Interim Report 1 January - 31 March 2007 

- Net sales EUR 129.1 million, growth 28.4%
- Operating profit EUR 9.2 million, growth 2.2%
- Earnings per share EUR 0.15 (EUR 0.16)
- Full-year net sales are estimated to increase by clearly more than 20% and financial performance is estimated to improve.


GROUP NET SALES AND FINANCIAL PERFORMANCE

The net sales for the first quarter grew by 28.4% to EUR 129.1 million (EUR 100.6 million). 17.9 percentage points of the growth came from corporate acquisitions. The operating profit was EUR 9.2 million (EUR 9.0 million), which is 7.1% (8.9%) of net sales.

Strong organic growth continued in all divisions thanks to successful new and additional sales. The demand for Industrial Services was particularly strong. Profit before tax was burdened by changes in the fair values of oil derivatives and interest rate swaps (EUR -1.6 million). The oil derivatives have been purchased to hedge the re-refinery business to be started in 2008.

FINANCIAL SUMMARY

NET SALES AND FINANCIAL PERFORMANCE BY DIVISION

Environmental Services

The net sales of Environmental Services (waste management, recycling services, L&T Biowatti, environmental products) stood at EUR 65.8 million (EUR 47.1 million), representing an increase of 39.6%. The operating profit was EUR 8.6 million (EUR 7.3 million).

Strong organic growth continued. The earnings of recycling services were boosted by strong growth in volumes and good control of production costs. The joint venture Salvor Oy was also able to increase its net sales and improve performance. The profitability of waste management declined slightly due to increase in municipalized contract areas. The earnings of environmental products weakened.

An extension to capacity was introduced at the Tampere recycling plant. A new recycling plant at Joensuu and an extension at Turku will be introduced during the current year. The situation with environmental permits has developed favourably even though appeals against environmental permits are slowing down plant projects to some extent. The planning of new recycling plants will continue.

The recycling plant in Russia is expected to be completed in the beginning of next year. Waste management operations in the Moscow region will expand to a new town in May 2007 with the gradual transfer of waste management in the town of Sergiev Posad to L&T’s responsibility.

The acquisition of a majority holding in Biowatti Oy was completed on 1 February 2007. L&T Biowatti is the leading bioenergy company utilising renewable sources of energy in Finland. It engages in the procurement, processing, marketing and delivery of wood-based fuels for customers. L&T Biowatti’s net sales and earnings developed almost as planned in the first quarter.


Property and Office Support Services

The net sales of Property and Office Support Services (property maintenance and cleaning services) totalled EUR 48.7 million (EUR 41.1 million), an increase of 18.5%. The operating profit was EUR 1.1 million (EUR 1.3 million).

Organic growth continued in Finland, with net sales growing particularly in maintenance of technical systems. Mild weather did not have much of an improving effect on performance, because snow ploughing is mostly covered by fixed-price advance agreements with subcontractors. There were no snow transports that would have provided for additional invoicing. A large number of new contracts started in cleaning services, and the costs of initiation hampered profitability.

Operations in Russia and Latvia have been reorganised. Sales performance in Latvia has been good and a clear earnings improvement is expected. The Russian operations are improving their profitability, too.

Three acquisitions have been carried out in Sweden within one year, generating aggregate net sales of approximately EUR 30 million in 2007. The current focus in Sweden is on integrating these companies into one and building a sales organisation.

The division’s operations abroad ran at a loss.


Industrial Services

The net sales of Industrial Services (hazardous waste management, industrial cleaning, damage repair services and wastewater services) increased by 20.1% to EUR 15.8 million (EUR 13.1 million). The operating profit was EUR 0.02 million (EUR 0.8 million), burdened by imputed changes in the fair values of oil derivatives amounting to EUR 1.1 million.

The net sales of all product lines increased, with the strongest growth in damage repair services and hazardous waste management. Demand in all product lines was good for the time of the year thanks to a mild winter and the division’s improved market position. The earnings improvement in operating activities was affected by good demand as well as improved profitability. The damage repair service network expanded to two new locations.
 
A new recycled liquid fuel (ALF) was introduced to the market to replace oil that is routed to re-refining. L&T Recoil’s re-refinery project progressed according to plan, and the company started to build a raw material procurement network outside Finland. EUR 1.1 million were recognised in other operating expenses for the period due to changes in the fair values of L&T Recoil’s oil derivatives. The company uses oil derivatives to hedge the profitability of the upcoming re-refinery in situations where the market price of oil falls substantially. The re-refinery is estimated to be completed in spring 2008.  Changes in the fair value of oil derivatives have a quarterly earnings effect.


FINANCING

At the end of the period, interest-bearing liabilities amounted to EUR 14.8 million more than a year earlier. Net interest-bearing liabilities, totalling EUR 88.1 million, increased by EUR 9.0 million from the comparison period and by EUR 35.6 million from the beginning of the year. Net finance costs totalled EUR 0.9 million (EUR 0.2 million).
Finance costs increased by EUR 0.4 million as a result of the growth in interest-bearing liabilities and a rise in the interest rate level. In addition, a total of EUR 0.1 million arising from the changes in the fair values of interest rate swaps was recognised in finance costs (EUR 0.4 million in finance income). Net finance costs were 0.7% (0.2%) of net sales and 9.3% (2.2%) of operating profit.

