Hydrogen Capital Growth (Frankfurt:65U) — Q1 NAV and Portfolio Update

0:02 Good morning, ladies and gentlemen, and welcome to the Hydrogen One Capital Growth PLC Investor Presentation.. Q and a tab that's just situated on the right hand corner of your screen. Please just 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 can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet company platform.

0:31 Before we begin, as usual, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. I would I would now like to hand you over to managing partner, JJ Trainer. JJ, good morning, sir. Well, good morning, everybody. Thanks for joining the call this morning. I'm JJ Trainer, one of the managing partners here at HYDROGEN. I'm joined by Richard Richard Hulff, who's Morning, everybody. Also managing partner, one of the cofounders. We'll take you through through the results and trends in the sector and, of course, plenty of time for for q and a. The disclaimer statement and then the agenda for the call. I'll I'll kick off by going through the first quarter results and then hand over to Richard to talk about portfolio developments and what what we see happening in the portfolio companies.

1:22 I think to say that that we had our annual report presentation with everybody just two weeks ago, so there isn't really a lot of new news on the portfolio companies nor the numbers as you'd expect in just a two week period. So what we thought we'd do is slightly change focus on this call. We've published a report this morning called the hydrogen handbook, which is our annual outlook... Summary and outlook for the hydrogen sector. And let me give you a summary of conclusions of that report as we turn the slides turn the slides this morning. So first of all, the highlights for the first quarter. NAV per share similar to the prior quarter and NAV now sitting at a £115,000,000. Portfolio continue to deliver strong growth. The private portfolio revenues in our six portfolio companies grew 21% year over year, now reaching £92,000,000.

2:14 And there's good momentum, strong momentum, and news flow from several portfolio companies, STROWM, Sunfire, Cranfield, for example, and Richard will take you through through all of that. And cash at the end of the quarter, just over £22,000,000. The numbers in a bit more detail, valuations are done using IPEV guidelines reviewed and approved by the board per quarter and reviewed annually by our auditors, KPMG. NAV per share down slightly quarter on quarter and down year over year. That year over year impact is due to previously announced write downs, which which we updated on with the annual report a couple of weeks ago. Discount rates in the quarter slightly lower than the end of the year with a 0.3% difference, which is a very marginal uplift on the results, 0.2p per share. So discount rate is not really a factor in these results.

3:14 The results expressed as moving parts. The slide on the left hand side shows NAV movements q one twenty twenty five versus q four twenty twenty four on a pence per share basis. So there's a small decrease in holding values for portfolio companies overall, totaling around 1.2p per share with offsets from positive FX impacts and some offsets, of course, from fund costs. And on the right hand side, on a longer term basis, NAV per share since the mid twenty twenty one IPO

3:45 starting to rise flat flat and then hopefully to rise following the write downs at... That that we announced for 2024. In a bit more detail, the chart shows the increases and decreases in NAV by company compared... Again, to q four twenty twenty four. Working from the bottom of the chart upwards, HYDROK and STROWM values reducing as a result of delays in turning sales opportunities into firm orders. Elkridge and Sunfire, large holdings for the company, of course, essentially unchanged some small delays to Elkridge projects as that company manages its cash. And then Bramble and Crownfield both benefiting from discount rate uplift and business development, particularly at at Crownfield.

4:32 And I think with that, I'll hand you over to Richard to talk more about the portfolio. Thanks, JJ. So just a reminder of what... What's going on in in the portfolio, trying to update on the on the news in the last last couple of weeks. Onto my slide. Yes. So just a reminder, the six companies in the portfolio, Bramble, HYDROCK, Cranfield, Sunfire, Aquagen, and Strom. Bramble, it's about lightweight fuel cells being adopted into the mobility sector. Bramble is working closely with tier one autos in Japan. Japanese tier one auto is also very active in The US. We'll be talking about that in the the section on on hydrogen in the broader market.

