Good morning. Welcome to the HydrogenOne Capital Growth plc investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press Send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to Matthew O'Keeffe from FTI Consulting. Good morning to you, sir.
Good morning, everyone. Thank you for joining us today on the occasion of HydrogenOne's first quarter 2023 financial results. My name is Matthew O'Keeffe. I'm the managing director here at FTI, and I have with me JJ Traynor, one of the principals of HydrogenOne, who will take you through the presentation. We do have a Q&A presentation immediately afterwards, where we'll be taking online questions from you, the webinar audience. The question portal is open now. It will remain open throughout, so do submit your questions. In the meantime, I hand over now to JJ.
Great. Thanks, Matthew. Good morning, everybody. Welcome to our first quarter 2023 results presentation. My name is JJ Traynor. I'm one of the managing partners on the fund. Exciting times in this sector. Lots to talk about. Let me take you through where we are on the quarter, then, as Matthew said, plenty of time for a Q&A. The disclaimer statement. Right. Let me start with a recap of the fund and the macro. At the bottom line, we're targeting NAV growth of 10% to 15% per year over time, including exits. This is being achieved by investing in low-carbon technologies for a climate positive impact. This is an SFDR Article 9 fund, which is the highest standard for an ESG fund. Clean hydrogen, we believe can be a $2 trillion per year sector.
Clean hydrogen can clean up the gray hydrogen industry, which is a major polluter in heavy industry today. Clean hydrogen can replace fossil fuels in heavy transport and power generation. Lots of potential. What's our strategy? We invest in a diversified portfolio worldwide, both in supply chains and in hydrogen production. We invest in revenue-generating businesses. Revenues from the portfolio are up 100% this quarter. I'll say some more about that in a moment. We invest to avoid greenhouse gas emissions and generate NAV growth for our shareholders by organic growth in the portfolio and then ultimately through exit, either by trade sale or by IPO. Some comments on the macro, and there are three big drivers of the hydrogen sector today, three big and very complementary drivers of this industry.
The first one, energy transition, the drive to get to net zero by 2050. Hydrogen has a key role to play in that. The second factor here, improving air quality. This is all about cleaning up transport and the power sector, particularly in cities. Sitting here in London, this is very topical. This is a very here-and-now issue. The third one, energy security. Really in the aftermath of Russia invasion of Ukraine, we're seeing accelerated growth in renewables in many countries' policies. As renewables grow in the energy mix, the intermittency of the energy mix increases. Hydrogen is a great way to store that surplus electricity on a large scale and to transport that energy economically over long distances. All of this is leading to a step change in highly supportive hydrogen policies.
We've seen on the right-hand side of the chart there a doubling of the U.K. hydrogen targets for 2030, a four times increase in the E.U. targets. Across last year, the rollout of material funding and policy support in the U.S. for clean hydrogen as part of the Inflation Reduction Act, which we think is a real game changer in this industry. Let me make some comments on the macro position here in the U.K. We have invested in a series of supply chain companies in the U.K., the hydrogen projects themselves have been moving at a slower pace, frankly, than has been the case on the continent. That's changing. The slide shows a summary of the U.K. hydrogen policy as it sits today.
20 green hydrogen projects have now been shortlisted by the government for funding from the GBP 240 million Net Zero Hydrogen Fund and the UK Infrastructure Bank. This shortlist is due to be whittled down and selected for funding by the end of this year, so the end of 2023. We're also expecting by the end of this year announcements around policy for blending of hydrogen in natural gas grids. We think there's a real uptick in news flow coming here in the UK, and that's very much something which we think investors should watch. Turning to the quarter, the chart here shows the financial highlights for the first quarter. We use the IPEV guidelines for these numbers.