The equity ratio was 40.5% (43.9%)and the gearing rate 54.6 (54.0). Cash flows from operating activities amounted to EUR 9.3 million (EUR 11.9 million). EUR 5.1 million were tied up in the working capital (EUR 3.1 million) during the period.  


CAPITAL EXPENDITURE

Capital expenditure totalled EUR 47.2 million (EUR 15.2 million). Approximately EUR 40 million were spent on company acquisitions. The combined annual net sales of the acquired companies totalled EUR 75.5 million. In addition, machinery and equipment were replaced.

In December 2006 an agreement was signed on the acquisition of the majority (70%) of the shares of Biowatti Oy from the acting management of the company for Environmental Services. The acquisition became effective on 1 February 2007 after the approval of the competition authority. Biowatti is the leading Finnish bio energy supplier utilising renewable energy sources, operating in the procurement, processing, marketing and delivery of wood-based fuels. The main products are by-products of forest and wood processing industries and logging chips. The net sales of Biowatti for the year 2006 amounted to EUR 64.2 million. Bio fuel sales account for two thirds and industrial raw materials sales for one third of the net sales.

A Swedish cleaning services company Skånsk Allservice AB together with subsidiaries Hygienutveckling AB and Hygienutvickling A/S operating in Norway were acquired in January for Property and Office Support Services. The consolidated net sales of the group totalled EUR 10.8 million in 2006, most of which came from hygiene services for the food industry. Kiinteistöhuolto Pentti Nissinen Oy was acquired for property maintenance services.

The remaining portion (5.5%) of the shares of Suomen Keräystuote Oy was purchased for recycling services within Environmental Services. Lassila & Tikanoja held already 94.5% of Suomen Keräystuote shares.


PERSONNEL

In January - March, the average number of employees converted into full-time equivalents was 6,881 (6,401). At the end of the period, the total number of full-time and part-time employees was 8,805 (8,134). Of them 2,155 (1,717)people worked outside Finland.


SHARE AND SHARE CAPITAL

Traded volume and price
The volume of trading in Lassila & Tikanoja plc shares on OMX Nordic Exchange in Helsinki from January through March was 5,348,372, which is 13.9% (10.3%) of the average number of shares. The value of trading was EUR 126.4 million. The trading price varied between EUR 20.78 and EUR 26.50. The closing price was EUR 25.15. The market capitalisation was EUR 969.5 million (EUR 625.7 million) at the end of the period.

Share capital
At the beginning of the year the company’s registered share capital amounted to EUR 19,264,087. After subscriptions made pursuant to 2002C options, the share capital increased by EUR 10,772.50 to EUR 19.274.859,50, and the number of the shares by 21,545 shares to 38,549,719 shares on 14 February 2007.

On 3 May 2007, the Board approved the subscriptions of 166,371 new shares made pursuant to the 2002C share options. As a result of these subscriptions, the company’s registered share capital will increase by EUR 83,185.50 to EUR 19,358,045 and the number of the shares will increase to 38,716,090 shares after the increase has been entered in the Trade Register.

Option plans 2002 and 2005
The subscription periods for 2002A and 2002B share options have ended. 280,000 2002C options have been issued. 274,000 have been granted to key persons of the company. 
Until 23 April 2007, a total of 205,616 shares have been subscribed for pursuant to the 2002C options. Pursuant to the remaining outstanding 2002C options a maximum of 68,384 shares can be subscribed for, which is 0.2% of the current number of shares. The subscription period ends on 30 October 2007. The share subscription price is EUR 11.46. The 2002C options have been listed on the Helsinki Stock Exchange since 2 May 2006.

In 2005, 600,000 share options were issued, each entitling its holder to subscribe for one share of Lassila & Tikanoja plc. Presently, 25 key persons hold 162,000 2005A options and 35 key persons hold 193,000 2005B options. L&T Advance Oy, a wholly-owned subsidiary of Lassila & Tikanoja plc, holds 8,000 2005A options, 7,000 2005B options and 230,000 2005C options.

The share subscription price for the 2005A options is EUR 14.22, and for 2005B options EUR 16.98.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. The share subscription period for the 2005A options starts on 1 November 2007.

Shareholders
At the end of the financial period, the company had 4,664 (4,784) shareholders. Nominee-registered holdings accounted for 13.6% (8.2%) of the total number of shares.

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.


RESOLUTIONS BY THE ANNUAL GENERAL MEETING

The Annual General Meeting of Lassila & Tikanoja plc, which was held on 26 March 2007, adopted the financial statements for the financial year 2006 and released the members of the Board of Directors and the President and CEO from liability. The AGM resolved that a dividend of EUR 0.55, a total of EUR 21.2 million, as proposed by the Board of Directors, be paid for the financial year 2006. The dividend payment date was 5 April 2007.

