TAX.L Regulatory News (TAX)

30 June 2014

Eco City Vehicles PLC

 ("ECV" or "the Group")

Audited results for the year ended 31 December 2013

Eco City Vehicles PLC, the co-developer and supplier of the London licensed Mercedes Vito taxi, announces its audited results for the year ended 31 December 2013.

Financial highlights

· Total revenues increased by 2% to £30.9m (2012: £30.5m)

· Gross margin increased to 14.9% (2012: 14.5%)

· EBITDA before non-recurring items increased to £1.0m (2012: £0.8m) primarily due to an increased contribution from the Group's intellectual property subsidiary One80 Ltd.

· Profit before tax excluding non-recurring items improved to £0.2m (2012: Loss £0.2m)

· Non-recurring income of £0.8m was recognised, due to the crystallisation of the contingent asset related to Cabvision Ltd's VAT claim of £2.2m less an impairment of goodwill of £0.9m, and restructuring and vehicle warranty-related costs

· Profit before tax increased by £2.0m to £1.0m (2012: loss of £1.0m)

· Net debt (being cash and cash equivalents together with long and short term borrowings) rose to £3.6m (2012: £1.0m) due to the addition of the Company's rental fleet

Operating highlights

· Sales of new Vito taxis fell by £0.5m to £19.2m (2012: £19.7m)

· Total new Vito licences fell by 5 units to 556 vehicles (2012: 561)

· Increased share of the new London licensed taxi market to 44% (2012: 40%) based on Transport for London data

· Used taxi sales also fell by £0.4m to £4.6m (2012: £5.0m) as vehicle units fell from 344 to 267, but with a significantly higher average value

· Rental fleet was implemented with 45 vehicles out on rent by year end and 30 more acquired in December 2013 for rental in early 2014

 2014 Outlook

· Trading has slowed down in the first five months of 2014, with new unit sales of 124 units (2013: 272 units). Expected new entrants to the London taxi market, the development of phone apps, ambiguity over future changes to regulations, and an announcement by Mercedes Benz of a free upgrade of the EU5 rear wheel steer system have combined to create challenging market conditions.

· Due to the difficult trading conditions, the cash position is being carefully managed and additional funding is expected to be required. The position is more fully disclosed in the Directors' Report and in note 2 to the financial statements.

· Diversification into complementary niche markets is being pursued as part of the long term growth strategy of the group

Commenting on the results, John Swingewood, Chairman of Eco City Vehicles, said:

"Strong sales of new Mercedes Vito taxis, the implementation of a rental fleet, and sharper focus on the operational performance of the business, led to another improvement in the result in 2013. We continued to gain market share, and increased underlying EBITDA. Trading in 2014 has been challenging but we have laid the foundations for long term growth both through acquisition and through the rental fleet. Additional funding is expected to be required in 2014 due to the trading conditions."

A copy of the Company's annual accounts is now available on the Company' website and will shortly be posted out to shareholders.

Enquiries:

CHAIRMAN'S REVIEW

Introduction

ECV delivered an acceptable performance as the Mercedes Vito business remained solid during the year, and the parts and after-sales activity on London Taxi International business improved.

The UK is our principal market and splits into four key sectors: new taxi sales, after-sales services, used vehicle sales and vehicle parts distribution,and during the year the Company have also entered the taxi rental market.

Our market share in the new London taxi market increased to 44% (2012: 40%) even though the London licensed taxi market as a whole contracted in 2013. The used taxi market remains healthy, with many drivers preferring a shorter term commitment in light of uncertainty around the impact of changing emissions requirements in the next few years, alternative manufacturers entering the market, and uncertainty over the impact of apps such as Uber..

In the first quarter of 2014 the aftersales division has gained Mercedes Benz bodyshop approval and PAS125 certification, opening far greater market opportunities than previously.

Trading Performance

Group revenues increased by 2% to £30.9m (2012: £30.5m), driven by growth in parts sales, increased licence fee income, and the start-up of the rental fleet.

