Final Results

25 June 2012

Eco City Vehicles PLC

 ("Eco City", "ECV" or "the Group")

Audited results for the year ended 31 December 2011

Eco City Vehicles PLC, a developer and supplier of eco-friendly commercial vehicles and the London licensed taxi, announces its audited results for the year ended 31 December 2011.

2011 Summary

·; Group revenues decreased by 10% to £22.2m (2010: £24.7m), reflecting the difficult market conditions and impact of new model Mercedes Vito taxi launch on sales of outgoing model

·; Gross margins reduced to 13.5% (2010: 16.7%), largely due to discounting of the Euro IV Vito taxi ahead of the introduction of the Euro V model in the first half of 2011 and the full year consolidation of One80 Limited results

·; Revenue from new taxi sales were £11.1m (2010: £14.2m)

·; Transferred second stage assembly of Vito taxi to Mercedes-Benz in Coventry as planned

·; Loss before tax from continuing operations and excluding non-recurring items amounted to £2.2m (2010: £0.2m loss)

·; Loss per share from continuing operations of 0.6p (2010: 0.08p loss)

·; Net debt (being cash and cash equivalents together with long and short term borrowings) of £3.1m (2010: £2.8m) with a further £0.5m available from stocking facilities

 2012 Outlook

·; Strong trading achieved in the first five months of 2012, driven by increasing demand for new Euro V model Vito and the 15-year age limit introduced for London licenced "black cabs", creating a potential long term replacement market of approximately 3,000 vehicles

·; Mercedes Vito increased its share of the new London licenced taxi market to a record 38% in the first five months of 2012, doubling from a 19% share in the same period last year

·; New licences in the first five months of 2012 were equivalent to 87% of the licence sales achieved for the whole of last year

Commenting on the results, Peter DaCosta, Chief Executive of Eco City Vehicles, said: "Tough trading conditions in the automotive sector, together with the costs associated with the run-off of the outgoing Euro IV Vito taxi and the launch of the new blue efficiency Euro V, affected our results in 2011. However, we achieved a strong finish to the year-end, and trading has continued to be robust so far in 2012 helped by the introduction of the 15-year age limit for London licensed taxis from this year, creating a potential long term replacement market of approximately 3,000 vehicles. I am delighted that the Group has doubled its market share in the first five months to May 2012 due to the all round better driver and passenger comfort and especially the fuel efficiencies drivers are experiencing. As a result, we continue to look to the future with confidence and to the Group's return to recurring operating profit."

Enquiries:

Chairman's statement

Introduction

2011 was a challenging year for Eco City Vehicles on a number of fronts. Fragile economic conditions affected both the UK taxi trade and the automotive sector globally. The Company introduced a new Mercedes Vito London taxi to comply with the stringent new European Union emission standards. Though well-received by the trade, the Euro V model's launch had been widely anticipated leading to sluggish sales of the outgoing model during the first half. In addition, after sales revenues continued to be affected by the Company's exit from the LTI franchise in 2010.

The Board has taken a number of steps to mitigate the above including actions to reduce costs and the successful transfer of second stage assembly of the Vito in Coventry to Mercedes-Benz.

Following a strong finish to the year, trading has continued to be robust so far in 2012. The Company's share of the London new taxi market hit a new record of 38% in the first five months to May 2012.

Trading Performance

Group revenues decreased by 10% to £22.2m (2010: £24.7m), driven by a reduction in demand for our Mercedes Vito taxi. The decline in revenue was offset by the full year consolidation of One80 Limited, the Company's technology subsidiary, following the purchase in November 2010 of a controlling interest referred to below.

Group EBITDA before non-recurring items reduced by £1.2m to an EBITDA loss of £0.9m (2010: EBITDA £0.3m). The loss before tax of £2.7m (2010: loss £0.3m) was exacerbated by higher non-recurring items and finance costs totalling £1.0m (2010: £0.5m).

