i(x) Net Zero PLC (LON:IX), the investing company which focuses on the Energy Transition, has announced the audited final results for the year ended 31 December 2023. All amounts are in USD unless otherwise stated.
Financial and Investment Highlights
· Fair value of investments in i(x)’s portfolio companies (Portfolio NAV) as at 31 December 2023 increased by 125.9% to $144.22 million (31 December 2022: $63.84 million);
· Portfolio NAV per share, including cash of $5.62 million (£4.42 million), as at 31 December 2023 of $1.74 per share (£1.37 per share) (31 December 2022: $0.90 per share (£0.75 per share);
· Profit of $78.58 million from continuing operations before non-cash deferred tax provision and share-based compensation (2022: Loss $5.08 million);
· As at 31 December 2023, the Company had $3.75 million of borrowings and cash of $5.62 million (31 December 2022: no borrowings and cash of $7.48 million); and
· In 2023, i(x) made portfolio investments of $1.85 million (2022: $1.60 million).
Corporate and Portfolio Highlights
· In January 2023, the Company announced the appointment of Pär Lindström, the Company’s Chief Investment Officer, as its Chief Executive Officer and in April 2023, the Company announced the appointment of Jonathan Carpenter Stearns as CFO and Executive Director of the Company.
· In April 2023, following a period of strategic and operational review, the Board of Directors set ambitious NAV targets for the executive management team, in order to drive growth in the business and diversify the Company’s portfolio of investments. The Company is accelerating its pursuit of this strategy with a more streamlined approach to operations.
· In April 2023, the Company announced that its wholly owned subsidiary, i(x) investments LLC entered into a new secured $7.5 million 2 year term loan facility with European Depositary Bank S.A.
· In July 2023, portfolio company WasteFuel announced a $10m investment from bp, the global energy company to assist WasteFuel’s plans to develop a global network of plants to convert municipal and agricultural waste into bio-ethanol, a biofuel which could play a significant role in decarbonising hard-toabate sectors like shipping.
· In August 2023, the Company announced a conditional agreement for the sale of Carbon Engineering to Occidental Petroleum Corporation, the international energy company at a 7.2x realized multiple of invested capital.
· In September 2023, the Company completed a $600,000 investment into Citron Energy Inc, a US based alternative fuels business to increase the size of the portfolio and bring innovative cleantech technology to decarbonise industrial production and support the circular economy in the US.
Chairman’s Statement
The Company continued to see growth in asset values during the course of 2023, as well as further improvements to global policy incentives for sustainable investing and the move towards decarbonisation. Nonetheless, stock market conditions remain challenging for smaller growth companies with NAV discounts widening during the period under review for many market participants.
Over the last twelve months we have not seen any real improvement in the liquidity of i(x) Net Zero shares which has contributed to volatility in the market price. The share price has recovered from lows, while remaining significantly below the price set at listing, and continues to trade at a significant discount to NAV.
The Board remains convinced that the landscape of opportunity to combine attractive investment returns with positive impact remains compelling, with global momentum now building in the key transitions that net zero commitments require. However the ability of the company to deploy meaningful capital is currently restrained by the balance sheet, and the Board continues to take a conservative view on the ability of the company to access capital in current market conditions.
Despite these challenging macro conditions which we hope to be cyclical in nature, the new senior executive team made significant progress during the year in realising value from the portfolio, adding a new investment and seeing significant new investment into the flagship WasteFuel business from bp.
In addition there has been a reduction in operating costs and further work done on the assessment of opportunities to optimise the current portfolio which is tracking broadly in line with expectations.
During the year, the fair value of investments in i(x)’s portfolio companies increased by 125.9% to $144.22 million with Portfolio NAV per share, including cash of $5.62 million (£4.42 million), as at 31 December 2023 of $1.74 per share (£1.37 per share).
I would like to thank my follow board members and the executive team, for their continued commitment to increasing NAV and shareholder value in very difficult circumstances.
