Revenue for the first half of 2019 for the state forest manager, Latvijas valsts meži, reached 192.3 million euros, which is 35.7 million euros more than during the same period last year, with profit before corporate income tax reaching nearly 82 million euros.

These figures are based on the company's operational data. In the first six months of this year, Latvijas valsts meži (LVM) sold 3.1 million m3 of timber, including 3 million m3 of roundwood assortments and 0.1 million m3 of standing trees. Compared to the same period last year, the sales volume of roundwood assortments in the first half of the year increased by 0.3 million m3. Revenue from the sale of roundwood assortments was 176.5 million euros (the lion's share of the total 192.3 million euros), which is 35.7 million euros more than in the same period in 2018. The basis for this revenue increase is the higher average timber sales price during the respective period. Meanwhile, the volume of wood chips sold this year reached 240,000 MWh, which is 25,000 MWh more than in the same period in 2018.

Nearly 25 million euros invested

In the first half of this year, LVM invested 24.8 million euros, including 21 million euros invested in forest infrastructure – road construction, the renovation of forest drainage systems and bridge construction. During this time, 16 kilometres of forest roads were put into operation and forest drainage systems were rebuilt across an area of 4,000 ha. This year, 13.7 thousand hectares of young growth stands were tended, which is 2.1 thousand hectares more than at the same time last year. Forest regeneration was carried out on 9.1 thousand hectares, slightly exceeding last year's performance. In addition, 248,000 m3 of drainage ditches were cleared of silt (55,000 m3 more compared to the previous year).

Profit – 81.7 million euros

LVM closed the first half of this year with a profit (before corporate income tax) of 81.7 million euros, exceeding the figure for the same period in 2018 by 21.4 million euros. The reason for the higher profit lies in the sales prices of timber – roundwood assortments, wood chips and standing trees – which rose sharply in the second half of 2018. However, in the spring of 2019, following a significant drop in demand for wood products, the average assortment price for the second half of 2019 is forecast to be 15-20% lower than in the first half. As a result, LVM's projected profit for 2019 as a whole will not exceed the 2018 level.

“There are long-term and short-term reasons,” in response to the question of what has allowed such a significant increase in net profit (before corporate income tax) over two years, replies Dainis Reķelis, Head of the Corporate Planning Department at Latvijas valsts meži. He justifies his statement: in the long term, these are previous investments in forest infrastructure. “Positive impact comes from our investments in forest roads from previous years, which allow us to both deliver timber to clients in any weather conditions and also reduce costs. In the long term, investments in the restoration of forest drainage systems, which increase the annual growth of timber in state forests, are of great importance,” says D. Reķelis. On the other hand, speaking about the short-term reasons, he mentions the very high timber prices in previous years. The causes of these high prices can be found both here in Latvia and elsewhere in Europe. “In the second half of 2018, when we started concluding supply contracts for 2019, prices were still high. Currently, the situation has ‘turned upside down’ – there is a significant drop in timber prices in the market, which will also be reflected in the company's results for the next reporting periods,” explains D. Reķelis. Even if still small for now, new LVM products – the geospatial solutions service and the sale of certified mineral materials and their mixtures – have contributed their share to the total income. “Continuous work on both LVM's process efficiency and increasing the efficiency of service providers has helped to improve profit indicators,” says D. Reķelis.

The price factor

The net turnover and profit figures of the forest manager are influenced by economic development in the forest industry's major sales markets. “The dynamics of global economic development remained weak in the first half of the year – stagnation was driven by both uncertainty regarding the Brexit process and tensions in US-China trade relations, which is why analysts' forecasts regarding global economic activity in the second half of the year are cautious,” explains the Head of the Corporate Planning Department at Latvijas valsts meži. He emphasises that timber prices in Latvia in the first half of the year were characterised by a downward trend. “Along with the fall in prices, the supply of roundwood from private forest land has decreased. There is also weak demand and high competition in the markets for finished products,” notes D. Reķelis. Meanwhile, plywood market saturation and the subsequent drop in sales prices have had a significant impact on export figures for the panel segment this year, and a significant drop in demand is also being observed in certain chipboard sales markets. “Overproduction and intensifying competition have also affected the sawn timber segment – there has been a reduction in export prices for both softwood and hardwood sawn timber in the first half of the year, which is why the forecasts cannot be optimistic,” adds Dainis Reķelis.

LVM net turnover (first half of the year) million euros

2016.g.      127.9

2017.g.      135.8

2018.g.      157.6

2019.g.      192.3

LVM costs (first half of the year) million euros

2018.g.      97.3

2019.g.      110.6

LVM profit before corporate income tax (first half of the year) million euros

2016.g.      43.6

2017.g.      40.4

2018.g.      60.3

2019.g.      81.7

Realised roundwood assortments (first half of the year) (million m3)

2018.g.      2.75

2019.g.      3.01

Realised roundwood assortments (first half of the year) (average price euro/m3)

2018.g.      51.13

2019.g.      58.70

Source: Latvijas valsts meži

“Supporting” the state

Māris Liopa, Chairman of the Board of the Confederation of Forest Owners and Managers of Latvia:

“Latvijas valsts meži”, both directly and indirectly, significantly supplements the state budget with money that is so desperately needed to solve various pressing state issues! The company's financial performance indicators once again prove the practice of good governance, as not everyone manages to achieve such good results, especially in conditions of declining external demand for wood products. The forest industry is an area of the national economy that can give more to the state – in terms of both tax and export revenue – because, at present, forest managers in Latvia have their “hands tied” much more than their closest competitors in Estonia or Finland.