5:22 There are actually fuel sales going into Kenworth t six eighty trucks now in The US and California. That's actually happening now. It's not a project or a joint venture because California has got a lot of hydrogen supply as a sort of a a submarket within The US. HYROC, this morning, actually, just about six minutes ago, announced a joint venture in the Swan 10 Chemicals Park Park up in Hull with associated British ports and PX Group, larger chemicals producer up there. So we'll be seeing hydrogen being manufactured through the the HYDROC units. And Cranfield also have been active in the last couple of weeks in announcing the...

6:10 It's a subset of of the Cranfield business. It's the the flight simulator now being used for Formula One arcade simulation.

6:21 And that... So f one arcade had put out an announcement in the last few days, and you'll see the Cranfield units on show there. This is a this is a a great sort of EBITDA generating business as as part of the overall Cranfield business. So that's just a reminder of the portfolio. Just a little bit more in terms of the numbers, the snapshot of the fund, NAV, 115,000,000. We're happy with Sunfire, HYDROGEN, as our top quality companies, the largest shareholdings, two thirds of the portfolio, about 60% of the portfolio in Europe and the the rest in The UK. By theme, mostly in energy transition, which means a now focus and green hydrogen covered by Sunfire, again, with short term revenue growth. And the yellow portion is mobility with high innovation value. But you you... We showed you this before in the last couple of weeks, but just a reminder to the... Those investors about how the portfolio breaks down.

7:28 A little bit of news flow. Q one twenty five, Sunfire, great headline for the fund. €200,000,000 in financing provided by consortium led by by Commerce Bank. The sector is now... The sector is being funded now, and we're highlighting that here. STROWM teamed up with Unitech on some subsea applications, fluid flow using STROWM pipe, and secured orders from Saudi Aramco. So this this is technology now being being used in The Middle East. And and Bramble working with them, another one worth highlighting, with tripod systems in Taiwan for PCB fuel cell based power systems. So a lot going on in the portfolio and a few other headlines there for you to digest.

8:19 Just as the portfolio continues to grow, updating on the q one there, looking at the overall revenue generation of the companies in the portfolio. On the left, the revenue growth by by company since since we invested. The early investments in Sunfyve grown the most, 12 to 16 times. You can see there on the top right of that chart. And, other investments, HYDROX, TROM, ALCOGEN, and HJU have grown, one to eight times. So great potential in the fund, demonstrating revenue growth in the here and now. Revenues aggregated a 100% basis on the right hand side showing, yeah, in q one, 92,000,000 generated in revenues in the last twelve months compared to q one twenty four, up 21% from the equivalent period in '24.

9:07 So... And we're we're really happy about the the progress of the portfolio companies, and we'll we'll keep you updated on that as we go forward. So we've now got a section that JJ is gonna take you through on the macro. We coincides with the publishing of the HYDROGEN handbook, and JJ is gonna talk to you about that now. Brilliant. Thanks. Thanks, Richard. So like as Richard said, we published our annual annual review and outlook for the hydrogen sector this morning called the hydrogen handbook. It's available for free. I have downloaded off our website, and it... It's on... It's also on LinkedIn this morning. I hope you find that that that useful and interesting. Let me give you some of the highlights from that study, and, obviously, delighted to take take questions. What we try to do in this study is address the, you know, the the long term structural drivers of the hydrogen sector and and how that... That's really underpinning the industry.

9:58 But also to look at some of the short term factors that that are driving the news flow and and that's some of the short term development. So this is long term piece and a and a much more sort of here and now short short term aspect to that report. So look on a long term basis, there are three big drivers of the hydrogen sector. Energy transition, governments implementing targets to get to net zero and the key role that hydrogen has to play in all of that. In near term driver around air quality, this is basically about getting rid of diesel from power generation, especially portable power generation and the transport sector. And, of course, the third one, energy security with a shift to renewables underway in many countries to get away from reliance on OPEC and Russia and so on for energy. And hydrogen sits very well with...

