TAX.L Regulatory News (TAX)

27 September 2013

Eco City Vehicles PLC

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

Results for the six months ended 30 June 2013

Eco City Vehicles PLC, the co-developer and supplier of the London licensed Mercedes Vito taxi, is pleased to announce its results for the six months ended 30 June 2013.

Financial highlights

· Revenues rose by 3.9% to £17.0m (H1 2012: £16.4m), reflecting strong growth in parts sales, higher revenue from used vehicle sales, and licence fees from increased vehicle production

· Gross margin increased significantly to 16.4% (H1 2012: 13.9%), reflecting a change in sales mix towards higher margin activity (parts, licence fees), and stronger vehicle sales margins, particularly on used vehicles

· Net loss reduced by £0.2m to £0.3m (H1 2012: £0.5m loss)

· EBITDA before non-recurring items increased to of £0.5m (H1 2012: £0.3m)

· Non-recurring items amounted to £0.5m due mainly to warranty-related costs incurred to resolve legacy issues. Total warranty-related costs amounted to £439k (H1 2012: £46k), of which £349k is considered non-recurring

· Cash and cash equivalents increased to £0.9m (H1 2012: £0.5m) reflecting a significant improvement in operating cash inflow, which was £0.4m (H1 2012: £0)

Operating highlights

· New taxi sales amounted to £10.6m (H1 2012: £11.0m) while used vehicle sales rose to £2.9m (H1 2012: £2.8m)

· Vito new vehicles units sold decreased by 13 to 299 units (H1 2012: 312). Year on year new Vito registrations were up by 4% due to the building of a new fleet

· Vito has now captured approximately 10% of the total estimated on the road London licensed taxi fleet of 21,000 since its launch in August 2008 (H1 2012 7%)

· Launched a rental fleet of licensed taxis as the first part of a diversification strategy under new chief executive Trevor Parker

· Appointed Jonathan Moritz as Finance Director in June 2013 and strengthened operational management team across Group's sales, parts and service activities

Outlook

· Current trading in line with management expectations

· Demand for new and used vehicles in the second half is encouraging with September setting an all-time record for new Vito registrations in a single month amid growing recognition of its premium quality and brand

Commenting on the results, Trevor Parker, Chief Executive, said: "I am pleased with these results which reflect some of the benefits of the operational changes made during the first half and also the entire ECV team's efforts to step-up their engagement with core customers and partners. As a result we have delivered a resilient first half result with strong operational cash flows, higher gross margins and EBITDA before non-recurring items whilst dealing with warranty-related legacy issues. These figures also point to an improvement in the quality of earnings and keep us on track for a solid outcome for 2013 while establishing a strong platform for long term growth."

Enquiries:

Chief Executive's Review

Overview

The Group is pleased to report a solid first half result, driven by continued growth in overall turnover, significantly higher gross margins and a further improvement in underlying operating profits before non-recurring costs.

The star performers during the period were the vehicle parts division, which saw robust growth in demand and a solid increase in licensing fees from ECV's vehicle technology subsidiary One80 Ltd ("One80") as Mercedes-Benz continued to increase production of the Vito London licensed taxi in Coventry, UK.

The results also reflect the positive impact of operational measures taken to strengthen the Group's performance across its core activities while developing a long term growth strategy that builds on the Group's 35 year track record of serving London's licensed taxi trade.

A number of operational measures were implemented to improve performance across the business including cost efficiencies, and a greater emphasis on marketing and customer support.

The net loss was impacted by costs taken to address warranty-related legacy issues, which amounted to £439k, of which £349k is considered to be non-recurring, compared with £46k in H1 2012.

Strategy

Following a strategic review of the business, it is evident that the market growth opportunity for the Group remains large. The Vito taxi accounts for approximately 10% of the total 21,000 licensed "black cabs" in London, according to Transport for London data. In addition, London's fleet of private hire taxis is estimated at approximately 40,000.

The Group plans to deliver long term growth by diversifying into new vertical markets in the London taxi sector as well as by providing a wider range of products and services for its core customers. These steps include:

· Creation of a significant taxi rental fleet - a significant number of London "black cabs" are estimated to be rented

· Provision of a comprehensive one-stop service delivering insurance, finance and technology based marketing solutions to the taxi trade

· Expansion of Mercedes-Benz Light Commercial Vehicle franchise and Mercedes-Benz -approved Bodyshop

· Roll out of a Service24 rapid response repair and service for other time-critical commercial vehicle users including emergency services

Operational Review

Total group revenues were 3.9% higher than last year at £17.0m (H1 2012: £16.4m) with gross margin significantly increased to 16.4% (H1 2012: 13.9%) partially due to a change in sales mix towards higher margin activity (parts, licence fees), and partially to stronger vehicle margins, particularly on used vehicles.

