's shares
Ongoing capital raises are intended. and reports at quarterly meetings.
The Company's share price trading The Board regularly reviews the
at an excessive discount to relative level of discount against
its net asset value may mean the sector and has the authority
it is difficult to raise further to buy back shares.
capital through share issues The Board and AIFM oversee the
for onward investment. investment pipeline and monitor
Risk assessment has increased its progress in relation to Company
due to share price trading at targets.
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 Increasing
The operational risks of the monitors the liquidity in the
Company including market, counterparty, market and portfolio valuations.
credit and liquidity risk. Should new credit not be forthcoming,
Extreme market volatility can liquidity may be gained through
disrupt capital raising process a capital raise, or liquidation
and ability to raise monies of an asset including the Company's
to repay a debt demand in full. Listed Hydrogen Assets.
Investments in Private Hydrogen The Investment Adviser, AIFM and
Assets are illiquid in nature the Board continuously monitor
and may take a longer period forecast and actual cashflows
of time to realise in order from operating, financing, and
to fund the Company's operations investing activities to consider
or meet its expenses. payment of dividends, or further
The Company may be forced to investing activities.
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 Stable
Disruption to, or failure of are reviewed as part of the risk
the Company's Administrator register. A material credit risk
or other parties to complete is that of banks holding un-invested
their role efficiently, on time cash, the credit rating and credit
and in line with expectation worthiness of these are considered.
A review of operational 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 Stable
Risk that portfolio asset valuations experience in valuation of these
published do not represent the assets.
Fair Market Values in accordance The discount rate used in the
with the accounting requirements. valuations incorporates spot gilt
Investment valuations are based rates for each free cashflow based
on modelling / financial projections on maturity and country which
for the relevant investments. mitigates the longer term impact
Projections will primarily be of rises in interest rates.
based on the Investment Adviser's The valuation polices will be
assessment and are only estimates reviewed by the Valuation Committee
of future results based on assumptions on a quarterly basis, together
made at the time of the projection. with signing off on the Private
Actual results may vary significantly Hydrogen Asset values.
from the projections, which
may reduce the profitability
of the 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 Stable
The Investment Adviser is a to expand its business/ staffing
newly formed Company, with minimum levels in order to diversify knowledge
employees. As such, there are across the expanding team.
significant Key Person risks This risk is covered in the risk
at this time and should they register and reported on at each
become unavailable, this could Board meeting.
have a negative impact on the
Company's ability to achieve
its investment objective.
----------------------------------------- -------------------------------------------- -----------
Tax The corporate structure of the Stable
Breaches of Section 1158 of Company is reviewed periodically
the Corporation Tax Act could by the Company and its advisors.
result in loss of investment All investments receive professional
trust status. 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 The Board and Investment Adviser Stable
risk have reviewed the portfolio for
Exposure to Russia and/or Ukraine exposure and will continue to
within the investment portfolio keep this under review.
