TAX.L Regulatory News (TAX)

1 July 2011

Eco City Vehicles PLC

("Eco City", "ECV" or "the Group")

Results for the twelve months ended 31 December 2010

Eco City Vehicles PLC, the developer and supplier of eco-friendly commercial vehicles and the London licensed Mercedes Vito taxi, announces its preliminary results for the 12 months ended 31 December 2010.

Financial highlights

·; Total revenues were £24.7m (2009: £24.7m), increasing by 9.8% on a like-for-like basis* due to higher demand for the Mercedes Vito taxi despite challenging economic conditions and impact of adverse weather

·; Gross margins maintained at 16.7% (2009: 16.7%)

·; Achieved EBITDA before non-recurring items of £0.3m (2009: £0.2m)

·; Revenue from new Mercedes Vito sales rose 16% to £14.2m (2009: £12.2m) on increased gross margins of 9.6% (2009: 9.1%)

·; Parts & Accessories division increased sales by 7% to £3.1m (2009: £2.9m)

·; Loss before tax from continuing operations and excluding non-recurring items amounted to £0.2m (2009: £0.2m loss)

·; Loss before tax amounted to £0.3m (2009: loss £0.4m)

·; Loss per share from continuing operations of 0.08p (2009: 0.13p loss)

·; Adjusted loss per share, excluding non-recurring items, of 0.05p (2009: adjusted loss per share of 0.06p)

·; Net debt of £2.8m (2009: £2.4m) with a further £1.6m available from stocking facilities

Operating highlights

·; New Vito unit sales increased to 477 units (2009: 398), with an improved 27% share of London new taxi market (2009: 24%)

·; Used vehicle unit sales rose to 345 units (2009: 308 units)

·; Launched an all electric prototype taxi, the Mercedes eVito in February 2010

·; New agreement with Manganese Bronze subsidiary, LTI, to cover after-sales servicing and parts supply for old-style TX4 taxis and earlier models

·; Increased shareholding in One80 , the Group's technology associate, from 33% to 59%

·; Raised £1.2m, net of costs, through a placing enabling the acquisition of a further 25.7% interest in One80, development of left hand drive model for overseas markets and to drive growth.

*Like for like revenue comparison excludes £0.1m and £2.3m revenues attributable in 2010 and 2009 respectively to sales of new TX4 taxis following the expiry of the LTI dealership in July last year.

Commenting on the results, Peter DaCosta, Chief Executive of Eco City, said: "Eco City continued to grow its revenues and market share from the Mercedes Vito taxi while improving its operational performance against a difficult trading climate last year. This is because we made a timely and strategic decision to co-develop and launch the Mercedes Vito, which has proved to be a great success.

Trading conditions remain tough and the widely anticipated launch of a new Euro V Blue Efficiency Vito taxi contributed to a soft first quarter whilst drivers waited to see the new vehicle before purchasing. However, sales have improved since the Group's launch of the new version, which provides further improvements in fuel efficiency and comfort for drivers and passengers alike. The Group is also in the process of streamlining its cost base and together with a gradual improvement in demand, expects to report an improved second half."

Enquiries:

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report a year of continued progress and a resilient financial and operational performance by Eco City Vehicles despite facing multiple challenges. Against a backdrop of fragile economic conditions, the Group successfully expanded sales of the ECV-developed Mercedes Vito taxi while managing its planned exit from its LTI main dealership, which meant new sales of the old-style TX4 London "black cab" ceased in July 2010. The volcanic ash cloud over Western Europe, together with UK airline strikes during the spring of last year, also affected the taxi trade, impacting overall trading conditions of the Group.

Trading Performance

Despite the difficult background, on a like-for-like basis Group revenues increased by 9.8% to £24.6m (2009: £22.4m), driven by continued growth in demand for the Vito licensed taxi, as well as a higher contribution from the parts business.

Gross margins at 9.6% (2009: 9.1%) for new Vito taxis expanded through the year, reflecting continued robust pricing for the Vito taxi as taxi drivers increasingly recognised its superior performance and economy while customers enjoyed the benefits of its greater capacity and increased comfort. The Vito has achieved a 27% share of the new taxi market in London in 2010.

Group EBITDA before non-recurring items increased to £0.3m (2009: £0.2m). The loss before tax of £0.3m (2009: loss - £0.4m) was impacted by no interest receivable.

