Oxford Catalysts Group PLC Annual Report and Accounts 2010

Oxford CatalystsGroup PLCAnnual Reportand Accounts2010External RisksThe Group’s performance is also subject to externalmacroeconomic conditions and changes in factors such asexchange rates, interest rates, inflation and oil prices.These risks are managed through monitoring and analysis ofthe economic and external climate to ensure the Group hassufficient information to develop a good understanding of thepotential impact, and to develop potential mitigating policies.In addition, where possible, the Group looks to ensure itscontracts provide protection against adverse external factors.The oil price has a particular relevance for future demandsince a number of the Group’s products will provide solutionsfor the production of substitutes to oil, and it is likely thathigher oil prices will improve the economics of suchproducts. However, the Group considers that there arenumerous other drivers for future demand includingregulatory factors, security of supply, subsidies etc. whichmean that oil price alone is not the most significant factor,and therefore not an undue risk for the business.Financial RisksThe Group’s activities expose it to a number of financial risksincluding, credit risk, interest rate risk, liquidity risk andexchange rate risk. The use of financial derivatives isgoverned by the Group’s policies approved by the Board ofDirectors, which provide written principles on the use offinancial derivatives to manage these risks. At present theGroup does not use financial derivatives in the normal courseof business.The Group’s and the Company’s financial instrumentscomprise investments in subsidiaries, cash and cashequivalents, short-term investments, trade receivables andtrade and other payables and amounts held in escrow. Themain purpose of these financial instruments is the funding ofthe Group’s activities. It has been the Group’s policythroughout the year under review that no trading in financialinstruments shall be undertaken.Credit RiskThe Group’s principal financial assets are cash, cashequivalents and short-term investments, trade and otherreceivables. The Group’s credit risk is primarily attributableto its trade receivables, which are concentrated in a smallnumber of high value customer accounts. The Group haspolicies to manage this risk, including where applicable,carrying out relevant financial checks on customers,requiring letters of credit or advance payments.The credit risk on liquid funds is limited to counterparties(banks) with high credit ratings assigned by internationalcredit rating agencies. The Group has a treasury policydesigned to ensure that cash, cash equivalents and shortterminvestments are only placed with high credit ratedinstitutions and that the spread of such assets is sufficientthat it is not overly exposed to any one institution.Interest Rate RiskThrough the holding of cash and borrowings, the Group’sactivities expose it to the financial risk of changes in interestrates. A proportion of interest bearing assets are held atfixed rate to ensure certainty of cash flows. The Group’sborrowings all incur interest charges at a fixed rate.Liquidity RiskGroup policy is to maintain sufficient cash balances to meetits anticipated requirements over a two to three year period.Funds are placed on time deposits with cash balancesavailable for immediate withdrawal if required.Exchange Rate RiskA significant part of the Group’s activities are located in theUS and the funding requirements for these are denominatedin US dollars. In order to minimise exposure to foreignexchange volatility, the Group holds a portion of its liquidassets in US dollar denominated accounts. This provides anatural hedge to protect against the foreign exchange impacton its US denominated cash flows.In the consolidated accounts of the Group, there aresignificant US dollar denominated goodwill and acquiredintangible assets relating to the acquisition of Velocys. Thesebalances are subject to exchange rate fluctuations whichresult in movements in reserves; however, the Directors donot consider it necessary to hedge such exchange ratemovements since they do not have any impact on the cashposition of the Group.Future DevelopmentsThe Board aims to continue its corporate strategies as setout in the Chairman’s Statement and Chief Executive’sReport.Group Development ActivitiesThe Group continues to invest in development. The catalystsand microchannel technologies currently being developed areexpected to make significant contribution to the growth of thebusiness. The Directors regard investment in development asimportant for success in the medium to long term.DirectorsThe Directors of the Group as at 31 December 2010, whoserved throughout the year and up to the date of signing,unless otherwise indicated, were as follows:7