We review and approve all of these valuations for every asset with the board on a quarterly basis. We used a 13% discount rate in the quarter, which is up slightly from the fourth quarter. NAV per share increased by around 3% year-over-year and from the fourth quarter to the end of the first quarter this year. Really pleased to see the NAV rising both year-over-year and sequentially. We think these are robust results. We made GBP 5.4 million of investment in the quarter, three follow-ons and the first payment for funding into our first hydrogen production project at a place called Thierbach in Germany, for GBP 4.8 million.
Cash and cash equivalents at the end of the quarter were GBP 12.5 million, or GBP 16 million, including listed investments, meaning the company is in a healthy cash position today. The chart in a bit more detail here. The chart on the left-hand side shows the NAV movements in the first quarter of 2023 versus the end of 2022 on a pence per share basis. What we saw was improved valuations in multiple private and listed positions totaling around 4.8 pence per share or around 5% of the end 2022 NAV. Bottom line increase of 3% to 100 pence per share, GBP per share, with increases in portfolio value more than offsetting fund expenses, exchange rate movements and carry.
On a longer-term basis, on the right-hand side, our NAV per share has been steady and rising since the IPO in mid-2021. Putting all this together, looking at the left-hand side of the chart, we're delivering a NAV per share that's steady and rising, the orange line on the chart, against the backdrop, frankly, of weak and volatile markets, the gray line on the left-hand side there, so substantially outperforming. We've built a diversified hydrogen fund here that has significantly outperformed the listed hydrogen index, as you can see on the chart. On the right-hand side, what you can see there is our NAV rising while our share price currently has reduced.
That fall in the share price, you may have some questions around that, is in line with other listed growth funds and renewable funds, which are typically trading on NAV discounts, so far in 2023. Turning to the portfolio in more detail, this is a summary of the fund, and it talks to where we invest. We've invested in revenue-generating supply chain companies in the UK and the EU, developer companies with plans for production and cash flow out around the middle of this decade. We co-invest with strategic industrials and other institutions, and we look for portfolio diversity. It means global allocation, and right across the full value chain.
In terms of fund composition, private assets dominate at 97% of the invested portfolio, with a small allocation to listed names, 3% to listed and that figure is reducing over time as we grow the private portfolio. Let me make some comments on the revenue performance for the private businesses. On the left-hand side, the chart shows revenue growth by company since the date of our investment on behalf of our shareholders. The earlier investments we made, names like Bramble, Sunfire and so on, have grown the most, 10-15 times or so. The more recent investments, Strohm, Elcogen, Cranfield, they've grown by 1-4 times with great potential there.
In aggregate, the chart on the right-hand side there, on a 100% basis, this portfolio generated GBP 40 million of revenues in the last 12 months. That's 107% from the equivalent period in the first quarter of 2021, all on a pro forma basis. This growth is real, it's accelerating, and the companies we've invested in are starting to deliver. Let me give you a couple of examples of portfolio companies and the news flow in the quarter. The first example here is Sunfire. This is an alkaline electrolysis business in Germany. Alkaline electrolysis with an innovation program around solid oxide. This is a company with 3 sites, 2 in Germany, 1 in Switzerland, 500 staff.
This is a material business. Recent news flow, very positive. They've set up a contract for contract manufacturing with a company called Vitesco Technologies, which is a big name in the German autos business, and that'll really accelerate the product rollout on the alkaline side. Sunfire have launched a new alkaline assembly line in Solingen in Germany, building that site up to 500 megawatt scale, gigawatt scale overall, right across the company. Sunfire recently delivered a solid oxide electrolysis unit to RWE, 250 kilowatts. That is the world's largest solid oxide unit installed to date. Substantial growth potential from this company and clearly coming through for our investors. The second example, again, in Germany, this is a company called HH2E.
This is a project developer business. Through this investment, we get access to green hydrogen projects in Germany. HH2E put the Thierbach project into the developer stage during the quarter. HydrogenOne have taken up our investment rights in that to 15%. This is a development for 100 megawatts green hydrogen and energy storage project with FID, final investment decision, planned somewhere in the second half of 2023. HydrogenOne's share of this phase, of this developer phase, is GBP 2.5 million. The third example, Strohm. This is a Netherlands based business. Strohm make a product called Thermoplastic Composite Pipe, that abbreviates to TCP, which is a low greenhouse gas pipeline that can be used offshore for natural gas, for CO2 and for hydrogen.
