INCAP CORPORATION PUBLISHES IN THE PROSPECTUS ITS WORKING CAPITAL STATEMENT AND PRO FORMA INFORMATION ON THE INCAP-INISSION GROUP

Incap Corporation        Stock Exchange Release 16 October 2013 at 6.45 p.m.

INCAP CORPORATION PUBLISHES IN THE PROSPECTUS ITS WORKING CAPITAL STATEMENT AND PRO FORMA INFORMATION ON THE INCAP-INISSION GROUP

Incap Corporation (“Incap” or “the Company”) has published preliminary pro forma information on the conditional business restructuring (“the Transaction”) between Incap and Inission AB (“Inission”) on 20 August 2013. Further, on 29 July 2013, the Company issued a stock exchange release, in which it announced that the new shares subscribed for in the previously announced directed share issue and in the conversion of the convertible loan issued in 2012, would be listed for public trading on NASDAQ OMX Helsinki, and to serve this purpose, the Company would prepare a Prospectus.

In its stock exchange release of 20 August 2013, the Company announced that it would complement the preliminary pro forma figures in the Prospectus. Today, the Company announced that the Prospectus has been approved by the Financial Supervisory Authority and will be published.

With this release, the Company presents the working capital statement, which has not been disclosed previously and complements the preliminary pro forma information published on 20 August 2013 on the Transaction. The working capital statement and the complementary pro forma information are included in the Prospectus approved by the Financial Supervisory Authority on 16 October 2013.

Working capital statement

Based on the cash flow estimate Incap does not have sufficient working capital on this date of the Prospectus for the company’s needs for the forthcoming 12 months. The Company estimates that the additionally needed working capital amounts to approximately EUR 1.5-2.5 million.

The Company’s working capital is, however, sufficient for the forthcoming 12 months, if the following provisions are met:

  • The action plan launched by the Company is successful and the Company reaches the targets set for efficiency improvement and cost savings 

  • The Company reaches the estimated profitability targets in the way that the Company has sufficient means to cover the debt instalment of EUR 1.3 million by the end of September 2014 

  • The covenants for the bank loans are met or in case the covenants are not met, the bank does not use its right to call in the loans.   

The Company published on 15 October an action plan, which is aimed at ensuring the sufficiency of working capital. Major actions of the plan are the adaption of production capacity according to demand and the increase of efficiency by streamlining organisation structure, thinning administration and cutting costs.

Pro forma information included in the Prospectus

Most essential change in the complementary pro forma information published in the Prospectus, when compared with the preliminary pro forma information published on 20 August 2013, is that the pro forma figures released now include all IFRS-adjustments caused by the arrangement. The respective clarifications were not finished yet when preliminary pro forma information was given to the General Meeting held on 21 August 2013. As a result of the clarifications the consolidation is considered to fill the criteria of a reverse acquisition in line with the IFRS 3 standard.

The following tables present unaudited pro forma financial information on the Incap-Inission Group as though the Transaction had been completed:

  • on 1 January 2012 (unaudited pro forma income statement for the 12-month period that ended on 31 December 2012 and unaudited pro forma income statement for the 6-month period that ended on 30 June 2013); and 

  • on 30 June 2013 (unaudited pro forma balance sheet).  

The unaudited pro forma financial information presented below has been prepared in accordance with the IFRS standards adopted by the EU.

The unaudited pro forma financials are based on financial information from the following sources:

  • The unaudited pro forma balance sheet of 30 June 2013 is based on Incap’s unaudited consolidated balance sheet of 30 June 2013 and Inission’s unaudited balance sheet of 30 June 2013. 

  • The unaudited pro forma income statement for the 12-month period that ended on 31 December 2012 is based on Incap’s audited consolidated income statement for the financial period that ended on 31 December 2012 and Inission’s unaudited income statement for the financial period that ended on 31 December 2012. 

  • The unaudited pro forma income statement for the 6-month period that ended on 30 June 2013 is based on Incap’s unaudited consolidated income statement of 30 June 2013 and Inission’s unaudited income statement of 30 June 2013. 

