> Intention to consolidate the Group s brands under the Velocys name

Transcription

1 Oxford Catalysts Annual Report

2 Annual Report Oxford Catalysts Oxford Catalysts enables Gas-to-Liquids (GTL) plants to convert unconventional, remote and problem gas into valuable liquid fuels. Systems based on the Group s technology (marketed under the brand name Velocys) are significantly smaller than those using conventional technology, enabling modular plants that can be deployed cost effectively in remote locations and on smaller fields than is possible with competing systems. Together with world-class partners, Oxford Catalysts provides complete smaller scale modular GTL solutions that address an untapped market of up to 25 million barrels of fuel a day. Oxford Catalysts is quoted on the AIM market of the London Stock Exchange (LSE: OCG). The Group has some 85 employees with facilities near Oxford, UK and Columbus, Ohio, USA. Contents Page Chairman s Statement 2 Chief Executive s Report 3 Directors Report 6 Corporate Governance Report 10 Directors Remuneration Report 12 Statement of Directors Responsibilities 15 Independent Auditors Report 16 Consolidated Income Statement 18 Consolidated Statement of Comprehensive Income 19 Consolidated Balance Sheet 20 Company Balance Sheet 21 Consolidated Statement of Changes in Equity 22 Company Statement of Changes in Equity 23 Consolidated Statement of Cash Flows 24 Company Statement of Cash Flows 25 Notes to the Financial Statements 26

3 Oxford Catalysts Annual Report Highlights > Selected for two commercial projects with potential revenues of over US$160 million > Partnership signed with Ventech Engineers, leaders in modular design and fabrication > Commercialisation process well underway Field trial of commercial scale reactor successfully completed Manufacturing supply chain in place World-class team of partners ready to deliver complete GTL plant offering > Revenue increased to 7.6 million (2011: 4.7 million) > Raised 30.6 million before expenses through an oversubscribed equity placing (post period end) > Cash* at year end of 9.5 million (2011: 17.1 million), before fund raising proceeds > Intention to consolidate the Group s brands under the Velocys name Pierre Jungels, CBE, Chairman of Oxford Catalysts, said: was truly a milestone year for Oxford Catalysts. The Group s unique and innovative technology has now been validated through successive field trials and through a thorough selection process for several commercial projects. With levels of interest in synthetic fuel production at smaller scales continuing to be strong, and a number of commercial projects progressing through engineering stages, 2013 looks set to be another pivotal year of commercial progress for the Group. * Defined as cash, cash equivalents, short term investments and other financial assets (see note 19). 1

4 Annual Report Oxford Catalysts Chairman s Statement The environment for synthetic fuels production has rarely been as full of possibilities as it is now. With the abundance of low priced gas, particularly in North America arising from the shale gas revolution, the opportunities for monetisation of gas remain attractive and we continue to see strong interest in our unique smaller scale modular Gas-to-Liquids (GTL) technology from a variety of major corporations, gas owners and processers, and project developers. The Group has a healthy pipeline of opportunities, and during the year has moved a number of these forward into engineering stages. Its technology was selected for two significant commercial projects, for which the final decisions to proceed are expected in These projects alone, should they proceed, have the capability of generating upfront revenues to the Group in excess of $48 million, with a further $112 million over the first 20 years of operating life of the plants. At the beginning of, we announced an order for a full-scale Fischer-Tropsch (FT) reactor (25 barrel per day) from a diversified energy company. This was installed, operated and the technology successfully demonstrated during, providing the Group with an opportunity to showcase its offering in the field to a number of potential customers. We have also continued, during the year, to progress the demonstration of our integrated GTL technology at Petrobras refinery in Brazil, and we remain on track for a successful outcome of this programme. During, we made a number of staff additions to bolster our commercial, engineering and manufacturing capabilities and expertise. We now have a world-class team, and I would like to congratulate them for their immense efforts that have taken the Group forward so successfully during the year. I was also pleased to welcome to the Board in October, a new non-executive director, Sandy Shaw. Sandy brings a wealth of legal and commercial experience through her successful career in the oil and gas industry. Group revenues for the year rose to 7.6 million (2011: 4.7 million). Cash* at period end stood at 9.5 million (2011: 17.1 million), while cash* outflow was 8.9 million (2011: 8.7 million), both excluding the impact of the fund raising. Outlook was truly a milestone year for Oxford Catalysts, with the Group s offering emerging as the only smaller scale synthetic fuels technology to have been publicly announced as selected for commercial projects. As we move into 2013, the drivers for our technology all remain strong: availability of cheap gas, particularly North American shale gas; concerns over gas flaring and energy security; and the desire for cleaner fuels. The Company has started 2013 well financed following a highly successful fundraising; with its technology well-proven and with the right partnerships and supply chain in place, as well as a strong, capable team, Oxford Catalysts is set for significant commercial progress. Pierre Jungels, CBE Chairman 25 March 2013 The Group s cash position was bolstered following completion of a 30.6 million placing which closed in January These new funds will allow us to accelerate development and fabrication, leverage our market lead and drive commercial roll out of our technology. * Defined as cash, cash equivalents, short term investments and other financial assets 2

