Lassila & Tikanoja's comparative IFRS information 

LASSILA & TIKANOJA PLC  STOCK EXCHANGE RELEASE  4 APRIL 2005

LASSILA & TIKANOJA’S COMPARATIVE IFRS INFORMATION

As of 1 January 2005, Lassila & Tikanoja has adopted the International Financial Reporting Standards (IFRS) in its financial reporting.

The financial information according to IFRS for the year 2004 has been prepared in accordance with the standards in force in March 2005.

The transition to IFRS improves Lassila & Tikanoja’s result compared to the Finnish Accounting Standards (FAS) mainly due to the discontinuation of annual depreciations on goodwill. Goodwill arising from corporate acquisitions is no more written off but is tested annually for impairment.

The balance sheet total is also increased by different accounting principles applied for business combinations, assets leased by or to the company under finance lease agreements and increase in deferred tax liability.

A non-recurring pension liability amounting to EUR 10.5 million was recognised as revenue in the IFRS income statement for the year 2004. This entry is not included in the IFRS key figures presented below.


KEY FIGURES FOR 2004

*) Excluding the revenue revenue recognition of pension liability in the income statement

Lassila & Tikanoja’s interim report for January - March 2005 will be disclosed on  27 April 2005.

Helsinki, 4 April 2005

LASSILA & TIKANOJA PLC
Board of Directors

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




APPENDIX

LASSILA & TIKANOJA’S FINANCIAL INFORMATION FOR THE YEAR 2004 IN ACCORDANCE WITH IFRS

As of 1 January 2005, Lassila & Tikanoja has adopted the International Financial Reporting Standards (IFRS) in its financial reporting. Prior the adoption of IFRS Lassila & Tikanoja reported under Finnish Accounting Standards (FAS). The transition date for Lassila & Tikanoja is 1 January 2004. The company has prepared its opening balance sheet as of the transition date and comparative financial information for the year 2004 in accordance with IFRS. Lassila & Tikanoja uses the exemptions allowed for first-time adopters (IFRS 1) concerning IFRS 3 (Business Combinations) IAS 16 (Property, Plant and Equipment) and IAS 19 (Employee benefits). The most significant exemption used is the using of the carrying amount according to FAS as carrying amount of goodwill in the opening balance sheet.

Lassila & Tikanoja’s auditors have gone through the changes caused by the transition to IFRS.


CHANGES CAUSED BY IFRS TO ACCOUNTING PRINCIPLES AND FIGURES REPORTED FOR 2004

1.  FORMAT OF INCOME STATEMENT

Lassila & Tikanoja will continue to use with the IFRS reporting the function of expense method that it used under FAS. Some cost items have, however, been reclassified. Therefore, it will not be possible to compare the IFRS gross profit with the FAS one. The expenditure and depreciation caused by the data systems for production is the biggest transfer item. This expenditure has been transferred from administrative expenses to the cost of sales. In 2004 it amounted to EUR 4.4 million.

A pension liability amounting to EUR 10.5 million, EUR 7.3 million net of deferred taxes, was recognised as revenue in the income statement for the final quarter of the year 2004 due to the changes in the accounting principles for post-employment benefits. The income statement for the whole year is presented also without this non-recurring entry.


2.  DERIVATIVE AGREEMENTS

Lassila & Tikanoja’s derivative agreements are interest rate swaps. IFRS requires recognition of derivative agreements at their fair value. Hedge accounting is applicable only if there is documentation of the hedged risk and the effectiveness of hedging is verified regularly. Lassila & Tikanoja does not apply hedge accounting to derivative agreements valid on the transition date, but changes in the fair values of the agreements will be recognised in profit or loss. The negative effect on the equity at the date of transition is EUR 1.6 million (EUR 1.1 million net of deferred taxes).

In 2004, EUR 1.0 million from interest rate swaps has been entered in the finance income. The corresponding fair values of interest rate swaps have been entered in the balance sheet under trade payables and other non-interest bearing liabilities. In the opening balance sheet the liabilities amounted to EUR 1.6 million and on 31 December 2004 EUR 0.6 million.



