Interim Report 1 January - 30 June 2004 

27 July 2004  8.30 am

Net sales: EUR million 161.0 (EUR 149.9 million)
Operating profit: EUR 14.1 million (EUR 14.3 million)
Earnings/share: EUR 0.56 (EUR 0.52)
Return on invested capital (ROI): 15.1% (16.9%)
Net sales are expected to grow and results for the entire year are expected to be about the same as those for 2003.


NET SALES AND FINANCIAL RESULTS

Lassila & Tikanoja’s net sales in the second quarter totalled EUR 84.6 million (EUR 78.1 million). The operating profit was EUR 9.9 million (EUR 9.5 million), which was 11.7% of net sales (12.1%)

Net sales for six months went up by 7.4% to EUR 161.0 million (EUR 149.9 million), 5.8 percentage points of the increase coming from corporate acquisitions. The earnings per share were EUR 0.56 (EUR 0.52). Environmental Services exceeded its target, but Property Services’ results weakened. The results of Industrial Services were adversely affected by the low demand for its services at the beginning of the year, although it strengthened in the second quarter.

Environmental Services

Net sales by Environmental Services (waste management, recycling services, environmental products) amounted to EUR 75.7 million (EUR 66.3 million), an increase of 14.1%. The operating profit grew by 12.9% and was EUR 10.4 million (EUR 9.2 million). Net sales by waste management and recycling services went up and results improved. The improvement in profitability was mainly a result of the growth in the volume of recycling materials at the company’s own plants. The new recycling plant in Oulu will commence its operations during the summer, and Latvia’s first recycling plant will be constructed in Riga during the final part of the year. The net sales and results of environmental products fell because of a weakening in demand.

Lassila & Tikanoja and the Finnish Road Enterprise established a joint venture company called Salvor Oy. The company, in which both parties have a 50% interest, specializes in treatment services of industrial by-products, soil remediation and the construction of landfill barrier systems. It started its operations at the beginning of July.

Property Services

Net sales by Property Services (property maintenance and cleaning services) totalled EUR 59.6 million (EUR 56.7 million), an increase of 5.2%. The operating profit was EUR 2.0 million (EUR 3.1 million), a fall of 36.2%. The results were adversely affected by the renewal of contracts with smaller volumes than previously. Particular consideration was given to the efficiency of sales and increasing customer contacts, and the effects of the measures can already be seen.

Lassila & Tikanoja’s position on the property services market is strengthening as one of the biggest competitors in the sector is being eliminated from the market through a corporate acquisition.

Industrial Services

Net sales by Industrial Services (hazardous waste management, industrial cleaning, damage repair services and sewer maintenance) were EUR 25.7 million (EUR 26.9 million), a fall of 4.3%. The operating profit was EUR 1.6 million (EUR 1.9 million). Most of the reduction in the net sales was the result of the termination in 2003 of the unprofitable units in damage repair services and industrial cleaning. Savings programmes in the pulp and paper industry at the beginning of the year cut demand dramatically in industrial cleaning.

Industrial Services’ profitability in the second quarter was good. In the spring hazardous waste management introduced a new production plant that processes fixed oily hazardous waste and succeeded in other ways in raising the level at which hazardous waste is recycled. Pent-up demand from industry started to burst through in the second quarter, which improved industrial cleaning’s profitability. The measures taken to put damage repair services on a sound footing had the planned effect and results improved markedly.



FINANCING

Interest-bearing liabilities amounted to EUR 10.2 million more than a year earlier and to EUR 13.7 million more than at the end of the previous financial year. Net financial expenses were 1.3% (1.3%) of net sales and 14.4% (13.9%) of operating profit. EUR 4.0 million was tied up in working capital during the review period (EUR 3.5 million). Cash flow/share  decreased due to different timing of tax payments than the previous year. The equity ratio was 35.2% (36.8%) and the gearing rate 113.2 (101.5).



INVESTMENTS

Gross investments totalled EUR 22.5 million (EUR 19.9 million). Machinery and equipment was replaced and production premises were bought and expanded. In January Vatostep Oy, a company specialising in utilisation of discarded paper from paper and board mills was acquired. The net sales of Vatostep Oy amounted to EUR 6.3 million in 2003. In addition, six minor company acquisitions were made. The total annual net sales of the companies acquired during the period were EUR 11.4 million. Depreciation came to EUR 14.4 million (EUR 12.4 million).


CORPORATE GOVERNANCE

The Board of Directors decided on 23 June 2004 that Lassila & Tikanoja plc complies with the Corporate Governance Recommendation for Listed Companies by HEX Plc, the Central Chamber of Commerce of Finland and the Confederation of Finnish Industry and Employers that entered into force on 1 July 2004.

The Annual General Meeting held on 18 March 2004 re-elected Mr Lasse Kurkilahti and Mrs Soili Suonoja to the Board of Directors. The Board of Directors comprises the following persons: Heikki Hakala, Lasse Kurkilahti, Juhani Lassila, Juhani Maijala and Soili Suonoja. Juhani Maijala is Chairman and Heikki Hakala Vice Chairman of the Board of Directors.

