The management team do not draw salary until the company is commercial and in a position to make sales, in this case after the successful completion of Stage 3, and with it’s first invoice for a licence contract. The management team is incentivised by their respective equity stake in the company, and therefore their goal is completely aligned to that of any investor, i.e. a profitable exit generating a significant multiple return on investor funds.
By designing and licencing the technology to Gas Turbine Generator manufacturers for New and existing Gas Turbine Plants, and to Power Generation plant operators and owners through retro-fit solutions. See pages 21, 25 to 27, pages 60 to 62 and Schedule 5 of the IM for more detail
An IPO of the company between 2019 and 2022 or sooner if market conditions and company financials allow, or a trade sale if available earlier and it provides a suitable return for investors and management. An MBO will be an alternative exit for Investors assuming business conditions are suitable. VN HPG would also like to offer Investors an independent exit through Asset Match, see http://www.assetmatch.com.
In 2020 the estimated addressable ‘New’ target market opportunity will be £1.24bn. In 2020 the estimated addressable ‘Retro-fit’ target market opportunity will be £23. 4bn. Therefore, the total estimated addressable market in 2020 will be £24.6bn. See pages 50 to 53 of the IM for more detail.
There are a number of factors involved, including but not limited to; Current EU legislation enforcing CO2 reduction in the Fossil Fuel Power Generation with fines to punish polluters, slumping electricity prices and overcapacity. See first 4 pages of IM for more detail.
The VN HPG solution is much more flexible as it has the intrinsic ability to scavenge waste pressure and heat to produce hydrogen, or it can utilise electricity if it is surplus to requirements. Furthermore, the EHG is proven to be over 95% efficient compared to the PEM’s 70%. See page 53 of the IM for more detail.
The flexibility of production by the intrinsic ability to scavenge waste pressure and heat, as well as to use electricity if necessary to produce hydrogen.
The proven efficiency rating of the solution, i.e. over 95%. See pages 20, 21 and Schedule 6 of the IM for more detail.
The technology has been proven in the laboratory, industry test-bed and witness tested by Professor of Electrochemical Engineering, Keith Scott of Newcastle University. Professor Scott has also produced an efficiency report, proving the technology’s rating at over 95% efficient. See Schedule 6 of the IM
Whilst the technology has been demonstrated in the laboratory, it has yet to be fully tested and so this leaves uncertainty as to the full market potential and scalability of the solution.
Mitigation – By working sequentially, VN HPG provides continuous and further proofs, validation and recyclability rates of the solution and its application before progressing to the next stage.
Market adoption – whilst the company is already in discussions with major manufacturers regarding integration into existing technologies, this is no guarantee of successful licence sales.
Mitigation – by working with manufacturers at the development stage VN HPG opens the possibility for manufacturer-funded R&D. This is a low/no cost funding option that further proves the solution without dilution of shareholders.
One additional benefit is that it opens the possibility to a trade sale as an alternative to an IPO.
Market protection – Some Governments may wish to protect their domestic markets by favouring particular solutions.
Mitigation – VN HPG has support from UKTI for this solution and will leverage this position with UK based Operators and Manufacturers to get their buy-in. Furthermore, the VN HPG licence model lends itself to encouraging Governments to buy-into it, as the main economic benefits of jobs, taxes and environmental are still there. See pages 61 & 62 of the IM for more detail
VN H Power Generation has already raised over £440K from existing VN Investors. In the history of the management team and existing companies, most of the fundraising activities have been oversubscribed. Furthermore, as the company takes on new investors the fundraising activity becomes more straightforward as current experience is proving that a high level of previous investors, i.e. Previous investors in other VN companies, are subsequently investing in following investment rounds and spreading further investments across the VN company portfolio.
The forecast dilution of shareholders is not guaranteed. However, in the experience of previous projects and fundraises this has not happened. One of the benefits of having the management team as equity participants is that their incentive is to ensure, as far as is possible, that dilution does not happen above the percentages forecast. In the unlikely event that this was required, the management team would communicate with investors holding options at that time, and hold a shareholder vote to resolve the issue.