5 Oxford Catalysts Annual Report Chief Executive s Report Introduction Throughout, the Group continued its progress to commerciality, putting in place the final pieces required to be ready to take orders for its products. The selection of the Group s technology for planned commercial projects has confirmed the Group s position as the leading technology innovator in the field of smaller scale synthetic fuels production. Market Conditions Interest in smaller scale synthetic fuels production continues to be high and the Group is experiencing strong levels of enquiry. The shale gas phenomenon, especially in North America, remains a driver of interest and is particularly helpful in increasing visibility of the Group s technology, as many interested parties look for ways to develop this opportunity. Beyond shale gas, further promising opportunities exist in the form of elimination of gas flaring, monetising stranded gas reserves and Waste- or Biomass-to- Liquids. Commercialisation The Group is commercialising a best-in-class smaller scale FT technology. During the past year, the advantages of its technology have been validated by several engineering companies and by the technology s selection for two substantial commercial projects. Compared to conventional FT technologies, the Group s FT offers attractive capital cost, operating and overall efficiency advantages at smaller scales, and can be practically installed in remote locations. The Group has identified that a key means of getting its product quickly adopted in the market is to reduce perception of risk by potential customers. To do this, it has pursued a strategy of de-risking the overall product offering by coupling its FT with conventional front- and back-end technologies for land-based applications, and through the development of partnerships with world-class providers that enable the design, supply and support of fully integrated GTL plants. Field Trials At the start of, the Group announced the sale of a commercial scale FT unit (25 bpd nominal capacity) to a diversified energy company located in the Asia Pacific region. The unit was started up, run and has now successfully completed the trial. Results from this unit were consistent with what was demonstrated in the laboratory and during smaller scale field trials, and provided further confirmation of the technology s performance at commercial scale. The Group was able to take a number of potential customers to visit the trial site. The unit was run to provide detailed engineering parameters for the host s own planned medium-scale modular synthetic fuels plants, which it intends to pursue. Having completed the trial, they are now understood to be progressing with the next stages of engineering. As previously reported, the Group s integrated GTL demonstration, which includes both its Steam Methane Reforming (SMR) and FT reactors, began operations in Fortaleza, Brazil in late This project has been funded and managed by Toyo and MODEC in collaboration with Petrobras. The demonstration is scheduled to continue throughout 2013 and is expected to be finished at the end of this year. The Group has now successfully completed 3 out of 5 milestone stages, in each case receiving a milestone payment. Catalyst Long duration testing of our FT catalyst, which started in 2011 and progressed throughout and into 2013, now exceeding two years, continues to demonstrate the catalyst s exceptional stability and high conversion rates. Partnerships In November, the Group announced a partnership with Ventech Engineers, global leaders in the design and fabrication of modular refineries and an early pioneer of modular GTL plants. Ventech is committed to offering modular GTL plants using the Group s technology, and during it expanded its fabrication facility in Houston to its current 200,000 sq. ft. capacity to support future orders. In addition, through its affiliate, Ventech Project Investments ( VPI ), Ventech has $200 million available to make equity investments in energy projects and expects to co-invest in initial customer GTL plants. Under the partnership with Ventech, Oxford Catalysts became Ventech s preferred supplier of FT technology for North America, and the Group granted Ventech non-exclusive assured access to its technology for North America. Concurrently, VPI made a $2 million equity investment in the Group s shares at a price of 1.35, representing at the time a premium of 44% to the previous day s closing mid-market price. As part of the partnership arrangement, Ventech committed to placing an order with the Group for reactors sufficient for the first commercial facility, at a total price of approximately $8 million. Contracts for this order are under negotiation and the Group is hopeful of successful conclusion before long. Also in November, the Group announced that it had signed a service agreement with Mourik LP, the global leader in catalyst handling, to provide catalyst field services for the Group s commercial FT reactors. Mourik had been working closely with the Group for over a year and a half to qualify procedures for loading and unloading catalyst from the Group s commercial reactors. 3