PricewaterhouseCoopers Oy, Authorised Public Accountants, were elected auditors. Principal Auditor is Heikki Lassila, Authorised Public Accountant.



AUTHORISATION FOR THE BOARD OF DIRECTORS

The Board of Directors is not authorised to effect any share issues or to launch a convertible bond or a bond with warrants. Neither is the Board authorised to decide on the repurchase nor disposal of the Company’s own shares.



COMPANY SHARES

The volume of trading in Lassila & Tikanoja plc shares on the Helsinki Exchanges from January through June was 4,697,881, which is 29.7% of the number of shares. The value of trading was EUR 127.9 million. The trading price varied between EUR 25.00 and EUR 30.70. The final trading price was EUR 26.50. The market capitalisation was EUR 419.4 million on 30 June 2004. The total number of shares is 15,826,308.

On 5 April 2004, Tapiola Group reported in accordance with section 9, chapter 2, of the Securities Markets Act, that the holding of Tapiola Group had decreased to 4.88% of the share capital and votes of Lassila & Tikanoja plc. The company released a stock exchange announcement accordingly.


STOCK OPTIONS

The Annual General Meeting of 2002 decided to issue a maximum of 400,000 stock options to key personnel of Lassila & Tikanoja and to a wholly-owned subsidiary of Lassila & Tikanoja plc. Each stock option entitles its holder to subscribe for one share of Lassila & Tikanoja plc. To each share one voting right is attached. As a result of such share subscription, the number of shares of Lassila & Tikanoja plc may increase by a maximum of 400,000 new shares, which is 2.5 per cent of the current total number of shares and voting rights.

So far the key persons have been entitled to subscribe for 130,000 2002A stock options, 128,000 2002B stock options and 137,000 2002C stock options. 28 key persons have been entitled to subscribe for the stock options. The share subscription price for the 2002A stock options is EUR 19.14 and for the 2002B stock options EUR 17.46. These subscription prices have been reduced by the amount of the dividends for the years 2002 and 2003 which exceeds 70% of the profit per share for the year. The share subscription price for the 2002C stock options is EUR 26.34.

Lassila & Tikanoja’s 2002A stock options have been listed on the Helsinki Exchanges since 3 May 2004. With these stock options 2,500 new shares have been subscribed on 3 May – 21 July 2004. The new shares should be available for public trading on the Helsinki Exchanges Main List on 11 August 2004 together with the existing shares.


STOCK EXCHANGE RELEASES IN CONFORMANCE WITH ARTICLE 7, CHAPTER 2 OF THE SECURITIES MARKETS ACT

On 18 March, 2004, the company issued a stock exchange release announcing that the Board of Directors of Lassila & Tikanoja plc has resolved to apply for listing of stock option rights 2002A of the 2002 stock option scheme on the main list of the Helsinki Exchanges so that the listing will commence on 3 May 2004. With the 2002A stock option rights a maximum of 130,000 Lassila & Tikanoja plc shares can be subscribed. The subscription period is from 2 May 2004 to 30 October 2005.


IFRS TRANSITION PROJECT

The transition day for meeting the IFRS provisions on comparative information was 1 January 2004. Finnish accounting standard will continue to be the accounting policy until 2005, but the balance sheet for 1 January 2004 and the financial statement as well as interim reports for 2004 will also be prepared in accordance with IFRS reporting for comparison purposes.

The disability pension part of the Finnish statutory pension system will be handled as defined-benefit-based in IFRS. This means that a liability reducing the shareholders’ equity shall be entered. The amount of the liability is not known until actuaries have determined the effect of the new Finnish statutory pension system law entering into force in 2005 on the pension calculations.

According to the present impression, the introduction of IFRS standards will not have any other material effect on the shareholders' equity on the transition day than the change in the treatment of the Finnish statutory pension system.

Key differences between the present accounting policies and the ones under IFRS are presented in Annual Report 2003 as well as on the company’s Internet pages www.lassila-tikanoja.com.



PROSPECTS FOR THE REST OF THE YEAR

General market prospects in the company’s divisions are still good. The market situation in Environmental Services continues to be stable and an improvement is expected in the market situation of Property Services and Industrial Services. Investment projects are proceeding as planned and expansion abroad is advancing cautiously.

Net sales are expected to grow in line with long-term targets. Results for the entire year are expected to be about the same as those for 2003. The target is challenging, particularly in Property Services.



STATEMENT OF INCOME

* Taxes on the profit for the period under review.


The fall in the Finnish corporation tax rate from 29 per cent to 26 per cent reduced the deferred tax liability and the taxes in the statement of income by EUR 668,000 during the first six months of 2004.

BALANCE SHEET

KEY FIGURES

EVA = Operating profit – cost calculated on invested capital (average of four quarters), WACC = 9.0



CASH FLOW STATEMENT

FIGURES BY DIVISION

NET SALES

OPERATING PROFIT

QUARTERLY FIGURES

CONTINGENT LIABILITIES

DERIVATIVE CONTRACTS

The figures have not been audited.


Helsinki, 26 July 2004

LASSILA & TIKANOJA PLC
Board of Directors


Juhani Maijala
Chairman


For additional information please contact Jari Sarjo,
President and CEO, tel. +358 10 636 2810.