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LVM's Nine-month Operating Results Highlight the Unstable Situation in the Forest Industry

The operating results of JSC “Latvia's State Forests” (LVM) in the first nine months of 2023 show that during the reporting period 5.18 million cubic metres of round timber assortments and 417 thousand megawatt-hours of wood chips were delivered to Latvian wood processing companies during the reporting period. In the first nine months of 2023, the volume of carbon stored in sawn timber delivered to the market, expressed in CO2 equivalent, is 4.7 million tonnes.

The slowdown of economic activity in the important markets for wood products in Europe is also echoed in the export of Latvian wood products: with a few exceptions, the total volume of product sales is decreasing, and prices are even more so. Data on the processing segment of coniferous saw logs show that in Latvia in the first nine months of 2023, the value of the exported unit of coniferous lumber decreased by a third, as compared to the corresponding period of last year. The drop in value can be explained by a pronounced decrease in demand in the construction industry. Finnish and Swedish building material producers are also facing a similar downward trend in prices as compared to the record highs previously experienced. However, the competitiveness of Swedish building construction manufacturers is positively affected by the weakening of the krona exchange rate, thus Swedish manufacturers have managed not to reduce their processing capacity.

LVM's pre-tax profit reached 218.5 million euros in the first nine months of 2023, which is 32.2 million euros more as compared to the same period last year. The profit indicators were mainly affected by the high price of wood in the first six months of this year, as well as by 6.6 % higher sales volumes of round timber assortments. 96 % of LVM's total revenues, or 462.7 million euros, are revenues from the sale of wood products – round timber assortments, growing trees and wood chips.​

LVM's board points out that the operating results of the nine months of 2023 reflect an atypical situation – the company has achieved excellent financial indicators, but they were facilitated by high prices in the first half of the year and wood sales prices in longer-term cooperation agreements. The high sales prices appeared earlier – as a result of the wood product auctions held in December 2021, even before the war started by Russia in Ukraine, which rapidly and significantly changed the wood market situation not only in Europe, but all over the world. In the current conditions, judging the situation in the European and world wood markets, where Latvian wood processing companies also sell their products, there is a sharp decline in both the prices of wood products and their demand. Evaluating possible future scenarios, it is predicted that even now the entire Latvian forest sector, which is the country's largest exporting sector, providing 1/5 of the export value of all goods, and an important employer in the rural regions of Latvia, is facing critical challenges; however, LVM as a public capital company according to the current legal regulation, has no possibility to make any changes in previously concluded longer-term contracts – neither in terms of volumes, nor the prices offered by customers, nor conditions.

Revenue from the sale of forest tree seeds and seedlings to external buyers in the first nine months of 2023 reached 6.4 million euros, which is 96 % of the revenue generated in this business line in the nine months of 2022. In total, 47.2 million forest tree seedlings were sold in the first nine months of this year, including 20.3 million or 43 % sold to other forest owners. 6.6 million seedlings from the volume sold to other forest owners were sold outside Latvia.

During the first nine months, forest was restored on an area of 12.9 thousand hectares, planted on an area of 0.4 thousand hectares, and the company has also managed to achieve very high indicators in the tending of young trees in order to ensure future forest productivity. To reduce the total cost of services, while maintaining the high quality of work, mechanized solutions are increasingly used in forest restoration. In the first nine months of this year, mechanized planting of forest was performed on an area of 0.7 thousand hectares, while mechanized sowing was done on 0.6 thousand hectares.

During the reporting period, LVM sold a total of 603 thousand cubic metres of mineral materials and their aggregates. Using LVM's production equipment, mineral material aggregates in the volume of 138 thousand cubic metres were obtained and processed. LVM earned 1.8 million euros from the sale of mineral materials and their aggregates to external customers, which is 1.1 million euros less than in the corresponding period in 2022.

LVM, in addition to daily environmental impact reduction measures, actively continued work in three environmental projects co-financed by European Union funds, the focus of which is professional nature protection, which is an integral part of modern forestry. Using nature-friendly forest management methods and specific biotechnical measures, within the framework of the projects LVM engages with the restoration of rare biotopes and habitats of species of European Union importance in a total area of almost 1000 ha, and the improvement of water quality in the River Aģe basin, using nature-friendly green and blue infrastructure elements, implemented by LVM forest infrastructure specialists. The so-called blue infrastructure is all kinds of nature-friendly solutions in watercourses and water bodies that help to maintain and improve the state of freshwater. In turn, the so-called green infrastructure is a relatively new approach to territory planning and management, which can help preserve biological diversity, as well as solve various environmental problems. For example, to improve the functionality of the forest protection zone of water bodies, purposefully creating the composition of ecologically necessary tree species for the place.

The majority of the solutions applied in environmental projects are new, methodically and technically complex on the scale of Latvia and at least the Baltic region, promoting LVM as a professional nature protection leader with a high knowledge transfer potential.