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 GBP21m, 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
Period from incorporation
Year ended 31 December on 16 April 2021 to 31
2022 December 2021
-------------------------- -----------------------------
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
on 16 April
Year ended 2021
31 December to 31 December
2022 2021
Notes GBP'000 GBP'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 GBP1. 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 GBP18.2 million (2021: GBP34.0
million) as well as GBP3.7 million (2021: GBP8.2 million) in Listed
Hydrogen Assets. The Company and Group's net assets at 31 December
2022 were GBP125.4 million (GBP102.8 million) and total expenses
for the year ended 31 December 2022 were GBP1.7 million (2021:
GBP0.8 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 GBP116.8 million (period from the Company's IPO on
22 June 2021 to the 31 December 2021 GBP104.6 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 GBP12.6 million and annual
expenses are estimated to be GBP3.4 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
GBP'000 GBP'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
GBP'000 GBP'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 the year/period 105,247 70,438
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
GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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 GBP103,006,000 (2021: GBP60,597,000). The
movement on the Level 3 investments during the year/period is shown
below:
31 December 31 December
2022 2021
GBP'000 GBP'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 31 December
2022 2021
GBP'000 GBP'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:
Value of
Country of Investment Primary valuation Significant
Name Incorporation GBP'000 technique unobservable inputs Range input
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
Sunfire GmbH Germany 21,763 Weighted Discount rates applied 12.1%-12.4%
DCF and Price in full DCF valuation
of Recent
Investment Weighting between Price (4)%
of Recent Investment
and DCF valuation (1)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
Elcogen Group United 20,430 Weighted Discount rates applied 12.5%-13.0%
plc Kingdom DCF and Price in full DCF valuation
of Recent
Investment Weighting between Price 4%
of Recent Investment
and DCF valuation(1)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
United
HiiROC Limited Kingdom 12,914 DCF Discount rates 13.5%
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
Bramble Energy United 10,032 Weighted Discount rates applied 13.4%-13.6%
Limited Kingdom DCF and Price in full DCF valuation
of Recent
Investment Weighting between Price
of Recent Investment 24%
and DCF valuation(1)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
NanoSUN Limited United 11,519 Weighted Discount rates applied 13.4%-13.6%
Kingdom DCF and Price in full DCF valuation
of Recent
Investment Weighting between Price
of Recent Investment (10%)
and DCF valuation(1)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
Discount rates applied
in full DCF valuation 13.5%
Weighted
DCF and Price Weighting between Price
Cranfield Aerospace United of Recent of Recent Investment
Solutions Limited Kingdom 6,296 Investment and DCF valuation(1) (20%)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
HH2E AG Germany 5,134 Weighted Discount rates applied 12.1%-12.4%
DCF and Price in full DCF valuation
of Recent
Investment Weighting between Price
of Recent Investment 6%
and DCF valuation(1)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
Discount rates applied
in full DCF valuation 13.0%
Weighted
DCF and Price Weighting between Price
of Recent of Recent Investment
GEN2 Energy AS Norway 3,421 Investment and DCF valuation(1) (10%)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
Strohm Holding The 11,606 Weighted Discount rates applied 12.5%-12.8%
BV Netherlands DCF and Price in full DCF valuation
of Recent
Investment Weighting between Price
of Recent Investment (31%)
and DCF valuation(1)
-------------------- --------------- ----------- ----------------- ---------------------------- -----------
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
GBP'000
----------------------------------------------
Possible
reasonable 31 December 31 December
Unobservable input change in input 2022 2021
--------------------------------------------- -------------------- ----------- -----------
Discount rates applied in full DCF
valuation +1% (6,515) n/a
-1% 7,815 n/a
--------------------------------------------- -------------------- ----------- -----------
plus one calendar
quarter of tapering
from Price of
Recent Investment
Weighting between Price of Recent Investment to full DCF
and full DCF valuation valuation (324) n/a
--------------------------------------------- -------------------- ----------- -----------
minus one calendar
quarter of tapering
from Price of
Recent Investment
to full DCF
valuation 286 n/a
--------------------------------------------- -------------------- ----------- -----------
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
16 April 2021
Year ended to
31 December 31 December
2022 2021
GBP'000 GBP'000
------------------------- ----------- -------------
Overseas dividend income 1 -
Bank interest 96 -
------------------------- ----------- -------------
Total income 97 -
------------------------- ----------- -------------
6. Investment Adviser fee
Period from incorporation
on
Year ended 16 April 2021 to 31 December
31 December 2022 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------- ------- ------- ---------- ---------- ---------
Investment Adviser fee 343 - 343 265 - 265
----------------------- ------- ------- ------- ---------- ---------- ---------
At 31 December 2022 an amount of GBP12,554 (2021: GBP48,349) 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, GBP111,432 in respect of excess IPO issue costs
is due to be received from the Investment Adviser (2021:
GBP141,493).
