Markets reacted negatively to the sharp drop in revenue announced by electrolyser manufacturer ITM Power yesterday, but the company stressed on an investor call that it will catch up once delays caused by Covid-19 have passed. And it also took the opportunity to dismiss the viability of blue hydrogen.

A 92pc fall in revenue for the six months to 31 October 2020 sent shares in ITM sharply down yesterday, from above £6.50 to below £5.20 before partially recovering to £5.60 this morning. This was despite the confidence expressed by James Collins, the company’s head of investor relations, that it will make up lost ground once installation of projects required for revenue recognition is complete.

“Even in the current environment, the factory is operating as predicted and productivity will increase. The revenue is delayed, rather than missed” Collins, ITM Power

“The problem we had last year is that we were operating out of three smaller sites, which impacted the amount of people that could be on site working at any one time,” Collins told Hydrogen Economist. “Covid-19 severely impacted our ability to move operations to the new premises at Bessemer Park—restrictions played havoc with the installation of equipment, getting product to site and just moving everyone across.”

Investors could be forgiven for worrying that the pandemic will continue to have a catastrophic impact on ITM Power’s revenues, but Collins says this will not be the case. “We know the world we are working in now and, even in the current environment, the factory is operating as predicted and productivity will increase. The revenue is delayed, rather than missed.”

The company now has a record backlog of £124mn, while the tender pipeline that stood at £325mn last October now stands at £435mn—tenders that were submitted in conjunction with chemicals company Linde.

“Partnering with Linde means we are now able to bid in far more territories than we did previously, because we can take advantage of Linde’s global reach,” said CEO Graham Cooley on an investor call.

The biggest market is energy, which accounts for half of all tenders.  The company also raised £172mn (£30mn of which was from Italy’s Snam) which will be ploughed into R&D and manufacturing. Andy Allen, finance director, expressed confidence that the company would be cash neutral in operations by 2024.

Part of the reason why losses grew from £9.8mn to £12mn was growth in headcount and the inflated costs of operating over three sites in Sheffield.  In the past, ITM Power has been able to offset some overhead through grant income, but this has dropped by £0.4mn as grants have come to an end.

While there were concerns about UK companies qualifying for EU grants post-Brexit, the UK remains eligible for European funding under the ‘Horizon Europe’ funding rules, so income from grants is not expected to drop significantly.

Blue hydrogen

Cooley also dismissed blue hydrogen as a credible competitor to green on the investor call, describing it as nothing more than a ‘distraction’ when asked if carbon capture and storage was a viable alternative to green hydrogen.

£124mn – ITM order backlog due to disrupted manufacturing

“My view of blue hydrogen is that it is the oil and gas business as usual and that the oil and gas industry wants to keep using their methane infrastructure,” he said. “Methane is 80 times as bad a greenhouse gas as CO₂. I would also say that when you store depleted CO₂ in depleted oil fields off the coast of the UK a very important question is who takes the liability?”

“Would you want to invest in an oil and gas company that had that kind of liability on its balance sheet? So my view is that green hydrogen will be lower cost than blue in only a few years’ time and any blue hydrogen schemes that are developed will be stranded assets.”

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Author: Che Golden