Interim Results

RNS Number : 3426O

Oxford Catalysts Group PLC

16 September 2011

 



16^th September 2011

OXFORD CATALYSTS GROUP PLC

("Oxford Catalysts" or "the Group" or "the Company")

Interim Results for the Period Ended 30^th June 2011

Oxford Catalysts Group PLC, the leading technology innovator for synthetic oil production, is pleased to announce its interim results for the six months ended 30 June 2011.

Highlights

·   Orders received for commercial scale FT units: one for SGCE and, post period end, two for a Fortune 500 company

·   GTL demonstration unit arrived in Brazil and is in pre-commission phase

·   Selected to participate in GTL engineering study to evaluate 5,000-15,000 bpd facility in North America

·   Successfully ramping up manufacturing capacity to produce significant numbers of FT units from 2012 onwards

·   Revenue of £2.9 million (H1 2010: £4.1 million) reflecting the continuing transition to commercial income

·   Raised £21.0m before expenses through an oversubscribed equity placing

·   Cash* at period end of £21.4 million (H1 2010: £8.8 million)

Pierre Jungels, CBE, Chairman of Oxford Catalysts, said:

"The Group has demonstrated commercial momentum in the first half of the year and the outlook is positive, especially in the GTL market. Our partners continue to invest in progressing the Group's products, and following the successful demonstration in Austria we're now looking forward to additional achievements in Brazil."

"The Board is excited about the prospects of the Group and looks to the future with confidence."

* Defined as cash, cash equivalents, short term investments and other financial assets

For further information, please contact:

Oxford Catalysts Roy Lipski, CEO Susan Robertson, CFO	[phone] [phone]
Cenkos Securities (Nomad and Broker) Ken Fleming / Beth McKiernan	[phone] [phone]
Financial Dynamics Billy Clegg / Alex Beagley	[phone]

Notes to Editors

Oxford Catalysts designs and develops technology for the production of synthetic oil from both conventional and renewable sources such as bio-waste. The Group is focused on the emerging market for distributed smaller scale production of synthetic oil via Fischer-Tropsch ("FT") synthesis − a market that has the potential of producing as much as 25 million barrels of fuel a day.

The FT reaction is used when converting natural gas, coal or bio-mass into clean high-performance synthetic oil, processes known as GTL, CTL and BTL respectively. The Group is the recognised world leader in the design and development of high-activity catalysts and associated novel chemical reactors for the smaller scale production of synthetic oil. (The Group's reactor technology − known as microchannel process technology − is marketed under the brand name of Velocys).

Oxford Catalysts Group PLC is listed on the AIM market of the London Stock Exchange (LSE: OCG). The Group has some 80 employees with facilities near Oxford, UK and Columbus, Ohio, USA.

www.oxfordcatalysts.com

www.velocys.com

CHAIRMAN'S STATEMENT

Pierre Jungels, CBE

The first half of 2011 has seen further progress for the Group as we continue our transformation from a development organisation to a commercial product company. Market conditions for the Group's smaller scale synthetic fuels technology are strong and we are experiencing high levels of interest in our products.

The Group's existing commercial relationships remain positive; at the same time we are actively exploring additional opportunities with a number of major corporations.

Our partner, SGC Energia, SGPS, S.A. ("SGCE") has successfully completed the testing of our FT pilot in Güssing, Austria. During the first half, SGCE also ordered its second commercial Fischer-Tropsch ("FT") unit and plans to have its two units operational in 2012.

Post period end, the Group also received an order for two commercial size FT units from a Fortune 500 company that forms the first instalment of reactors towards a commercial synthetic fuels plant expected to start operations in 2012. The two reactors ordered will be delivered in the fourth quarter of 2011.

In June, the Group was selected to participate in a Gas-to-Liquids ("GTL") engineering study on behalf of a $multi-billion Exploration & Production company. The study is evaluating a 5,000-15,000 bpd GTL facility in North America designed to convert shale gas into finished synthetic fuels.

The Group's cash position was strengthened after completion of an oversubscribed placing that raised £21.0 million before expenses in March 2011. This strong backing provides further validation of the Group's business model, its technical and commercial progress, and the significant market opportunity. The placing was backed by existing shareholders and a number of new blue chip institutions. I would like to thank our old and new shareholders for their support.