Group EBITDA before non-recurring items increased by £0.2m to an EBITDA of £1.0m (2012: EBITDA £0.8m). The profit before tax of £1.0m (2012: loss £1.0m) was supported by a net non-recurring income of £0.8m (2012: loss £0.8m) mainly in relation to a recovery on a VAT claim by Cabvision Ltd, the benefit of which was assigned to KPM (UK) Taxis PLC, disclosed as a contingent asset in the 2012 annual report, less an impairment of goodwill in the One80 investment.

Net debt (being cash and cash equivalents together with long and short term borrowings) increased by £2.6m to £3.6m (2012: £1.0m), due to the addition of the rental fleet of 75 units during the year.

New Taxis

Revenues from new taxi sales were £19.2m (2012: £19.7m), with sales of 543 units (2012: 563 units).

Overall new Vito taxi licenses reduced by 5 units to 556 vehicles in 2013 compared to 561 in 2012. This saw the Group capture 44% share of the new taxi market compared to 40% in 2012. The total number of taxis licensed in London was 1,260 in 2013 compared to 1,461 in 2012, a fall of 14%.

Gross profit before volume bonus and commission reduced by £0.1m to £1.2m compared to £1.3m in the prior year, mainly due to a higher proportion of sales to fleet customers at slightly lower average margins than ordinary retail sales. However, volume bonuses and commissions, included in Other Income on the Income Statement, were much stronger than 2013, so the overall profitability from new vehicles increased by £0.2m.

Used taxis

Used taxi sales decreased by 29% to 267 units (2012: 344). However, the higher proportion of Vito taxis within the sales mix caused the average sales value per unit to rise dramatically, so in value terms sales only fell to £4.6m (2012: £5.0m)

After Sales Division - Service, Bodyshop and Parts

Our parts distribution business performed strongly with sales rising to £3.5m (2012: £2.5m), due both to the introduction of Mercedes parts in 2012, and a significant recovery in the LTI parts distribution business during 2013. Gross margin fell by 2% from 24% to 22% as part of the strategy for growing the business, but the overall contribution of the parts business grew by £0.1m.

After-sales saw a decrease in revenues of £0.1m to £1.5m (2012: £1.6m) and a fall in performance to a loss of £0.3m (2012: £0.1m loss) respectively.

The Group has reduced its service and bodyshop cost base, and is now pursuing opportunities for sales growth, which in 2014 have included obtaining Mercedes Benz and PAS125 bodyshop approvals, and winning servicing business for a fleet of 100 ambulances, as part of our diversification into the wider city vehicles market.

One80 Limited

A further improvement was achieved at One80, ECV's intellectual property subsidiary, supported by higher production levels of the Euro V Vito. One80's revenue is derived from a licence fee per production unit, with a guaranteed minimum number of units per annum. Its profit contribution for the year before non-recurring items was £0.4m (2012: £0.1m). However, an impairment of £0.9m was recognised in the carrying value of the goodwill on the investment in One80. The key causes of this were a reduction in the expected cash generation from One80 in 2014 due to reduced production and to warranty-related costs, and a reduction from 10 to 5 years in the cash projections considered in calculating the net present value of cash flows.

Post Balance Sheet Events

The contingent asset recognised in the 2012 accounts for the assignment of Cabvision Ltd's VAT recovery became certain in 2013, and is recognised in the 2013 accounts as a non-recurring profit of £2.2m. The timing of the related cash flows was uncertain due to ongoing discussions about the recovery of legal costs. In April 2014 KPM entered into an agreement under which the benefit of the VAT recovery was assigned to Cabvision Network Limited ("Cabvision Network"). The consideration for the purchase was £0.6m cash, of which £0.1m was be used to reduce the Pension Scheme Loan to £1.2m, together with the novation to Cabvision Network of the Pension Scheme Loan and Global Meter Systems Limited arrears. These novated liabilities totalled £1.2m and £0.4m respectively. Following completion of this deal, the Group has no remaining external borrowings other than those secured against specific vehicles and a factoring agreement over segments of the trade debtors.