6 Annual Report Oxford Catalysts Chief Executive s Report (continued) Manufacturing The Group has qualified world-class suppliers for the mass production of its proprietary FT catalyst and reactor. The qualification process has included the manufacture of catalyst in commercial scale batches and the production of a large capacity reactor, nominally 125 bpd. Quality assurance and quality control systems have been developed and are in place. The Group believes its supply chain is capable of producing high quality reactors and catalyst to meet projected demand, and is set to benefit from economies of mass manufacture as volumes increase. Sales and Prospects During the course of, the Group s technology was selected for two significant commercial projects: GreenSky London and Calumet. In July, Oxford Catalysts was selected by project developer Solena Fuels ( Solena ) to provide its FT technology to GreenSky London, Europe s first commercial scale sustainable jet fuel facility, being developed in partnership with British Airways. GreenSky London is the first of several waste-biomass to jet fuel projects planned by Solena. The plant is being designed to convert 500,000 tonnes per annum of London s waste, currently sent to landfill, into 50,000 tonnes (~1,100 bpd) of sustainable low carbon jet fuel, and 50,000 tonnes (~1,100 bpd) of ultra-low sulphur FT diesel and green naphtha, as well as renewable power. The project intends to be operational by British Airways has a stated goal of reducing its net carbon emissions by 50% by As reported in July, successful implementation of the GreenSky London project and receipt of the notice to proceed (targeted for the end of 2013) is expected to generate revenues to the Group in excess of $30 million during the construction phase (to 2015), and additional ongoing revenues of more than $50 million over the first 15 years of the plant s operation. Since the July announcement, British Airways has confirmed that it is committed to purchase the sustainable jet fuel produced by the plant for ten years (at market rates) worth approximately $500 million ( 315 million) at current prices. Barclays has been appointed as adviser on funding through export credit agencies and a competitive letter of interest has been obtained from an export credit agency to provide financing, including associated term funding. An exclusive option on a site for the facility has been signed and consent work started. Pre-front end engineering and design work for the plant has begun and the target start-up date of 2015 was reconfirmed. In September, the Group announced that its FT technology was selected by Calumet Speciality Products Partners, L.P. ( Calumet ) for a commercial GTL plant being designed by Ventech to be located at its Karns City, Pennsylvania facility to provide feedstock for the production of ultra-high quality speciality products. Post year end, the Group was able to update that Ventech has now completed the plant design and provided a fixed price quote for the modules. Calumet has confirmed that the project economics look strong and that the technology is fantastic. At the same time, Calumet s appointed third-party owner's engineer successfully completed a thorough review of the Group s technology, as well as Ventech's GTL design and other intended technology components. Calumet has communicated its interest in progressing with the more detailed engineering and market analysis for a plant of approximately 1,400 bpd; the exact commencement date and duration of which has yet to be finalised. At the conclusion of this study, Calumet is expected to be in a position to decide on proceeding with fabrication. In addition to the announced projects, the Group has a strong pipeline of opportunities and is engaged in a number of other engineering studies. Intellectual Property The Group owns or has exclusive licence to the world s largest microchannel patent portfolio, encompassing more than 800 patents with more than 25,000 patent claims across the globe. It continues to patent, with 95 patents having been granted in. Its patents are high profile, having been cited more than 3,000 times in other people s patents, including those of: Air Liquide; Air Products; Chevron; Conoco-Phillips; Exxon-Mobil; Linde; Marathon; Praxair; Shell; Texaco; Total/Fina; Udhe; and UOP. The strength of the Group s IP is further proven by unsuccessful challenges. Velocys, the Group s subsidiary, has recently successfully defended 7 patents against invalidity challenges, with one additional patent still in re-examination. These patent challenges arose as a defence by CompactGTL following a claim of infringement by Velocys against Catacel, one of CompactGTL s suppliers. The infringement case against Catacel, meanwhile, is proceeding in the US courts. As part of this case, in October 2011, the judge granted Velocys motion for sanctions against the other side and a ruling on damages to be awarded to Velocys in relation to this is still pending at the date of this report. On 19 March 2013, Velocys filed a case in the UK High Court against CompactGTL Limited alleging infringement of a number of the Group s UK patents. IP lies at the heart of the Group s competitiveness; whilst it has sought a business solution in preference to legal action, for its own sake and that of its partners and customers, the Group will not tolerate its intellectual property being misappropriated. 4

7 Oxford Catalysts Annual Report Resources During, the Group strengthened its commercial team, bringing in highly experienced new staff for business development and process engineering, as well as strengthening its manufacturing team. It intends to continue recruiting in business development, marketing and process engineering, in order to fully progress the numerous opportunities the Group currently has available to it. The Group has completed construction of a new pilot plant at its facility in Ohio, USA. This combines the FT skid which was successfully field tested in Güssing, Austria between 2010 and 2011, and the Group s microchannel SMR and hydroprocessing reactors, as well as having an alternative conventional reformer to enable different combinations of running conditions to be tested. The primary purpose of the pilot plant is to support commercial operations by enabling test run campaigns to inform customer designs, as well as by providing a training facility for future plant operators. Brand Since the Group s 2008 acquisition of its US subsidiary, Velocys, Inc., it has operated under two brand names: Oxford Catalysts primarily for the financial community, and Velocys primarily for industry. Recognising that this can cause some confusion in the market, the Group undertook a review and decided that as it has begun commercial roll out the time was right to consolidate under a single brand, that of Velocys. The brand consolidation is planned to be implemented during the second half of the year, with further announcements being made as appropriate. Review of Results Revenues during the year rose to 7.6 million (2011: 4.7 million). Adjusted losses for the year were 7.9 million (2011: 7.7 million) excluding the impact of foreign exchange gains ( nil million gain; 2011: 0.2 million gain) and noncash items (depreciation, amortisation and share-based payments: 2.5 million; 2011: 2.1 million). Cash* outflow in the year, excluding the impact of the fund raising, was 8.9 million (2011: 8.7 million). At the year end, the Group had 9.5 million of cash* (2011: 17.1 million) which excludes the 29.3 net proceeds from the equity placing which were received on 4 January Roy Lipski Chief Executive 25 March 2013 Furthermore, to realign Oxford Catalysts amongst its peers, the Group successfully applied to have its FTSE listing reclassified under Oil Equipment & Services from its previous sub-sector of Chemicals, which took effect on 18 March Successful Equity Placing In December, the Group announced that it had raised 30.6 million before expenses through a conditional equity placing, subsequently confirmed at a shareholder meeting on 3 January The new funds came from a combination of existing shareholders, several new institutional investors and a new strategic investor. The fund raise, which was over-subscribed, was a strong vote of confidence in the Group s business, providing Oxford Catalysts with a solid balance sheet and the resources to see it through to commerciality. * Defined as cash, cash equivalents, short term investments and other financial assets 5