The unaudited pro forma financial information presented below has been prepared for the purpose of illustration. The information describes a hypothetical situation. Accordingly, the information does not describe Incap’s actual financial position or result. For this reason, the unaudited pro forma financial information does not constitute an exact description of what Incap’s financial position and result would have been if the Transaction had been carried out at the time or what Incap’s or the Incap-Inission Group’s result would be for a future period of time or what their financial position would be at a given time. The unaudited pro forma financial information does not describe the effects of the estimated synergies and increased efficiency resulting from the Transaction.

The Inission figures include the subsidiaries of Inission (Inission TRIAB AB, Inission Göteborg AB, Inission Munkfors AB, Inission Tallinn OÜ and Inission MikroMakarna AB) but not the parent company Inission AB.

In Inission’s income statement 2012 the subsidiaries’s figures are audited, but neither the exchange from Swedish Crown to Euro nor the consolidation has been separately audited. The average exchange rates used are as follows: in Inission’s income statement 2012 8.684, in income statement 2013 8.556 and in balance sheet 30 June 2013 8.777. The figures in column “Inission’s income statement 2012″ include eliminations amounting to 5,365,000 Euros, and the figures in column ” Inission’s income statement 1-6/2013″ include eliminations amounting to 3,023,000 Euros. Eliminations of the trade between Inission’s subsidiaries are related to the eliminations of Inission Group’s internal revenue and internal material use. There are no eliminations included in the balance sheet items.  

PRO
FORMA
INCOME
STATEMENT
Incap’s
income
state-
ment
2012
Inission’s
income
state-
ment
2012
IFRS
adjust-
ments
Pro
forma
adjust-
ments
Note Pro
forma
adjust-
ments/
Mikro
Ma-karna
Consoli-
dated

pro
forma
figures
2012
(IFRS) (SAS*) (IFRS)
(audited) (audited) (unaudited)
(EUR 1,000)
Revenue 64,141 23,580 0 6,704 94,425
Change in inventories of finished goods
and work in progress
-643 0 0 -55 -698
Other operating income 404 0 0 10 414
Raw materials and consumables used 44,315 12,940 0 3,766 61,021
Personnel expenses 11,087 6,263 0 1,717 19,067
Other operating expenses 7,721 2,973 -39 577 4 305 11,537
Operating profit/loss before depreciation, amortisation and impairment losses (EBITDA) 779 1,404 39 -577 871 2,516
Depreciation, amortisation and impairment losses 1,460 112 33 0 80 1,685
Operating profit/loss (EBIT) -681 1,292 6 -577 791 831
Financial income and expenses -751 349 -335 -772 2 171 -1,338
Profit/loss before tax -1,432 1,641 -329 -1,349 962 -507
Income tax -3,498 428 -331 -405 -3,807
Profit/loss for the period -4,930 2,069 -660 -1,349 556 -4,314


PRO
FORMA
INCOME
STATEMENT
Incap’s
income
state-
ment
1-6/2013
Inission’s
income
state-
ment
1-6/2013
IFRS
adjust-
ments
Pro
forma
adjust-
ments
Note Pro
forma
adjust-
ments/
Mikro
Makarna
Consoli-
dated

pro
forma
figures
1-6/2013
(IFRS) (SAS*) (IFRS)
(unaudited) (unaudited) (unaudited)
(EUR 1,000)
Revenue 20,537 14,525 0 0 35,062
Change in inventories of finished goods
and work in progress
-357 0 0 0 -357
Other operating income 41 0 0 0 41
Raw materials and consumables used 12,729 7,116 0 0 19,845
Personnel expenses 4,955 4,088 0 0 9,043
Other operating expenses 3,528 1,733 -20 0 5,241
Operating profit/loss before depreciation, amortisation and impairment losses (EBITDA) -991 1,588 20 0 617
Depreciation, amortisation and impairment losses 855 75 17 0 947
Operating profit/loss (EBIT) -1,846 1,513 3 0 -330
Financial income and expenses -1,034 -5 28 199 2 -813
Profit/loss before tax -2,880 1,507 31 199 -1,143
Income tax -176 -55 -283 -514
Profit/loss for the period -3,056 1,452 -252 199 -1,657