Nick Hurd
Chairman
27 June 2024
Chief Executive’s Statement
The goal of our business remains the same, as we look to generate superior risk adjusted financial returns while enhancing access to growing businesses that are working on net zero strategies.
This is being achieved via investing in a portfolio that provides access to the longterm secular trend of capital flowing towards sustainable finance and ESG-related investing.It has been another challenging year – with continued uncertainty characterising global capital markets which resulted in hesitancy on the part of investors and capital providers who have been seeking safe haven returns.
However, in the face of these challenges, the team has delivered meaningful progress against the challenges we set ourselves when we took up our leadership positions at the start of 2023. In April 2023, we announced our intention to prioritise the growth of the net asset value of the Company’s investments by identifying and seeking to execute profitable investment realisations from the existing portfolio and by sourcing high growth investment opportunities while also reducing costs and operating expenditure, all of which have been achieved in the period under review. We continue to see high growth in our target markets and are working hard to secure capital, for both our balance sheet and external sources, to be available for us to expand and to fund selective investments.
Consistent with past successes, the Group will seek out investment targets with the following characteristics:
Companies with proven business models that are ready to scale yet find it challenging to access capital including listed and unlisted growth companies in our target markets with depressed equity valuations;
Companies that have technologies that are proven at scale and profitability in certain developed markets but require capital and expertise to expand into other markets like the US or Western Europe;
Companies that are operating in our core markets and achieving scalable, positive ESG impact with near term paths to revenue and operating cash flow and long-term profitability profiles.
The global policy-making environment favours and supports our approach.
Operational Review
I am pleased to report that after a challenging twelve months during 2022, the new management team has been working to reposition and restructure the business during 2023.This has led to a renewed focus on improving net asset value, lowering the cost base and opportunistically obtaining liquidity from its existing investments. The table below shows the change in the Net Asset Value of the Company’s portfolio companies in the year to 31 December 2023.
The Board of Directors has set ambitious NAV targets for the executive management team, in order to drive growth in the business and diversify the Company’s portfolio of investments while the Company will accelerate its pursuit of this strategy with a more streamlined and lower cost approach to operations.
Portfolio Review
The following are brief descriptions of each of our investee companies:
WasteFuel Global, LLC (“WasteFuel”) is focused on developing renewable, nonfossil fuels to help reduce the carbon emissions of the transportation sector with a particular focus on municipal solid waste to energy for trucks, planes and ships. Utilising WasteFuel technology, a plant will produce renewable biomethanol that is expected to help shipping companies reduce their CO2 emissions and other greenhouse gases by up to 90% compared with conventional fuels.
In mid-2023 WasteFuel secured a $10 million investment from bp, to further assist WasteFuel’s plans to develop a global network of plants to convert municipal and agricultural waste into bio-methanol, a biofuel which could play a significant role in decarbonising hard-to-abate sectors like shipping. This investment by bp was at a price which dramatically increased the NAV of the Company’s holding in WasteFuel by $84.38 million to a total reported NAV of $131.50m as at December 31, 2023.
WasteFuel intends to develop multiple bio-methanol plants around the world in collaboration with local strategic partners including waste companies, with the first project expected to be in the GCC. Ever since bp’s funding, WasteFuel has continued to proceed its projects in the GCC, with two of them leading the way. Bp and WasteFuel have entered a memorandum of understanding to offtake the produced bio-methanol and, working together, to help optimize and improve biomethanol yields and economics.
WasteFuel has a proven track record of working with global partners as it pursues its plans for a global network of biomethanol plants converted from waste. In 2022 WasteFuel entered a commercial-scale bio-methanol partnership with A.P. Moller – Maersk, the global container logistics company. WasteFuel also has continued to develop its projects in the GCC, to develop the first commercial scale municipal waste-to renewable methanol plant in the Middle East.
WasteFuel Featured on TIME and Statista’s 2024 List of America’s Top GreenTech Companies. WasteFuel also strengthened its management team with the appointment of Peter Jorgensen from Maersk (and previously Maersk board member of WasteFuel) as CFO. Peter is working closely with WasteFuel CEO, Trevor Neilson, to drive forward the company’s growth and to take full advantage of the significant demand for its sustainable fuel products and services.