8 Annual Report Oxford Catalysts Directors Report The Directors present their annual report on the affairs of the Group together with the audited consolidated financial statements, for the year ended 31 December. Principal Activities Oxford Catalysts designs and develops technology for the production of clean synthetic fuels from both conventional fossil fuels and renewable sources such as bio-waste. The Group is primarily focused on the emerging market for distributed scale production of synthetic fuels via Fischer- Tropsch ( FT ) synthesis a market that has the potential of producing as much as 25 million barrels of fuel a day. The principal activity of the Company (Oxford Catalysts Group PLC) is a holding company. Business Review A review of the Group s activities during the year is dealt with in the Chairman s Statement on page 2 and the Chief Executive s Report on pages 3 to 5. Key Performance Indicators At the current stage of the business, the Directors consider that performance is best measured by achievement against technical and business development milestones which are referred to in the Chief Executive s Report. These include progress in demonstrations, progress towards commercial readiness including having in place manufacturing capability and capability to support new projects and progress in the development of our sales prospects. Operating Risks The key operating risks of the Group and the measures taken to manage these are summarised below. Technology Risk The Group manages the development of its technology through separate programmes. Each programme has a specific set of milestones, measurable goals, timeline and budget. Performance against each of these is monitored monthly. This enables the Group to identify issues at an early stage and take appropriate mitigating actions. Funding Risk The Group has transitioned from its development phase under which it financed part of its development through partner-funded programmes to a commercialisation phase which is mainly financed by the Group itself. The costs of and the time required for this commercialisation are uncertain and the Group s policy is to ensure that it has sufficient resources in place to cover this element of uncertainty. As a result of the new equity funds secured at the end of, the Directors believe that the Group is adequately funded for the foreseeable future. Performance Risk As the Group develops to commercialisation, it has worked to ensure that it will be able meet the performance requirements for its products through a number of measures including: Developing and executing relevant testing based on a risk assessment of key performance factors Developing mitigation or remediation strategies where testing identifies risk area Working with world-class partners to enable our products to be delivered to customers and combining with existing, well-proven technologies Developing commercial terms that do not unduly commit the Group to performance beyond what the Group is capable of managing. Scale Up The Group has engaged in a series of programmes to demonstrate the scale up of its reactor technology from laboratory to commercial scale allowing the technology to be assessed at relevant scale. The Group completed the first of its two demonstrations in 2010 which successfully demonstrated the FT reactor. In addition, a full scale (nominal 25 barrel per day) reactor was installed and successfully demonstrated at a customer site in. A further demonstration programme, for a fully integrated GTL unit is currently underway. In the case of catalysts scale up, the Group works with reputable catalyst manufacturers in order to develop capability of making available commercial quantities of catalyst. Catalyst produced at each stage of the scale up process is tested to ensure it meets the relevant specification. The Group s FT catalyst which has been supplied with the full-scale FT reactors is now being produced in commercial quantities. Market Adoption In order to minimise the risk of non-adoption of its technology by the market, the Group generally works with partners who are substantial players in their fields and who have significant interest in developing the technology commercially, as this would give them a competitive advantage. The Group has developed a substantial pipeline of opportunities which are being progressed through its own business development team as well as through its engineering partners. The Group continually monitors and assesses the strength of this pipeline. 6

9 Oxford Catalysts Annual Report Manufacturing The Group is working with leading manufacturers of equipment and catalysts to develop the manufacturing capability for commercial sales of its products. By using manufacturing partners with proven track-records in their fields, rather than developing capability in-house, the Directors consider that the manufacturing risk is significantly reduced. IP Protection The Group assigns significant resources to enhancing and protecting its IP, both in terms of patented and non-patented IP. In addition to investment in an extensive patent portfolio, the Group has processes to capture and manage knowhow and other knowledge assets. Personnel Retention The Group has in place policies designed to ensure it attracts and retains key personnel. These include a performance evaluation system, training, and incentive and share option schemes. External Risks The Group s performance is also subject to external macroeconomic conditions and changes in factors such as exchange rates, interest rates, inflation, and natural gas and oil prices. These risks are managed through monitoring and analysis of the economic and external climate to ensure the Group has sufficient information to develop a good understanding of the potential impact, and to develop potential mitigating policies. In addition, where possible, the Group looks to ensure its contracts provide protection against adverse external factors. The oil price and natural gas prices have a particular relevance for future demand since a number of the Group s products will provide solutions for the production of substitutes for oil and may use natural gas as a feedstock. It is likely that higher oil prices will improve the economics of such products whilst higher natural gas prices may have the reverse effect. However, the Group considers that there are numerous other drivers for future demand including: regulatory factors, security of supply, need for energy diversification, specific locational economics, subsidies etc. which mean that oil and gas prices alone are not the only significant factors, and are therefore not an undue risk for the business. Financial Risks The Group s activities expose it to a number of financial risks including credit risk, interest rate risk, liquidity risk, exchange rate risk and capital management risk. The use of financial derivatives is governed by the Group s policies approved by the Board of Directors, which provide written principles on the use of financial derivatives to manage these risks. At present the Group does not use financial derivatives in the normal course of business other than for hedging of known foreign exchange exposures. The Group s and the Company s financial instruments comprise cash and cash equivalents, short-term investments, trade and other receivables and trade and other payables. The main purpose of these financial instruments is to support the funding of the Group s activities. Credit Risk The Group s principal financial assets are cash, cash equivalents and short-term investments, trade and other receivables. The Group s credit risk is primarily attributable to its trade receivables, which are concentrated in a small number of high value customer accounts. The Group has policies to manage this risk, including where applicable, carrying out relevant financial checks on customers, requiring letters of credit or advance payments. The credit risk of liquid funds is limited to counterparties (banks) with high credit ratings assigned by international credit rating agencies. The Group has a treasury policy designed to ensure that cash, cash equivalents and shortterm investments are only placed with high credit rated institutions and that the spread of such assets is sufficient that it is not overly exposed to any one institution. Interest Rate Risk Through the holding of cash and borrowings, the Group s activities expose it to the financial risk of changes in interest rates. A proportion of interest bearing assets are held at fixed rate to ensure certainty of cash flows. The Group s borrowings all incur interest charges at a fixed rate. Liquidity Risk Group policy is to maintain sufficient cash balances to meet its anticipated requirements over a medium term horizon. Funds are placed on time deposits with cash balances available for immediate withdrawal if required. Exchange Rate Risk A significant part of the Group s activities are located in the US and the funding requirements for these are denominated in US dollars. In order to minimise exposure to foreign exchange volatility, the Group holds a portion of its liquid assets in US dollar denominated accounts. This provides a natural hedge to protect against the foreign exchange impact on its US denominated cash flows. 7