Cash balances remained tight during the year but were helped by a share placing in November which raised £1.2m net of costs.

Other Activities

During the year the Group increased its shareholding in One80, the developer of the patented rear-wheel turning technology incorporated in the Vito taxi, from 33% to 59% to gain the full benefits of licensing income on the Vito taxi.

Future

Trading in the current year has been affected by continued sluggish economic conditions. However there have been more encouraging signs since the introduction in the spring of the Euro V version of the Vito which is fully compliant with tighter European Union vehicle emission regulations due to come into force next April. We believe that demand for the new London taxis market will also benefit significantly from the Mayor of London's decision to phase out all taxis over 15 years old. Discussions have continued with the Mayor of London's office and with Mercedes-Benz about introducing even lower emission taxis into London.

Since the year end the Group has also taken steps to improve the efficiency of its operations. These have involved streamlining the work force. As a result costs will be significantly lower during the second half of 2011.

Provided these measures are backed up by continuing improvement in demand for new taxis we remain confident that the prospects for the medium term are attractive and that the Group can take full advantage of better markets.

MANAGEMENT, EMPLOYEES AND BOARD

In April 2010 David Trendle was appointed Finance Director to strengthen the Group's Board and management team as part of its long term growth strategy.

During the year Guy Saxton resigned from the Board. I would like to express our appreciation of the contribution he made during his three years as a non-executive director. He was replaced by Roger Philips who brings a wealth of motor industry experience to the Group and whose wise counsel has already contributed materially to our decision making.

I would like to thank our Chief Executive Peter DaCosta for his continued tireless leadership of the Group and the whole Board for their advice and support. We remain grateful to all our employees for their hard work.

Chief Executive Officer's Review

New Taxis

Revenues from new taxi sales were £14.2m (2009: £14.5m) as strong demand for the Vito taxi was offset by our planned exit from the sale of new LTI vehicles during the year. Operating profit in this segment increased from £0.65m to £1m as the Vito contributed revenues of £14.2m, up 16% from last year (2009: £12.2m) while new LTI taxi revenues declined to £0.1m (2009: 2.3m).

Unit sales of new Vitos rose from 398 in 2009 to 477 units in 2010. The Group has now sold more than 1,200 of these taxis since their launch in June 2008. Based on Public Carriage Office Licence data, the Vito captured a 27% share of the London new taxi market in 2010, up from 24% in the previous year.

The Vito also continued to achieve higher margins even as its rivals were being marketed at heavy discounts. As a result gross margin on new Vito sales improved to 9.6% (2009: 9.1%). The Group also achieved a high penetration rate for finance and earned commission (included in other income) of £0.4m (2009: £0.1m).

Since the year end we introduced a new diesel version of the Mercedes Vito, which complies with tighter EU emission legislation that comes into effect in April 2012, in April 2011, a year in advance of the implementation of the Euro V regulations. This improved model incorporates Mercedes-Benz's Blue Efficiency technology, which places the vehicle in a lower road tax band, comes with a new suspension giving a better ride and continues to be offered with 100,000 mile / 3 year service pack.

In line with the Group's strategy to phase down sales of new LTI manufactured taxis, only three new TX-4s were sold last year (2009: 80).

Used taxis

Used taxi sales performed reasonably well with revenues up to £4.2m (2009: £4.0m) of which Vito sales accounted for 25%, up from 18% in the previous year. The growth in Vito sales reflects increasing recognition among taxi drivers of the benefits of the Vito taxi in terms of reported fuel savings, superior quality, higher seating capacity and lower overall cost of ownership.

Unit sales in this segment increased to 345 (2009: 308).

After-Sales Division - Service, Bodyshop and Parts

Revenues from after-sales service and bodyshop was £3.1m (2009: £3.2m), while gross margins slightly reduced from 64.9% to 64.3%. The result reflects reduced need for servicing due to reduced taxi miles being achieved in the trade as well as longer service intervals for the Vito taxi. In addition revenues per job have also been lowered due to price pressure from local "under the arches" garages.

However, the startup of the Eco City's first after sales dealership in central London for all Mercedes light commercial vehicles in second half of 2010 will enable the Group to utilize its expertise and high service levels to increase revenue of this division from the existing cost base.