Enphys Management Company, LLC (“EMC”) is i(x)Net Zero’s partnership with the Latin America Investment Group, a business development and investment group. EMC pursues private and public opportunities focused on renewables and energy transition in Latin America and has a direct ownership in Enphys Acquisition Sponsor, LLC (“EAS”), the sponsor company of Enphys Acquisition Corp. (“EAC”), a NYSE- listed SPAC targeting renewable energy businesses in Latin America, in which EMC also has an ownership. Its strategy is to create a regional champion in the Americas for alternative energy through the aggregation of existing, cash-flow positive renewables assets.
Latin America provides a rapidly growing energy market where alternative energy production is often the lowest cost source. This provides Enphys the opportunity to execute at scale and become a significant publicly traded leader in energy transition. i(x) Net Zero invested an additional $1.5M million (including $1.1 million in 2023 and $0.4 million the first 5 months of 2024) in cash in Enphys to enable the company to actively pursue merger opportunities as announced at its listing. In conjunction with this investment, the Company renegotiated the terms of its existing equity interest in Enphys, converting its shares into participating preferential shares, which carry rights over other Enphys share classes. Enphys remains in talks with a leading and well-established advanced biofuels company in Latin America and has until 8 December 2024 to consummate an initial business combination.
MultiGreen Properties, LLC (“MultiGreen”) is a developer of sustainable, multi-family properties that aims to supply affordable workforce rental housing by reducing construction costs and duration. While having 1,100+ units currently under construction, the challenges in the regional banking market in the US, restricted access to capital, deteriorating local markets, provide a challenged environment for all of MultiGreen’s projects. Consequently, to be conservative we have reduced the value of our investment in MultiGreen to zero as of year end 2023. We will continue to monitor this investment closely as it weathers these turbulent real estate markets. Sustainable Living Innovations (“SLI”) is a construction technology and product development company producing panelised buildings to address housing affordability, while delivering a new standard in sustainable living. SLI continues to capture market share as a leader in delivering net zero buildings at scale. Its factory-assembled and cost effective steel panel technology addresses both the inflationary pressure on material costs and supply chain issues. SLI is due to complete its 15-storey apartment complex in Seattle ready for occupancy in 2024. This will be the world’s first multi-family tower designed to meet the net zero energy criteria set by the International Living Future Institute’s Living Building Challenge. During the year, SLI continued development of the Downtown Emergency Service Center (DESC), a non-profit housing organisation in Seattle, for a 5 storey 124-unit energy efficient permanent supportive apartment building as a solution for long term homelessness. SLI is also planning to expand its assembly plant locations on the West Coast of the US and plans eventually to move eastwards to serve additional markets. In March 2023, SLI signed a non-binding letter of intent in relation to a proposed business combination with NYSE listed Churchill Capital Corp V. Unfortunately turbulence in the public market for new issuances and acquisitions prevented this combination from being consummated. Consequently, while SLI has continued to develop its pipeline of projects, it has had to reduce its corporate expenses significantly and slow the pace of its developments. I(x) did participate in a bridge round to provide capital, investing $150,000 to allow the company to complete one project and to undertake the process of raising capital for the completion of its current pipeline.
Citron Energy Since the Company’s investment in November 2023, Citron has advanced the development of multiple projects in the US. The near term opportunity to conclude multi-year offtake and supply contracts has been accelerated by the increasing awareness of the need to address carbon footprint and GHG emissions for industries including cement and lime production as well as an increasing focus on net zero recycling and limited space for new landfills. With equipment sources in place and site development activities well advanced and confirmed interest by equity and debt providers, Citron expects to accelerate the development of its project pipeline over the near term.