Group revenues for the first half were £2.9 million (2010 H1: £4.1 million) reflecting the shift from development funding to commercial income streams. Cash* at period end stood at £21.4 million (2010 H1: £8.8 million), while cash* outflow was £4.3 million, excluding the impact of the fund raising (2010 H1: £3.2 million).

The Group continues to receive awards and recognition from industry, as highlighted during the period by its winning two Rushlight Awards. These awards are well regarded and are a testament to the significant progress the Group continues to make. I would like to thank the team for their hard work and determination this year.

Finally, it is with great regret that we recently announced the passing away of Jeremy Scudamore, Non-executive Director and Chairman of the Audit Committee. Since joining the Board in March 2007, Jeremy has added significant value to the Group having performed his role with great endeavor and integrity, and with the benefit of huge experience.  Jeremy will be missed by the Oxford Catalysts team. Our deepest sympathies go out to his family.

Outlook

The first half of 2011 has been highly productive and the remainder of the year looks just as exciting with the Group's GTL plant in Fortaleza, Brazil, now due to start up in the fourth quarter of the year.

We will continue to focus on our existing relationships while strengthening our customer base where appropriate. We are working closely with our manufacturing partners and suppliers, and are confident that we will be able to supply large numbers of FT units starting next year. The Board looks to the future with confidence.

Chief Executive's RePORT

Roy Lipski

Introduction

The Group made considerable progress during the first half of 2011 on its key priority of readiness for commercial roll out.

Market Conditions

The market environment for the Group's smaller scale synthetic fuels technology continues to be extremely favourable. We are enjoying high levels of interest and inquiries, which we're pursuing in a focused and selective manner.

Commercialisation

Demonstration

During the first half of the year SGCE successfully completed the demonstration of a 25 gallon / day FT reactor and catalyst of ours in Güssing, Austria.

The Group's GTL demonstration plant, incorporating its proprietary Steam Methane Reforming ("SMR") and FT technologies, arrived at its final destination of Fortaleza, Brazil in April. With the support of Toyo Engineering Corporation, MODEC, Inc. and Petrobras, the demonstration is currently in pre-commissioning. Petrobras operators are due to attend training at the Group's US facilities in September, prior to the plant's current scheduled start up date of the fourth quarter of the year. Following start up, the demonstration is expected to operate for approximately nine months.

Manufacturing

The Group made significant progress during the first half of the year with manufacturing of its FT reactors and catalyst. It is currently successfully completing the manufacture of its third full scale commercial FT reactor. Working closely with manufacturing partners and suppliers, the Group expects to accelerate manufacturing readiness and significantly increase output capacity for 2012. At the same time, the Group anticipates achieving significant manufacturing cost savings for larger orders as soon as 2012.

Sales and Prospects

During the first half of the year, the Group received an order from SGCE for its second commercial FT unit. SCGE plans to ultimately deploy the two FT units in a Biomass-to-Liquids facility, with initial operation of the units expected in the first half of 2012.

In July, the Group announced the receipt of an order for a further two commercial size FT units from a Fortune 500 company committed to distributed production of synthetic fuels. This order is expected to be followed by an order for additional reactors that together will comprise the FT section of the company's first commercial synthetic fuels plant, scheduled to start operations at a US site in 2012. This customer intends to roll out additional plants following successful completion and operation of this first commercial facility.

In May, the Group announced that it had an opportunity to bid for the supply of FT technology for a large synthetic fuels facility that SGCE was planning. SGCE currently expects to select technology for the project at the end of the year.

In June, the Group announced that it is being paid to participate in a first stage engineering study (known as an FEL1) for a GTL facility of up to 15,000 bpd in North America designed to convert shale gas into finished synthetic fuels. The study is being conducted by a major engineering firm on behalf of a $multi-billion Exploration & Production company. It is expected to be complete by the end of 2011, at which point a decision will be made whether to proceed with more detailed engineering (FEL2).

Industry Recognition

In the first half of 2011, the Group won both the Rushlight Fossil Fuels Award and the overall Rushlight award in the Energy Environmental Category. The Rushlight awards are presented to the leading energy, resource and environmental technologies and innovations from organisations throughout the UK and Ireland. The Fossil Fuels award is bestowed on the technological advancement or innovation that has made the most significant contribution to the reduction in the environmental impact of fossil fuel usage.

These two awards add to the growing collection of high profile industry recognition that the Group has been receiving since 2009.

