Latvian state-owned enterprises (SOEs, owned by the State fully or partially) play an important role in the Latvian economy, have significant value and are the property of all Latvian citizens. This report provides an overview of SOEs and establishes a reference point for future evaluation of their performance.
At the end of 2009 over 140 SOEs included in this review had total assets of EUR 10.2 billion and combined turnover of EUR 3.2 billion. SOEs employ over 52 thousand workers and in 2009 had an average net profit margin of 5.9%. Based on expert analyses, the estimated State’s share in aggregate fair value of SOEs is EUR 2.75 billion.
State-owned real estate (buildings, premises and land) located in Riga has an aggregate value of approximately EUR 2.3 billion and an aggregate floor space (buildings and premises) of over 3.8 million square meters. Total State ownership in SOEs is estimated EUR 2.75 billion. Total fair value including real estate and State’ forests is estimated EUR 6.40 billion.
Although enterprises have paid rather sizeable dividends over the last years, the analysis conducted as part of this report suggests that improving SOEs’ performance by raising the Standard of corporate governance to the level of EU peers would yield additional annual dividends to the State in excess of EUR 100 million. This number is calculated using a 50% dividend payout ratio on the additional returns that would be generated from increased efficiency. Another means of increasing dividends is to adjust the capital structure of SOEs. This alternative would allow a one-off dividend of up to EUR 690 millions in aggregate (excluding complete one-off dividend potential of Latvijas valsts meži).
Some SOEs could pay a one-off dividend from retained earnings and cash reserves, but most SOEs would require significant and lengthy corporate restructuring including decreasing equity. This review groups industries into seven sectors: energy, telecommunications, forestry, transportation, real estate, health and other (sector Other includes also relatively large Financial sector). These groups are used to analyze trends and current market conditions within sectors, and to value enterprises taking into consideration factors that are unique to particular sectors.
Valuations and performance assessments of Latvia’s SOEs are based on analysis of similar state- or privately-owned companies in other countries. With few exceptions, Latvia’s SOEs underperform their peers.
The largest sector in terms of the number of people employed by SOEs is transportation (23 839 employees). The transportation sector also has the highest aggregate SOE turnover (EUR 959 million). Energy sector SOEs make up the largest share of aggregate SOE value (35%), followed by transportation (26%) and telecommunications (14%). The forestry and telecommunications sectors have the highest net margin profitability.
This report outlines a number of ways in which the performance and value of SOEs can be increased. The suggestions include improved corporate governance, optimised capital structure and increased operational efficiency. The report also discusses strategic aspects of performance improvement and value maximisation for each sector. Finally, the report discusses challenges of SOE administration and makes suggestions in the areas of efficiency, transparency and performance measures.