The Group improved its EBITDA performance before non-recurring items, to £0.5m (H1 2012: EBITDA £0.3m), and reduced its net loss to £0.3m (H1 2012: net loss £0.5m), primarily due to stronger margins in the vehicle sales division, particularly from better quality used vehicles, and from the volume growth in parts business.

Taxi Sales

Vehicle sales increased to £2.9m (H1 2012: £2.8m) and gross margin rose to 7.9% (H2 2012: 3.0%). Much of this was driven by receiving a higher proportion of Vito Euro 4 models, rather than old-style Manganese-Bronze (LTI) vehicles, as part exchanges against new sales.

Vito new vehicles units sold decreased by 13 to 299 units (H1 2012: 312). Year on year new Vito registrations were up by 4% due to the building of a new fleet.

Taxi rental fleet

As part of the diversification strategy outlined above, the Group has launched an initial 15-vehicle rental fleet of new Vito taxis. These have already been contracted to taxi drivers as the Group received a rapid response from cabbies. ECV's status as a main dealer alongside its reputation for providing high quality service and repairs to all major rental taxi fleets, has led to strong demand. As a result the fleet is expected to expand significantly by the end of this year following a funding agreement signed with a leading UK asset financing institution in September 2013, as set out below in Post Period Developments.

After Sales Division - Parts and Service

Parts sales grew 69% to £1.8m (H1 2012 revised: £1.1m), boosted by an improved distribution networks. Gross margin increased slightly from 21% to 22%.

Service and bodyshop sales decreased to £0.8m (H1 2012 revised: £0.9m). After a concerted marketing effort there are signs that LTI service customers are returning. The Group is also at an advanced stage of obtaining Mercedes-Benz bodyshop approval, which the Board expects will open up substantial new opportunities.

One80

One80, the Group's 76.6% owned subsidiary, which owns the intellectual property rights to the rear wheel steer technology used on the Vito taxi, saw improved trading due to increased unit conversions to 263 (H1 2012: 227 units). This drove a rise in EBITDA to £0.3m (H1 2012: £0.2m), but non-recurring warranty-related costs caused a net loss of £0.2m (H1 2012: £0). Amortisation and depreciation of £0.1m (H1 2012: £0.2m) was incurred mainly due to amortisation of the development costs for the new Euro 5 model.

Non-recurring items

Non-recurring items amounted to £0.5m of which £349km relates to warranty-related costs and provisions to resolve legacy issues on the rear wheel turning system. Total warranty-related costs amounted to £439k (H1 2012: £46k), of which £349k is considered non-recurring. The non-recurring costs were incurred in servicing and upgrading specific elements of the rear wheel steer system, which have been redeveloped for future production. The remainder relates to restructuring costs, including related legal and consultancy fees.

Finance income & Costs

The Group's finance costs of £0.1m have fallen (H1 2012: £0.2m) due to the disposal of the Group property in Coventry in December 2012, and the repayment of the related mortgage.

Inventory

Inventory levels remained at £1.9m (H1 2012: £1.9m) at June 2013. The Group continues to limit its exposure to used LTI stock with the majority of vehicles sold to the trade. Demand for used Mercedes-Benz Vito taxis remains solid resulting in a quick stock turn and resultant low stock levels.

Cash balances and funding

Cash balances at 30 June 2013 amounted to £0.9m (H1 2012: £0.5m) with net debt of £0.7m decreasing by £2.9m since 30 June 2012 and by £0.2m since 31 December 2012. The business's operating cash performance was excellent with inflow of £0.4m. The fall in net debt since last year was mainly due to repayment of the loan following the sale of the Coventry property in December 2012 and the repayment of the related mortgage.

In May the business reached cumulative EBITDA of £1.0m from 1 September 2012, triggering the start of repayments of its various related party funding debts, as detailed in the announcement dated 7 September 2012.

Post Period developments

In September 2013 Mercedes-Benz Financial Services UK Ltd ("MBFS") renewed and increased the Group's facilities from £5.75m to £6.75m. The terms of the new facilities are in line with the previous facilities and will enable the Group to order additional taxis from Mercedes-Benz when required. The increase will enable the group to grow its own fleet of vehicles for rental.

In order to facilitate the extension of this stocking facility, KPM-UK Taxi Plc Discretionary Pension Scheme (the "Pension Scheme"), whose beneficiaries are Peter DaCosta, Michael Troullis and Keith Marder (all shareholders of the Group and Peter DaCosta is also a director of the Group) has agreed a letter of subordination addressed to MBFS in relation to a total of £0.9m (the "Subordinated Pension Loan"), out of a total outstanding loan balance of £1.2m to the Pension Scheme as at 31 July 2013.

