Interim Report 1 January - 31 March 2006 

3 May 2006   8.00 am

Net sales: EUR 100.6 million (EUR 85.2 million)
Operating profit: EUR 9.0 million (EUR 6.3 million)
Earnings/share: EUR 0.16 (EUR 0.11)
Return on invested capital(ROI): 16.0% (12.7%)
Net sales for the entire year are expected to increase, at the least, in line with the long-term target (more than 10 per cent). An improvement in the financial performance is expected.

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 100.6 million (EUR 85.2 million), an increase of 18%, 7.5 percentage points of which resulted from corporate acquisitions. The operating profit was EUR 9.0 million (EUR 6.3 million), which was 8.9% of net sales (7.4%).

Organic growth was strong as a result of the successful sales work. Industrial demand revived. Cleaning operations in Sweden were started at the beginning of the year. Profitability improved because of the improvement in cost-efficency. Most of the increases in costs were passed on to prices.

Environmental Services

The net sales of Environmental Services (waste management, recycling services, environmental products) amounted to EUR 47.1 million (EUR 39.5 million). Net sales increased by 19.2% primarily because of strong organic growth. The operating profit improved to EUR 7.3 million (EUR 4.7 million).

Since the autumn the division has paid particular attention to cost management and improving productivity. The effects of the measures can be clearly seen in the improvement in profitability.

The operations of the recycling plant at Turku started at the beginning of the year and a similar plant at Riga will come on stream at the end of the summer. L&T also intends carrying out two or three medium-sized plant and terminal projects in Finland.

Environmental Products’ net sales rose and the financial performance improved as a result of efficiency measures.

Property Services

The net sales of Property Services (property maintenance and cleaning services) totalled EUR 41.1 million (EUR 34.7 million), an increase of 18.3%. The operating profit was 1.3 million (EUR 2.2 million).

Operations abroad accounted for a considerable part of the growth in the net sales of cleaning services. Operations started in Sweden at the beginning of January with the acquisition of Allied Service Partners AB, which is based in Stockholm and Gothenburg. The division’s performance was weakened mainly by non-recurring expenses and operating loss of the cleaning services’ Moscow operations. Integrating the operations in Sweden has proceeded as planned. Social security expenses were higher than in the comparative period. The net sales of property maintenance increased organically, and profitability was at the level of the comparative period.


Industrial Services

The net sales of Industrial Services (hazardous waste services, industrial cleaning, damage repair services and wastewater services) totalled EUR 13.1 million (EUR 11.6 million), an increase of 12.8%. The operating profit was EUR 0.8 million (EUR –0.2 million).

The net sales of all the product lines went up, most strongly of all in industrial cleaning. The demand for services was particularly good, considering the time of year, apart from hazardous waste services, where the growth came from corporate acquisitions.

The improvement in the division’s financial performance was attributable mainly to industrial cleaning. The efficiency programme carried out last year in industrial cleaning had the planned effect, and the financial performance of the product line showed a considerable improvement. Damage repair also improved its financial performance.


FINANCING

Net interest-bearing liabilities amounted to EUR 7.8 million more than a year earlier. Net interest-bearing liabilities, totalling EUR 79.1 million, increased by EUR 15.4 million. Interest expenses decreased by EUR 0.2 million because the average interest rate of the Company’s loan portfolio went down. Net finance costs were halved and were 0.2% (0.5%) of net sales and 2.2% (6.4%) of operating profit.

A finance income of EUR 0.4 million resulting from the changes in the fair values of interest rate swaps (EUR 0.4 million) was recognised in the income statement. A total of EUR 0.3 million arising from an interest rate swap to which hedge accounting under IAS 39 is applied, was recognised in equity.

The equity ratio was 43.9% (48.2%). It went down, because the dividend was recognised in equity in March while in the comparison year it was recognised in April. The gearing rate was 54.0 (45.7). Cash flow from operating activities amounted to EUR 11.9 million (EUR 4.5 million). EUR 3.1 million were tied up in the working capital (EUR 6.3 million).


DIVIDEND

The Annual General Meeting held on 23 March 2006 resolved on a dividend of EUR 0.40 per share. The dividend, totalling EUR 15.4 million, was paid on 4 April 2006. In the interim financial statements the dividend was recognised in accrued expenses and deferred income.




INVESTMENTS

Gross investments totalled EUR 15.2 million (EUR 8.2 million). EUR 8.1 million were spent on three corporate acquisitions.

Hämeenlinnan Puhtaanapito Oy, a waste management company, was acquired for Environmental Services. Its net sales totalled EUR 4.4 million in 2005 and it employed 36 people. The acquisition entered in force on 1 March 2006.

Allied Service Partners AB (ASP), a Swedish company specialising in property maintenance services, was acquired for Property Services. ASP operates in Stockholm and Gothenburg. The net sales of ASP were EUR 10.3 million in 2005, and it employs 390 people. The acquisition entered in force on 4 January 2006. The property maintenance operations of Kempeleen Kiinteistöhuolto Oy were also acquired, and the acquisition entered in force on 1 February 2006.