Intellectual Property

The Group's current intellectual property portfolio includes over 750 active patent cases and an even larger number of invention records. During the period, the Group filed 3 new patent applications, while 27 existing applications were granted in jurisdictions including the US, Brazil, Canada, China, India, Japan, Norway, South Korea, and various European countries.

Resources

During the first half of 2011, the Group began recruitment of additional staff to support its growing commercial operations. It has already made a number of key appointments, including Paul Schubert in the role of Group Chief Operating Officer. Paul has 28 years of experience in the petrochemical, natural gas and synthetic fuels industries. He's held various technical and general management roles with SGS Group, Syntroleum Corporation, Catalytica, Phillips Petroleum and Engelhard Corporation. In these positions he was responsible for day-to-day operations, process development and commercialisation, plant design, and asset integrity management.

Successful Equity Placing

In March 2011, the Group successfully raised £21.0 million before expenses, at the same time enhancing its already solid shareholder base with the addition of seven new blue chip institutional investors. These proceeds are now being used to accelerate the Group's transition to a commercial product company, including the hiring of additional staff for commercial operations, extending manufacturing and supply chain capacity and readiness, and upgrading its technology infrastructure to better support commercial interactions. The new funds also bolster the Group's balance sheet giving it added credibility and strengthening its negotiating position with prospective partners.

Financial Review

Revenues during the period were £2.9 million (H1 2010: £4.1 million), reflecting the continuation of a shift from development funding to commercial income streams. Revenues were also impacted by a decision to continue the slow down of activities on a government funded programme in order to concentrate on fulfilment of orders for FT units and ramping up manufacturing capacity. The funding for this programme remains available and is expected to be received in full by the end of 2012.

Losses for the period were £3.8 million (H1 2010: £3.2 million). Cash* outflow, excluding the impact of the fund raising, in the first half was £4.3 million (H1 2010: £3.2 million).

At period end, the Group had £21.4 million of cash* (H1 2010: £8.8 million). Management is closely overseeing the Group's drive for early sales and speed to market, to ensure continued responsible stewardship of the Group's financial resources.

* Defined as cash, cash equivalents, short term investments and other financial assets.

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2011

	Note	6 months ended 30 June 2011 (unaudited) £'000	Restated* 6 months ended 30 June 2010 (unaudited) £'000	Year ended 31 December 2010 (audited) £'000
Revenue	3	2,946	4,135	7,652
Cost of sales		(1,794)	(2,465)	(4,649)
Gross profit		1,152	1,670	3,003
Unfunded research and development costs		(2,480)	(2,207)	(4,568)
Share-based payments		(66)	(169)	(410)
Other administrative expenses		(2,864)	(3,087)	(6,235)
Total administrative expenses		(5,410)	(5,463)	(11,213)
Operating loss		(4,258)	(3,793)	(8,210)
Finance income		85	92	195
Finance costs		(19)	(17)	(55)
Loss on ordinary activities before tax		(4,192)	(3,718)	(8,070)
Income tax credit		350	500	858
Loss for the period attributable to equity holders of the Company		(3,842)	(3,218)	(7,212)
Loss per share attributable to equity holders of the Company
Basic and diluted (pence)	4	(4.86)	(5.16)	(11.45)

The results from the periods shown above are derived entirely from continuing operations.

*2010 figures for cost of sales and unfunded research and development costs have been restated following a review of the allocation of costs. Cost of sales consists of the direct costs attributable to the revenue earned; certain costs which had previously been allocated to cost of sales were considered by Management to be related to unfunded research and development costs and so have been reclassified accordingly. There was no impact to loss for the financial period attributable to the equity holders of the Company.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2011

		6 months ended 30 June 2011 (unaudited) £'000	6 months ended 30 June 2010 (unaudited) £'000	Year ended 31 December 2010 (audited) £'000
Loss for the period		(3,842)	(3,218)	(7,212)
Foreign currency translation differences	5	(584)	1,562	1,035
Total recognised expense for the period		(4,426)	(1,656)	(6,177)

CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2011

	Note	30 June 2011 (unaudited) £'000	30 June 2010 (unaudited) £'000	31 December 2010 (audited) £'000
Non-current assets
Intangible assets		25,075	26,006	25,535
Property, plant and equipment		1,987	3,289	2,590
		27,062	29,295	28,125
Current assets
Trade and other receivables		1,286	1,812	1,106
Current income tax asset		711	800	347
Inventory		64	-	-
Financial assets - restricted access escrow account		312	334	320
Short term investments - cash held on long-term deposit		1,000	1,000	1,000
Cash and cash equivalents		20,121	7,487	4,406
		23,494	11,433	7,179
Total assets		50,556	40,728	35,304
Current liabilities
Trade and other payables		(2,438)	(4,343)	(2,740)
Borrowings		(93)	(80)	(91)
		(2,531)	(4,423)	(2,831)
Non-current liabilities
Trade and other payables		(194)	(773)	(371)
Borrowings		(985)	(453)	(959)
Total liabilities		(3,710)	(5,649)	(4,161)
Net assets		46,846	35,079	31,143
Capital and reserves attributable to equity holders of the Company
Called up share capital	6	902	631	638
Share premium account	6	65,268	45,132	45,469
Merger reserve	6	369	369	369
Share-based payment reserve	6	4,915	4,608	4,849
Accumulated losses	6	(24,608)	(15,661)	(20,182)
Total equity		46,846	35,079	31,143

The financial statements were approved by the Board of Directors on 15^th September 2011, and were signed on its behalf by:

Susan Robertson

Chief Financial Officer

CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2011

	Note	6 months ended 30 June 2011 (unaudited) £'000	6 months ended 30 June 2010 (unaudited) £'000	Year ended 31 December 2010 (audited) £'000
Cash outflow from operating activities
Cash consumed by operations	7	(4,515)	(3,118)	(7,170)
Tax credit received		350	-	858
Net cash used in operating activities		(4,165)	(3,118)	(6,312)
Cash flows from investing activities
Purchases of property, plant and equipment		(21)	(604)	(618)
Purchases of intangible fixed assets		(234)	(147)	(772)
Interest received		76	152	195
Interest paid		(19)	(17)	(55)
Decrease in cash placed on deposit and restricted access escrow account		-	3,000	3,000
Net cash (used in) from investing activities		(198)	2,384	1,750
Cash flows generated from financing activities
Proceeds of issuance of ordinary shares		20,063	76	420
Increase in borrowing		53	281	746
Net cash from financing activities		20,116	357	1,166
Net increase/(decrease) in cash and cash equivalents		15,753	(377)	(3,396)
Cash and cash equivalents at the beginning of the period		4,406	7,686	7,686
Exchange (losses)/gains on cash and cash equivalents		(38)	178	116
Cash and cash equivalents at the end of the period		20,121	7,487	4,406

NOTES TO THE ACCOUNTS

FOR THE SIX MONTHS ENDED 30 JUNE 2011

1.    Basis of Preparation and Accounting Policies

The interim financial report is unaudited and has been prepared using accounting policies consistent with International Financial Reporting Standards ('IFRS') as adopted by the EU and in accordance with IAS 34 'Interim Financial Reporting'.

2.    Publication of non-statutory accounts

The financial information for the six month periods ended 30 June 2011 and 30 June 2010 has not been audited and does not constitute full financial statements within the meaning of Section 240 of the Companies Act 1985.

The financial information relating to the year ended 31 December 2010 does not constitute a full financial statement within the meaning of Section 240 of the Companies Act 1985. This information is based on the Group's statutory accounts for that period. The statutory accounts were prepared in accordance with IFRS, received an unqualified audit report, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 237(2) or (3) of the Companies Act 1985. These accounts have been filed with the Registrar of Companies.  

3.    SEGMENTAL INFORMATION

Business Segments

At 30 June 2011 the Group is organised as a world-wide business comprising a single segment.

Geographic Segments

The Group's business operates in three main geographical areas. Revenue is allocated based on the country in which the customer is located.

	6 months ended 30 June 2011 (unaudited)			6 months ended 30 June 2010 (unaudited)
	Europe £'000	USA £'000	Asia £'000	Europe £'000	USA £'000	Asia £'000
Revenue	926	744	1,276	805	527	2,803

4.    EARNINGS PER SHARE

The calculation of earnings per share is based on the following losses and number of shares:

	6 months ended 30 June 2011 (unaudited)			6 months ended 30 June 2010 (unaudited)			Year ended 31 December 2010 (audited)
	Loss £'000	Number of shares '000	Pence per share	Loss £'000	Number of shares '000	Pence per share	Loss £'000	Number of shares '000	Pence per share
Basic & fully diluted	(3,842)	79,099	(4.86)	(3,218)	62,353	(5.16)	(7,212)	63,009	(11.45)

5.    FOREIGN CURRENCY TRANSLATION

The foreign currency translation differences included in the Consolidated Statement of

Comprehensive Income primarily relate to differences arising on the translation into pounds Sterling of a) the Group's net investment in Velocys whose assets and liabilities are denominated in US dollars and; b) goodwill and fair value adjustments arising from the acquisition of Velocys in 2008 which are also denominated in US dollars.