Management, Employees and Board

On 24 June 2013 Jonathan Moritz was appointed to the Board as Finance Director, replacing Ran Oren who was Interim Finance Director. Jonathan is a Chartered Accountant with 19 years of commercial experience in the automotive and aerospace industries.

Steve McCarthy, the Chief Operating Officer, left the Group in October 2013. Steve worked for the Group for 17 years, and I would like to thank him for his commitment to the Group's performance and development during that time. He was retained by the Group as a consultant in April 2014 following the resignation of Trevor Parker.

In March 2014 Trevor Parker resigned from the Board as Chief Executive Officer to pursue other interests. Ran Oren, previously the Group's Interim Finance Director, was subsequently appointed to the Board as a Non-Executive Director. During the recruitment process for a new CEO responsibilities will be covered by the current board.

Future Outlook

Whilst pleased with the continued improvement in performance over the last year and the growth in underlying EBITDA, the trading outlook in 2014 is more difficult, in part caused by uncertainty over potential new entrants to the market and concerns over future emissions requirements. This has caused a substantial slow-down in new vehicle sales and vehicle production.

Diversification into complementary niche markets is being pursued as part of the long term growth strategy of the group. The Group created its own taxi rental fleet in 2013, and the rental fleet has grown to over 70 vehicles during the first half of 2014. The Group is actively pursuing acquisitions as part of this strategy.

The turnaround is by no means complete and the current financial year has its risks, as more fully disclosed in the Directors' Report and in note 1.

John Swingewood

Chairman

30 June 2014

 Strategic Report

Principal Activities

The Eco City Vehicles group ("the Group") owns intellectual property used for the conversion of Mercedes Benz vans into licensed taxis, and runs a licensed taxi dealership, with related driver solutions and After-Sales services, from its main site in East London. The dealership's activities comprise new vehicle sales, used vehicle sales, vehicle servicing, vehicle parts distribution, taxi meter fitting and calibration, and a bodyshop repair centre. The Group also runs its own taxi rental fleet, with around 45 vehicles out on hire by 31 December 2013, which has risen to 75 vehicles at 30 June 2014. The new vehicle business operates under a dealer agreement with Mercedes Benz covering Vito taxis. Its servicing and parts activities operate under dealer agreements both with Mercedes Benz and with the London Taxi Company. The servicing and parts agreement with Mercedes Benz covers commercial vehicles as well as taxis. The Mercedes Benz Vito taxi is converted for Mercedes Benz by a 3rd party vehicle conversion company which operates under licence from the Group's intellectual property subsidiary One80 Ltd.

Business Strategy

The Group's strategy is to use its expertise in the licensed taxi market as a platform for growth and diversification into complementary markets. This growth and diversification will be achieved by a combination of acquisition and organic growth, with entry into the taxi rental market in 2013 being a key step towards organic growth.

The London licensed taxi market is unsettled currently due to a variety of factors. These include the expected arrival of new entrants into the licensed taxi market, the growth of competing transport solutions, the development of phone apps, and the changing regulatory requirements. The Group's plan is to evolve rapidly in conjunction with changing conditions in the market and the broader environment. This will involve maintaining and expanding the base business, but also moving into less traditional segments of the market, such as technology-based solutions for transporting people.

2013 Results & Key Performance Indicators

Group revenues increased by 2% to £30.9m (2012: £30.5m), driven by growth in parts sales, increased licence fee income, and the start-up of the rental fleet.

Group EBITDA before non-recurring items increased by £0.2m to an EBITDA of £1.0m (2012: EBITDA £0.8m). The profit before tax of £1.8m (2012: loss £1.0m) was supported by a net non-recurring income of £1.6m (2012: loss £0.8m). The largest non-recurring item relates to a recovery of £2.2m on the VAT claim by Cabvision Ltd, the benefit of which was assigned to KPM (UK) Taxis PLC, disclosed as a contingent asset in the 2012 annual report. The main non-recurring charge was an impairment of £0.9m in the goodwill related to the investment in One80. The key causes of this were a reduction in the expected cash generation from One80 in 2014 due to reduced production and to warranty-related costs, and a reduction from 10 to 5 years in the cash projections considered in calculating the net present value of cash flows. The next largest non-recurring cost of £0.4m consists of warranty costs previously paid out for which a counter-claim for recovery has been launched against the 3rd party vehicle conversion company. Other non-recurring costs include £0.1m for directors' loss of office payments, and £0.1m of consultancy costs to conclude the financial restructuring process effected in 2012.