Order book strong. The company has completed its expansion project at its Netherlands site, taking capacity there to 140 km per year of this TCP pipe. With that factory now up and running, the company will now push on to grow its revenues and get into an EBITDA position during this year. Strohm, very exciting business for us. The last example here, Cranfield Aerospace. Cranfield, U.K.-based company, is an IP business that is developing a hydrogen-powered flight for using turboprop engines. After the end of the quarter, just recently, Cranfield signed a heads of terms for a merger of that business with Britten-Norman.
Britten-Norman, and you can see the diagram there, is the type certificate holder for the nine-seater Islander aircraft. Subject to confirmatory DD, the two companies will merge probably over the summer to create the world's first vertically integrated clean flight OEM. This is a very exciting proposition for our investors and frankly a UK champion emerging here in a clean flight. HydrogenOne backed this merger with a GBP 1.5 million investment, which we put in with the heads of terms, and potentially up to GBP 3.5 million of further investment as this deal closes. That is part of a GBP 10 million round overall from the existing investors in the entity. Final slide for me and then Matthew, perhaps over to you on the Q&A.
Ultimately, what we're all about is backing the best hydrogen companies and projects through our own unique network. I think you've seen some examples of that today. These are distinctive positions, growth-oriented, backing strong management teams, backing strong technologies. GBP 110 million deployed, more to come from a pipeline that's currently sitting at around GBP 500 million. All of that is directed at avoided greenhouse gas emissions and fundamentally growing value for our investors. Matthew.
Thank you, JJ. 9:15 A.M. We'll go now to the Q&A portion of the webinar. Just as a reminder, we are still taking questions from you, the viewers, so please do carry on typing your questions via the portal. Let me just start the process off with a couple of the questions that have come in. The first one relates to Cranfield, which we were just discussing, which is pending final confirmation, what are HydrogenOne's expectations for Cranfield after the merger with Britten-Norman, and how will the exit strategy be realized after that?
Thanks for the question. Look, it's a very exciting proposition for our investors. What we've done through this transaction is taken Cranfield's very strong intellectual property around turboprop for flight and combined that with a business in Britten-Norman that can actually manufacture the airplanes that can turn that into commercial reality. This is classic vertical integration. You can see there's a cost angle in there where previously one entity would pay another entity to deploy that technology. Now that's all under one roof, so there is obviously a cost benefit in there. We think that this actually accelerates the timetable to get to a commercial solution for clean flight.
The combined entity expects to be able to deliver a certified commercial airframe here by 2026 after all the innovation and testing between now and then. This is a very exciting moment, I think for both companies and for us, and for our investors.
Thank you for that. A more general question. How do you at HydrogenOne value unlisted non-revenue generating companies, and what measures do you tend to take if certain milestones are not met?
Thanks for the question. There's a couple of things in there. In terms of valuations, we use very strict and robust policies. The IPEV guidelines underpin all of that. These valuations are scrutinized and approved by our board, our independent board, once per quarter and actually reviewed and checked by our auditor, KPMG, on an annual basis. That's the mechanics of it. In terms of the methodology, we use a DCF methodology, so discounted cash flow. When we invest, we hold the position in our books at the so-called PORI, the price of recent investment. Over time, we migrate that PORI, which is typically a low number, to the fundamental DCF value.
We use a relatively high discount rate in this analysis. I think for this quarter, the average discount rate for the portfolio was 13%. That's how we do the valuations. I think within that we give a high level of transparency. You can see the carrying values for all of our positions in the materials we put out today. That was the first part of the question. The second part of the question I think was around milestones and other company performance. Look, when we invest, we have quite intense negotiations with the management teams and the boards and the other investors that come into those rounds.