10 Annual Report Oxford Catalysts Directors Report (continued) In the consolidated accounts of the Group, there are significant US dollar denominated goodwill and acquired intangible assets relating to the acquisition of Velocys. These balances are subject to exchange rate fluctuations which result in movements in reserves; however, the Directors do not consider it necessary to hedge such exchange rate movements since they do not have any impact on the cash position of the Group. Capital Management Risk The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group believes that at this stage of its development, equity is the most suitable form of funding for its activities and this forms the basis of the capital that it manages. The Group s objectives when managing this capital are: to secure its ability to continue as a going concern; to have sufficient funds to protect it against unforeseen events and risks; to have sufficient funds to enable the Group to address the opportunities that can deliver future benefits to the Group s shareholders and provide them with a return which rewards the risks undertaken. We do this through a planning process that involves an annual strategy and risk review, annual budgeting and regular re-forecasting. The Group believes that it has sufficient cash and cash equivalents to meet its capital management objectives. Future Developments The Board aims to continue its corporate strategies as set out in the Chairman s Statement and Chief Executive s Report. Group Development Activities The Group continues to invest in development. The catalysts and microchannel technologies currently being developed are expected to make significant contribution to the growth of the business. The Directors regard investment in development as important for success in the medium to long term. Charitable and Political Donations The Group did not make charitable or political donations exceeding 2,000 during the year. Dividends The Directors do not recommend any dividend for the year ended 31 December (2011: nil). Directors The Directors of the Group as at 31 December, who served throughout the year and up to the date of approval of the financial statements, unless otherwise indicated, were as follows: Dr Pierre Jungels (Non-executive Chairman) Roy Lipski (Chief Executive) Susan Robertson (Chief Financial Officer) Dr Andrew Jamieson (Non-executive Director) Dr Jan Verloop (Non-executive Director) Sandy Shaw (Non-executive Director, appointed 1/10/12) All Directors are subject to election by shareholders at the first opportunity after their appointment, and to re-election thereafter at intervals of not more than three years. At the 2013 Annual General Meeting the following Directors will retire and offer themselves for re-election. Mrs Susan Robertson Mrs Sandy Shaw Directors Qualifying Third Party Indemnity Provision The Group maintains directors qualifying third party indemnity insurance to provide cover for legal action against its Directors. This has been in place throughout the year and remains in place at the date of this report. Directors Interests The Directors who held office at 31 December had the following interests in the shares of Group undertakings (as recorded in the Register of Directors Interests and including those of the spouse or civil partner and children under 18). Oxford Catalysts Ordinary 0.01 shares 31 December 31 December Name of Director 2011 Dr Pierre Jungels 223, ,031 Mr Roy Lipski 2,417,098 2,417,098 Mrs Susan Robertson 304, ,874 Dr Andrew Jamieson 25,000 25,000 Dr Jan Verloop 150, ,837 Mrs Sandy Shaw* *This includes only those shares granted since Mrs Shaw s appointment on 1 October. Details of the Directors share options and service contracts are shown in the Director s Remuneration Report. 8

11 Oxford Catalysts Annual Report Substantial Shareholdings On 7 March 2013, the Company had been notified of the following holdings of 3% or more of the issued share capital of the Company. Number of Percentage of shares held issued share capital Lansdowne Partners 22,409, % Henderson Global Investors 15,074, % Invesco Asset Management 10,383, % Ruffer LLP 9,513, % Battelle Memorial Institute 9,046, % Ervington Investments Limited 4,000, % Fund Raising In November, Ventech Project Investments LP, an affiliate of Ventech Engineers LLC ( Ventech ), subscribed for 933,687 new ordinary shares of 1 pence each at a price of 135p per share. Ventech is a partner of the Group and this subscription formed part of an overall series of agreements whereby the Group will be Ventech s preferred supplier of Fischer-Tropsch (FT) technology in North America, and Ventech will have non-exclusive assured access to design, sell and deliver GTL plants incorporating the Group s FT product to customers in North America (subject to certain diligence requirements being met by Ventech). On 11 December, the Company announced the successful conditional placing of shares to raise 29.3 million net of expenses. This placing was approved at a General Meeting of its shareholders on 3 January 2013 and the shares were admitted to trading on AIM on 4 January Auditors and Disclosure of Information to Auditors Each of the persons who is a Director at the date of approval of this report confirms that: so far as the Director is aware, there is no relevant audit information of which the Company s auditors are unaware; and the Director has taken all the steps that he / she ought to have taken as a Director in order to make himself / herself aware of any relevant audit information and to establish that the Company s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Approved by the Board and signed on its behalf by: Roy Lipski Chief Executive 25 March 2013 Annual General Meeting The Annual General Meeting of the Company will be held at the Company s Milton Park premises at 10.45am on Wednesday 12 June