The parts business continued to supply the local taxi community with LTI parts increasing revenues to £3.1m (2009: £2.9m) whilst operating profits were broadly unchanged at £0.4m.

New Vehicle Development

Two new left hand drive Mercedes taxi Vito taxis were developed by ECV during the year in response to requests from potential overseas customers, particularly in the Middle East. Discussions have continued, albeit at a disappointing pace, and the Group continues to believe this region has strong long term market potential, whilst acknowledging that the current political uncertainty in the region has affected ordering cycles. The Group continues to explore other markets.

The new Euro V Mercedes-Benz Vito taxi will also meet the Mayor of London's Air Quality initiatives, under which no London "black cab" which is over 15 years old will be licensed from next January.

ECV has also been closely involved with the development of an all-electric taxi as part of the Group's strategy to build low emissions vehicles. A zero-emissions prototype electric taxi, eVito was launched in February 2010 by a consortium including ECV. Since then discussions have been held with the Mayor of London for incentives to enable the taxi trade to buy and operate such vehicles.

Proposed Transfer of Vito production to Mercedes-Benz

The Group is currently in discussions to transfer the responsibility of the second-stage manufacturing of the Vito taxi to Mercedes Benz, having successfully developed and launched the London licensed vehicle in June 2008. The expected transfer will enable the Group to substantially de-risk its business as well as focus on its key strengths in innovation and development of niche commercial vehicles markets, as well as the distribution, marketing and after sales service of the Vito taxi and commercial vehicles. There are no additional cash costs associated with the transfer of responsibility to Mercedes-Benz.

Following the transfer, the Group's subsidiary One80 Limited will receive ongoing licensing fees from the incorporation of its rear-wheel turning technology in the Vito taxi. The transition will also enable it to rationalise its cost base significantly.

The transfer is not expected to have any significant adverse impact on the business and the Board believes this is further evidence of the strength of the Group's relationship with Mercedes-Benz. ECV continues to be the largest seller of the Vito-platform vehicles in the UK and last year also expanded its operations through being granted the Mercedes-Benz LCV Parts and Service franchise, covering after-sales servicing of all Mercedes light commercial vehicles in central London.

Financial Review

Non recurring items

The transfer of production to Mercedes-Benz has crystallised contractual liabilities due to minimum volume commitments with Penso City Vehicles Limited, who convert the donor vehicle into the Vito taxi. This has resulted in a liability for the Group of £0.2m to December 2010.

The Group has incurred £0.1m of non-recurring costs in relation to the corporate governance review undertaken following the non disclosure of loans to Cabvision Limited as announced in March 2010.

The acquisition of the controlling interest in One80 Limited resulted in a gain of £0.2m.

Finance costs

Finance costs of £0.3m (2009: £0.2m) were incurred, net of fair value movement on the interest rate swap, with the main increase due to bank margins rising from 1% to 3.95% following covenant breaches in 2009. Additional finance costs were also incurred due to the cessation of the production of the Euro IV model by Mercedes-Benz in July 2010, resulting in high stock being ordered for sales until the introduction of the Euro V Vito taxi in April 2011.

Following the provision against amounts owed by Cabvision Limited in 2009, the Group are not accruing interest on these balances (2009: £0.1m).

Acquisition of One80

On 29 November 2010 the Group purchased a further 25.7% shareholding in One80 Limited, increasing its shareholding to 59% and hence treating One80 as a subsidiary and consolidating its results under the acquisition method of accounting from that date. At the date of acquisition the fair value of net assets acquired was £1.4m, the goodwill capitalised in 2010 amounted to £1.4m. Included within the acquisition is £1.7m of non-current assets mainly relating to patent, intellectual property and development cost associated with the rear wheel steer system. With the elimination of the investment in associate of £1.1m, the net increase in non-current assets is £2.3m.

Inventory

Inventories increased by £1.2m mainly due to the increase in consignment stock as Euro IV stock levels were high at 31 December 2010 for the run-off of this model to April 2011, and the higher consignment cost for each vehicle following the inclusion of the conversion cost and licence fee in the consignment value. This amount has fallen though in the current year.

Intangible assets

One80 Limited has capitalised its design and development costs of the Vito Taxi and its patented rear wheel turning technology and are amortising these costs over the expected life of the development. To date £1.5m has been capitalised and the current value is £1.0m. In addition intellectual property totalling £752,000 has been capitalised in relation to the technology. This has been amortised over its expected useful life.