Typically, we agree performance milestones, which, if the companies hit them, there's an options program and the management teams are rewarded in that way. If the milestones are not hit, we need to understand why that is and what were the factors behind that and fundamentally make course corrections on strategies. For our investors, we would then have the rights to purchase shares in those businesses at a fundamentally lower valuation. If the management teams deliver, they win. If the management teams don't deliver, then our shareholders are protected.
Okay. This is more of a macro question. You've mentioned hydrogen as a store of surplus electricity. Will there actually be surplus electricity? Will there not be huge demand in the future for electricity for cars, homes, et cetera? What's your view on the, on that?
It's a great question. I think the comments I made were around the volatility of electricity supply. As we move into an energy system where there's just proportionally more wind and solar in the mix, that's very weather dependent, and you can easily imagine a period of time where there's too much wind, too much sunshine, and there's a surplus of electricity. At the moment, what's the solution for that? Short-term storage in batteries is, you know, what's on the table today. What we're investing in here are businesses that convert that surplus electricity into hydrogen, which can be stored at a large scale.
Think about tanks, think about pipelines, think about salt cavern, and can be distributed over long distances very efficiently as natural gases are. It's really that surplus electricity as a result of the volatility of the electricity mix that we're thinking about here, rather than a fundamental oversupply or undersupply of electricity.
That's very clear. Another question on valuation. What's driven the increase in private valuation in this particular quarter? Is it just the rolling forward of the DCF valuation, which you'd mentioned, or is it a better performance of the core assets, or is it some combination, or are there other factors altogether in the mix?
It's very company-specific. I mean, there's a roll forward element to the DCFs of course, and that's across the piece. What we do each quarter is collect the latest numbers from each of the underlying businesses. What have they achieved in the last quarter, and is there a refresh on the outlook? That's what we think of as the organic performance in the businesses. That's been generally positive for our portfolio this quarter. Look, I think there's a combination of those two things, and there is an offset in here in that the discount rate actually increased slightly from the prior quarter. There's a slight negative baked into the numbers as well.
Okay. A question on the whole portfolio. What, what's the revenue profile of the portfolio today, and when does HydrogenOne expect the individual companies to become revenue generative?
Today, if you look at the last 12 months, and one of the slides I think covered some of these points. If you look at the last 12 months in aggregate on a 100% basis, then that portfolio generated GBP 40 million of revenue. That is 107% higher than the 12 months leading up to the first quarter of 2022. Revenue generating and strong growth in that revenue. If you look at the chart, the revenue growth is actually accelerating over the last couple of quarters. What that breaks down to is everything we've invested in on the private side is revenue generating today, with the exception of two positions.
One is the Gen2 Energy company in Norway, which is a developer company, so that's at pre-revenue. The second one is the Thierbach project in Germany, which is again in the developer stage. Everything else is revenue generating currently, and one or two of these names are actually generating EBITDA.
Yes. Which brings me to my next question, actually. The growth in revenues of the portfolio companies is clearly very impressive. What is the view on getting to profitability and ultimately to dividends? Or is the view of HydrogenOne that you may have taken a decision to exit before you get to that stage?
I think if you look at the listed. That's a great question. If you look at the listed hydrogen sector, Plug Power, Nel, ITM, you know, companies of that nature, typically what you see there is strong revenue growth, strong improvement in gross margins, a negative EBITDA on a trajectory to become positive. You don't see dividends from the listed hydrogen sectors. I think we are in a similar position with these private positions, and we would see most of these companies becoming EBITDA positive in the 2025 to 2027 range. In terms of our exit strategy, we're actually quite pragmatic here. Trade sale or IPO could be one or the other. We're gonna be very NAV driven.
Some of these businesses are clearly more appropriate to be trade sale. They'll fit nicely into the industrials. Others we think are very attractive for the IPO market. I think the key point today is that there are about 40 listed hydrogen names around the world and their financial characteristics very much reflect what we've invested in on the private side.