This is based on the management teams experience of similar projects, timelines and developments using the same or similar 3rd party suppliers, and this underpins the teams complete confidence in these time and budgetary forecasts. The team has not missed forecast development or delivery budgets in past projects and companies, so have a demonstrable track-record in this respect.
Having demonstrated the ability to significantly reduce the capital required to deliver the same Stage, the VN HPG management team reduced the Stage 2 & 3 budget from £1.15m down to £600K, to deliver the same outcome, and as a consequence reduce Investor dilution by the same proportion in this stage. See page 5 of the IM for more detail.
As the company does not have any salaried management, or employees, and the fact that all subcontracted projects and developments have fixed-price and time dependent deliverables on service-level based contracts, means that there will be no additional capital requirements.
The company plans to licence the solution to manufacturers of Natural Gas fired power generators to reduce their Natural Gas fuel bill, by replacing it with Hydrogen, and reduce their CO2 emissions bill as a result of using a replacement fuel that does not emit CO2 when burnt, with the model working as follows:
VN-HPG will charge the manufacturer for design and consultancy services
The manufacturer will integrate, build and commission the plant for the operator under a 0-25 year contract of supply
The manufacturer will charge the power station operator an annual fee for the provision,maintenance and support of the based on a percentage of the fuel and emissions savings,e.g. 10% replacement fuel = 10% CO2 reduction
VN-HPG will retain 20% of the annual charge it made to the operator, as a licence fee
VN-HPG is targeted on both ‘New build’ gas turbine plant and retro-fit. The target for ‘New build’ plant design is 5 of the 5-7.5MW gas turbines per year,(based on Siemens market share of New Gas Turbine sales)
The target for ‘Existing’ plant builds is 35, (based on Siemens market share of existing Gas Turbine plant)
The manufacturer is targeted to build and commission 35 retrofit plants per year, as part of their Operations & Maintenance schedule for existing plant. See pages 18 to 20 and pages 50 to 53 of the IM for more details.
The EBITDA figure is a function of the invoiced sales of the company less fixed and variable costs and of the company. In the case of 2020 there is forecast to be an ongoing OPEX of £4.2m and variable cost of £3.2m. This variable cost is due to the use of 3rd party suppliers for the design services. It is intended that the use of these types of supplier will be reduced as the ‘predictability’ of future design requirements becomes clear, and these services can be brought in-house to reduce cost. There is a full breakdown of the forecast EBITDA on pages 68 & 69 of the IM.
The OPEX is forecast to be as follows:
2020 – £4.2m
2021 – £5.2m
2022 – £6.2m
2023 – £7.2m
2024 – £6m.
The first year of forecast revenue is 2020, in which year the company expects to achieve invoiced sales of £9.2m.
The process of negotiating contracts of this nature is forecast to take place throughout 2018, with conclusion by 2019. This is based on the management teams experience in negotiating, closing and finalising the legal details on contracts of similar values and complexity.
This contractual framework and commercial mechanism has been discussed in with a number of manufacturers that could be potential customers, and in greater detail with potential end-user/operators of Gas Turbine power generation in Europe.
The main risk associated with this is an exit of the company before the 3 year share holding period is over. Though not forecast, and unlikely, this will potentially give rise to a ‘claw-back’ of investor tax reliefs, and a capital gain issue for investors.
However, the overall effect on Investors would mean a very significant return to investors, even when taking into account the loss of reliefs and resultant CGT, which of course can be potentially mitigated in other HMRC pre-approved SEIS or EIS VN companies.
VN-HPG owns a globally exclusive development licence for use within the Worldwide Natural Gas Power Generation industry, allowing it to utilise existing and future intellectual property and patents to develop and monetise the technology within the aforementioned market. See Schedule 4 of the IM for more details.
Either put your questions in an email, or request a call from us in order to have a telephone conference or meet with one of the management team to discuss your questions and the opportunity in more detail.