3.  REVENUE RECOGNITION

The principle for the recognition of the revenues from the recycling of tyres and processing of construction waste will change: in the future it will be based on the degree of completion. In the recycling of tyres the revenues will be recognised after the tyres have been crushed. An accrual will be recorded for the lorry and processing costs for construction waste costs not yet generated by the accounting date. As a result of these changes, the equity in the opening balance sheet is reduced by EUR 1.1 million (after deferred taxes EUR 0.8 million). The effects of the changes on the balance sheet is minimal. The change will increase both the current and non-current non-interest-bearing liabilities.


4.  SHARE-BASED PAYMENT

According to IFRS 2, the costs of stock options 2002B and 2002C are entered in the income statement. The fair values of stock options 2002B and 200C allocated  before the end of the year 2004 have been determined in accordance with the Black & Scholes valuation model. External advisors have been consulted in the valuation process. The fair value at grant date for stock options 2002B was EUR 2.84 each and for stock options 2002C EUR 3.87 each. A total of 265,000 stock options 2002B and 2002C were allocated. The amounts and values mentioned above have been determined before the bonus issue in 2004. After the bonus issue, the total number of outstanding stock options 2002B and 2002C is 530,000.

The total costs of the option scheme were EUR 0.3 million in 2004. These costs are included in administrative costs with corresponding credits to equity.


5.  BUSINESS COMBINATIONS

Acquisition cost calculations for corporate acquisitions made before the year 2004 have not been remade to comply with IFRS 3 but the first-time adoption standard is applied.

Lassila & Tikanoja has applied IFRS 3 to all business combinations that have been made after 1 January 2004. According to IFRS 3, all balance sheet items of the acquired company are recognised at fair value, decreasing the proportion of goodwill.

Under IFRS, goodwill will not be written off but goodwill impairment tests are carried out based on the conditions at the date of transition and after that annually. For the purpose of impairment testing, goodwill is allocated to the cash-generating units, which have been defined based on the reporting format used in business monitoring. In case the carrying amount of a cash-generating unit exceeds its recoverable amount of assets, an impairment loss equal to the difference is recognised. The recoverable amount of assets is determined either as a value in use based on cash flows or as a market value.

From the corporate acquisitions made in 2004, EUR 4.6 million was allocated to intangible assets. A major part of the allocations are related to customer relations and agreements on prohibition of competition. The depreciation period for intangible assets arising from business combinations is from 3 to 10 years.

Lassila & Tikanoja’s divisions are divided into product lines that also form the cash generating units. The Latvian business operations also form a cash generating unit. Impairment tests have been carried out to the cash generating units on 1 January 2004 and in the autumn 2004, and no impairment losses were recognised on the basis of these tests.

Due to business combinations, the balance sheet value of property, plant and equipment increased by EUR 1.4 million compared to the balance sheet under FAS.


6. FINANCE LEASES

Under FAS, rental and lease agreements were treated as other leases. The Environmental Services division rents out equipment, such as waste compactors, that has been entered under property, plant and equipment. Under IFRS, a part of these lease agreements is classified as finance leases. The present values of future lease payments are immediately entered as income and recorded as trade receivables, and equipment is not entered under property, plant and equipment. Each item of lease payment is divided into interest and a reduction of trade receivables. Finance lease receivables amounted to EUR 2.4 million on 1 January 2004, and they increased by EUR 0.8 million during the year 2004.

There are no assets acquired under finance leases in the opening balance sheet. The assets acquired during the period have been recognised in property, plant and equipment less accumulated depreciation and the related obligations in interest-bearing liabilities. The amount of property, plant and equipment acquired under finance leases during 2004 and acquired through finance leases that came with a corporate acquisition totals EUR 1.0 million in the balance sheet as of 31 December 2004.


7.  REVALUATIONS

According to the first-time adoption standard, depreciation is made on previously made revaluations of buildings. The depreciations made before the transition date reduce the value of property, plant and equipment in the opening balance sheet by EUR 1.3 million. These entries have only a minor effect on the income statement.


8.  INVENTORIES

Under IFRS, a part of fixed production overhead costs will be recognised as part of the inventories related to own production processes.


9.  EMPLOYEE BENEFITS

The disability pension part of the Finnish statutory pension system is handled in IFRS as a defined benefit plan and a non-current liability has been recorded accordingly. This liability reduces the equity net of deferred tax assets. On the transition date, the pension liability amounted to EUR 10.3 million, and the equity is reduced by EUR 7.3 million net of deferred tax assets.

