Company Profile

Business Description

Catalytic Solutions, Inc. is a vertically integrated global manufacturer and distributor of emissions control systems and products, focused in the heavy duty diesel (HDD) and light duty vehicle (LDV) markets. Utilizing our proprietary patented Mixed Phase Catalyst (MPC^®) technology, our emissions control systems and products are designed to deliver high value to our customers while benefiting the global environment through air quality improvement, sustainability and energy efficiency.

Catalytic Solutions, a California corporation formed in 1996, has over 25 years of experience in the HDD systems market through our HDD Systems division and our proven technical and manufacturing competence in the LDV catalyst market meets auto makers’ most stringent requirements. Our Catalyst division has supplied over 9 million catalyst parts to LDV customers since 1996.

Catalytic Solutions’ business is organized into two divisions:

• HDD Systems division.  The HDD Systems division is a leading environmental business specializing in the design and manufacture of verified exhaust emissions control solutions. Globally, the HDD Systems division offers a full range of products for the original equipment manufacturer, occupational health driven and verified retrofit markets through Catalytic Solutions’ Engine Control Systems (ECS) subsidiary. These ECS-branded products are used to reduce exhaust emissions created by on-road, off-road and stationary diesel and alternative fuel engines including propane and natural gas.

• Catalyst division.  The Catalyst division houses our proprietary MPC^® technology. This technology enables us to produce catalyst formulations for gasoline, diesel and natural gas induced emissions that offer superior performance, proven durability and cost effectiveness for multiple markets and a wide range of applications. Using our proprietary MPC^® technology, the Catalyst division has produced a family of unique high-performance catalysts — with base metals or low- and zero-platinum group metal (PGM)  content — to provide increased catalytic performance and value for technology-driven automotive industry customers.

Catalytic Solutions’ common stock has been listed on the AIM of the London Stock Exchange (AIM: CTS and CTSU) since November 22, 2006 and the Company currently has operations in the U.S., Canada, France, Japan and Sweden as well as an Asian joint venture.

Market Overview

Governments around the world have adopted tighter emission standards related to nitrogen oxide and particulate matter from diesel-powered vehicles and various regulatory programs have been put in place to address the millions of diesel engines already in use.

According to the U.S. Environmental Protection Agency (EPA), reducing emissions from diesel engines is one of the most important air quality challenges facing the country today. The EPA established the National Clean Diesel Campaign (NCDC) to promote diesel emission reduction strategies. The NCDC includes regulatory programs to address new diesel engines as well as innovative programs to address the millions of diesel engines already in use. Diesel engines power the movement of goods across the nation, help construct buildings, help build roads, and carry millions of children to school each day. While diesel engines provide mobility and are critical to the nation’s economy, exhaust from diesel engines contains pollutants that negatively impact human health and the environment. Diesel engines emit large amounts of nitrogen oxide, particulate matter and air toxics, which contribute to serious public health problems. The EPA estimates that more than 20 million diesel engines in operation today do not meet the new clean diesel standards, yet the engines can continue to operate for 20 to 30 years.

Current techniques for diesel engines to meet emissions standards require the use of several methods, including diesel oxidation catalysts, catalyzed diesel particulate filters, and selective catalytic reduction systems.

Similar standards have been adopted worldwide to regulate the emissions of nitrogen oxide, particulate matter, carbon monoxide and carbon dioxide from motor vehicles. In the U.S., emissions standards are managed by the EPA. The state of California has special dispensation to promulgate more stringent vehicle emissions standards, and other states may choose to follow either the national or California standards.

According to a 2005 EPA study, the largest emission of nitrogen oxide came from on-road motor vehicles, with the second largest contributor being non-road equipment (mainly gasoline and diesel engines). The study also lists on-road vehicles as the second largest source of volatile organic compounds at 26%, with non-road equipment at 19%. According to the same study, on-road vehicles were responsible for 60% of carbon monoxide emissions and motor vehicle use is increasing. Nationwide, three-quarters of carbon monoxide emissions come from on-road motor vehicles (cars and trucks) and non-road engines (such as boats and construction equipment). Control measures have reduced pollutant emissions per vehicle over the past 20 years, but the number of cars and trucks on the road and the miles they are driven have doubled in the past 20 years. Vehicles are now driven two trillion miles each year in the U.S. With more and more cars traveling more and more miles, growth in vehicle travel may eventually offset progress in vehicle emissions controls.

