The new boss of ITM Power has vowed to turn round the UK hydrogen start-up, overhaul a culture of “overconfidence” and regain the trust of investors and customers after the company became London’s most shorted stock.
Dennis Schulz, who arrived at ITM in December from the engineering arm of Linde, its biggest investor, has laid out a 12-month plan to revive the Sheffield-based maker of hydrogen-producing electrolysers, which has issued three profit warnings in the past year.
“ITM was constantly in that mode of constantly fighting or putting out fires, which were emerging everywhere,” he said in his first media interview since taking up his new role. “Now we are slowing down and not looking for short-term fixes.”
The company’s valuation has plunged from £3.5bn in 2021 to £600mn after being hit by delivery delays for its flagship 24 megawatt electrolyser — one of the world’s largest.
ITM, whose investors also include Italian gas infrastructure group Snam and UK construction equipment maker JCB, is cutting headcount by a quarter, slimming its product range and introducing more thorough engineering processes.
The company’s turnround push come amid the fallout from the collapse this year of UK battery start-up Britishvolt, raising broader questions about the country’s ability to incubate clean energy champions despite the government claiming world-leading net zero policies.
However, the hydrogen equipment maker differs significantly from Britishvolt in already successfully developing products and securing orders, from customers including Linde, Shell and RWE.
Electrolyser companies, which also include Norway’s Nel and Germany’s Siemens Energy and Sunfire, are crucial to the hydrogen economy because they make the technology that splits the fuel from oxygen in water.
“Green” hydrogen, produced when the electrolysers are powered by renewable electricity, is seen as vital for decarbonising energy-intensive industry such as refineries and ammonia plants, as well as for heavy-duty transport.
ITM has raised £500mn, taking advantage of a frenzy in hydrogen-related stocks in 2021, but its cash pile is expected to fall close to £245mn this year with annual revenue of only £2mn.
The hydrogen mania has gone into reverse and ITM is now London’s most shorted stock, according to markets data site ADVFN, as inflation, supply chain issues and higher interest rates bite.
Renaud Saleur, a former trader at Soros Fund Management who now heads Anaconda Invest, is among the hedge funds shorting ITM, saying it has an “insane valuation”.
“The only danger in shorting it would be a full takeover by Linde,” he added.
Schulz, however, said his appointment was not a sign that Linde would attempt a takeover through the back door.
ITM’s Achilles’ heel has been transitioning from a company focused on research and development to a manufacturer that can deliver electrolysers on an industrial scale.
Competitors are sympathetic. “I don’t think it’s a question of the technology not working,” said Andy Marsh, chief executive of US hydrogen producer Plug Power, adding that “a lot of the growing pains are associated with moving to scale production”.
Richard Hulf, managing partner of Hydrogen One Capital, said that “we’re in this five-year period where hydrogen is starting to become mainstream and the clever ideas are having to be mass-produced”, often resulting in delays.
Schulz is aiming for the company to become profitable within five years.
On the factory floor, projects undertaken during the tenure of long-serving chief executive Graham Cooley are being unwound, with legacy products being dismantled for recycling. ITM will reduce its product range from 16 to three.
“What was the most shocking to me was the amount of products which ITM has been working on,” Schulz said.
Their removal will make way for robots and focusing manufacturing on the “stacks” that contain the special membranes in electrolysers rather than the container units that house them.
But given the depth of ITM’s slide in valuation, the tear-up by Schulz might not be radical enough for some investors.
“I wanted someone to come in and really scrutinise the technology,” said Lacie Midley, analyst at Panmure Gordon. “That’s a big sticking point for investors. Unfortunately until it is proven at a bigger scale, you are taking their word for it.”
