Interim Report 1 January - 31 March 2005 

27 April 2005    8.00 am

Net sales: EUR 85.2 million (EUR 76.8 million)
Operating profit: EUR 6.3 million (EUR 6.2 million)
Earnings/share: EUR 0.11 (EUR 0.10)
Return on invested capital (ROI): 12.7% (14.4%)
Net sales are expected to grow at a faster rate than last year and an improved financial performance is also expected. The result will, however, increase at a slower pace than the net sales because of the considerable inputs into the business operations.


This interim report has been prepared in accordance with the accounting and valuation principles of IFRS. The interim report has not been audited.


NET SALES AND FINANCIAL PERFORMANCE

Lassila & Tikanoja’s net sales for the first quarter totalled EUR 85.2 million (EUR 76.8 million), a growth of 10.9%, of which 4.1 percentage points was organic. In industrial cleaning and wastewater services demand was weak and uneven mainly due to seasonal fluctuations. The earnings per share were EUR 0.11 (EUR 0.10).

Environmental Services

Net sales of Environmental Services (waste management, recycling services, environmental products) amounted to EUR 39.5 million (EUR 36.1 million), an increase of 9.4%. The operating profit was EUR 4.7 million (EUR 5.5 million). The financial performance was burdened by the rapid rise in the price of fuels, investment in early-stage business activities and the seasonal nature of the operations of the joint venture company Salvor Oy. Sale prices will be raised in the spring and in the summer.

The construction of a recycling plant was started in Turku, and the facility should be ready at the end of the year. The recycling plant in Riga is expected to be ready at the beginning of 2006. Several other recycling plant ventures are planned as well. The net sales of environmental products increased, but the financial performance was modest because of the large input in marketing.

L&T began active cooperation with the Stena Metall Group in Finland. The cooperation focuses on collecting metals and the collection and processing of electrical and electronic scrap.

Property Services

Net sales of Property Services (property maintenance and cleaning services) totalled EUR 34.7 million (EUR 30.4 million), an increase of 14.3%. The operating profit grew by 84.7% and totalled EUR 2.2 million (EUR 1.2 million). The profitability of both product lines improved.

Lassila & Tikanoja’s position on the property services market was strengthened as the company managed to exploit the elimination from the market of a major player in the field as a result of a takeover. Measures to manage production and to make it more efficient, more customer contacts, and less snowfall than in the previous year also helped to improve the financial performance. Added to that, pension costs, too, were smaller than in the previous year.

At the beginning of the year, negotiations concerning the acquisition of the business operations of Moscow-based Alfa Cleaning were concluded. Its contracts will be transferred during the spring. The joint venture company Blue Service Partners Oy started operations. It produces comprehensive solutions in catering, property and facility services for the municipal sector in particular.

Industrial Services

Net sales of Industrial Services (hazardous waste services, industrial cleaning, damage repair services and wastewater services) totalled EUR 11.6 million (EUR 11.1 million), an increase of 5.2%. The operations were running at a loss of EUR –0.2 million (EUR –0.1 million). The net sales of all product lines went up except for wastewater services. Industrial cleaning’s growth resulted from corporate acquisitions.

Weak demand in January and February pushed industrial cleaning and wastewater services into the red. The financial performance of hazardous waste services improved with the rise in the recovery rate. Damage repair services strengthened its market position.

Demand for all services in Industrial Services strengthened at the end of March. The order book for industrial cleaning is strong. However, restructuring measures have been launched.


FINANCING

Net interest-bearing liabilities amounted to EUR 26.1 million less than a year earlier and equalled to the amount at the end of the previous financial period (EUR 81.2 million). Net finance costs were 0.5% (1.5%) of net sales and 6.4% (19.2%) of operating profit. The decrease was mainly due to the changes in the fair values of interest rate swaps. A finance income of EUR 0.4 million was recorded, while a finance expense of EUR 0,2 million was recorded for the comparison period. In addition, the share issue carried out last year improved the company’s financial position.

EUR 6.3 million (EUR 3.0 million) were tied up in the working capital during the period. The equity ratio was 48.2% (28.6%) and the gearing rate was 45.7 (145.3).