PRO FORMA BALANCE SHEET Incap
30/6/2013
Inission
30/6/2013
IFRS
adjustments
Pro
forma
adjustments
Note Consoli-
dated

pro
forma
30/6/2013
(IFRS) (SAS*) (IFRS)
(unaudited) (unaudited) (unaudited)
(EUR 1,000)
NON-CURRENT ASSETS
Goodwill 905 0 0 9,878 1 10,783
Other intangible assets 64 2 0 0 66
Property, plant and equipment 2,093 432 99 0 2,624
Other financial assets 470 13 0 0 483
Deferred tax assets 356 375 -141 0 590
Total non-current assets 3,888 823 -42 9,878   14,547
 
CURRENT ASSETS
Inventories 6,695 5,657 0 0 12,352
Trade and other receivables 9,705 6,285 -9 0 15,982
Cash and cash equivalents 2,551 1,773 0 4,092 1,2 8,415
Total current assets 18,951 13,715 -9 4,092   36,748
Total assets 22,839 14,537 -51 13,970 51,295
EQUITY
Share capital 20,487 408 0 -408 1 20,487
Restricted reserves 44 928 1,541 -2,469 1 44
Invested non-restricted equity reserve 5,182 0 0 25,075 1,2,3 30,257
Translation differences -1,111 3 0 -3 1 -1,111
Retained earnings -30,497 3,688 -124 -1,136 1,2,3,4 -28,069
Total equity -5,895 5,027 1,418 21,059 21,609
NON-CURRENT LIABILITIES
Provisions 0 1,976 -1,976 0 0
Deferred tax liabilities 0 493 493
Interest-bearing liabilities 2,940 3,223 -43 -2,967 2 3,153
Total non-current liabilities 2,940 5,199 -1,526 -2,967   3,646
 
CURRENT LIABILITIES  
Interest-bearing liabilities 15,295 369 45 -3,029 2 12,681
Trade and other payables 10,499 3,942 13 -1,093 2,4 13,360
Total current liabilities 25,794 4,311 58 -4,122   26,041
Total liabilities 28,734 9,510 -1,469 -7,089 29,686
Total equity and liabilities 22,839 14,537 -51 13,970 51,295

* Swedish Accounting Standards

The unaudited pro forma income statement and balance sheet information on the entity created through the merger of Incap’s and Inission’s subsidiaries includes the following adjustments that are estimated to be non-recurring:

1) Acquisition cost estimate

Legally, Incap Corporation will be the parent company of the entity created through the business restructuring, and Inission’s subsidiaries will become Incap Corporation’s subsidiaries. In terms of accounting, however, the situation is different, as the business restructuring is regarded as a reverse acquisition in accordance with IFRS 3. In accounting, Incap Corporation will be the object of the acquisition, and Inission will be the subject of the acquisition. For this reason, the consolidated balance sheet at the time of the acquisition will consist of the adjusted consolidated balance sheet of Incap Corporation and the IFRS-adjusted balance sheets of the business operations transferred from Inission to Incap.

All of the pro forma adjustments to the balance sheets in accordance with IFRS 3 are tentative in nature and based on the assumption that the second phase of the business restructuring will be carried on as planned. Any adjustments to Incap Corporation’s balance sheet at the time of the acquisition require the fair value of the Incap Group’s identifiable assets and liabilities to be determined for the time of the acquisition. In accordance with IFRS 3, any asset items not included in Incap Corporation’s present consolidated balance sheet that fulfil the recognition criteria will be included in the consolidated balance sheet. The determination of the fair value of such identifiable assets, such as Incap Corporation’s customer relationships, cannot be completed until the second phase of the business restructuring (the phase related to the execution of the share option). For this reason, customer relationships have not been recognised as identifiable asset items in the pro forma calculations, and it is possible that the preliminary goodwill presented here will decrease when the acquisition cost estimate is complemented.