Emission control catalysts eliminate dangerous engine pollutants from a range of fuels, including gasoline, diesel, natural gas and alternative fuels.

Catalytic Solutions’ target markets include:

• Diesel.   U.S. and European legislation requires significant reduction in particulate matter and nitrogen oxide emissions from off-road diesel vehicles to be phased in through 2015, including reductions in particulate matter, which began in 2009. Catalysts using traditional technology will require high loadings of platinum group metals to comply with these standards, and diesel engine manufacturers are very concerned about the high price of these units. Additionally, original equipment manufacturers complying with existing on-road legislation will be looking for more cost-effective suppliers for existing technology applications as well as potential expansion into urea-based selective catalytic reduction technologies. This growing market is highly driven by increasingly stringent worldwide regulatory standards and is frequently funded by both public and private sources for early, voluntary compliance.

• Automotive.   Since 2005, 100% of new cars sold in the U.S. and over 90% of all new cars sold worldwide have been equipped with a catalytic converter as the principal means of meeting emissions standards. The regulations controlling auto emissions in countries throughout the world have become increasingly restrictive and will continue to tighten in the future.

Our catalysts and HDD systems, which utilize our proprietary MPC^® technology, provide customers with high value-added, cost-effective and efficient emission control systems. We are a vertically-integrated provider of emission control systems whose customers benefit from purchasing systems where the embedded catalyst technology is optimized for system performance.

Competitive Advantages

Catalytic Solutions’ proprietary patented MPC^® technology was developed in response to the need for a more cost-effective solution for automotive catalytic converters as emission standards around the world continue to tighten. Traditional automotive catalytic coating technologies currently utilize high loadings of platinum group metals — platinum, palladium and rhodium — to satisfy performance requirements mandated by governmental regulations, resulting in high costs to the automotive original equipment manufacturers. Platinum group metals have become increasingly expensive over the past 15 years due to growing demand and limited supply. In 2009, the average troy ounce costs of platinum group metals were $263 for palladium, $1,203 for platinum and $1,442 for rhodium compared to the base metals used in certain of Catalytic Solutions’ catalysts that cost less than $1 per troy ounce. Our technology offers performance equal to or exceeding that of competing catalytic coatings with a significant reduction in platinum group metal loadings. In addition, increasingly stringent emission standards for diesel engines and gas turbines continue to drive demand for superior catalytic solutions in the diesel and energy markets.

We believe that our technology and products represent a fundamentally different emission control solution, which delivers the following key benefits:

• Broad Portfolio of Verified HDD systems.   We offer one of the industry’s most comprehensive portfolios of system products that have been evaluated and verified (approved) by the EPA and the California Air Resources Board (CARB) for use in engine retrofit programs, as well as in several European countries. We have a thorough understanding of the verification process and the demonstrated ability to get products broadly verified specifically for the retrofit market. 

• Superior Catalyst Performance.   Our proprietary MPC^®  technology enables us to produce catalytic coatings capable of significantly better catalytic performance than previously available. We have achieved this demonstrated performance advantage by creating a catalyst using unique nanostructures with superior stability under prolonged exposure to high temperatures. This nanostructure technology enables the oxide catalysts in its compounds to resist sintering, or fusing, thereby maintaining a high catalytic surface area. As a result, in HDD and automotive applications, our catalyst formulations are able to maintain high levels of performance over time using substantially lower platinum group metals than products previously available. 

• Significant Cost Advantage.   In the automotive market in particular, where platinum group metal costs represent a large portion of manufacturers’ costs, a significant benefit of our catalyst technology is that it offers performance equal to or exceeding that of competing catalytic coatings with a 30 to 80% reduction in platinum group metal loadings. 

