TAX.L Regulatory News (TAX)

25 April 2014

Eco City Vehicles PLC

("ECV" or "the Group")

Trading Update

Eco City Vehicles PLC, the exclusive supplier of the licensed Mercedes Vito taxi, announces the following trading update.

Key points

· £0.5m net cash inflow and £2.2m improvement in balance sheet as a result of an assignment of VAT claim proceeds and £1.6m of related party creditors

· New vehicles sales of 83 units in the period of three months ended 31 March 2014 compared with 189 in same period last year, in part reflecting a strong first quarter for ECV in 2013 due to the fact that LTI had stopped sales during that period

· Group EBITDA for the period of three months ended 31 March 2014 remains positive despite current market conditions

· A One80 Limited ("One80") licensee has commenced proceedings against One80 for the cost of a potential vehicle related upgrade programme. One80 is seeking legal advice and is in the process of finalising its defence and counter claim against a number of parties

VAT Recovery

As previously disclosed, Cabvision Limited, a former related party, has a VAT claim with HMRC, for which the net proceeds have been assigned to KPM-UK Taxis PLC, a wholly owned subsidiary of ECV. The case was heard in September 2012 and (as announced on 5 March 2014) judgment has been received in favour of Cabvision Limited.As announced on 7 September 2012, ECV, in the context of restructuring related party repayments in conjunction with its equity placing, agreed that any proceeds (net of corporation tax and legal costs which currently amounts to approximately £2.5m) received from HMRC as a result of the VAT claim be applied firstly in repayment of the KPM-UK Taxi PLC Discretionary Pension Scheme ("Pension Scheme") loan ("Pension Scheme Loan") and secondly (once the Pension Scheme Loan has been repaid in full) in repayment of the Global Meters Systems Limited ("Global Meters") arrears. The Pension Scheme Loan and Global Meters arrears balances are £1.3m and £0.4m respectively as at 31 March 2014.

The Group has agreed a deal with Cabvision Network Limited ("Cabvision Network" and the "VAT Recovery Transaction"), under which the benefit of the VAT claim will be assigned to Cabvision Network as part of the purchase by Cabvision Network of the Group's £5m receivable from Cabvision Limited (which is held at nil value in the Group's accounts). The consideration for the purchase is £0.6m cash, of which £0.1m will be used to reduce the Pension Scheme Loan to £1.2m, together with the novation of the Pension Scheme Loan and Global Meters arrears to Cabvision Network. These novated liabilities total £1.2m and £0.4m respectively. This will result in a total non-recurring benefit of £2.2m to the Group's accounts, improving its balance sheet.

As part of the transaction the Pension Scheme has agreed to cap the debt secured by its first fixed and floating charge to £0.3m (previously £1.3m in in line with the outstanding Pension Scheme Loan) which will only be payable if sufficient recoveries are not made out of the VAT claim, and to release the security completely once the Pension Scheme Loan has been paid in full by Cabvision Network out of the VAT claim proceeds.

The parties to the VAT Recovery Transaction including the Pension Scheme and Global Meters will also be entering a standstill agreement under which the Pension Scheme will undertake not to enforce its security as detailed above until the VAT claim is finally settled.

The VAT Recovery Transaction requires the approval of the corporate trustee of the Pension Scheme. The beneficiaries of the Pension Scheme have agreed to use all best endeavours to ensure that the necessary documentation is entered into by the Pension Scheme trustees within 30 business days of the date of this announcement to give effect to these revised terms. A further announcement will be made at that point. The VAT Recovery Transaction therefore remains subject to the agreement of the Pension Scheme trustees and no guarantee can be given at this stage that they will agree to such terms.

Trading Update

As announced on 5 March 2014, since the beginning of the year new vehicle sales trading conditions have become challenging due to a combination of new entrants into the London taxi market and the recent Transport for London ambiguity regarding future changes to London taxi emissions requirements in 2018. New vehicle sales in the period of three months ended 31 March 2014 were 84 units compared with 189 units in same period last year, in part reflecting a strong first quarter for ECV in 2013 due to the fact that LTI stopped sales during that period. Used vehicle sales were 74 units (2013; 89 units) in the first quarter of the year.

On 22 April Mercedes Benz announced a free upgrade of the EU5 rear wheel steer ("RWS") system composed of a number of new parts, which will replace some of the parts of the existing RWS. As a result of the current level of sales and the EU5 upgrade described above the Board expects slower production and sales of new vehicles for the year ending 31 December 2014 as a consequence.

Service and bodyshop sales were maintained at £0.3m for the period of three months ended 31 March 2014 (Q1 2013: £0.3m). Further to the previous announcement on 27 September the Group has obtained in February 2014 Mercedes-Benz bodyshop approval, which the Board expects will open up substantial new opportunities.

ECV has reached an agreement with Cabvision Network to grant Cabvision Network exclusive vendor rights to market its credit card and media products and, where customers buy such products, to install its equipment in Vito taxis sold by the Group in London from its current premises until August 2018.

Property update

As announced on 5 March 2014, ECV is in discussions with the Pension Scheme with regards to the future redevelopment of the site it currently operates from. The Group has agreed with the Pension Scheme to amend the term of its two leases to 25 March 2015 from the current terms of September 2017 and October 2017, followed by a rolling three month lease thereafter (the "Lease Amendment") to be agreed by both parties in advance. This Lease Amendment provides flexibility for the Group, which will now assess its options. As part of the Lease Amendment, the Pension Scheme has agreed that the Group will not be liable for any dilapidation or related costs upon termination of the leases, (which the Directors estimate will be higher than the value of the rent for the period).

Related party transactions

The VAT Recovery Transaction, the Standstill Agreement and the Lease Amendment entered into with the beneficiaries of the Pension Scheme and Global Meters are related party transactions. For the purposes of Rule 13 of the AIM Rules, the Group's directors (with the exception of Peter DaCosta, who is involved in the transaction as a related party) consider, having consulted with its Nominated Adviser, that the terms of such transactions are fair and reasonable insofar as its shareholders are concerned.

One80 Limited

As included in the Group's announcement of 5 March 2014, One80, a subsidiary of ECV, was in discussions with the holder of the non-exclusive licence from One80 to convert the Mercedes Vito taxis (the "Licensee"). These negotiations have been unsuccessful to date and the Licensee has commenced proceedings against One80 in relation to matters relating to vehicle warranty claims and a potential upgrade programme. One80 denies liability in relation to the claim in its entirety and has instructed legal counsel to defend the claim in the proceedings and to pursue a counterclaim against the relevant parties involved.

One80 is currently reviewing its options for the exploitation of its intellectual property. As part of this process ECV is considering entering into a licence agreement with One80 for its intellectual property. The exact terms of this agreement are to be agreed.

Commenting on behalf of the Board John Swingewood said: "The VAT Recovery Transaction materially improves the Group's balance sheet and ECV will continue to monitor its cash position closely against the backdrop of challenging trading conditions. In line with the Group's stated strategy, the Board and the management team continue to progress ECV's strategy of diversification through acquisition."

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