DIVIDEND

The Annual General Meeting held on 4 April 2005 decided on a dividend of EUR 0.25 per share. The dividends, totalling EUR 9.5 million, were paid on 14 April 2005, and they have not been recorded in the interim report.


INVESTMENTS

Gross investments totalled EUR 8.2  million (EUR 11.4 million). Machinery and equipment was replaced and production premises were expanded. Depreciation amounted to EUR 5.7 million (EUR 5.1 million).

Of the gross investments, EUR 1.9 million were spent on three corporate acquisitions. Kaakon Teollisuuspalvelu Oy was acquired for industrial cleaning. The waste paper collecting business of Raahen Romu and the machine loading operations of Lahden Autokunta were acquired for Environmental Services. The combined annual net sales of the acquired companies total EUR 2.8 million.


The acquisition of Jäteässät Oy entered in force on 1 April 2005. Jäteässät Oy is a Finnish waste management company operating in the Helsinki region. The net sales of Jäteässät Oy totalled EUR 10 million in 2004 and it employs 65 people.


PERSONNEL

The average number of personnel converted to full-time employees was 5,174 (4,875)in January - March. At the end of March the total number of employees working full-time and part-time was 6,610 people (6,141). Of them 499 people were abroad.


SHARES AND SHARE CAPITAL

Traded volume and price

The volume of trading in Lassila & Tikanoja plc shares on the Helsinki Stock Exchange from January through March was 5,715,599, which is 15.0% of the average number of shares. The value of trading was EUR 81.3 million. The trading price varied between EUR 13.10 and EUR 15.04. The final trading price was EUR 14.51. The market capitalisation was EUR 553.4 million on 31 March 2005.

Share capital

At the beginning of the year 2005, the company’s registered share capital amounted to EUR 19,068,117. On 8 February 2005, the Board approved the subscriptions of 5,600 new shares made pursuant to the 2002A stock options. As a result of these subscriptions, the share capital increased by 2,800 euros to 19,070,917 euros and the number of the shares increased to 38,141,834 shares.

Stock options 2002

The Annual General Meeting held on 9 April 2002 decided to issue stock options to key personnel of Lassila & Tikanoja a wholly owned subsidiary of Lassila & Tikanoja plc. 28 key persons have been entitled to subscribe for the stock options.

On the basis of these stock options, 147,160 new shares have been subscribed for by 27 January 2005. On the basis of the rest of the 2002A stock options, a maximum of 112,840 shares can be subscribed for. On the basis of the rest of all stock options issued under stock option scheme 2002 a maximum of 652,840 shares can be subscribed for, which is 1.71% of the current number of shares. The share subscription price for the 2002A stock options is EUR 7.86, for the 2002B stock options EUR 7.02 and for the 2002C stock options EUR 11.46.

Lassila & Tikanoja’s 2002A stock options have been listed on the Helsinki Stock Exchange since 3 May 2004. The Board of Directors has resolved to apply for listing of 2002B stock options on the main list of the Helsinki Stock Exchange starting from 2 May 2005.

Stock options 2005

The Annual General Meeting held on 4 April 2005 decided to issue stock options to key personnel of the Lassila & Tikanoja Group and/or to a wholly-owned subsidiary of Lassila & Tikanoja plc. The number of stock options issued is 600,000. Each stock option entitles its holder to subscribe for one share of Lassila & Tikanoja plc with the book counter value of EUR 0.50 per share. L&T Advance Oy, a wholly owned subsidiary of Lassila & Tikanoja plc, subscribed for all the 600,000 stock options to be granted at a later date to the present and future key personnel of the Lassila & Tikanoja Group.

The stock option rights are divided into three classes. The share subscription price for the 2005A stock options shall be the trade volume weighted average price of the Company's share on the Helsinki Stock Exchange in May 2005, rounded off to the nearest cent, for the 2005B stock options the trade volume weighted average price of the Company's share on the Helsinki Stock Exchange in May 2006, rounded off to the nearest cent, and for the 2005C stock options the trade volume weighted average price of the Company's share on the Helsinki Stock Exchange in May 2007, rounded off to the nearest cent. The subscription price of the stock options shall, as per the dividend record date, be reduced by the amount of dividend which exceeds 70% of the profit per share for the financial period to which the dividend applies. However, only such dividends whose distribution has been agreed upon after the option pricing period and which have been distributed prior to the share subscription are deducted from the subscription price.