Carbon Engineering Ltd. (“Carbon Engineering”)has developed a proprietary Direct Air Capture technology that removes carbon dioxide directly from the atmosphere for sequestration and storage. With its DAC and carbon-to-value proposition, it represents the next generation of industrial scale decarbonisation. The company has a clear path to global opportunity and is focused on licensing its technology to industrial partners to build and operate. The company, through itsstrategic partner 1PointFive, an initiative with Occidental Petroleum’s (NYSE: OXY) Low Carbon Ventures business, anticipates building and operating 70 DAC facilities by 2035, each with an expected capacity of up to 1 million tonnes per year. Following completion of the sale of Carbon Engineering Ltd. to Occidental Petroleum Corporation in November last year at a 7.2x realized multiple of invested capital, the Company received the first tranche of the proceeds in November 2023 and expects the second tranche in November this year and a final payment in November 2025. Occidental’s $1.1bn purchase of Carbon Engineering was a landmark moment for carbon capture sequestration (CCS) startups, marking the first major acquisition of a carbon removals company, with the transaction regarded as one of the leading Energy Transition deals of the year in 2023, showing the strength and investment acumen of i(x) Net Zero.
Context Labs B.V. (“Context Labs”) is an impact software company whose blockchain technology platform enables the harvesting and processing of data to help businesses track their carbon emissions and their compliance with regulatory frameworks. Context Labs has continued to successfully deliver on a number of projects including the EQT, Williams, Jonah Energy and Carbon GeoCapture projects. There were advances in discussions with Microsoft and Dell and a collaboration began with EEMDL, a multidisciplinary research and education center with a mission to be the global data and analytics hub to support improved greenhouse gas emissions accounting across energy supply chains.
Financial Review
The Group delivered a significant improvement in the fair value of investments in its portfolio companies (“Portfolio NAV”) which increased by 125.9% or, $80.38 million, to $144.22 million as at 31 December 2023 (31 December 2022: $63.84 million). The annual increase in Portfolio NAV over the period of $80.4 million (2022: $3.1 million) comprises primarily unrealized gains of $81.1 million (2022: $1.5 million). The majority of unrealized gains relates to an increase in fair value of WasteFuel by $84.38m offset by a decrease in fair value of MultiGreen Properties, LLC of $2.55 million, which was reduced to zero. WasteFuel NAV increased as a result of the $10 million investment by bp plc on 30 June 2023. MultiGreen NAV was reduced to zero due to increased costs, restricted access to capital and deteriorating local markets providing a challenged environment for MultiGreen’s projects. As at 31 December 2023, Portfolio NAV per share, including cash of $5.62 million (£4.42 million), was $1.74 per share (£1.37 per share) (31 December 2022: $0.90 per share (£0.75 per share)).
Profit from continuing operations before non-cash deferred tax provision and share-based compensation was $78.58 million in 2023. (2022: loss $5.08 million) (This $78.58 million profit is derived as operating profit before financing activities of $79.31 million minus share-based compensation credit of $0.73 million). During 2023, stock options were granted to management employees under the 2022 Company’s Equity Incentive Plan. In connection with this outstanding options were forfeited which resulted in a non-cash share-based compensation credit of $0.73 million being recognized (2022: $1.75 million expense).
General and administrative expenses decreased by $2.69 million to $5.56 million (2022: $8.25 million), largely due to the cost-cutting program enacted by the new executive team along with non-cash sharebased compensation credit. As a result of the corporate inversion and resulting IPO transaction in 2022, i(x) Net Zero Plc is being treated as a U.S. domestic corporation for all purposes of the U.S. tax code as of the date of the transaction and there will be non-cash deferred tax implications related to the Company’s temporary difference in the book and tax basis of its assets, the most material of which is the difference between the tax basis and the fair value of the Company’s investments. For 2023, non-cash deferred tax expense of $16.69 million (2022: $11.27 million) was recognised in the statement of profit or loss. This deferred tax expense would not have been recognised by i(x) investments LLC, if the IPO transaction did not occur.