Cash balances remained tight during the year but were helped by additional support provided by the KPM-UK Taxis Plc Discretionary Pension Scheme ("Pension Scheme"), whose beneficiaries are Peter DaCosta, Michael Troullis and Keith Marder. The Pension Scheme provided the Group with additional loans in total of £0.35m for a period between one year and five years.

Post Balance Sheet Events

In January 2012 the Group has increased its shareholding in its subsidiary One80 Limited from 59% to 76.6% as a result of subscribing in a £0.23m rights issue by One80 Limited. The consideration for this was met through a reduction in debts owed by One80 Limited to Group companies. Prior to this in August 2011 One80 Limited also raised a loan of £0.25m which has been utilised along with the rights issue to decrease the liability outstanding to Eco City Vehicles plc.

In May 2012 the Group entered into an agreement with the Pension Scheme to provide the Group with a short term loan of £0.5m to provide working capital for the continual growth of the business. The outstanding balance with the Pension Scheme as at 31 May 2012 was £1.25m (2011: £1.0m)

Future

Trading in the current year has improved significantly compared with the same period in 2011. Based on Transport for London (TfL) data, the Mercedes Vito increased its share of the new London licensed taxi market to 38% in the first five months of 2012, doubling from a 19% share in the same period last year. New Vito taxi licenses increased by 183% to 289 vehicles in the first five months of 2012 compared with 112 in the same period last year, and only 331 in the whole of 2011. This means that new licenses in the first five months of 2012 represented 87% of the annual license sales achieved last year. The Board believes that demand in 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 representing a potential long term replacement market of about 3,000 vehicles.

Since the year end the Group has also taken further steps to improve the efficiency of its operations including a range of cost reduction initiatives in order to align operations to expected revenues in a number of areas.

Provided these measures are backed up by continuing improvement in demand for new taxis the Board remains 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 May 2012 the Group announced a number of Board changes to streamline its management structure. Michael Troullis and Roger Philips have stepped down from the Board. On behalf of the Board I would like to thank Michael for all his hard work and huge contribution to the growth of the Group over the last 37 years. We all wish him well in his retirement. The Board would also like to thank Roger for his contribution and support throughout his period on the Board.

David Trendle has resigned as Finance Director to pursue other business interests. Ran Oren has been appointed as Interim Finance Director.

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.

Tim Yeo 

Chairman

22 June 2012

Chief Executive Officer's Review

New taxis

Revenues from new taxi sales were £11.1m (2010: £14.2m) as demand for the Vito taxi reduced compared to prior year due to the economic environment. Operating profit in this segment reduced to £0.2m from £1.0m in the prior year.

Registered units of new Vitos declined from 477 in 2010 to 355 units in 2011. The Group has now sold more than 1,500 of these taxis since their launch in June 2008. Based on Transport for London (TfL) data, the Vito captured a 23% share of the London new taxi market in 2011, down from 27% in the previous year. However, a strong increase in demand for the new Vito in the first five months of 2012 has since led to significant gain in market share.

In April 2011, a year in advance of the implementation of the Euro V regulations, we introduced a new diesel version of the Mercedes Vito. This improved model incorporates Mercedes-Benz's Blue Efficiency technology, which places the vehicle in a lower road tax band and comes with an improved suspension giving a better ride and increased fuel savings.

Used taxis

Used taxi sales followed the decline in new Vito sales, with revenues reduced to £3.7m (2010: £4.2m) of which Vito sales accounted for 41% (2010:25%). 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 decreased by 23% to 267 (2010: 345).

After Sales Division - Service, Bodyshop and Parts

Revenues from after sales service and bodyshop were £2.9m (2010: £3.1m), while gross margins slightly increased to 68.2% from 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 generated by LTI taxis have also been lowered due to price pressure from local "under the arches" garages. During the first five months of 2012 the Group has taken a number of steps to improve the performance of the after sales division including cost reductions, renegotiation of a number of the Group's leases and exploring additional revenue streams, some of which have already been implemented.

