The supervisory board of AS Latvijas valsts meži (LVM) has concluded a comprehensive evaluation of the round timber assortment sales process. Based on an independent expert assessment of its compliance, financial, economic, and legal aspects, the board concludes that the sales process organized by LVM meets the requirements of legislation and internal regulations and has been economically sound, providing the company with an additional profit of 14.5 million euros between 2016 and 2020. As a result of the evaluation, the company has developed, and the board has approved, an action plan for the further improvement of the sales process.
In light of claims made in the media and the importance of the round timber assortment sales process in achieving LVM's strategic goals, on 10 June 2020, the LVM supervisory board initiated a comprehensive audit of this specific sales process. They engaged independent experts: the law firm Sorainen to conduct a compliance evaluation, the professional services firm Deloitte Latvia to carry out a financial and economic analysis, and Dr.iur. Prof. Jānis Kārkliņš, a legal expert from the Latvian Council of Science (LZP), to conduct a legal analysis.
“Within the framework of this comprehensive evaluation, the goal of the LVM board was to definitively answer the following key questions: does the LVM round timber assortment sales process comply with internal and external legislation, and was its implementation economically efficient and in line with shareholder interests? As a result of the experts' work, we have received affirmative answers to these questions,” says Jurģis Jansons, Chairman of the LVM board.
The in-depth evaluation confirms that the round timber assortment sales process implemented by LVM complies with strategic documents, internal regulations, external legislation, and good business practice, while the financial and economic analysis shows that it has been economically justified, consistent with the company's financial goals, and implemented in the interest of the shareholder. Furthermore, the legal expert's opinion confirms that the LVM sales process complies with the Law on the Prevention of Squandering of the Financial Resources and Property of a Public Person, the Law on the Alienation of the Property of a Public Person, and the Competition Law.
The financial and economic analysis confirms that, from a 2015 perspective (ex-ante), LVM would obtain a higher economic benefit by introducing a technological wood product than in a scenario without one. LVM could objectively expect this effect, considering the gains from increased revenue by selling technological wood in volumes corresponding to demand at a price aligned with the product's value, as well as savings from the transport and other costs of technological wood. Evaluating the additional profit gained from today's perspective (ex-post), the analysis confirms that the sale of the technological wood product over the analysed period of just under five years was profitable, despite the fact that pulpwood, used for comparison, saw a sharp price increase in 2017 and 2018. Given the market decline in 2019 and 2020—to the point where pulpwood products were not in demand on the market at all—the actual additional profit from the sale of technological wood in 2016–2020 reached 14.5 million euros.
“The almost six-month-long audit process and its results are viewed by the LVM board as highly significant and useful: they have reinforced our confidence in the company's compliance and provided independent insights and recommendations that will strengthen the company's operations and governance,” continues Jurģis Jansons.
As a result of the evaluation, LVM has also developed an action plan for the further improvement of the round timber assortment sales process to make it even more transparent, more predictable for market participants, and to prevent potential future risks related to competition law requirements. The action plan is based on the conclusions and suggestions of the external evaluation, as well as on more than 400 proposals received during the evaluation from nearly 100 industry companies. It also includes measures previously planned by LVM and takes into account the company's economic indicators and the overall performance of the forest industry.
The shareholder, the Ministry of Agriculture (ZM), expressed its gratitude to the LVM board and management for their work in evaluating the complex round timber sales system. “I want to emphasise that one point, though certainly not the most important, was to gain certainty regarding the (in)accuracy of the public allegations, but the second point, which I believe is much more important, is the in-depth evaluation of the round timber sales system, which provides conclusions and recommendations for the further improvement of this system and the prevention of potential future risks. This is the most significant added value of the evaluation conducted, for which the LVM board has presented its proposals to the company's management. The shareholder will follow how the company succeeds in addressing these issues,” says Arvīds Ozols, Director of the ZM Forest Department.