The share subscription periods are as follows: for the 2005A stock options 2 November 2007 – 29 May 2009, for the 2005B stock options 3 November 2008 – 31 May 2010, for the 2005C stock options 2 November 2009 – 31 May 2011.

The stock options issued under the stock option scheme 2005 entitle their holders to subscribe for a maximum of 1.57% of the Company’s current number of shares.

Notifications on major holdings

On 10 March 2005, Varma Mutual Pension Insurance Company reported that it holds 5.08% of the share capital and votes of Lassila & Tikanoja plc.

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.


BOARD OF DIRECTORS AND AUDITORS

The Annual General Meeting of Shareholders held on 4 April 2005 confirmed five
as the number of the members of the Board of Directors. The following Board members were re-elected to the Board until the end of the following AGM: Heikki Hakala, Lasse Kurkilahti, Juhani Lassila, Juhani Maijala and Soili Suonoja.

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

In a meeting held after the Annual General Meeting the Board of Directors re-elected Juhani Maijala as Chairman of the Board and Heikki Hakala as Vice Chairman. The position of the Chairman of the Board of Directors is no more full-time.


SUMMARY OF STOCK EXCHANGE RELEASES PURSUANT TO ARTICLE 7, CHAPTER 2 OF THE SECURITIES MARKETS ACT

4 April 2005: The changes caused by the transition to IFRS to accounting principles and figures reported for 2004.

4 April 2005: The Board of Directors resolved to apply for listing of 2002B stock option rights on the main list of the Helsinki Stock Exchange starting from 2 May 2005. A total of 260,000 shares can be subscribed for on the basis of the 2002B stock options. The subscription period is from 2 May 2005 to 30 October 2006.

7 April 2005: The Board of Directors approved the subscriptions for the stock options decided by the Annual General Meeting held on 4 April 2005, made by L&T Advance Oy, a wholly owned subsidiary of Lassila & Tikanoja plc. L&T Advance Oy subscribed for a total of 600,000 stock options to be granted at a later date to the present and future key personnel of the Lassila & Tikanoja Group.


PROSPECTS FOR 2005

In general, prospects in the company’s divisions are good. The amount of waste material coming to the recycling plants is expected to increase as a result of the acquisition of Jäteässät Oy and sales activity. Property Services’ sales are expected to remain strong. The threat of strike action in the forest industry is making it difficult to predict demand in Industrial Services. A strike would create problems for the industrial cleaning season, which is about to start.

Expansion abroad is making progress and several smallish corporate acquisitions are planned. The organisation of international operations in Finland and the local organisation in Russia have been strengthened, so that Lassila & Tikanoja will be able to manage the growth in its business operations in a controlled manner.

Net sales are expected to grow at a faster rate than last year and an improved financial performance is also expected (compared with the 2004 result excluding the revenue recognition of the pension liability). The result will, however, increase at a slower pace than net sales because of the considerable inputs into the business operations.




TRANSITION TO IFRS

The changes caused by the transition to IFRS to accounting principles and figures reported for 2004 are explained in a stock exchange release disclosed on 4 April 2005 and on the company website. The accounting principles presented in the release have been applied in preparing this interim report.

A non-recurring pension liability amounting to EUR 10.5 million (EUR 7.8 million net of deferred tax assets) was recognised as revenue in the IFRS income statement for the final quarter of the year 2004, because the principles for calculating disability pension liabilities under the Finnish statutory employment pension scheme had changed (TEL). The IFRS income statement for the period 1 January - 31 December 2004 and key figures 12/2004 are presented below also excluding this revenue recognition.


INCOME STATEMENT 1.1. – 31.3.

The relative proportion of the estimated taxes due for the full financial year has been taken into account.



INCOME STATEMENT 1.1. – 31.12.2004

BALANCE SHEET

STATEMENT OF CHANGES IN EQUITY

RECONCILIATION OF PROFIT FOR THE PERIOD

RECONCILIATION OF EQUITY

KEY FIGURES

CASH FLOW STATEMENT

SEGMENT REPORTING

NET SALES

OPERATING PROFIT

OTHER FIGURES BY DIVISION

DIVISIONAL FIGURES BY QUARTER