The parts business continued to supply the local taxi community with LTI parts. Revenues decreased by 26% to £2.3m (2010: £3.1m) resulting in a £0.3m reduction in operating profits to £0.1m (2010: £0.4m).

Transfer of Vito production to Mercedes-Benz

In July 2011 the Group transferred 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 transfer enabled the Group to substantially de-risk its business as well as focus on its key strengths. There are no additional cash costs associated with the transfer of responsibility to Mercedes-Benz.

One80 Limited entered into a license agreement which provides a fixed license fee per Vito taxi produced with a minimum guaranteed level of 450 units per annum. The transition enabled the Company to reduce One80 Limited's cost base significantly and move One80 Limited into an EBITDA positive position moving forward.

Outlook

Despite the difficult economic conditions, trading has materially improved so far in 2012 with a strong growth in new taxi sales during the first five months of 2012. Based on Transport for London (TfL) data, the Mercedes Vito doubled its share of the new London licensed taxi market to 38% in the first five months of 2012, from a 19% share in the same period last year. New Vito taxi licenses increased by 183% to 289 vehicles in the first five months of the year compared with 112 in the same period last year, and only 331 in the whole of 2011. This means that new licenses in the first five months of 2012 were equivalent to 87% of the annual license sales achieved last year.

The transfer of second-stage manufacturing of the Vito taxi to Mercedes Benz enabled the Group to focus on its core strengths and streamline costs, making savings in all areas of the business amid continuing challenging trading conditions. With our share of the London new taxi market hitting a new record in the first five months to May 2012 and lower age limits for London licensed taxis expected to create a potential long term replacement market of approximately 3,000 vehicles, the Board continues to look to the future with confidence and to the Group's return to recurring operating profit.

Peter DaCosta

22 June 2012

Finance Director's Review 

Key performance indicators

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.

Sales of new Vito taxis have decreased by 22% in the period under review to £11.1m (2010: £14.2m) and margin reduced to 5.1% (2010: 9.6%). Registrations of the Mercedes-Benz Vito have decreased to 355 units from 477 units. Revenues from used vehicle sales decreased by 12% to £3.7m (2010: £4.2m), as a result of fewer part-exchange transactions caused by a reduction in new taxis sales.

Following the termination of the LTI dealership in July 2010 the Group has negotiated new contracts to continue sales of used vehicles, parts and service of LTI vehicles. As a result of the decrease in used car sales and market conditions, parts revenue reduced by 26% to £2.3m (2010: £3.1).

The after-sales business continues to be impacted by the recession with reduced levels of servicing and increased competition from small garages that fall under the VAT threshold. The reduction in LTI revenues has been mitigated by Mercedes-Benz related revenues almost doubling compared to the prior year and contributed to the £0.2m fall in revenue for this division, however segment profit increased by £0.1m.

The results for the year consolidate the accounts of One80 Limited following the acquisition of additional shares in November 2010 increasing the Group's shareholding to 59%. One80 Limited trading was affected by disruptions to production, as a result of the transition to the newly developed Euro V Vito taxi model and the transfer of the second stage manufacture to Mercedes-Benz, causing a significant reduction in units produced to 375 (2010: 538). With Euro IV Vito taxis being discounted, the profit per vehicle made by One80 Limited was also substantially reduced. Regional sales, stocking and warranty costs incurred resulted in a small gross profit. Amortisation and depreciation of £0.5m were incurred mainly due to amortisation of development costs for both the original Vito taxi and significant further development costs for the new Euro V model. As a result One80 Limited's operating loss for the period amounted to £1.1m.

In the first five months of 2012 the Group continued the implementation of a rationalisation plan to reduce costs and streamline processes in all areas of the business. These steps include cost reductions, renegotiation of a number of the Group leases and exploring additional revenue streams, some of which have already been implemented.

Central overheads have increased due to the first full year of consolidation of One80 Limited, but running costs for constituent parts of the business remain broadly unchanged.