The combined annual net sales of the acquired companies totalled EUR 14.8 million.

Machinery and equipment were replaced, production premises were expanded, and new information systems were built. Depreciation amounted to EUR 7.0 million (EUR 5.7 million).

Investments by division were as follows: Environmental Services EUR 6.7 million (EUR 4.0 million), Property Services EUR 7.0 million (EUR 1.9 million), and Industrial Services EUR 1.5 million (EUR 2.3 million).


PERSONNEL

The average number of personnel converted to full-time employees was 6,401 (5,174)in January–March. At the end of March the total number of employees working full-time and part-time was 8,134 people (6,610). Of them 1,717 people (499) 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 3,960,175, which is 10.3% of the average number of shares. The value of trading was EUR 63.4 million. The trading price varied between EUR 14.75 and EUR 16.85. The closing price was EUR 16.30. The market capitalisation was EUR 625.7 million (EUR 553.4 million) on 31 March 2006.

Share capital

At the beginning of the year the Company’s registered share capital amounted to EUR 19,188,887. After subscriptions made pursuant to 2002B options. The Company’s share capital increased by EUR 4,850 to EUR 19,193,737, and the number of the shares by 9,700 shares to 38,387,474 shares on 16 February 2006.

On 2 May 2006, the Board approved the subscriptions of 26,400 new shares made pursuant to the 2002B options. As a result of these subscriptions, the registered share capital will increase to EUR 19,206,937 and the number of the shares to 38,413,874 shares after the increase has been entered in the Trade Register.

Share option plans 2002 and 2005

All granted 2002A options have been exercised. Until 21 April 2006, a total of 159,200 shares have been subscribed for pursuant to the 2002B options. Pursuant to the remaining outstanding 2002B share options a maximum of 96,800 shares can be subscribed for. Pursuant to all remaining outstanding 2002 options a maximum of 370,800 shares may be subscribed for, which is 1.0% of the current number of shares. The share subscription price for the 2002B options is EUR 7.02 and for 2002C options EUR 11.46. 2002-options have been granted to 28 key persons. The 2002B options have been listed on the Helsinki Stock Exchange since 2 May 2005.

In 2005, 600,000 stock options were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. All 170,000 2005A stock options have been granted to 27 key persons of the Company. The share subscription price for the 2005A options is EUR 14.22. All 200,000 2005B and all 230,000 2005C options have been subscribed for by a wholly-owned subsidiary of Lassila & Tikanoja plc to be granted at a later date to the present or future key persons of the Company. The options issued under the share option plan 2005 entitle their holders to subscribe for a maximum of 1.6% of the current number of shares.

Notifications on major holdings

On 10 April 2006, Tapiola Group reported that its holding in the share capital and votes of Lassila & Tikanoja plc had decreased to 4.6%.

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 23 March 2006 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.


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

On 23 March 2006, the Board of Directors resolved to apply for listing of 2002C share option rights on the main list of the Helsinki Stock Exchange starting from 2 May 2006.


PROSPECTS FOR THE REMAINDER OF 2006

Prospects in L&T’s divisions are still good. The demand for environmental services is growing steadily in Finland, although environmental permit processes are having something of a slowdown effect on investment by both L&T and customers in recycling and recovery plants.

The first outsourcing of support services in the forest industry may be done during this year. This and local government outsourcing will increase the market for property and support services. At the same time, however, competition in property services has become fiercer in Finland. The cleaning operations in Sweden will be strengthened.

The market outlook for Industrial Services is favourable, particularly for industrial cleaning, where the order book is strong.

The main objective this year is an improvement in productivity and more efficient cost management. Investment in product development has also been increased.

Organic growth is expected to remain at a good level, but not as strong as in the first quarter. Net sales are expected to increase, at the least, in line with the long-term target (more than 10 per cent). An improvement in the financial performance for the entire year is expected. However, the first quarter results do not provide a basis for any long-term conclusions, since most of the earnings arise in the second and third quarters.



INCOME STATEMENT 1.1. – 31.3.

Earnings per share for profit attributable to the equity holders of the parent:

BALANCE SHEET

CASH FLOW STATEMENT

STATEMENT OF CHANGES IN EQUITY

KEY FIGURES

EVA = operating profit – cost calculated on invested capital (average of four quarters) before taxes. WACC 2006: 8.75%; 2005: 9.0%


SEGMENT REPORTING

NET SALES

OPERATING PROFIT

OTHER SEGMENT REPORTING

SEGMENT REPORTING BY QUARTER

* Operating profit excluding revenue recognition of deferred pension liability.
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 10-12/2004, because the principles for calculating disability pension liabilities under the Finnish statutory employment pension scheme had changed.


CONTINGENT LIABILITIES

Other securities are security deposits.
The Group has given no pledges, mortgages or guarantees on behalf of outsiders.

Operating lease liabilities

Derivative financial instruments