The acquisition cost is determined to be EUR 15.6 million, which is equal to the fair value of the consideration issued in conjunction with the merger of the business operations. It covers the first and second phases of the merger arrangement in progress. The fair value of the consideration has been determined in accordance with IFRS 3.B20. The consideration is based on the estimated number of shares that the accounting acquirer would have to transfer to the shareholders of the legal parent company in order to acquire a percentage of the new entity equal to that in the reverse acquisition if the second phase of the arrangement is carried out as planned.

The acquisition cost calculation is based on the following information and assumptions:

a) Incap Corporation’s market capitalisation on 30 June 2013.

b) The increase in Incap Corporation’s market capitalisation resulting from the pro forma adjustments. This increase is based on the immediate increase in cash and cash equivalents and decrease in debt resulting from the arrangement described in the pro forma adjustments, totalling EUR 11.6 million.

c) The estimated total number of shares issued in conjunction with the arrangement. The total number is based on the projected execution of the share subscription option in the second phase of the arrangement and on the Incap share price of EUR 0.17 at the time of pro forma calculations. The price level has been determined based on the fair value at the preparation date of the calculations and based on the probable price level. In the calculations, the total number of Incap Corporation shares at the end of the arrangement is approximately 165 million, of which Inission holds approximately 51%.

Preliminary acquisition cost calculation of 30 June 2013 for pro forma information:

Acquisition cost measured at fair value       EUR 15.6 million

The identifiable assets and liabilities of the accounting acquiree

measured at fair value in accordance with IFRS 3       EUR 5.7 million*

Goodwill       EUR 9.9 million

*The net assets of EUR 5.7 million include a goodwill of EUR 0.9 million before the arrangement.

2) Decrease in liabilities

The following debt cuts were included in the acquisition and merger agreement of 21 July 2013 as a condition for Inission’s participation in the share issue in the first phase of the arrangement (Inission had a holding of 26% at the time). In the pro forma information, these remissions of debts are recognised as transactions immediately resulting from the arrangement.

As a result, the debts in Incap Corporation’s balance sheet of 30 June 2013 have been cut (composition arrangement) as follows:

Non-current interest-bearing liabilities       EUR 0.2 million

Current interest-bearing liabilities       EUR 0.5 million

Current non-interest-bearing liabilities       EUR 2.0 million

In addition, the pro forma calculations include, in accordance with the agreement mentioned above, the conversion of EUR 4.8 million in interest-bearing liabilities into Incap Corporation’s invested non-restricted equity reserve and a repayment of EUR 0.5 million of the convertible loan with funds from the share issue in the first phase of the arrangement.

Incap Corporation’s interest-bearing and non-interest-bearing liabilities decreased by approximately EUR 8.0 million in the first phase of the arrangement.  After expert fees, the net decrease in liabilities amounted to EUR 7.1 million. Of the decrease approximately EUR 2.7 million fell to the composition of loans, interests and payables, approximately EUR 4.8 million to the conversion of convertible loan, bank loan and capital loan to shares, and approximately EUR 0.5 million to the repayment of convertible loan. The debt cuts and conversions into the invested non-restricted equity reserve in accordance with IAS 32 AG35, IAS 39.41 and IFRIC 19 resulted in a financial expense of EUR 3.2 million. Most of the expense consisted of changes in the share conversion conditions of the convertible loan in conjunction with the arrangement. In the pro forma information, the expense is recognised in financial expenses for 2012.

3) Share issues

A share issue was carried out in the first phase of the arrangement in July 2013, with Incap issuing approximately 86.6 million shares, of which Inission subscribed for 28.5 million shares. In conjunction with the share issue, EUR 4.8 million was recognised in the invested non-restricted equity reserve as a result of debt conversion and EUR 4.5 million from shares subscribed in cash. A total of seven investors subscribed the shares against cash, and of them Inission AB, Etra Invest AB and Onvest Oy made the biggest subscriptions. The Company’s management subscribed new shares by approximately EUR 0.1 million.