12 Annual Report Oxford Catalysts Corporate Governance Report Corporate Governance Companies who have their securities traded on AIM are not required to comply with the disclosure requirements of the UK Corporate Governance Code (2010). The Board, however, has determined that the Group should maintain high standards of corporate governance and whilst not fully complying within this report with the UK Corporate Governance Code, including the full disclosure requirements, has adopted procedures and has taken steps to adopt the underlying principles, in so far as appropriate given the size of the Group and the nature of its operations. Board of Directors The Group is controlled by the Board of Directors which comprises two Executives, one of whom is the Chief Executive, and three Non-executive Directors. All of the Non-executive Directors are considered to be independent. This is notwithstanding the fact that the company has a business development consultancy arrangement with Dr Andrew Jamieson. This business development arrangement enables the company to benefit from the expertise and contacts of Dr Jamieson but is not material in either the amount of time required from Dr Jamieson, nor in the amount of income that it provides and therefore is not considered to have any impact on his ability to be considered independent. The roles of Chief Executive and Chairman are separate. All Directors are able to take independent advice to assist them in their duties if necessary. The detailed biographies of all directors are provided on the Group s website. The Board is responsible to shareholders for the proper management of the Group and meets formally at least six times a year to set the overall direction and strategy of the Group, to review operating and financial performance and to consider and advise on senior management appointments. The Board also monitors and approves financial policy and budgets, including capital expenditure. All key operational decisions are subject to Board approval. The Company Secretary is responsible for ensuring that Board procedures are followed and that any and all applicable rules and regulations are complied with. Directors are subject to election by shareholders at the first opportunity after their appointment. In addition, one third of Directors are subject to retirement by rotation at each Annual General Meeting. The Board has introduced a process for evaluating the effectiveness of the Board and its committees. This is by means of a questionnaire survey of all Board members and other relevant senior executives. Committees of the Board Remuneration Committee The Remuneration Committee comprises the Non-executive Directors chaired by Dr Andrew Jamieson. This committee reviews, inter-alia, the performance of the Executive Directors and sets the scale and structure of their remuneration and basis of their service agreements, having due regard to the interests of shareholders. The Remuneration Committee also determines the allocation of share options to Executive Directors. No Director has a service agreement exceeding one year. One of the policies of the Remuneration Committee is that no individual participates in discussions or decisions concerning his or her own remuneration. The Directors Remuneration Report is set out on pages 12 to 14. Audit Committee The Audit Committee comprises the Non-executive Directors and is chaired by Dr Jan Verloop. Under its terms of reference it meets at least twice a year, and amongst other duties it reviews the monitoring of the Group s internal controls, accounting policies and financial reporting, and provides a forum through which the external auditors report. It meets at least once a year with the external auditors without Executive Directors present. Nominations Committee The Nominations Committee consists of the Non-executive Directors, under the chairmanship of Dr Pierre Jungels. It meets at least once a year, and amongst its other duties it reviews the composition of the Board and its succession planning, and keeps under review the leadership needs of the Company with a view to ensuring the continued ability of the Group to compete effectively in the marketplace. Senior Management Team The day-to-day management of the Group is overseen by the Senior Management Team, consisting of the Executive Directors and other senior managers, under the leadership of the Chief Executive. 10

13 Oxford Catalysts Annual Report Board and Committee Attendance at Scheduled Board and Committee Meetings Audit Remuneration Nominations Board Committee Committee Committee Number of meetings held in Attendance* by: Dr Pierre Jungels 100% 100% 100% 100% Mr Roy Lipski 100% n/a n/a n/a Mrs Susan Robertson 100% n/a n/a n/a Dr Andrew Jamieson 86% 100% 100% 100% Dr Jan Verloop 100% 100% 100% 100% Mrs Sandy Shaw 100% 100% n/a 100% * The attendance percentage is based on attendance of applicable meetings. In the case of Mrs Shaw, this includes only those meetings since her appointment on 1 October. Relations with Shareholders The Board considers effective communication with shareholders to be very important, and encourages regular dialogue with investors. The Board responds promptly to questions received verbally or in writing. Directors regularly attend meetings with shareholders and analysts throughout the year. Shareholders will be given at least 21 days notice of the Annual General Meeting, at which they will have the opportunity to discuss the Group s developments and performance. The Company s web site contains full details of the Group s activities, press releases and other details, as well as a link to the relevant web page of the London Stock Exchange web site for share price details, share trading activities and graphs, as well as Regulatory News Service ( RNS ) announcements. Maintenance of a Sound System of Internal Control The Directors have overall responsibility for ensuring that the Group maintains a system of internal control to provide them with reasonable assurance that the assets of the Group are safeguarded and that shareholders investments are protected. The system includes internal controls appropriate for a Group of the size of Oxford Catalysts, and covers financial, operational, compliance (including health and safety) and risk management. Such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives; any system can provide only reasonable, and not absolute, assurance against material misstatement or loss. The process in place for reviewing Oxford Catalysts systems of internal control includes procedures designed to identify and evaluate failings and weaknesses, and, in the case of any categorised as significant, procedures exist to ensure that necessary action is taken to remedy the failings. The Board has considered its policies with regard to internal controls as set out in the UK Corporate Governance Code and undertakes assessments of the major areas of the business and methods used to monitor and control them. In addition to financial risk, the review covers operational, commercial, regulatory and health and safety risks. The risk review is an ongoing process with reviews being undertaken on a regular basis. The key procedures designed to provide an effective system of internal controls that are operating up to the date of sign-off of this report are set out below. Control Environment There is an organisational structure with clearly defined lines of responsibility and delegation of accountability and authority. Risk Management The Group employs Directors and senior personnel with the appropriate knowledge and experience for a business engaged in activities in its field of operations, and undertakes regular risk assessments and reviews of its activities. Financial Information The Group prepares detailed budget and working capital projections which are approved annually by the Board and are maintained and updated regularly throughout the year. Detailed management accounts and working capital cash flows are prepared on a monthly basis and compared to budgets and projections to identify any significant variances. Management of Liquid Resources The Board is risk averse when investing the Group s surplus cash. The Group s treasury management policy is reviewed periodically, sets out strict procedures and limits on how surplus funds are invested. The Board has considered it inappropriate to establish an internal audit function, given the size of the Group. However, this decision will be reviewed as the operations of the Group develop. Review of Corporate Governance Disclosures The Board has voluntarily complied with those principal Corporate Governance disclosures of the UK Corporate Governance Code in so far as appropriate given the size of the Company and the nature of its operations. These have not been formally reviewed by the Group s auditors. The auditors responsibility extends only to reading this report as a part of the Annual Report and considering whether it is consistent with the audited financial statements. 11

