Preliminary summary of the effects of adopting IFRS 

LASSILA & TIKANOJA PLC  STOCK EXCHANGE RELEASE   26 OCTOBER 2004 8:00 AM

LASSILA & TIKANOJA: PRELIMINARY SUMMARY OF THE EFFECTS OF ADOPTING IFRS

As of January 1, 2005, Lassila & Tikanoja will adopt the International Financial Reporting Standards (IFRS) in its financial reporting. Prior the adoption of IFRS Lassila & Tikanoja has reported under Finnish Accounting Standards (FAS). The transition date for Lassila & Tikanoja is 1 January, 2004. The company is required to prepare its opening IFRS balance sheet of the transition date.

Before the disclosure of the first quarter results of 2005, Lassila & Tikanoja will disclose a release explaining the detailed effects of adopting IFRS on the financial information of the company and including the comparison figures for the financial year 2004.

The significant estimated effects of the adoption of IFRS are explained in the following preliminary summary.


EFFECTS ON SHAREHOLDERS’ EQUITY

Pension benefits
It is not known yet whether the disability pension part of the Finnish statutory pension system will be handled in IFRS as a defined benefit plan or as a defined contribution plan as of the year 2005. In the opening balance sheet it will most probably be handled as a defined benefit plan. This means that a liability net of deferred tax assets reducing the shareholders’ equity shall be recorded. Determined on the basis of the Employment Pension Act entering into force in 2005, the liability amounts to EUR 10.3 million. This liability will reduce the shareholders’ equity by EUR 7.3 million.

Derivatives agreements
Lassila & Tikanoja's derivatives agreements are interest-swap agreements to which it will be possible to apply hedge accounting. According to this, changes in the current values of the agreement will be recorded under shareholders' equity in the balance sheet. The negative effect on the shareholders’ equity at the date of transition will be EUR 1.1 million net of deferred tax assets.

Finance leases
The Environmental Services division rents out to customers equipment, such as waste compactors, that has been entered under Lassila & Tikanoja's fixed assets. Some of the rental agreements are interpreted as finance lease agreements under the IFRS and their treatment will change accordingly. The present values of future lease payments are immediately entered as income and they will be recorded as trade receivables, and equipment will not be entered in the books under the company's fixed assets. Each item of lease payment will be divided into interest and as a reduction of trade receivables. The finance lease entries will have a positive effect of EUR 0.5 million on the shareholders’ equity.

Revenues
The revenue principle for tyre recycling and construction waste will change. This will have a negative effect of EUR 0.8 million on the shareholders’ equity.

Cost of inventories
In the future, the fixed production overhead costs will be recognised as part of the costs of conversion of inventories. This will have a positive effect of EUR 0.1 million on the shareholders’ equity.

Revaluations
According to the first-time adoption standard, depreciation is made on revaluations of buildings. The cumulative depreciation decreases the shareholders’ equity by EUR 1.2 million.

Treatment of taxes
The treatment of deferred taxes will change, e.g. the deferred tax liability arising from goodwill allocated to buildings and the remaining revaluation of property will be entered in the books. These changes will reduce the shareholders’ equity by EUR 1.7 million. In addition, deferred taxes will be recorded for all the transition entries described above according to IAS 12. 

Other effects
On the basis of IFRS 2, expenses arising from stock options 2002B and 2002C will be entered in the statement of income. These entries have no effect on the net shareholders’ equity of the opening balance sheet.

The book-entry principle and accounting method for the provision relating to the post-treatment cost of the landfill site at Kerava will change. This will have only a minor effect on the shareholders’ equity at the date of transition. In IFRS, minority interest is shown under shareholders’ equity.


OTHER KEY DIFFERENCES IN THE PRINCIPLES FOR PREPARING THE FINANCIAL STATEMENTS

Statement of Income
Lassila & Tikanoja uses in FAS a function of expense method that it will continue to use with the IFRS reporting. Some cost items will, however, be redefined. Therefore, it will not be possible to compare the gross profit with the present one.
 

Segment reporting
Lassila & Tikanoja's primary segment reporting is based on the business segments that are formed from the present divisions. Inter-segment sales will be reported separately and they will be included in segment revenues. Some of the fixed costs will no longer be allocated to the divisions because the present allocation principles do not meet the IFRS requirement in every respect. In the future, cost items including the general overheads and administrational costs will be unallocated.

The divisions are divided into product lines that will also form the cash generating units. The Latvian sub-group will also form a cash generating unit. Transferring to segment reporting will not cause major changes to Lassila & Tikanoja's accounting system, because the company has previously prepared the statements of income and ROI calculations by division and product line.
 
Goodwill
According to IFRS, goodwill will not be written off but a goodwill impairment test will be carried out based on the conditions at the date of transition and after that annually. These tests have been carried out for the cash generating units. On the basis of the tests no reductions on the values will be required. New corporate acquisitions since the year 2004 will create not only goodwill that can not be written off but also intangible assets that will be depreciated over their useful life. Acquisition cost calculations for corporate acquisitions made before the year 2004 will not be remade to comply with IFRS 3 but the first-time adoption standard will be applied.

  
PRELIMINARY ESTIMATES OF THE EFFECTS OF IFRS ON THE SHAREHOLDERS’ EQUITY AS OF 1 JANUARY, 2004

A summary of the effects of the adoption of IFRS on the shareholders’ equity of Lassila & Tikanoja Group.

PRELIMINARY ESTIMATES OF THE EFFECTS OF IFRS ON THE OPENING BALANCE SHEET AS OF 1 JANUARY, 2004

Helsinki, 25 October 2004


LASSILA & TIKANOJA PLC
Board of Directors



For additional information please contact Sirkka Tuomola, Vice President and CFO, tel. +358 10 636 2883