The pro forma information also includes the assumption that Inission will use its share subscription option in full in the second phase of the arrangement in accordance with the acquisition and merger agreement of 21 July 2013. For this reason, the estimated effect of the share issues (EUR 12.7 million) to be carried out in the second phase of the arrangement is included in Incap’s invested non-restricted equity reserve, based on the estimate of the fair value of the consideration in the acquisition cost estimate. Other items in the pro forma adjustment were related to the elimination of the equity of Inission’s subsidiaries on 30 June 2013, retained earnings on 30 June 2013 and goodwill.

4) Expert fees

The full execution of the acquisition and merger agreement is estimated to result in approximately EUR 0.9 million in non-recurring expert fees after 1 July 2013. This has been added to current non-interest-bearing liabilities as a pro forma adjustment on 30 June 2013. Expert fees from the share issue in the first phase have been recognised as a deduction of EUR 0.2 million in the invested non-restricted equity reserve. The rest are regarded as having been caused by a business combination in accordance with IFRS 3 and have been recognised through profit and loss in the pro forma information for the 2012 financial period. Of these non-recurring items, EUR 0.6 million is included in other operating expenses and EUR 0.1 million in financial expenses.

5) Pro forma adjustment related to MikroMakarna AB in the pro forma income statement for 2012

MikroMakarna AB is a subsidiary of Inission and will be transferred under the ownership of Incap in the second phase of the arrangement. Inission acquired MikroMakarna on 5 December 2012. Consequently, the company is included in Inission’s consolidated financial statements only for December 2012.

MikroMakarna’s income and expenses for 1 January to 30 November 2012 were included as a pro forma adjustment in the income statement of the new entity for 2012 in accordance with the Swedish Accounting Standards. The adjustment is based on MikroMakarna’s unaudited information for 1 January to 30 April 2012 and the subsidiary’s audited financial statements for 1 May to 31 December 2012. The IFRS adjustments based on MikroMakarna’s income and expenses are presented in the pro forma information as part of the adjustments in the “IFRS adjustments” column.

“IFRS adjustments” column

The information in the column is based directly, without adjustments, on an IFRS review prepared by Inission’s local auditor on 5 September 2013. The report was prepared for the purposes of the registration document and intended to identify key differences between subsidiaries’ local accounting practices and IFRS standards that have an effect on the result and balance sheet. An auditing firm has served as the auditor of Inission and its subsidiaries for the periods covered by the pro forma information.

The IFRS review describes key standards in need of IFRS adjustments and the related amounts in euros if the income statements and balance sheets of Inission’s subsidiaries for 1 January to 31 December 2012 and 1 January to 30 June 2013, prepared in accordance with the Swedish Accounting Standards, had been converted into IFRS. Inission has not prepared complete IFRS financial statements. For this reason, when the pro forma information was prepared, audited IFRS financial statements were not available for Inission’s subsidiaries that will be transferred to the new entity in the second phase of the arrangement.

Explanations of the most significant IFRS adjustments related to Inission’s subsidiaries:

Income statement for 2012

An increase of EUR 0.5 million in deferred tax liabilities in 2012 was recorded in deferred tax assets related to temporary differences. The adjustment eliminates the increase in deferred tax assets in Inission Munkfors AB’s income statement for 2012. After the adjustment, the subsidiary’s tax expenses for 2012 comply with IAS 12.

Appropriations made in subsidiaries’ local accounting for tax reasons have been eliminated through IFRS adjustments, which decreased deferred tax liabilities for 2012 by approximately EUR 0.2 million.

In the income statements of the Inission Group’s companies for 2012, prepared in accordance with local accounting practices, local appropriations increase financial income in the related column by EUR 0.3 million. This income item is not compliant with IFRS and has been eliminated in the “IFRS adjustments” column.

The rest of the IFRS adjustments are minor in amount and related to IAS 32/IAS 39 (Financial Instruments) and IAS 17 (Leases).