Note: The amounts shown in the table do not agree to those in the Consolidated Statement of Comprehensive Income due to elements being included within the profit of individual segments. Prior year has been restated to reflect a change in management accounting allocations in the sales, aftersales and parts divisions.

Sales of new Vito taxis fell by 3% in the period under review to £19.2m (2012: £19.7m) but margin increased to 9.9% (2012: 8.3%) due to strong volume bonus and high finance penetration. New unit sales fell from 563 units from 543 units. Used vehicle sales reduced by 7% to £4.6m (2012: £5.0m). Used units fell from 344 units last year to 267 units in 2013, but the average value of each sale increased greatly due to the higher proportion of Mercedes Benz vehicles received as part exchanges.

The parts distribution business performed strongly with sales rising to £3.5m (2012: £2.5m), due both to the introduction of Mercedes parts in 2012, and to a significant recovery in the LTI parts distribution business during 2013. Gross margin fell slightly from 23.6% to 21.7% as part of the strategy for growing the business, but the overall contribution of the parts business grew by £0.1m.

After-sales saw a decrease in revenues to £1.5m (2012: £1.6m) and a fall in performance to a loss of £0.3m (2012: £0.1m loss) respectively.

The Group has reduced its service and bodyshop cost base, and is now pursuing opportunities for sales growth, which in 2014 have included obtaining Mercedes Benz and PAS125 bodyshop approvals, and winning servicing business for a fleet of 100 ambulances.

One80 Ltd sales grew by 18% to £2.0m (2012:£1.7m) with production increasing to 583 units (2012: 558).

Group Financial Position & Cash Flow

Cash balances at year end were £0.9m (2012: £0.6m) while net debt increased by £2.6m to £3.6m (2012: £1.0m). The increase in Group debt was mainly caused by the acquisition of the new rental fleet, mainly under hire purchase arrangements.

The Group has total borrowing facilities for vehicle stock of £5.75m, with £2.6m being utilised at the year end and recognised in trade creditors (2012:£4.0m). It also has rolling facilities of £1.5m for its rental fleet, in addition to £1.0m borrowed under hire purchase arrangements against 30 specific vehicles acquired for rental. In addition the Group had a loan agreement with KPM-UK Taxis Plc Discretionary Pension Scheme ("Pension Scheme"), whose beneficiaries are Peter DaCosta, Michael Troullis and Keith Marder. The Pension Scheme held a first fixed and floating charge over the assets of the Group. Transactions with the Pension Scheme are classified as related party transactions for the purposes of the AIM Rules for Companies. The outstanding balance on the Pension Scheme loan as at 31 December 2013 was £1.17m (2012:£1.25m). This loan has been settled in full in 2014, under arrangements described in the section on Post Balance Sheet events.

Cash inflow from operating activities was £0.2m (2012: outflow £0.2m).

The Group had a net cash outflow of £2.7m from investing activities (2012: inflow £1.5m) representing predominantly the Group's investment in its new rental fleet. The Group had a cash inflow from financing activities of £2.8m (2012: outflow £0.9m) representing mainly the hire purchase funding for the rental fleet.

On 7 September 2012 the Company agreed to acquire the benefit of a £250,000 short-term loan made to One80 by Cabvision Network Limited. The acquisition of the benefit of the One80 Loan by ECV will ensure that the One80 Loan and the related security over One80's assets are under the control of ECV as majority shareholder rather than an external party. As a result ECV will control the enforceability of the loan and related security over the relevant assets of One80, which are important to the business of ECV. A balance of £100,000 remained outstanding on the loan at 31 December 2013.