Working capital

Incorporated within the payables and receivables items are the One80 balances of £1.3m and £1.9m respectively. Prepayments and accrued income have increased due to a £0.2m balance relating to three year service packs which are paid for in advance. Increase in payables relates to an accrual for share consideration of £0.3m, fair value movement on interest rate swap of £0.1m and increase in the stocking loan of £1m in relation to stock of Euro IV vehicles.

Cash balances and funding

Cash balances at year end were £0.1m (2009: £0.3m) while net debt increased from £2.4m to £2.8m. The Group has agreed total facilities for vehicle stock of £5.1m, with only £3.6m utilised at the year end and this utilisation has reduced in the current year. Cash flow from operating activities was £0.7m outflow due to working capital movements and in particular the increase in inventory.

In May 2010, the Group also agreed inclusion of second tier manufacturing costs and licence fees within the stocking loan facility provided by Mercedes-Benz, thereby funding the full cost of the vehicle.

On 2nd June 2010 the Group entered into a new 5-year loan agreement with KPM-UK Taxis Plc Discretionary Pension Scheme, whose beneficiaries are Peter DaCosta, Michael Troullis and Keith Marder. This loan agreement will provide funding of £0.85m to repay the HBOS overdraft facility and provide working capital for the growth of the business. Interest will be payable at a fixed rate of 5% with the loan being repaid annually in equal instalments over the 5 year loan term. The KPM-UK Taxis Plc discretionary pension scheme will have a first fixed and floating charge over the assets of the Group, excluding the leasehold property. Following the first annual repayment the Group entered into a new 5-year loan agreement provide funding of £0.17m for working capital purposes.

The Group had a net cash inflow of £0.6m from investing activities representing £1.2m from placing, net of costs, and purchase of assets and equity investment.

The Group had a cash inflow from financing activities of £0.5m representing the loan from KPM-UK taxis plc discretionary pension, net of interest, finance costs and lease costs for demo vehicles.

In November 2010 the Group raised £1.2m, net of costs, via a placing of 32.2m shares at 4.75p. This enabled the acquisition of a further shareholding in One80 Limited, and development of a left hand drive Vito taxi for overseas markets and drive further growth.

The Group traded within its banking covenants during 2010.

Outlook

The expected transfer of second-stage manufacturing of the Vito taxi (discussed above) to Mercedes Benz will enable the Group to focus on its core strengths and streamline costs making savings in all areas of the business amid continuing challenging trading in the first half of 2011.

New taxi sales in the period were hampered by ongoing economic uncertainty and weaker demand for the outgoing Euro IV Vito taxis ahead of the widely-anticipated launch in the taxi trade of a new version in April this year. The new model is fully compliant with the Euro V vehicle emission regulations which come into force in April 2012, and will also meet the Mayor of London's Air Quality initiatives, under which no London "black cab" which is over 15 years old will be licensed from next January.

First half revenues are expected to be below the level reported for the same period in 2010 reflecting a small decline in market share ahead of the launch of the Euro V in April 2011. However, order levels have shown a gradual uptake since May and the Group expects sales to gain momentum during the second half and achieve a higher market share. Gross margins on new taxis have remained stable. The Board is also encouraged by a recent framework agreement with Computer Cab plc, part of the Singapore-based ComfortDelGro Corporation Limited, who have some 3,000 vehicles operating on their London circuit which could result in a number of orders in the second half of this year.

With the expected transfer of responsibility for the second stage manufacture to Mercedes-Benz later this year, the Group is already implementing a rationalisation plan to reduce annual costs by approximately £0.5m. The initial benefits of these actions, together with gradually improving demand for new taxi sales and after-sales servicing, are expected to result in a better second half with a positive EBITDA expected for the full financial year.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2010 

Consolidated statement of financial position

As at 31 December 2010

Consolidated statement of changes in equity

As at 31 December 2010

Expenses relating to the issue of shares in 2010 totalling £323,000 have been deducted from the share premium account

Consolidated statement of cash flows

For the year ended 31 December 2010

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. The Group has adopted IFRS 3 (R) Business combinations and IAS 27 (R) Consolidated and separate financial statements during the year. The effect of adopting IFRS 3 (R) on the acquisition of One80 Limited is disclosed in notes 3, 6 and 7. The group's new accounting policy for business combinations is stated below. The effect of the other new standards adopted is not significant.