10:47 Within that that new that new system of of of renewable power and electrification in that many many many sectors. What that translates into over time is a very substantial opportunity to clean up the industrial gas sector. So that today's hydrogen market, a $175,000,000,000 a year of revenue, the gray hydrogen sector, highly polluting hydrogen gas that's made with fossil fuels and is used in oil refining, steel, cement, the fertilizer sector. And cleaning that up with with clean hydrogen is is the major demand pull that we see for most everything that that that we've invested in in the fund. And then over time, we we do see the role of hydrogen, clean hydrogen more broadly displacing fossil fuels and things like transport and and and the power sector over time. And you can see again there a substantial investment opportunity for our for our shareholders.

11:42 What the report does in some detail is is look at at at government policy around the world. And increasingly, the the the the types of government policy and the rate that is being implemented is what's driving the the the rollout of the hydrogen sector, meaning that hydrogen is is being deployed at different rates and and in different different settings in different parts of the world. So the example on on the on the screen there is the European Union, which is a multilayered set of policies to get to net zero. And then, of course, then how how hydrogen fits into all of that. And I think the simp... The simple way to look at this is that demand is being stimulated. So so renewables demand's been stimulated in the EU by the use of financial penalties on the incumbents. So bad news for all refiners, bad news for for fossil fuels retailers...

12:31 Fossil fuel retailers. And, of course, that's also supported by grants and loans underpinning supply. So there's this supply and demand stimulus in the EU. And what's really dictating the pace of change

12:44 in the EU is not the EU policies, but it's the rate at which they're being implemented at at a country level. And one to watch this year is a policy called red three, which is due for implementation right across the European Union by the end of end of this year, and that really will be a game changer for for the hydrogen sector. And I think many oil refiners are are slightly concerned, frankly, about about what's in that what's in that legislation. Over here in The UK, just to give you another example, the pace has been slower in The UK, but policies and and activity is now is now catching up. The emphasis in The UK on the policy side has been stimulating supply. So whereas in the EU, there's a lot of focus on demand. In The UK, it tends to be around supply and and incentivizing blue and green hydrogen, making The UK very similar in in that regard and and quite different to the EU.

13:38 Funding from the government now in total is running into the billions

13:41 spanning green, blue, and and CCS and and moving more quickly in recent years with the arrival of the new government. The recent announcement on carbon capture and storage offshore Liverpool, at Liverpool Bay and the HAR two green hydrogen round are both obviously highly positive, for for for the sector. Let me make make a few comments on the transport sector, which people often, ask us about. So that hydrogen fuel cells and hydrogen engines are viable options for transport. That technology is is there and is improving. And, of course, battery technology is is is there and is also improving. And we think that that these two technologies are quite quite complementary, and they're being rolled out at different rates in different regions and in different applications. And really what's driving this is access to hydrogen, access to charging networks, and, of course, price running running through all of that. So in the near term, hydrogen buses are are being deployed in many cities around the world, especially the EU.

14:43 Who's doing it? Well, Solaris, for example, has delivered 400 hydrogen buses and has another 400 buses in its order book. Rightbus here in The UK has delivered a 170 buses, and they're planning to make over a 100 more this year. So bus is really moving, and and this is all around cleanup of cities, air quality,

15:02 and and net zero. On the HGV side, again, moving at different rates around the world, many OEMs in in heavy goods vehicles are testing and trialing fuel cell and hydrogen engine solutions and working with with suppliers to build out refueling refueling sites. And this is particularly a busy sector in The EU, in China, South Korea, Japan, and California, the the example that that Richard Richard mentioned. And then in light transport, where there's clear competition with with battery EV,

15:38 which which is ahead in many markets, keep an eye on the on the Far East. Look at what Toyota are up to. Look at what Hyundai are up to in terms of deploying hydrogen fuel cell into into light to... Into light transport. So a lot happening on on the transport sector. In terms of hydrogen supply, the chart shows green hydrogen supply on stream under construction under development by region. Key message here is that there's gonna be a 15%...