14 Annual Report Oxford Catalysts Directors Remuneration Report Introduction It is not a requirement for companies that have securities listed on AIM to comply with the disclosure requirements of Directors Remuneration Report Regulations 2002 or to comply with the UKLA Listing Rules and the disclosure provisions under schedule 8 to SI 2008/410 of the Companies Act 2006; consequently certain disclosures are not included below. The Remuneration Committee, however, is committed to maintaining high standards of corporate governance and has taken steps to comply with the principles of best practice in so far as it can be applied practically given the size of the Group and the nature of its operations. Unaudited Information Remuneration Report The Board has applied the principles of good governance relating to Directors remuneration as described below. Remuneration Committee The Remuneration Committee comprises the Non-executive Directors under the chairmanship of Dr Andrew Jamieson. The committee s constitution and operation are compliant with the provisions of the UK Corporate Governance Code on Corporate Governance. When setting its remuneration policy for Executive Directors, the Committee gives consideration to the provisions and principles of the UK Corporate Governance Code. Remuneration Policy for Executive Directors The remuneration policy has been designed to ensure that Executive Directors receive appropriate incentive and reward given their performance, responsibility and experience. When assessing this, the Remuneration Committee looks to ensure that the policy aligns the interests of the Executive Directors with those of shareholders. The Group s remuneration policy for Executive Directors is to: consider the individual s experience and the nature, complexity and responsibilities of their work in order to set a competitive salary that attracts and retains management of the highest quality; link individual remuneration packages to the Group s long-term performance through both bonus schemes and share option plans; provide post-retirement benefits through payment into defined contribution pension schemes; and provide employment related benefits including provision of life assurance and medical insurance. Remuneration of Executive Directors Executive Directors remuneration is considered annually. During 2011, the Remuneration Committee commissioned an external review of Board and other senior executive remuneration. This review looked at the overall composition of the remuneration and made recommendation based on benchmarking with other companies similar in size, industry and stage of development. As a result of this review, certain changes were made to the overall remuneration package, which form the basis for the current package. The basic components of this package continue to comprise the following elements. Base Salary The base salary is reviewed annually at the beginning of each year. The review process undertaken by the Remuneration Committee has regard to the development of the Group and the contribution that individuals will continue to make. Consideration is also given to the need to retain and motivate individuals, and available information on the package levels in comparable organisations. Annual Performance Incentive All Executive Directors are eligible, at the discretion of the Remuneration Committee, for an annual bonus. The Remuneration Committee sets targets for bonus awards at the beginning of each year. Awards are determined by both the performance of the individual and the Group as a whole at the end of each year. The performance targets for the Group comprise measures of certain financial, as well as technical, business development and share price performance. 12