Non-recurring items

The Group has incurred £0.5m of non-recurring costs in the year compared with £0.1m in the prior year. The increase is mainly due to £0.2m related to the transfer of production to Mercedes-Benz and related contractual liabilities and £0.25m due to a review of certain fixed asset useful economic lives.

Finance costs

Finance costs of £0.5m (2010: £0.3m) were incurred with the main increase due to £0.1m fair value movement on the interest rate swap and £0.1m owing to the increase in stock and usage of the Company's stocking facilities.

Inventory

Inventories increased by £1.1m mainly due to the increase in consignment stock as Euro V stock levels increased in preparation for the launch of the new model.

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 £1.3m.

Post Balance Sheet events

In January 2012 the Group has increased its shareholding in subsidiary One80 Limited from 59% to 76.6% as a result of subscribing in a £0.23m rights issue by One80. Prior to this in August 2011 One80 also raised a loan of £0.25m which has been utilised along with the rights issue to decrease the liability outstanding to Eco City Vehicles plc.

In May 2012 the Group entered into an agreement with the Pension Scheme to provide the Group with a short term loan of £0.5m to provide working capital for the continued growth of the business.

Working capital

Net working capital (being net movement in stock, trade and other debtors and trade and other creditors) decreased by £1.7m in the year (2010: increase £0.8m) mainly due to £0.8m reduction in trade and other receivables, £1.9m increase in trade and other payables of which £1.1m relates to increase in consignment stock liabilities offset by £1.1m increase in consignment stock in relation to stock of Euro V vehicles.

Cash balances and funding

Cash balances at year end were £0.2m (2010: £0.1m) while net debt increased by £0.3m to £3.1m (2010: £2.8m). The Group debt is composed of £1.6m bank mortgage and overdraft facility (2010: £1.8m), £1.0m Pension Scheme loan (2010: £0.85m) and £0.6m of other loans (2010: £0.3m). The Group has agreed total facilities for vehicle stock of £5.0m, with £4.5m being utilised at the year end. Cash flow from operating activities was £0.3m inflow (2010: outflow 0.7m) due to working capital movements and in particular the increase in trade and other payables.

During the year the Group entered into a number of loan agreements with KPM-UK Taxis Plc Discretionary Pension Scheme ("Pension Scheme"), whose beneficiaries are Peter DaCosta, Michael Troullis and Keith Marder. The Pension Scheme provided the Company additional loans in total of £0.35m for a period between one year and five years. The Pension Scheme holds a first fixed and floating charge over the assets of the Group, excluding the leasehold property. The provision of the loan under the agreement is classified as a related party transaction for the purposes of the AIM Rules for Companies. The outstanding balance with the Pension Scheme as at 31 December 2011 was £1.0m (2010:£0.85m) and £1.25m as at 31 May 2012.

In August 2011 One80 Limited received a short term loan in total of £0.25m secured against the assets of One80 Limited. The loan is repayable upon demand.

The Group had a net cash outflow of £0.1m from investing activities (2010: outflow £0.6m) representing the Company's investment in its plant and equipment less proceeds from disposal.

The Group had a cash outflow from financing activities of £0.1m (2010: inflow £1.7m) representing the loan from the Pension Scheme and a £0.25m loan to One80 Limited offset by loan repayments, finance costs and lease costs for demo vehicles.

The Group's banking covenants were waived at the year-end and in March 2012 on an on-going basis.

Going Concern

Despite the difficult economic conditions, the Group's trading has materially improved so far in 2012 with a strong recovery in new taxi sales during the first five months of 2012. Based on Transport for London (TfL) data, the Mercedes Vito increased its share of the new London licensed taxi market to 38% in the first five months of 2012, doubling from a 19% share in the same period last year. New Vito taxi licenses increased by 183% to 289 vehicles in the first five months of the year compared with 112 in the same period last year, and only 331 for the whole of 2011. This means that new licenses in the first five months of 2012 were equivalent to 87% of the license sales achieved for the whole of last year.