16:05 One five... Sorry. A 15 times increase, one five increase in green hydrogen supply coming into the market by 2027. All of that's post FID, post final investment decision with capital committed of over $60,000,000,000. So real sets are happening now and growing growing quickly. And then in terms of market development and putting all of these macro themes together, there are strong long term, we think, unchangeable factors driving this sector. We talked about energy transition, air quality, energy security. But at the same time, there have been headwinds in this industry really from geopolitics. So Russia, Ukraine, US policy development, and so on. And there has been a slower development of projects in some regions as offtakers wait for pricing to develop and and wait for government funding to arrive.

16:58 And I think with... Within all of that, there has been plenty of news flow around some oil companies retrenching back to oil and gas and and moving away from renewables, and that's particularly the case for for for Shell at BP here in The UK. So, you know, some some some some some some complex news flow there. But despite these headwinds, we are seeing strong growth overall. 15 x increase in supply to $20.27, $60,000,000,000 of committed capital, and particular progress in the industrial gas sector in buses and coming pretty quickly e fuels and stationary power. So that's a short answer through the the hydrogen handbook. And as I say, that report is available on our website. Please do read it. I'm I'm delighted to take questions on it. And with that, Richard, over to you to to close us out. Thanks, JJ. So q one twenty five picked up with the pace. We see revenue growth in our companies.

17:52 And despite the the general economic headwinds globally, hydrogen's looking good. Looking ahead, HYDROGEN ONE remains focused on delivering long term value by investing in the energy transition and scaling up the hydrogen economy. Our portfolio companies continue to make solid operational progress, and we are well positioned to capitalize, on the growing momentum behind clean energy infrastructure. We thank our shareholders for their continued support as we work to build a more sustainable energy future working hard with new like minded investors and joint venture partners to build on the platform of Hydrogen One. So thank you very much, and we will take your questions and talk through the sector.

18:37 Perfect. Richard, JJ, if I may just jump back in there. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that have been submitted already, just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboards.

19:01 Guys, you can see that we have received a number of questions that were both presubmitted ahead of today's event as well as those that have made their way through this morning as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And JJ, Richard, this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. If I pick up from you at the end, that'd be great. Thank you. Yeah. There's a number of questions rightly about how we're dealing with the the discount between the share price and the NAV and and where are we in the environment after after accordion. So investors will have seen that we... We're very proud to to have announced a new financial adviser and broker in the form of SHORE CAPITAL.

19:48 JJ and I have been... And the team have been working very hard on on other other partners and other investors who share our our enthusiasm for the long term view and midterm view on on hydrogen. So we've been working closely with with those

20:05 entities and then engaging Shore Capital on that process to sort of formalize that. So that's as much as we can say really about what we're doing, but we're doing a lot to to to secure our our future and to to secure the the the best value for our shareholders going forward. Great. There's a pre submitted question around the costs in the funds, and I think this... Perhaps perhaps in the question, there's a bit of bit of a jumble on on on the numbers. So the cost for the fund last year, taking the the the investment adviser fee and the overall costs of of of running the fund were around £3,500,000. And what we flagged in the annual report was that those costs are expected to be around £3,100,000 this year with with downside as we continue to to take out to take out costs and and focus on that. So hope that that answers the question around around the cost piece.