Going Concern

The trading conditions have been challenging so far in 2011, with lower new vehicle sales than the comparative period due to customers eagerly awaiting the launch of the new Euro V Vito, which occurred on 2nd April 2011. The Directors believe the second half of the year will show improvement with the Euro V Vito market share moving back to previous levels with an increased market size expected, and the imposition of the 15 year age limit. The Group is also encouraged by becoming the exclusive partner with Comcab to provide Euro V Vitos for their new executive service.

After-sales and parts continue to face challenging market conditions although some progress has been made to start to win light commercial vehicle work and to extend parts revenue with the supply of Mercedes-Benz parts to the local area.

The group is also implementing a rationalisation plan which will commence in July 2011 and reduce annualised costs for the group by circa £0.5m.

The group has prepared detailed rolling forecasts taking account of actual results to date and current information on trading, on a prudent basis. The group also consider sensitivities to these forecasts to review the impact on the results and cash balances.Since the year end the group has secured the availability of further funding from the KPM-UK Taxis Plc Discretionary Pension Scheme exceeding £0.6m.

Based on the Group's plans which include receipt of further funds and after making enquiries, the Directors have a reasonable expectation that the Group will have adequate resources available from funds generated from trading and financing to continue operations for at least 12 months from the date of signing the financial statements. The financial statements have therefore been prepared on a going concern basis.

Basis of consolidation

The financial statements incorporate the financial statements of the Company and subsidiaries controlled by the Company made up to the year ended 31 December 2010.

Control is achieved where the Company 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. 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 elected not to apply IFRS 3 (r2008) "Business Combinations" retrospectively to business combinations prior to the date of transition.

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 profit / (loss)

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

3.  Non-recurring items

The 2010 operating profit of £0.10m (2009: loss £0.1m) is stated after non-recurring items totalling £0.10m (2009: £0.21m) shown below:

4. Tax

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 £2,855,000 (2009: £2,265,000) have not been recognised as deferred tax assets due to uncertainty over the timing of future profits.

5. Loss per share

An adjusted earnings per share is presented which excludes non-recurring items and therefore reflects the underlying business performance. The dilutitive effect of all share options is not disclosed the results for the year were a loss.

6. Goodwill

During 2010 the Group acquired a further 25.7% for a cash consideration of £640,000 and further contingent consideration of £324,000 based upon a final agreed valuation is due in the form of share capital. These shares have not been issued at the year end and a shares to be issued reserve has been made for this element of the consideration.

The recoverable amount of the goodwill has been determined from value in use calculations based on cash flow projections from formally approved budgets covering a five year period to 31 December 2015. Other major assumptions are as follows:

Discount rate 5%

Operating margin 30%

Growth 12%

Market share 22%

Wage inflation 2%

7. Acquisitions

On 29 November 2010, Eco City Vehicle plc acquired a further 25.7% shareholding in One80 Limited increasing its total shareholding to 59% in exchange for cash and shares in Eco City Vehicles Plc. The results of One80 Limited are accounted for as a subsidiary under the acquisition method of accounting from this date.

The non-controlling interest is measured using the proportionate share of the identifiable net assets of One80 Limited.

One80 Limited derives an income from its licence fee from every taxi with a Rear Wheel Steering mechanism sold. The principal reason for this acquisition was to gain the full benefits from the licencing income from the Vito taxi. During the course of 2010 One80 Limited issued sales invoices to KPM for the licence fee due on sales made by KPM, which have been eliminated upon consolidation.

A gain of £193,000 has arisen on the remeasurement of the previously held interest in One80 Limited to fair value (see note 3).

The consideration settled in shares is contingent on the value of One80 Limited as determined by an independent valuation being carried out under s.593 of the Companies Act (2006). Shares in Eco City Vehicles plc will be issued at a price of 5p per ordinary share, hence a premium of 4p,

The main factors leading to the recognition of goodwill are:

·; The presence of intangible assets, such as the workforce and the relationship with Mercedes-Benz, which do not qualify for separate recognition

·; The potential other applications that the technology could be applied to

·; The cost savings which result in the Group being prepared to pay a premium

8. Borrowings