After-sales continue to face challenging market conditions although some progress has been made by initiating further costs reductions coupled with the surrender of a number of the Company long term leases. The Company is also in discussions with a number of work providers to diversify and provide further volume to the after sales division.

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 has also taken into account some of the cost reduction initiatives that had already taken place and further actions in progress including a lease surrender and termination of another lease. The Group also considered sensitivities to these forecasts to review the impact on the results and cash balances. On top of the above actions the Group expects to be able to raise further funds in the market if required to meet any shortfall.

KPM-UK Taxis Plc discretionary pension scheme has agreed in May 2012 to aid the continual growth of the business by providing loans totalling £0.5m. To date trading for 2012 is in-line with expectations and the Group is continuing with measures to reduce costs and to consider alternative funding options.

Ran Oren

22 June 2012

Eco City Vehicles PLC

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011

 Eco City Vehicles PLC

Consolidated statement of financial position

As at 31 December 2011

Eco City Vehicles PLC

Consolidated statement of changes in equity

As at 31 December 2011

Eco City Vehicles PLC

Consolidated statement of cash flows

For the year ended 31 December 2011

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.

Going concern

Despite the difficult economic conditions, the Group's trading has materially improved so far in 2012 with a strong recovery in new taxi sales during the first five months of 2012. Based on Transport for London (TfL) data, the Mercedes Vito increased its share of the new London licensed taxi market to 38% in the first five months of 2012, doubling from a 19% share in the same period last year. New Vito taxi licenses increased by 183% to 289 vehicles in the first five months of the year compared with 112 in the same period last year, and only 331 for the whole of 2011. This means that new licenses in the first five months of 2012 were equivalent to 87% of the license sales achieved for the whole of last year.

After-sales continue to face challenging market conditions although some progress has been made by initiating further costs reductions coupled with the surrender of a number of the Company long term leases. The Company is also in discussions with a number of work providers to diversify and provide further volume to the after sales division.

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 has also taken into account some of the cost reduction initiatives that had already taken place and further actions in progress including a lease surrender and termination of another lease. The Group also considered sensitivities to these forecasts to review the impact on the results and cash balances. On top of the above actions the Group expects to be able to raise further funds in the market if required to meet any shortfall.

KPM-UK Taxis Plc discretionary pension scheme has agreed in May 2012 to aid the continual growth of the business by providing loans totalling £0.5m. To date trading for 2012 is in-line with expectations and the Group is continuing with measures to reduce costs and to consider alternative funding options.

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 2011.

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, 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.

Cashflow statement restatement

The prior year cashflow has been restated. The loss for the year is now stated as the loss before tax. The effect has been to increase the loss before tax by £17,000 and to increase the adjustments by £17,000. In addition net cash generated from share issue of £1,196,000 has been reclassified from investing to financing activities. These restatements had no impact on the consolidated statement of financial position and therefore a third consolidated statement of financial position has not been presented.

2. Operating (loss)/profit

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

3.  Non-recurring items

The operating loss for the year ended 31 December 2011 of £2.1m in total is stated after non-recurring items totalling £0.5m shown below:

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 £3,410,000 (2010: £2,855,000) have not been recognised as deferred tax assets due to uncertainty over the timing of future profits.

5. Loss per share 

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

6. Goodwill

During 2010 the Group acquired a further 25.7% of One80 Limited for a cash consideration of £640,000 and further consideration of £324,000 is due in the form of share capital in the form of 1,620,000 ordinary 1p shares at a premium of 4p. These shares have not been issued and an accrual has been made for this element of the consideration. This is subject to an agreement on the valuation of One80 Limited, which is yet to be agreed by the Company.

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 six year period to 31 December 2017, discounted at 15%, when the next model update is due. As the assessment demonstrates value in use to be well in excess of carrying value, no impairment loss has been identified and the calculations are not considered to be especially sensitive to changes in underlying assumptions.

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 six year period to 31 December 2017. Other major assumptions are as follows:

Discount rate 15%

Operating margin 44%

Wage inflation 2%

7. Borrowings