Net profit amounted to $62.6 million in 2023 (2022: $18.13 million net loss) primarily as a result of the increase in the WasteFuel NAV, net of deferred tax expense. As at 31 December 2023 the Company had $3.75 million borrowings, cash of $5.62 million (31 December 2022: no borrowings and cash of $7.48 million) and net current assets of $6.73 million (31 December 2022: $6.68 million).
In April 2023, the Company announced that its wholly owned subsidiary, i(x) investments LLC entered into a new secured $7.5 million 2 year term loan facility with European Depositary Bank S.A. (“EDB”) (“Loan”). This facility was increased in November 2023 to $11.75 million. The Loan bears interest at approximately 10.5% coupon (subject to periodic change in line with EDB’s USD Base rate and more recently approximately 10.82%) and which is payable quarterly. The Loan can be utilised for the purposes of the financing of investments and general working capital purposes. The Loan is guaranteed by the Company.
In January 2022, Lion Point Capital, LP, on behalf of funds managed by it, and the Company entered into a strategic relationship to identify and pursue certain transactions together, with an initial focus on opportunities in Energy Transition. Lion Point is a global special situations investment firm that seeks to invest in equity and debtsecurities of undervalued public and private companies. At the time of the Company’s IPO, Lion Point Master, LP entered into a subscription agreement and subscribed for $6.8 million (approximately £5.0 million) in ordinary shares of the Company at the placing price as part of the fundraising. Lion Point Master was granted a put option and pursuant to the put option, the Company is obliged to repurchase Lion Point Master’s holding of 6,672,161 Ordinary Shares at the placing price (£0.76 per share ($1.02 per share)) amounting to $6.8 million at any time during the three year term following the Company’s admission to trading on AIM.
Discussions with Lion Point are taking place with a view to settling the option. Lion Point has also granted the Company a call option to purchase $6.8 million of common shares of Suniva, Inc, which has one of the largest solar cells manufacturing facilities in North America. Further details are set out in paragraph 5.6 of Part 1 and paragraphs 18.1 (j), (k) and (l) of Part 7 of the Company’s
Admission document dated 4 February 2022, which is available on the Company’s website https://ixnetzero.com/.
Prior to its IPO, the Company undertook a reorganisation in which i(x) Merger LLC, a wholly owned subsidiary of the Group merged with i(x) investments, LLC, with i(x) investments continuing as the surviving entity and as a wholly owned subsidiary of the Company. Prior to the reorganisation of the Group, i(x) Financial Services, LLC (“i(x) Financial Services”), (a wholly ownedsubsidiary of i(x) investments), i(x) Securities, LLC (a wholly owned subsidiary of i(x) Financial Services) and certain other assets held by i(x) investments were transferredto i(x) Sustainable Holdings, LLC, an entity owned by the shareholders of the Company. This transaction was reflected as an equity distribution of $1.62 million assets.
Outlook
While the growing global trend towards decarbonisation continues apace with the backing of government legislation and corporate commitments, the Company has grappled with a challenging twelve months. With the necessary changes to lower its expense and more tightly focus its investment strategy to those opportunities in the energy transition and technology enhancements to the built environment behind it, combined with its first exit which was very successful, i(x) Net Zero is now positioned to selectively expand its portfolio of investee companies.
In order to achieve its stated ambition, the Company will look to pursue strategic acquisitions that meet its strict investment criteria. It has already identified a number of exciting opportunities and plans to consider further investment in its existing portfolio. This may include near-term opportunities to participate in capital raises, negotiated add on investments, as well as replicating its success via new platforms in scaling technology and new market penetration.
The Company also remains eager to explore an investment in, or a potential alliance with, a renewables and circular economy platform that has a mission and purpose that is similar to the Company’s, namely to build profitable businesses that support the achievement of the UN Sustainable Development Goals.
The Board of Directors have set ambitious growth targets for the executive management team, building on FY 2023 strong increase in NAV and reduction of operating expenditure. We believe that these targets, and company’s focus to generate strong returns, should enhance shareholder value over the near and longer term.
Pär Lindström
Chief Executive Officer and Chief Investment Officer, i(x) Net Zero
27 June 2024
