Ballard Power and the Quest for Profitability

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Image by: Robert Kenney
John Sheridan, who has also served as president of Bell Canada and CEO of British cable operator Encom, has his biggest challenge yet at Ballard.

After effectively walking away from the money-sucking automobile market, Ballard Power is now staking its future on a series of niche uses for its hydrogen fuel-cell technology. But will it be enough to survive? 


In late February of this year, I joined a group of about 20 investors and analysts in the atrium of the Exchange Tower on King Street West in Toronto. We were there to hear a presentation, but the location of the meeting had a certain emblematic power. The atrium is on the main floor of a 36-floor skyscraper built in 1981 and named for its highest profile tenant, the TSX. It also serves as a mini museum of stock-exchange technology. In a long glass case down one side of the room sit stock-ticker machines as they have evolved through the ages: a series of black boxes, from hand-crank to dial tickers, from clunky computers to the decimal trading systems of the late ’90s and beyond, each box sleeker and smaller and exponentially more powerful than the one that came before.


The fact that we were gathered to hear a presentation from the management of Ballard Power Systems Inc., then, seemed only appropriate, as the company itself is the creator and manufacturer of a black-box technology that has been evolving over the years: the hydrogen fuel cell. This “Investor and Analyst Day,” like a similar one in New York City the day before, wasn’t intended to introduce markets to

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that technology, however; it’s been around for many years. What CEO John Sheridan wanted markets to know instead was that this technology has a new future as a result of a new Ballard Power, radically overhauled in structure, in market focus and in value proposition. Having abandoned its 15-year quest to commercialize the hydrogen fuel cell for use in automobiles, Ballard Power, under Sheridan’s leadership since 2005, has reoriented itself toward four strategic niche uses for hydrogen fuel-cell technology: forklifts, backup power units, fuel stacks for buses, and “distributed” power units aimed at industrial settings where there is a local supply of hydrogen.

More crucially – given that Ballard has never reported an annual net profit since Geoffrey Ballard and Firoz Rasul founded the company in 1987, and has racked up just shy of a billion dollars in losses over that period – John Sheridan wanted all of us to know that Ballard Power, in pursuing these four niches, was finally approaching profitability. Specifically, the company would be able to report positive adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization adjusted to exclude the effects of non-recurring and/or non-cash revenue gains or expense losses) by the fourth quarter of fiscal 2011. In fiscal 2012, moreover, Sheridan predicted Ballard Power would report net positive adjusted EBITDA across all four quarters.


That certainly would be a big deal. To put it in perspective, Ballard Power has made various predictions about its profitability from virtually the beginning. You may recall that the “hydrogen economy” – as heralded by U.S. President George W. Bush in 2003 and heavily touted by his secretary of energy, Spencer Abraham – seemed to be perennially just around the corner. By 2005 we were all going to be powering our cars and industrial applications with these miracle black boxes. Or was it 2008? Or was it 2010? Now, in Toronto, in February 2011, Ballard Power was predicting that it would actually be selling its fuel cells in commercial quantities, for more money than it costs to make them, in just six or seven months’ time.


That prediction was clearly a big part of what the 2011 Investor and Analyst Day was all about. But there was another pivotal moment in the presentation. After Sheridan and CFO Tony Guglielmin had spoken, it was chief technology officer Christopher Guzy’s turn. His job was to talk about the real heart of the matter: the technology, the fuel cell itself on which Ballard and all its predictions ultimately relied, just as the machinery of the TSX had once depended on those ticker-machines in the glass case running the length of the room. 


What was the hydrogen fuel cell? How did it work? And how was Ballard planning to reduce its production costs by another 20 to 25 per cent in the next year?


A big man with a handlebar mustache, exuding the same aura of bedrock common sense you might associate with his look-alike, actor Wilford Brimley, Guzy hefted a fuel-cell stack in his hands and turned to the small audience. After seeming to measure up the different things that might be said about this trim and mysterious box, he said, “You put hydrogen in here, you blow air across here. And you get electricity.”



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