• Wide Range of Catalyst Applications.   Our proprietary technology is a design approach, as opposed to a single chemical formulation. We have developed our technology since inception as a platform that can be tailored for a range of different industrial applications. Specifically, our formulations can be tailored in two distinct ways. First, the oxide compounds used in our formulations can be adapted for specific applications by adding to them, or doping them with, a wide range of chemical elements, a process known as tuning. By contrast, the catalyst offerings of our competitors can be tuned only by adjusting the platinum group metal content. Second, we are able to vary the mixtures of compounds to create customized solutions for specific applications. These two independent design mechanisms allow for customization and optimization for different vehicle platforms within the auto industry, complex HDD equipment for the original equipment manufacturer, occupational health driven and retrofit markets, and for completely different applications in the energy sector, such as selective catalyst reduction nitrogen oxide control for industrial and utility boilers, process heaters, gas turbines and generator sets. We offer a full range of EPA and CARB verified HDD emission control products. 

• Proven Durability.   Our products and systems have undergone substantial laboratory and field testing by our existing and prospective customers and have demonstrated their durability and reliability in a wide range of applications in actual use for many years. In addition, our products and systems have achieved numerous certifications and match or exceed industry standards. 

• Compatibility with Existing Manufacturing Infrastructure and Operating Specifications.   Catalytic converters using our catalysts are compatible with existing automotive manufacturing processes as well as specific vehicle operating specifications. There is no need for our customers to change their manufacturing operations, processes, or how their products operate, in order to utilize our proprietary technology. Our HDD emission control products and solutions are engineered to each customer’s specific application and designed to deliver custom and industry-leading solutions that meet or exceed environmental mandates.

Strategy

Our strategy is to grow a diversified, vertically integrated emissions control business. We are focused on certain segments that will benefit most from our unique catalyst technology and strengths in the HDD emission systems market. Over the last several years, our Catalyst division has made several advances in low- and zero-PGM technology, as well as in the ability to tailor catalyst performance to particular environments. In addition, our catalyst technology has been proven to provide benefit outside the traditional LDV and gasoline markets such as in the HDD market. Our HDD Systems division has a proven track record spanning several decades and has one of the broadest ranges of EPA and CARB verified emission systems and products available. Vertical integration enables us to offer systems products incorporating our customized catalysts. This ability is unique in the emission control industry.

Vertical integration

We believe that our strategy of vertical integration provides several advantages in each of our divisions. These advantages include reduced manufacturing and delivery times, lower costs, direct sourcing of raw materials and quality control. We also believe that it offers significant added value to our customers by providing a full range of vertically integrated services including catalyst design and customization, subsystem concept design and application engineering, product prototyping and development, and efficient pre-production, short-run and high volume manufacturing. We believe that our vertical integration differentiates us from many of our competitors and provides value to our customers who rely on us to be an integrated supplier. We intend to continue to leverage our vertically integrated services to create greater value for our customers in the design and manufacture of our products.

Capitalize on growing market for heavy duty diesel systems

Our HDD Systems division operates in a market that is expected to grow substantially over the next decade as new emission targets for nitrogen oxide reduction are legislated in North America and Europe, and similar legislation is enacted in major countries such as China and India. In addition, we expect to benefit from the trend toward additional government spending to reduce emissions as evidenced by the American Recovery and Reinvestment Act of 2009 (commonly referred to as the “Stimulus Bill”). With a broad array of existing products, new products in the pipeline and with the benefit of our MPC^® catalyst technology, we expect to benefit from this market growth.

Focused growth of catalyst business

Our Catalyst division is focused on gaining more business from existing LDV customers and selectively acquiring new customers who value the benefits of our technology. In addition, this division will increase its presence in the growing off- and on-road HDD catalyst markets through organic growth and key partnerships. The development and production of catalysts to supply the HDD Systems division is a top priority.

Partnerships and acquisitions

Our HDD Systems division has been strengthened through the expansion of our North American distribution channel and through partnerships with major companies operating in the on-road HDD market. We may selectively enter into new partnerships to acquire new technologies or distribution capabilities. In addition, given the fragmented nature of this industry, we expect to target complementary businesses for acquisition.