In September 2013 the business also secured a further £1.0m of new funding from a leading asset-based lender, to further develop its rental fleet.

Contingent Liability

A provision of £0.4m has been recognised for warranty-related costs on vehicles sold in the past 5 years.

The business is currently in discussions with several of its key suppliers on potential warranty-related vehicle upgrade programmes. There remains significant uncertainty over the structure of these programmes, and therefore over their cost, and how that cost will be borne by the various parties involved.

Based on the outcome of these discussions, which is uncertain as of the date of the accounts, the directors are of the view that there is a contingent liability for the upgrade programmes of up to £0.7m in addition to amounts already provided for warranty-related costs, in the event that the Company is unable to reach agreement with the relevant parties involved.

Board changes

On 2 April 2013 the Group announced the appointment of a new Chief Executive Officer ("CEO"), Trevor Parker. At the same time Jeremy Fenn, a Non-Executive Director resigned from the board and was replaced by Peter DaCosta, who moved from his former role as CEO.

The recruitment of a permanent Finance Director, Jonathan Moritz, was announced on 21 June 2013 to replace Ran Oren, who stepped down as Interim Finance Director.

Outlook

We are encouraged by the growth in revenues and underlying operating profits in the first half. Trading in the second half is in line with management expectations and demand for new vehicles was particularly strong in September, which achieved an all time monthly record for new Vito registrations. Gross margins remain firm and the parts supply business continues to see buoyant trading.

In addition, the new executive management team moved quickly to address warranty-related legacy issues and to develop a new growth strategy based on a diversification into complementary segments through acquisitions and organic expansion as appropriate.

These strategic steps, together with ECV's already entrenched market position in the London taxi trade mean that the Group is well placed to deliver long term growth and head off expected competition from new entrants to the London market from early next year. Since its launch in 2008 the Vito taxi has enjoyed considerable success in building a market share of approximately 10% of the London licenced taxi sector. This is a significant achievement in itself but also highlights the scale of the remaining market opportunity available for ECV to attack in the future.

Trevor Parker

Chief Executive Officer

INDEPENDENT REVIEW REPORT TO ECO CITY VEHICLES PLC

Introduction

We have been engaged by the Company to review the financial information in the half-yearly financial report for the six months ended 30 June 2013 which comprises a consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cashflows and related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the financial information.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the Company a conclusion on the financial information in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Malcolm Thixton (senior statutory auditor)

For and on behalf of BDO LLP, statutory auditor

Southampton

United Kingdom

Date: 27 September 2012

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

eco city vehicles plc

Consolidated Statement of Comprehensive Income

For the period ended 30 June 2013

eco city vehicles plc

Consolidated statement of financial position

As at 30 June 2013

eco city vehicles plc

Consolidated statement of changes in equity - unaudited

As at 30 June 2013

eco city vehicles plc

Consolidated statement of cash flows

For the period ended 30 June 2013

1. General Information

Eco city vehicles plc is a company incorporated in the United Kingdom and listed on the AIM market. The address of the registered office is Hemming House, Hemming Street, London, E1 5BL.

The Group is engaged in the sale and service of new and used taxicabs to owner operators of licensed taxis in London and the provision of related services. During the interim period the Group operated from a single site in East London from where it conducted all operations.

This unaudited consolidated interim report is presented in British Pounds Sterling, the currency of the primary economic environment in which the Group operates. The Group comprises eco city vehicles plc and its subsidiary and associated companies as set out in the Note 3 of the Parent Company's financial statements, for the year ended 31 December 2012

The unaudited consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.

The financial information for the year ended 31 December 2012 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The Independent Auditors' Report on those accounts was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

2. Basis of preparation

The unaudited consolidated interim financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as endorsed by the European Union.

The same accounting policies, presentation and method of computation are followed in this financial information as was applied in the group's latest annual audited financial statements and using accounting policies that are expected to be applied for the financial year ending 31 December 2012. Practice is continuing to evolve on the application and interpretations of IFRS. Further standards may be issued by the International Accounting Standards (IASB) and standards currently in issue and endorsed by the EU may be subject to interpretations issued by IFRIC.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of this consolidated financial information.

Going Concern

The current economic climate makes forecasting difficult and the Board will continue to monitor the Group's financial position having regard to its ongoing trading performance. The Group also considered sensitivities to its forecasts, to review the impact on the results and cash balances.

Based on the Group's forecast, the 2012 placing and the financing arrangements agreed at the time of the placing, the Directors have a reasonable expectation that the Group will have adequate resources available from funds generated from trading and the Placing proceeds for at least 12 months from release of the interim statements.

3. Non recurring items