Income statement for 1 January to 30 June 2013

Key pro forma adjustments are based on the further effects of tax adjustments to the income statements for 2012. The increase in Inission Munkfors AB’s deferred tax liabilities is EUR 0.1 million, and the effect of the elimination of local appropriations made for tax reasons is an increase of EUR 0.2 million in tax liabilities for the period.

The rest of the IFRS adjustments are minor in amount and related to IAS 32/IAS 39 (Financial Instruments) and IAS 17 (Leases).

The Prospectus includes a report on the pro forma information prepared by the Company’s auditor.

INCAP CORPORATION

Fredrik Berghel
President and CEO

More information:
Kirsti Parvi, CFO, tel. +358 50 517 4569 or +372 555 620 35
Hannele Pöllä, Director, Communications and Investor Relations, tel. +358 40 504 8296

DISTRIBUTION
NASDAQ OMX Helsinki Ltd
Principal media
www.incap.fi

INCAP IN BRIEF
Incap Corporation is an internationally operating contract manufacturer whose comprehensive services cover the entire life-cycle of electromechanical products from design and manufacture to maintenance services. Incap’s customers include leading equipment suppliers in energy-efficiency and well-being technologies, for which the company produces competitiveness as a strategic partner. Incap has operations in Finland, Estonia, India and China. The Group’s revenue in 2012 amounted to EUR 64.1 million, and the company currently employs approximately 600 people. Incap’s share is listed on the NASDAQ OMX Helsinki. Additional information: www.incap.fi.

PLEASE NOTE

The information in this stock exchange release is not intended to be published or distributed, directly or indirectly, in the United States, Canada, Australia, Hong Kong, South Africa, Singapore or Japan. These written materials do not constitute an offer to sell securities in the United States, and securities must not be offered or sold in the United States unless they have been registered in accordance with the Securities Act of 1933 (including amendments) and provisions and regulations issued under the Act or unless the registration requirement has been waived. No part of the securities issue will be registered in the United States, and securities will not be offered to the public in the United States.

Certain states have special legal and legislative restrictions on the issue, use and sales of securities. The Company will not be responsible of any breaches of such restrictions.

This document must not be interpreted as an offer to sell or buy the securities mentioned in this document, and none of the securities will be sold in areas where it is illegal to offer, acquire or sell securities before their registration or before an exception has been made or approval has been issued in accordance with local securities legislation. Investors must not accept an offer on the securities or acquire any of the securities mentioned in this document unless their decision to do so is based on information included in a relevant prospectus published or distributed by the Company.

The Company has not issued an authorisation to offer securities to the public in any other member state of the European Economic Area than Finland. With the exception of Finland, no measures have been or will be taken to offer securities to the public in any member state of the European Economic Area that has adopted the Prospectus Directive (each “Relevant Member State”) in a manner that would necessitate the publication of a prospectus in a Relevant Member State. Consequently, securities can only be offered in Relevant Member States (a) to legal entities defined as “qualified investors” in the Prospectus Directive or (b) in any of the situations described in Article 3.2 of the Prospectus Directive. In this paragraph, the expression “offer securities to the public” refers to all forms of communication and the provision of sufficient information on the conditions of the offer and the securities for investors to be able to decide on the use, purchase or subscription of securities, covering all variations of the expression that ensue from the implementation measures carried out in a member state. The expression “Prospectus Directive” refers to Directive 2003/71/EC (including amendments and the Amendment Directive of 2010 to the extent in which it has been implemented in a Relevant Member State) and includes all relevant implementation measures in Relevant Member States. Furthermore, the expression “Amendment Directive of 2010” refers to Directive 2010/73/EU.

The information presented here is only intended for “relevant persons”, meaning (i) persons outside Great Britain or (ii) “investment professionals”, as described in Article 19.5 of the Financial Markets and Services Act 2000 (Financial Promotion) Order 2005 (“Order”) and (iii) “high net worth companies”, as described in Article 49.2 of the Order or other persons to whom the document can legally be communicated. All investment activities related to this document are only available to relevant persons and will only be carried out with relevant persons. Anyone who is not a relevant person must not act based on this document or trust its content.