Additional funding will be required in 2014, as more fully disclosed in the Directors' Report and in note 2 to the financial statements.

Balance Sheet

Working capital

Net working capital (being stock, trade and other debtors and trade and other creditors) increased by £2.4m in the year (2012: increase £0.7m) mainly due to the recognition of the £2.2m debtor for the non-recurring profit in trade and other debtors at year end.

Inventory

Inventory fell by £1.2m to £2.9m due to the reduction in consignment stock, partially offset by higher used vehicle stock. The fall in consignment stock was caused by the registration of 30 new vehicles for the rental fleet during December 2013, leading the vehicles to transfer from consignment stock to fixed assets. The rise in used vehicle stock related to the conclusion of several fleet sales deals including used taxis in part exchange, during December 2013.

Goodwill

Goodwill on the investment in One80 reduced from £1.4m to £0.6m, due to an impairment recognised in the year. The key causes of this were a reduction in the expected cash generation from One80 in 2014 due to reduced production and to warranty-related costs, and a reduction from 10 to 5 years in the cash projections considered in calculating the net present value of cash flows (see note 12).

Intangible assets

The Group has capitalised its design and development costs for the Vito Taxi and its patented rear wheel turning technology and is amortising these costs over the expected life of the development. To date £1.7m has been capitalised and the carrying amount is £0.7m (see note 11).

Property, plant and equipment

Property, plant and equipment increased from £0.6m to £3.2m in the year. The key element of this growth was the acquisition of 75 vehicles for the new taxi rental fleet, most of which are financed on hire purchase arrangements which are reflected in increased borrowings.

Contingent Liability

The Group's intellectual property subsidiary One80 Ltd is defending a legal claim from its licensee, in respect of vehicle warranty claims and a potential upgrade programme. One80 denies liability in relation to the claim in its entirety and has launched a counterclaim against the licensee.

Principal Risks & Uncertainties

The Board of Directors continuously identify, monitor and manage potential risks and uncertainties relating to the Group. The risks are inherent in all business. The list below sets out certain risk factors which could have an impact on the Group's long term performance. The list is not presumed to be exhaustive, and by its nature is subject to change.

The main risks arising from Group's operations are credit risk, interest rate risk, liquidity risk, competition risk, dependence on key personnel, loss of franchise dealerships, and breakdown of internal control due to fraud or error. The Directors review and agree policies for managing each of these risks and they are summarised below:

Credit risk

The Group's credit risk is primarily attributed to trade and other receivables. The maximum credit risk exposure of the Group comprises the amounts presented in the balance sheet that are stated net of provisions, where appropriate. A provision is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of future cash flows. The Group does not consider its counterparties to be a significant credit risk.

Interest rate risk

The main risk arising from the Group's cash deposits and borrowings is changes in interest rates. The Board's policy toward cash deposits is to deposit cash short term in interest bearing bank deposit accounts.

Liquidity risk

The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.

Short term flexibility is achieved through the current stocking facilities with Mercedes-Benz. Further information on financial risks is in note 19.

Competition risk

The dominant market sector for Group revenue is the selling and servicing of London taxis produced by Mercedes-Benz and London Taxi International. The Group's subsidiary, KPM-UK Taxis PLC (KPM) is the sole appointed distributor of the Mercedes Vito Taxi within London and this limits the extent of competition risk, subject to legislation maintaining the conditions of fitness. One80 Limited, the Group's subsidiary, owns the intellectual property rights for the rear wheel steer technology which enables the Mercedes-Benz Vito to meet the conditions of fitness and hence provides a barrier to entry for the regulated markets. Nevertheless should another manufacturer produce a vehicle that meets the Conditions of Fitness of the Public Carriage Office of Transport for London, or if the Conditions of Fitness regulations are reduced, then KPM would face additional competition for London taxi sales. Such competition would represent a material risk. Nissan have announced the launch of a small taxi for the London market, and this vehicle is expected in the first quarter of 2015. The Group expects a new version of the Mercedes Vito Taxi to be launched in late 2015. Additionally, there is a risk that the next generation of the Mercedes Benz taxi will be redesigned in a way which will reduce the extent of One80 Ltd's intellectual property included in it.