21:07 So there's a question from Neil, which is Neil M, around... I guess the question is, given the state of the hydrogen sector forms of the fund, you still think do do you... Would you still invest in in the... In in similar com... Companies going forward? I mean, look, you know, we... It's a sort of philosophical philosophical question. Our investment mandate is pretty broad. What what we've... Well, I think what we've learned is that focusing on supply chain businesses is the right place to be. If you if you remember, we exited from developer businesses last year and focused on those supply chain companies, particularly, and fuel cell, and and we continue to believe that that that's a good place to be in the in in this... In the industry. Question from Stuart e about

21:56 cost reduction. Yes. Yes, Stuart. We we are working on a cost cutting program between the HYDROWTH PLC adviser and the board at all levels and include some of the the options that you mentioned there. But we are confident that we have cash to run the business going forward and are working very hard on an alternative strategy. And, Stuart, he's also asking, was there a cost to the aborted accordion transaction? And the answer is there's no there's no cost to the shareholders in in any way on that on. Graham, given cache constraints, what's the risk of of...

22:43 Test to do. No. We've covered that. Yep.

23:02 So there's some macro questions coming through. I... It's perhaps one for you, Richard. Ivan s, any thoughts on the use of ammonia to deliver hydrogen, especially with respect to AFC's pivot to mobile ammonia cracking? Yes. We actually were with AFC last week looking at that very, interesting technology of the the ammonia cracking, which is highly scalable. So you can you can have an ammonia cracker in the size of a of a sort of a one liter coke bottle, or you can have an entire plant.

23:33 Yeah. The the the the the short term application we see in ammonia, apart from the fertilizer sector, which is already a massive sector and converting over from from... Into into sustainable green ammonia is also in shipping. So the shipping industry and the changes implemented by the the regulator in the in the shipping world are also pushing us fast towards ammonia as a solution in that area. And Hyundai invested into the portfolio

24:06 in... Into one of our companies. It is is the shipping part of that business. So, yes, we we we have real connections, and we see real real upside there. There's a long question from Ian O, which if I could summarize, Ian, it's it's around the cash position of the company and alternative strategies to to address the cash position and and realize value for the shareholders. Ian, if I could just say we're we're working very hard on a number of options to to address that and to improve the share price performance. I think it's been mentioned that that we've recently appointed SHORE CAPITAL to come on now as the as the broker and the financial adviser. I And think it'd be better if we updated as to the outcome of that rather than speculate as to as to the roots that we may may or may not follow. But, yeah, thanks for the question, and all the comments are well well noted.

24:57 There was a question from Nathan about continued support from largest shareholders, INEOS and others. Yes. The answer is yes. We we we have been engaging with the largest shareholders. People know the current situation. And, there's continued support for us and and and what we're doing in the hydrogen sector. There's a question, a pretty submitted question coming from David. Thanks for the question. Could you summarize the state of play in The US hydrogen sector? It's quite a complicated question. So so, Richard, perhaps you'd like to have a have a go at that. So The U... The US sector? Oh, yes. Yeah. The US sector. Now the the The US is... Yes. It is it is interesting. We've got

25:39 committed markets in California and the East Coast that will continue to support hydrogen. The example we... That we gave earlier backs that up of of Toyota putting their fuel cells into Kenworth trucks that are running along the the supply chain in in in California because there... There's a long term commitment to hydrogen production in that state. So the the the way we see hydrogen developing in the in The US is is targeting the right markets in California and East Coast. There's also quite a lot of talk in The US about drill baby drill sort of coincided with the US geological survey report on white hydrogen being... Come... Coming out of out of the ground with the oil and gas, which I know is an area that JJ is interested in.

26:28 But there there could be upside potential there. And given our oil and gas backgrounds, we're we're we're we're well on top of the the the... Any progress that could be made in that area. The question from e and m. Thanks. The question here, are fund managers receiving any bonuses on this performance either last year or predicted for this year? The the bonus to answer this is really a question for Richard and myself. So so we are we are incentivized to sell assets

26:56 at a premium to the prices that that would pay for those assets. And if, you know, as of when that that that transpires, we receive a carry. So if if you like a share a share of those a share of those gains. But outside of those asset sales, we we don't we don't receive don't receive bonuses yet. So I think that that answers your answers your question.