6.    RECONCILIATION OF MOVEMENT IN TOTAL EQUITY

	Called up share capital £'000	Share premium account £'000	Merger reserve £'000	Share-based payments reserve £'000	Retained earnings £'000	Total £'000
At 1 January 2011	638	45,469	369	4,849	(20,182)	31,143
Loss recognised for the period	-	-	-	-	(3,842)	(3,842)
Share issues	264	19,799	-	-	-	20,063
Employee share-based payments (IFRS2)	-	-	-	66	-	66
Exchange gains/ (losses)	-	-	-	-	(584)	(584)
At 30 June 2011	902	65,268	369	4,915	(24,608)	46,846

7.    RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES

	6 months ended 30 June 2011 (unaudited) £'000	6 months ended 30 June 2010 (unaudited) £'000	Year ended 31 December 2010 (audited) £'000
Operating loss	(4,258)	(3,793)	(8,210)
Depreciation and amortisation	621	657	1,315
Changes in working capital
- Trade and other receivables	(491)	25	666
- Trade and other payables	(409)	(183)	(1,353)
- Inventory	(64)	-	-
Share-based payments Other	66 20	169 7	410 2
Net cash consumed by operations	(4,515)	(3,118)	(7,170)

8.    Contingent Liabilities

During the first half of 2010, the Group's US subsidiary, Velocys, Inc. ("Velocys") received notification of the results of an audit of contract billings from the US Defence Contract Audit Agency. The audit relates to an examination of amounts billed to the US Government for a period ending 30 September 2005. This report details amounts of $1,267,000 which are stated as not being compliant with the terms of the contract. The Directors strongly refute the audit findings and believe they have evidence to support the claims Velocys made.

In August 2011, Velocys received notification of a potential civil claim by the United States against Velocys relating to this matter. The United States alleges potential damages, including fines, of up to $1,371,000. The United States Attorney has given Velocys the opportunity to present any information that it wants the United States to consider in respect to this claim. Velocys is in the process of preparing its response. Velocys believes it has a strong defence to the United States' allegations, and plans to work with the United States Attorney to resolve these claims.  

Furthermore, the contract relates to the period prior to acquisition of Velocys. Under the terms and conditions of the sale and purchase agreement for Velocys, there are warranty provisions which trigger a payment from the former owner of Velocys, the Battelle Memorial Institute, for the entire amount of claims which exceed $250,000.

Based on this the Directors have not recognised any liability.

In April 2010, Velocys filed a lawsuit in the US against Catacel Corp. ("Catacel"), a supplier of catalysts to CompactGTL plc ("CompactGTL"), claiming infringement of several of the Group's United States patents. In response, CompactGTL has challenged the validity of a small number of the Group's UK patents, and have requested re-examination in the US of a small number of the Group's US patents.

Whilst the outcome of these cases is not certain, the Directors are confident of the Group's infringement case against Catacel, as well as the validity of those of its patents which are being challenged. Furthermore, the Directors consider that even in the unlikely event of a successful challenge to the few patents in question, this would have no material detrimental impact on the Group's business or the overall strength of its patent portfolio.

As at the date of these financial statements, of the patents challenged by CompactGTL, none of the UK patents have been revoked; 3 of the US patents have already successfully passed re-examination with the remaining US re-examinations still pending. 

Costs incurred to date responding to this challenge have been expensed. However, given the nature of defending UK patent challenges, should its defence be unsuccessful, the Group may be liable for some of CompactGTL's UK legal costs (and vice versa). The Directors intend to vigorously defend the UK action should CompactGTL elect to continue this case. On this basis, no provision has been recognised in respect of this action.

The Group's policy is to always explore licensing opportunities for its IP where possible. Management will continue to seek business solutions that forward the Group's interests, in preference to resolution through legal means. 

 

END

 

 

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