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 GBP100 million:
ii. 0.8% of the Net Asset Value per annum of the Listed Hydrogen
Assets from GBP100 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: GBPnil).
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
GBP1,181,069 (period to 31 December 2021: GBP71,558). 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 GBPnil (period to 31 December 2021: GBPnil).
7. Other expenses
Period from
incorporation
on
16 April 2021
Year ended to
31 December 31 December
2022 2021
GBP'000 GBP'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 GBP75,000 and KPMG LLP UK
received GBP150,000 (including VAT of GBP25,000) 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 GBP90,000 including VAT of
GBP18,000) 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 GBP42,000 including
VAT of GBP7,000) 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
GBP138,000 (including VAT of GBP23,000) 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
Period from incorporation
on
Year ended 31 December 16 April 2021 to 31 December
2022 2021
-------------------------- ---------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- ------- ------- ---------- ---------- ---------
Overseas tax - - - - - -
------------------------ -------- ------- ------- ---------- ---------- ---------
Total tax charge for the
year/period - - - - - -
------------------------ -------- ------- ------- ---------- ---------- ---------
Factors affecting total tax charge for the year
Period from incorporation
on
Year ended 31 December 16 April 2021 to 31 December
2022 2021
-------------------------- ---------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP600,000 (2021: GBP201,000) as
a result of excess management expenses of GBP2,400,000 (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 31 December
2022 2021
GBP'000 GBP'000
------------------ ----------- -----------
Prepayments 37 24
Other receivables 604 159
------------------ ----------- -----------
641 183
------------------ ----------- -----------
Other receivables includes GBP470,000 in respect of costs
applicable to the share issuance Circular and Prospectus
(GBP470,000) 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 31 December
2022 2021
GBP'000 GBP'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 (GBP) No. of shares (GBP)
-------------------------------------- ------------- ------------- ------------- -------------
Brought forward 107,350,000 1,073,500.00 - -
Allotted upon incorporation
Ordinary Shares of 1p each - - 1 0.01
Management Shares of GBP1.00 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 GBP21.0 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 GBP1,145,000 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
(GBP456,000) 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 (GBP219,000) 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 (GBP470,000) 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).
Period from incorporation
on
Year ended 31 December 16 April 2021 to 31 December
2021 2021
-------------------------- ---------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- ------- ------- ---------- ---------- ---------
Profit/(loss) for the year/period
(GBP'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 31 December
2022 2021
GBP'000 GBP'000
-------------------------- ----------- -----------
Net Asset Value (GBP'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 GBP65,000 to the Chairman, GBP55,000 to the Chairman of the
Audit and Risk Committee and GBP45,000 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 Ordinary Shares
at at
31 December 31 December
2022 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 GBP250 million, 0.03% of Net Asset Value per
annum from GBP250 million up to GBP500 million and 0.015% of Net
Asset Value per annum from GBP500 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 GBP85,000.
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 GBP250 million, 0.03% of the net asset
value of the Limited Partnership per annum from GBP250 million up
to GBP500 million and 0.015% of the net asset value of the Limited
Partnership per annum from GBP500 million, subject to a minimum
annual fee of GBP25,000. 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 GBP250 million, 0.05% of Net Asset Value per annum from
GBP250 million up to GBP500 million and 0.025% of Net Asset Value
per annum from GBP500 million and subject to a minimum annual fee
of GBP135,000 plus a further GBP10,000 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 GBP62,500 and of
GBP15,000 (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 GBP50,000
(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 GBP4,800 (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
--------------------------------------------- ---------------------------------------------
Other Other
assets assets
Investments Cash & liabilities Total Investments Cash & liabilities Total
Currency GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP161,400
(2021: GBP344,000).
(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
GBP18,192,000 (GBP2021: GBP34,019,000). 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 GBP545,760, 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 GBP170,095).
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 Interest Non-interest
bearing bearing Total bearing bearing Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP3,667,000 (2021:
GBP8,233,000).