27:20 Share prices. Again, there's a pre submitted question. So can you comment on on activity in the hydrogen sector outside of your portfolio companies? What do you see more broadly in the market? Richard, this maybe one for you. Yeah. I mean, just just just outside of the first quarter, just in the last few days, we've seen some great announcements. ITM supplying 300 megawatts of elect... Electrolyzers to

27:52 a client in Asia Pacific as well as 35 megawatts going into Aldeburgh in The UK with the SSC and Equinor as the as the clients for that. Again, back back in The US also, Exxon signed a supply deal with Marabini for for blue ammonia. Tyson Crapnicera supplied 740 megawatts of electrolyzers to a... To the Stegra,

28:15 a client in Boden in Sweden. Toyota, we mentioned, again, in The US. Yeah. There there... There's a lot lot lot going on in this sector globally. We we find we're sort of working against the headwind of the press that wants to see the downside of hydrogen. So there's quite a lot of enhancements around that, but we probably see on a sort of a five to one ratio of, you know, good news to bad news. So, yeah, it's it's it's finding its way into infrastructure. It's finding its way into the existing hydrogen sectors, as we've always said, which is which is a large sector which sits behind ammonia production going into fertilizers and the hydrogen sector that goes into cement and steel as a reducing agent. So a lot of what we're seeing is is electrolyzer supply into people that are converting driven by the legislation in Europe that you just simply cannot carry on producing gray hydrogen. You've got to you've got to change. So you've got to start buying electrolyzers. So that's... That that that...

29:14 That's what we're seeing globally. As a couple more questions. So Stuart e, thanks, Stuart, is asking about the large spread on the share price. So he's talking about a 15% spread of the share price being quoted by the market makers. And is there a way to resolve GROWTH that? So thanks for that. This is something we should think we should pick up with with our new broker, SHORE So Stuart, thanks thanks for the comment there. Graham r is asking about cash constraints. So given the cash

29:44 constraints, what's the risk of dilution to the portfolio companies needing funds over the next next year? I mean, that risk is there, Graham, for sure. I think so far, we've been quite successful at mitigating that by the use of convertibles. If you remember, in 2023 and 2024, we made relatively small investments in in port... In in the portfolio companies into convertibles, which which obviously converted at a discount against against fresh investment,

30:12 which protects our shareholders in as much as we can from those from those dilution effects. Rob B says, how big is your analytical team currently? Well, it's it's the six of us. We're we're we're all working on analysis. I guess two two out of the six are intensely work... Working on that that the the analysis of the existing funds. And, we we are on top of the existing six investments. We're... There... There's a familiarity, but, you know, we we we have to... We can't be sloppy. We've got to, you know, keep on top of each of those companies. JJ and I are on the boards of most of these companies, so there's a lot of work work to do. And we also stay on top of the potential investments into into the pipeline so that we are expecting to to to carry on investing into the hydrogen sector as it grows, and we we we have to find new ways of raising capital to do that.

31:06 So, yes, we're we're we're hoping we don't... We won't miss these opportunities as we go forward. And there was a question which which appeared and has disappeared actually, which was about it was about some of the some of the aspects of the hydrogen handbook. So apologies if that question's gone. Let's just get in touch shortly. Either repost it or get in touch by by email, and I'm sure we can we can look at that.

31:30 I think that's it. Operator? Absolutely, guys. JJ, Richard, thank you very much indeed for being so generous for your time then addressing all of those questions that came in through investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But, Richard, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yeah. Thanks. So thank you to to our shareholders for your continued support as we work to build a more sustainable energy future, working hard with new like minded investors to solve this problem of the the discount between the share price and and the net asset value. And we're we're happy with the NAV. We're happy with the actual valuation of of the assets. We're not happy with the market valuation, and we're doing everything we can to address that, and we'll be updating you shortly as we go forward. So thanks, everybody, and until next time.

32:31 Perfect. Richard, JJ, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of Hydrogen One Capital Growth PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.