Dependence on key personnel

The Group depends upon the expertise and continued service of key executives and other personnel. The Group ensures that the key personnel are retained by offering competitive pay and providing long term incentives through share options.

Loss of franchise dealership

The Group aims to maintain a strong relationship with Mercedes Benz, and to make every possible effort to maximise sales of Mercedes Benz Vito taxis, to minimise the risk of losing its dealership agreement with Mercedes Benz. Currently after-sales activity relating to LTI vehicles forms a significant proportion of the revenue for the after-sales segment, the loss of which would require restructuring of operations.

Rental vehicles

The Group's rental vehicles are generally rented out on 1 year terms, but are maintained and insured by the Group. Drivers are required to visit weekly to pay their rental charges. To manage its physical and credit risks the company, the Group insists on a standard contract which requires the driver to leave his original taxi licence with the Group, and to make him responsible for insurance excess. The Group controls the taxi meter so that the vehicle needs to be brought in each week for the meter to continue functioning.

Advances in technology and design

The Group earns a revenue stream from licensing its intellectual property, which covers both engineering and design elements which are incorporated into the current Mercedes Benz Vito taxi. There is a risk that the value of intellectual property is diminished by rapid engineering advances or fundamental changes in design, or by other parties seeking to avoid their obligations with respect to the intellectual property. This risk is managed by ensuring that intellectual property is only licensed subject to agreements which minimise the risk of misuse or lack of confidentiality, and by monitoring the market closely to ensure any misuse faces a rapid legal response.

Internal control

The Group does not employ an internal audit team but ongoing review of systems and adherence to these systems is undertaken by the finance team and reviewed by Directors.

Future Outlook

Whilst we are pleased with the continued improvement in performance over the last year and the growth in underlying EBITDA, the trading outlook in 2014 is more difficult. This is in part caused by uncertainty over potential new entrants to the market and concerns over future emissions requirements. This has caused a substantial slow-down in new vehicle sales and vehicle production. Diversification into complementary niche markets is being pursued as part of the long term growth strategy of the group. The Group created its own taxi rental fleet in 2013, and the rental fleet has grown to over 70 vehicles during the first half of 2014. The Group is actively pursuing acquisitions as part of this strategy.

Additional funding is expected to be required in 2014, as more fully disclosed in the Directors' Report and in note 2 to the financial statements.

The Strategic report was approved by the Board on 30 June 2014 and signed on its behalf by:

Jonathan Moritz

Finance Director

Company number 04998151

eco city vehicles plc

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013

eco city vehicles plc

Consolidated Statement of Financial Position

As at 31 December 2013

Company number 04998151

eco city vehicles plc

Consolidated Statement of Changes in Equity

As at 31 December 2013

eco city vehicles plc

Consolidated Statement of Cash Flows

For the year ended 31 December 2013

1. Accounting policies

The principal accounting policies adopted in preparation of the Group's financial statements are set out below.

Basis of preparation

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), this announcement does not contain sufficient information to comply with IFRSs.

Liquidity Risk & Going concern

The financial statements have been prepared on the going concern basis which assumes that the Group will have sufficient funds available to enable it to continue to trade for the foreseeable future.

The Group has prepared detailed rolling forecasts taking account of actual results to date and current information on trading on a prudent basis. These forecasts demonstrate that additional funding is expected to be required, due to the difficult prevailing trading conditions. However, the VAT recovery transaction has substantially strengthened the Group's balance sheet, leaving it free of external borrowings other than hire purchase commitments for the rental fleet. The trading conditions are expected to improve significantly in 2015, and the Group is also actively pursuing strategic initiatives which would greatly increase its scale and spread its trading risk.

The Group is already in discussions with its stakeholders and other potential funders in order to secure the additional funding it requires, but the funding is not yet in place. However, the directors consider there to be a reasonable prospect that this funding will be secured, and therefore that it is appropriate to prepare the annual accounts on a going concern basis.