Returning to the subject.
I think just one more on that.
Okay.
We would just make a final point that the valuation of the listed hydrogen sector is about 30%-40% higher than our carrying values on our private side. There's a lot of upside in this for our investors.
Okay.
Sorry, didn't mean to interrupt.
Not at all. Returning to the subject of Cranfield, Britten-Norman, what plans might the company have to help potential customers with sourcing and handling the fuel?
No, it's a great question. I mean, it's one thing to build the airframes and get them CAA certified and get them flying. Then there's a logistics piece that has to go around that to supply the hydrogen. We would see that as trucked in. One of our investments, actually in the early stages of the fund was a company called NanoSUN, which is a U.K. business that has a flatbed truck solution. So shipping containers that contain a series of pressurized tubes that contain that hydrogen, which can be shipped from the hydrogen production facilities to the customer and then actually dispatched, you know, directly from those units to the customers.
We would see a system like that being set up around airports. HydrogenOne is a member of a body called Hydrogen South West, which, and, you know, other members of that body, you know, include airlines and, you know, there's a lot of interest on getting this stuff around Bristol Airport. The logistics piece is coming, but I think the main thing here, the main thing today is to get the airframes going.
Okay. A sectoral question: what's your view on the share price of the listed stocks and the listed funds in the hydrogen space?
Well, look, I think the listed companies are clearly seeing high degrees of volatility in their share prices and have tracked down pretty hard since the peaks in 2020, early 2021. If you stand back from that, the momentum in the listed hydrogen space has kind of tracked the Nasdaq here, you know, trading as a tech sector. The Nasdaq has come under pressure with rising interest rates and market sentiment moving away from growth and becoming, you know, more and more risk-averse in that space.
I think it's fair to say that some of those listed names have had company-specific issues around product quality and delivery schedules, and that has obviously hit sentiment in the listed space. We own about 15 listed companies currently on a global basis. We do that because we see value in these names, and we think there are some interesting corporate opportunities at these levels, in listed companies.
Okay. A question more specifically on your own share price is obviously why is it so low? What comment can you make on the performance this year so far?
Yep. Our share price is trading at about half the NAV, so around 50p versus a NAV of GBP 1. Our NAV, I think we've shown today is, has been steady and rising. We don't see the discount here as a company-specific issue. We think this is very much about sentiment. There has been an allocation by the market away, a capital allocation away from listed funds and particularly growth funds. We've tracked that, and there's been a market allocation away from renewables, and again, we've been caught up in that. This is to do with the interest rate cycle and risk appetite in the markets in today's kind of economic situation.
I think I've mentioned that the listed hydrogen sector has come under pressure. We've been caught up in that. We're not, you know, we're not seeing the same factors. You know, there is a sentiment piece in there. I think overall, you know, we're not happy with our share price. That's not been a good experience for our investors. We're working very hard to fix that. I would just say that for new investors, that this is an attractive entry point into our shares, and there is a lot of value on the table at this stage.
Thank you very much. I'm afraid that's all the questions we've got time for this morning. That concludes today's presentation. I'll hand over now to JJ to close.
Great. Matthew, thanks very much. Thanks to FTI for hosting. I think what I said in the presentation, ultimately what we're all about is backing the best hydrogen companies and the best projects through our unique networks, and we've shown you some of that stuff today. Distinctive positions, growth-orientated, strong management teams and technologies, and all of this is directed at avoided greenhouse gas emissions and growing value for our investors. Thank you.
JJ and Matthew, thank you very much indeed for updating investors today. Could I please ask investors not to close this session, as you will now be automatically redirected to provide your feedback and all of the board can better understand your views and expectations. This will only take a few moments to complete, and I am sure will be greatly valued by the company. On behalf of the management team of HydrogenOne Capital Growth plc, we'd like to thank you for attending today's presentation. That concludes today's meeting. Good morning to you all