15 Oxford Catalysts Annual Report Pensions and Other Benefits The Group contributes to individuals defined contribution pension plans. Other benefits provided are life assurance, private medical insurance and relocation allowances where applicable. No company car is provided, but Directors are paid an allowance for business miles travelled in accordance with HMRC guidelines. In the case of Mr Lipski who is located in the USA, he is entitled to the standard benefits provided to all of the Group s US full-time employees under the medical plan. ELTIP Awards Following the detailed remuneration review carried out in 2011 using external consultants, the Remuneration Committee concluded that setting of performance conditions for a company at the stage of development of Oxford Catalysts is not appropriate. Therefore an ELTIP mechanism was introduced in 2011, where the Remuneration Committee may, at its discretion at the start of each year set the maximum number of options to be awarded to each executive at the start of the following year based on annual performance targets set for each executive. These awards will vest over a three year period. Associated with the ELTIP, the Remuneration Committee also established a discretionary employee benefit trust which shall facilitate ELTIP s granted and to be granted. Remuneration Policy for Non-executive Directors The remuneration of the Non-executive Directors is determined by the Board as a whole, based on a review of current practices in other equivalent companies. The Non-executive Directors do not receive any pension payments towards private arrangements, nor do they participate in any of the bonus schemes. Fees are based on a fixed fee plus a fee for additional consulting services. The Non-executive Directors each have service agreements which are reviewed annually by the Board. All Non-executive Directors retire by rotation and are re-elected every 3 years at the Annual General Meeting. Audited Information Directors Remuneration The Directors received the following remuneration during the year to 31 December. Salary and Other Pension fees Bonus benefits Totals contributions Totals Pension Name of Director Executive Mr Roy Lipski 228, ,735 23, ,785 13, ,687 14,447 Mrs Susan Robertson 161, , ,860 11, ,208 10,094 Non-executive Dr Pierre Jungels 53,000 53,000 50,000 Mr Jeremy Scudamore 23,154 Mrs Sandy Shaw 8,750 8,750 Dr Andrew Jamieson * 50,000 50,000 50,000 Dr Jan Verloop 32,451 32,451 35,552 Aggregate emoluments and pension contributions 533, ,438 24, ,846 24, ,601 24,541 * Dr Jamieson joined the Board in February His fees comprise two elements: a fixed fee for his work as a director of the Company and a variable component for additional consultancy primarily related to business development paid under a separate service contract. This contract provides for consultancy work to be paid at a rate of 1,500 per day and in addition, at the end of each service year (31 March) for each day of consultancy, a number of share options are issued. This calculation is based on the number of shares equal to 500 per day at the share price on the date of issue and with a strike price equal to the nominal share price. The options are immediately exercisable and have an expiry date 10 years from date of grant. At 31 December, options for had not yet been granted. The options shown in the table below which were granted to Dr Jamieson in relate to his services provided in The variable element of Dr Jamieson s fees included in the figures above is 15,000 (2011: 15,000). Dr Jamieson is considered by the Board to be an independent director. 13

16 Annual Report Oxford Catalysts Directors Remuneration Report (continued) Directors Share Options Aggregate emoluments disclosed above do not include any amounts for the value of the options to acquire ordinary shares in the Company granted to or held by the Directors. Details of all options held by the Directors at 31 December are as follows. Exercisable At 31 At 31 Earliest at 31 December December Exercise date of Date of December Name of Director 2011 Granted Exercised Lapsed price ( ) exercise expiry Roy Lipski Bonus , , /03/10 31/03/10 342,000 ELTIP , , /01/11 24/01/11 100,000 ELTIP ,000 (260,000) 140, /01/12 31/01/12 140,000 ELTIP , , /09/11 20/09/11 416,667 ELTIP 818, , /01/15 01/02/22 ELTIP - 613, , /04/12 03/04/22 204,333 Total 1,467,000 1,431,000 (260,000) 2,638,000 1,203,000 Susan Robertson EMI 62,893 62, /10/10 01/04/18 62,893 Bonus ,105 42, /03/09 31/03/19 42,105 Bonus ,655 37, /03/11 20/03/21 37,655 ELTIP ,000 (195,000) 105, /01/12 21/11/19 105,000 ELTIP , , /09/11 20/09/21 260,416 ELTIP 365, , /01/15 01/02/22 ELTIP 273, , /01/12 01/02/22 91,268 Total 833, ,803 (195,000) 1,277, ,337 Dr Andrew Jamieson ,500 6, /03/11 31/03/21 6,500 10,204 10, /04/12 20/04/22 10,204 Total 6,500 10,204 16,704 16,704 The market price of the Company s shares as at 31 December was 154p (2011: 53p) and the range during the year was 40p to 163p (2011: 49p to 103p). Details of options and the cost of such share-based payments are given in note 12. No share options were exercised during the year (2011: none). 14

17 Oxford Catalysts Annual Report Statement of Directors Responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Roy Lipski Chief Executive 25 March

18 Annual Report Oxford Catalysts Independent Auditors Report to the members of Oxford Catalysts We have audited the group and parent company financial statements (the financial statements ) of Oxford Catalysts Group Plc for the year ended 31 December which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Balance Sheet, the Group and Parent Company Statement of Changes in Equity, the Group and Parent Company Statement of Cash Flows, the Accounting Policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors Responsibilities set out on page 15, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group s and parent company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group s and of the parent company s affairs as at 31 December and of the group s loss and group s and parent company s cash flows for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Opinion on additional disclosures directors remuneration report The company voluntarily prepares a directors remuneration report in accordance with the provisions of the Companies Act The directors have requested that we audit the part of the directors remuneration report specified by the Companies Act 2006 to be audited as if the company were a listed company. In our opinion, the part of the directors remuneration report to be audited has been properly prepared in accordance with the Companies Act

19 Oxford Catalysts Annual Report Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Miles Saunders (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Reading 25 March

20 Annual Report Oxford Catalysts Consolidated Income Statement for the year ended 31 December 2011 Note Revenue 5 7,632 4,722 Cost of sales (4,769) (3,253) Gross profit 2,863 1,469 Unfunded research and development costs (7,088) (6,890) Share-based payments 12 (1,341) (841) Other administrative expenses (5,369) (4,561) Total administrative expenses (13,798) (12,292) Operating loss 8 (10,935) (10,823) Finance income Finance costs 7 (53) (55) Finance income, net Loss before income tax (10,836) (10,437) Income tax credit Loss for the financial year attributable to the owners of the Company (10,399) (9,644) Loss per share attributable to the owners of the Company Basic and diluted loss per share (pence) 13 (11.47) (11.39) The notes on pages 26 to 50 are part of these consolidated financial statements. The Company has elected to take the exemption under Section 408 of the Companies Act 2006 to not present the parent company income statement and statement of comprehensive income. The loss for the Company for the year was 8,359,000 (2011: loss 7,502,000). 18