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 GBP366,700 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 (GBP2021:
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 31 December
2022 2021
GBP'000 GBP'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 Less than
1 year 1-5 years Total 1 year 1-5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP125,353,000 (2021:
GBP102,786,000).
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.
Effective Country of Principal Issued Registered
Subsidiary name ownership ownership activity share capital address
------------------- ---------- ---------- --------------- -------------- --------------
General
partner of
HydrogenOne 6th Floor,
Capital Growth 125 London
HydrogenOne Capital
Growth United Investments Wall, London,
(GP) Limited 100% Kingdom (1) LP GBP1 EC2Y 5AS
------------------- ---------- ---------- --------------- -------------- --------------
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 GBP1,451,927. 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
Total assets
as at 31
December
Country Value 2022 Effective
Purpose of of of investment (unaudited) ownership Registered
Name the entity Incorporation GBP'000 GBP'000 (% rounded) address
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Gasanstaltstraße
Electrolyser 2 01237 Dresden,
Sunfire GmbH producer Germany 21,763 137,838 4% Germany
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Highdown House,
Solid oxide Yeoman Way, Worthing,
Elcogen Group fuel West Sussex,
plc cell supply United Kingdom 20,430 22,306 11% BN99 3HH
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Supplier of 22 Mount Ephraim,
clean hydrogen Tunbridge Wells,
production Kent,
HiiROC Limited technology United Kingdom 12,914 21,423 6% TN4 8AS
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
6 Satellite Business
Village, Fleming
Printed Circuit Way, Crawley,
Bramble Energy Board fuel England, RH10
Limited cell solutions United Kingdom 10,032 33,814 12% 9NE
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Supplier of
mobile
hydrogen Abraham Heights
storage and Farm, Westbourne
refueling Road, Lancaster,
NanoSUN Limited systems United Kingdom 11,519 7,150 23% LA1 5EF
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Cranfield Hanger 2, Cranfield
Aerospace Aviation design Airport, Cranfield,
Solutions and Bedfordshire,
Limited maintenance United Kingdom 6,296 6,248 29% MK43 0AL
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Supplier of
green
electrolysis
and energy HRB 167243, Kaiser-
storage Wilhelm-Straße
HH2E AG facilities Germany 5,134 6,107 11% 93, 20355 Hamburg
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Green Hydrogen Raveien 205, 3184
GEN2 Energy AS development Norway 3,421 12,065 7% Borre, Norway
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
Supplier of
Strohm Holding thermoplastic Monnickendamkade
BV composite pipe The Netherlands 11,606 90,257 24% 1, 1976 EC IJmuiden
--------------- --------------- --------------- -------------- -------------- ------------ ---------------------
31 December 2021
Total assets
as at 31
December
Country Value 2021 Effective
Purpose of of of investment (unaudited) ownership Registered
Name the entity Incorporation GBP'000 GBP'000 (% rounded) address
---------------- ---------------- --------------- -------------- ------------ ------------ ---------------------
Gasanstaltstraße
Electrolyser 2 01237 Dresden,
Sunfire GmbH producer Germany 20,180 141,674 5% Germany
---------------- ---------------- --------------- -------------- ------------ ------------ ---------------------
Supplier of
clean hydrogen 22 Mount Ephraim,
production Tunbridge Wells,
HiiROC Limited technology United Kingdom 10,001 27,137 6% Kent, TN4 8AS
---------------- ---------------- --------------- -------------- ------------ ------------ ---------------------
Supplier of Abraham Heights
mobile hydrogen Farm, Westbourne
storage and Road, Lancaster,
refuelling LA1
NanoSUN Limited systems United Kingdom 9,050 14,454 23% 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 GBP4.0m and GBP1.8m 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
This information is provided by RNS, the news service of the
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END
FR FLFEVSRIVIIV
(END) Dow Jones Newswires
April 04, 2023 02:00 ET (06:00 GMT)
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