The Annual General Meeting confirmed the number of the members of the Board of Directors five (5). The following Board members were re-elected to the Board until the end of the following AGM: Lasse Kurkilahti, Juhani Lassila, Juhani Maijala and Soili Suonoja. Eero Hautaniemi was elected as a new member for the same term.

PricewaterhouseCoopers Oy, Authorised Public Accountants, were elected auditors with Heikki Lassila, Authorised Public Accountant, acting as Principal Auditor.

The Annual General Meeting approved the Board of Directors’ proposal to amend the Articles of Association in order to align them with the new Finnish Companies Act. The provisions on minimum and maximum share capital as well as on minimum and maximum number of shares were also removed.

At its organising meeting following the Annual General Meeting, the Board of Directors re-elected Juhani Maijala as Chairman of the Board and Juhani Lassila as Vice Chairman.


NEAR-TERM UNCERTAINTIES

The most substantial near-term uncertainty factor is the possibility that the performance of foreign units within Property and Office Support Services may not improve on the planned schedule. The slow pace of environmental permits and other licensing procedures may cause delays in the implementation of planned recycling plant investments in Finland as well as Russia. Changes in the fair values of oil derivatives associated with L&T Recoil’s business depend on the development of world market prices for oil, and may have a substantial effect on the performance of Industrial Services. Fluctuations in the price of carbon dioxide emission allowances have a substantial effect on the demand for L&T Biowatti’s wood-based fuels; however, there is not much room for further decreases in the price in 2007.


PROSPECTS FOR THE REST OF THE YEAR 2007

The prospects for Lassila & Tikanoja’s markets remain good. Among other things, the demand for Environmental Services in Finland will be increased by the fact that many landfills will have to be closed down towards the end of the year due to new EU regulations. The Finnish Waste Act will change on 1 June 2007 to the effect that the waste management of trade and industry will mostly be released from municipal controls, and business customers will also be able to freely choose their service provider. This will reinforce the strategic possibilities of the private environmental management sector to invest in the recovery of waste materials.

The market outlook for Property and Office Support Services in Finland is better than last year even though the competitive situation is challenging. The full-year result for cleaning operations abroad will be in the red, the loss being, however, smaller than a year earlier.

The market outlook for Industrial Services is quite positive. Strong demand seems to continue, and L&T’s position in the market has strengthened. Clear growth will also be seen in markets outside Finland.

The price of carbon dioxide emission allowances (EUR per tonne of carbon dioxide) will substantially affect the pricing of renewable energy sources and thus the demand for them. The price has fallen substantially during the current year because there are more emission allowances available in the European emissions trading market than expected. At the moment, the price is substantially below one euro. This will probably result in that L&T Biowatti’s customers will consume less wood-based fuels than expected and favour fossil fuels in 2007. The price level for the new emissions trading period starting as of the beginning of 2008 is currently approximately EUR 18. This is expected to improve the competitive ability of renewable energy sources and lead to a normalisation of purchasing volumes in the beginning of 2008. The Finnish government programme has brought the increased utilisation of forest processed chips into focus as the aim is to increase the proportion of renewable energy sources.

During the current year, L&T Biowatti will strengthen the procurement of raw materials, increase stocks, improve its delivery capacity and thus prepare for increased demand in 2008. L&T Biowatti’s net sales in 2007 will increase by less than 10%, with earnings falling short of expectations. 

Two or three more recycling plants and terminals will be built during the year, one of them in Russia. Due to completed corporate acquisitions and investment decisions made, the full-year capital expenditure will exceed the one for the previous year.

Organic growth is expected to continue at a healthy level. Full-year net sales are estimated to increase by clearly more than 20% and financial performance is estimated to improve.





CONDENSED FINANCIAL STATEMENTS 1 JANUARY – 31 MARCH 2007 

ACCOUNTING POLICIES

This interim financial report is in compliance with IAS 34, Interim Financial Reporting Standard. The same accounting policies as in the annual financial statements of 31 December 2006 have been applied. These interim financial statements have been prepared in accordance with the IFRS standards and interpretations that were effective on 31 March 2007. The new IFRIC interpretations (7-10) valid as of 1 January 2007 did not affect the consolidated financial statements. IFRS 7 (effective as of 1 January 2007) does not affect these interim financial statements, because they are condensed. Income tax expense is based on the estimated average annual income tax rate, which would be applicable to expected total annual earnings.

The preparation of financial statements in accordance with IFRS require the management to make such estimates and assumptions that affect the carrying amounts at the balance sheet date for the assets and liabilities and the amounts of revenues and expenses. Judgements are also made in applying the accounting policies. Actual results may differ from the estimates and assumptions. 

The interim financial statements have not been audited.


INCOME STATEMENT

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

BALANCE SHEET

CASH FLOW STATEMENT

Liquid assets

STATEMENT OF CHANGES IN EQUITY

KEY FIGURES

SEGMENT REPORTING

NET SALES

OPERATING PROFIT

OTHER SEGMENT REPORTING

INCOME STATEMENT BY QUARTER