If the Group is unable to secure additional funding, it may be unable to realise its assets and discharge its liabilities in the normal course of business.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The financial statements do not include the adjustments that may be required if the Group was unable to continue as a going concern.

Basis of consolidation

The financial statements incorporate the financial statements of the Group and subsidiaries controlled by the Group made up to the year ended 31 December 2013.

Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition.

The results of subsidiaries acquired or disposed of during the year are included in the Consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-Group transactions, balances, income, expenses and unrealised gains are eliminated when preparing the historical financial information. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Business combinations

Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (r2008) are recognised at their fair value at the acquisition date.

The Group has not applied IFRS 3 (r2008) "Business Combinations" retrospectively to business combinations prior to 1 January 2010.

For business combinations completed on or after 1 January 2010, cost comprised the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit and loss. For business combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

2. Operating loss

Operating loss has been arrived at after charging/ (crediting):

3. Non-recurring items

The operating profit for the year ended 31 December 2013 of £2.1m in total is stated after non-recurring items totalling £1.6m shown below

In 2013 Cabvision Ltd, a former related party, won a VAT claim with HMRC for which the net proceeds were assigned to KPM-UK Taxis PLC, a wholly owned subsidiary of Eco City Vehicles PLC. To give certainty over the costs of the claim, in April 2014 a deal was completed which assigned the benefit of the claim to Cabvision Networks Ltd, and also novated the pension scheme loan and Global Meters arrears to Cabvision Networks Ltd, in return for cash consideration of £0.6m. The novated liabilities amounted to £1.2m and £0.4m respectively. This created a non-recurring profit of £2.2m for the Group.

An impairment of £0.9m was recognised in the goodwill related to the investment in One80. The key causes of this were a reduction in the expected cash generation from One80 in 2014 due to reduced production and to warranty-related costs, and a reduction from 10 to 5 years in the cash projections considered in calculating the net present value of cash flows. The next largest non-recurring cost of £0.3m consists of warranty costs previously paid out for which a counter-claim for recovery has been launched against the 3rd party vehicle conversion company. Other non-recurring costs include £0.1m for directors' loss of office payments, and £0.1m of consultancy costs to conclude the financial restructuring process effected in 2012.

4. Tax credit

There is no provision for UK Corporation tax due to tax losses incurred during the period, subject to agreement with HM Revenue & Customs. Accumulated tax losses of approximately £3,082,387 (2012: £4,925,000) have not been recognised as deferred tax assets due to uncertainty over the timing of future profits.

5. Profit/(loss) per share

An adjusted profit/(loss) per share is presented which excludes non-recurring items and movement in fair value on interest rate swap, and therefore reflects the underlying business performance. The dilutitive effect of share based payments is disclosed below.

On 3 January 2014 a further 2,133,334 shares were issued.

1,595,000 shares have neen excluded from the earnings per share calculation as they are anti dilutive. However, these shares could become dilutive in future periods.

6. Goodwill

The Group carried £1.4m of goodwill on its balance sheet in relation to the acquisition of its shareholding in One80 Ltd. Part of this acquisition resulted in 9,216,000 shares being issued in January 2013 for a consideration of £189,000. An impairment of £0.9m has been applied to the goodwill in the 2013 accounts, as described below.

Goodwill has been subject to an impairment review by determining the value in use of the relevant cash generating unit, based on cash flow projections for a five year period to 31 December 2018, discounted at 15%. 

The recoverable amount of the goodwill has been determined from value in use calculations based on cash flow projections from forecasts covering a five year period to 31 December 2018. Other major assumptions are as follows:

Build volumes 480 units (2012: 665 units)

Discount rate 15% (2012: 15%)

Operating margin 39% (2012: 44%)

 One80's intellectual property covers both the rear wheel steering system and the design of the taxi. There is material uncertainty about the timing and nature of the next generation of Vito Taxi, and therefore its impact on future revenue streams. It is also assumed in the impairment review that the contingent liability related to the claim against One80 does not crystallise.

7. Borrowings