The Finnish Ministry of Social Affairs and Health has approved certain amendments to the principles for calculating disability pension liabilities under the Finnish statutory employment pension scheme (TEL). The amendments will be effective 1 January 2006 onwards. Consequently, EUR 10.5 million of the liability recorded in the balance sheet so far was recognised as revenue in the income statement for the final quarter of the year 2004, and the remaining part will reduce the pension costs in 2005. Thereafter, TEL’s disability pension part is accounted as a defined contribution liability in the IFRS accounts.

When calculating the key figures, the pension liabilities are included in non-interest bearing liabilities.


10.  INCOME TAXES

The changes in the principles of preparing the financial statements reduced the deferred (net) tax liability on 1 January 2004 by EUR 1.9 million and increased the tax liability by EUR 3.7 million on 31 December 2004. The most significant change was due to the recording of the pension liabilities in the balance sheet of 1 January 2004 and their revenue recognition in the income statement on 31 December 2004.

The tax liability was also increased by the change in the recording of business combinations to the effect that no depreciation will be made on goodwill. In taxation, however, a deferred tax liability caused by deductible dissolution losses and depreciation on goodwill will be recorded.

The deferred tax liabilities and assets calculated on the transactions of Finnish companies are offsetted, because group contributions can be used for combining the taxation of these companies. The tax assets and liabilities for the financial period are also offsetted.


11.  PROVISIONS

The provision relating to the post-treatment expenditure for the landfill site at Kerava was recorded on the basis of the filling-in amount under accruals and deferred income in FAS year-end accounts. Under IFRS standards the provision has been divided into two. The amount caused by the construction of the landfill-site area has been capitalised in the balance sheet at current value as part of the acquisition cost of the area and it will be depreciated under planned depreciation. Correspondingly, an amount of the same size has been recorded as a provision under liabilities in the balance sheet. Because the cost level will be higher at the moment when the provision is used than during the construction of the site, discounted interest entered under finance costs increases the provision. The interest rate is the yield expectation of a risk-free government bond at the time of construction increased by L&T’s loan margin at the time in question. The provision is also increased by a proportion calculated on the basis of the tonnage taken to the site.

The provision for the post-treatment expenditure for Salvor has been dealt with in the same way as that for the Kerava landfill site.

This will have only a minor effect on the equity at the date of transition.


12.  CASH FLOW STATEMENT AND GROSS INVESTMENTS

The changes in the cash flow statements are caused by different accounting principles for business combinations and the different formats of the income statement and the balance sheet. The differences between gross investments under IFRS and under FAS are due to different accounting principles for business combinations and finance leases.


13. SEGMENT  REPORTING

Lassila & Tikanoja’s segment reporting is based on business segments that are formed from the divisions. Under IFRS, inter-segment sales are included in the segment revenues while under FAS the net inter-division sales and purchases were under the cost items in the income statement. Under IFRS, cost items including the general overheads and administrative costs will not be allocated to the segments. Previously all revenues and costs were allocated to the divisions.



The notes in the reconciliations, the opening balance sheet and in the quarterly gigures refer to the changes caused by transition to IFRS presented above.


RECONCILIATION OF PROFIT FOR THE PERIOD

RECONCILIATION OF EQUITY

Minority interests are included in equity according to IAS 1.

The financial information on 1 January 2004 equals to the preliminary summary. The financial information below is presented including deferred tax, while in the preliminary summary it was presented net of deferred tax.

1-3/2004

INCOME STATEMENT (1)

BALANCE SHEET

STATEMENT OF CHANGES IN EQUITY

KEY FIGURES 3/2004

CASH FLOW STATEMENT (12)

1-6/2004

INCOME STATEMENT (1)

BALANCE SHEET

STATEMENT OF CHANGES IN EQUITY

KEY FIGURES 6/2004

CASH FLOW STATEMENT (12)

1-9/2004

INCOME STATEMENT (1)

BALANCE SHEET

STATEMENT OF CHANGES IN EQUITY

KEY FIGURES 9/2004

CASH FLOW STATEMENT (12)