joint stock company “latvijas valsts … arnis zakovics edvīns ... the aim of the activities of...

JOINT STOCK COMPANY “LATVIJAS VALSTS MEŽI” (UNIFIED REGISTRATION NUMBER: 40003466281)

ANNUAL ACCOUNTS 2015

(16th Financial Year)

DRAWN UP IN ACCORDANCE WITH THE

ANNUAL ACCOUNTS LAWS OF THE REPUBLIC OF LATVIA

AND THE INDEPENDENT AUDITORS’ REPORT

Riga, 2016

JSC "Latvijas valsts meži" Annual Accounts 2015

Address: 1 Vaiņodes Street, Riga, LV-1004

Unified Registration Number: 40003466281

2

CONTENTS

General Information 3

Management Report 4

Profit and Loss Calculations 11

Balance Sheet 12

Cash Flow Statement 14

Statement of Changes in Equity 15

Annex to the Financial Statement 16

Independent Auditors’ Report 35




3

General Information

Name of the Company

Legal Status

Registration Number, Place and Date

Legal Address

Full Name and Address of the

Shareholder

Shareholder’s Representative

Responsible Representative of the

Ministry of Agriculture

Members of the Management Board

Subsidiary

Associated Company

Financial Year

Auditors

Latvijas valsts meži

Joint Stock Company

40003466281

Riga, 28 October 1999

Re-registration in the Commercial Register

on 1 November 2004

1 Vaiņodes Street, Riga,

Latvia, LV-1004

Ministry of Agriculture of the

Republic of Latvia (100%)

2 Republikas Square Riga,

Latvia, LV-1981

Ozols Arvīds

Birģelis Jānis

Strīpnieks Roberts - Chairman of the Board

Bumbieris Gints

Melnis Arnis

Zakovics Edvīns

“Jaunmoku pils” Ltd. (100%)

Tume Rural Territory, Tukums Municipality, Latvia, LV-3139

“Meža un koksnes produktu pētniecības un attīstības institūts” Ltd. (Forest

and Wood Products Research and Development Institute) (40%)

41 Dobeles Street, Jelgava, Latvia, LV-3001

1 January 2015 – 31 December 2015

Iveta Vimba

Sworn auditor of the Republic of Latvia

Certificate No. 153

SIA „Ernst & Young Baltic"

1A Muitas Street, Riga Latvia, LV-1010

License No.17




4

Management Report

2 May 2016

Type of Activity The aim of the activities of Joint Stock Company “Latvijas valsts meži” (hereinafter also LVM or the Company) is to implement programmes on national forest estates and state forest management, which will ensure preservation and increase of the value of national forests and revenue of the forest owner – the State.

The shareholder of LVM is the State represented by the Ministry of Agriculture of the Republic of Latvia. The Company’s regulatory authorities: Meeting of Shareholders and the Management Board. The highest adjudicating authority – Meeting of Shareholders that represents the shareholder - the Ministry of Agriculture of the Republic of Latvia. The highest senior executive body of LVM is the Management Board. On 31 December 2015, the Management Board of LVM consisted of four Board Members: the Chairman of the Board and three Board Members.

LVM governs and manages 1.63 million hectares of land of the Republic of Latvia, including

1.60 million hectares of forest land, of which 1.41 million hectares consist of forests. According

to the LVM strategy, approved in 2010, national conservation areas constitute 0.32 million

hectares or 20% of the total area in the possession of LVM, including 0.24 million hectares of

forest areas. Economic activity with the aim of manufacturing high-quality wood is planned for

1.17 million hectares of forest land, of which 0.19 million hectares are managed with additional

conditions for environmental protection, recreation, and environmental exploration.

Company’s Activities in the Account Year

Budget,

mln EUR Actual

execution mln EUR

Revenue, incl. 261.30 264.40

from sales of assorted roundwood 228.67 229.32 from guaranteed delivery of certified products 0.25 0.56 from sales of growing trees 17.85 19.37 from sales of woodchips for producing energy 4.41 2.54 from sales of forest tree seeds and seedlings 4.96 4.88 from real estate management 3.42 2.90 from leasing of hunting rights 0.62 0.61 from recreation and hunting services 0.96 1.04 other revenue* 0.13 3.15 interest revenue 0.04 0.03

Expenditure, total: 201.28 188.40

manufacturing expenditure 191.85 180.64

corporate management expenditure 9.43 7.76

Real Estate Tax 3.37 3.21

Donations 4.00 4.00

Profit before Corporate Income Tax 52.65 68.78

Corporate Income Tax 6.32 9.48

Profit after taxes 46.33 59.30

*Differences between revenue and expenditure, which are not directly linked to the economic

activity of the Company, including biological asset appreciation




5

Management Report (continued)

The total revenue of LVM in 2015 exceeded the planned revenue by 3.1 million euros. This included revenue from sales of assortment of roundwood and sales of growing trees, which exceeded the estimated level of revenue by 2.5 million euros. The revenue from the sales of growing trees was affected by higher sales prices. The revenue from the sales of roundwood was also greater than planned because of a slightly larger sales volume. In turn, the average assortment sales prices during the reference period were lower than expected, which was affected by drop in demand for wood in sawnwood sales markets. Woodchip sales revenue was also considerably lower, since affected by a drop in demand, both the volume of sold woodchips and their sales price witnessed decrease. Income from real estate management – revenue from lease of land for mining operations was lower than budgeted. It was due to the fact that not all initially planned swamp areas were leased in 2015. Also income from sales of underground natural resources was lower than planned, since in the 1st and 4th quarter of the account period due to unsuitable weather conditions demand for sand and gravel for road construction witnessed a rapid drop. Revenue in 2015 was also affected by biological asset appreciation (see notes 7 and 15), as well as by income from received fines and from default in road construction (see note 9).

The total expenditure was lower than budgeted – primarily due to lower fuel prices and shorter average assortment transportation distance, as a result of which timber deliveries were optimised and harvesting and assortment transportation costs decreased significantly. Forestry activities in 2015 were executed in accordance with the situation in nature, and the unit price for forestry services was lower than planned.

Joint Stock Company “Latvia’s State Forests” in 2015 has fully fulfilled its liabilities towards its owner, i.e. the State, by paying a levy of 67.9 million euros (90% of annual income of 2014), provided for in Cabinet Regulation No. 1471 “Procedures for the Determination and Transfer into the State Budget of the Profit Share to be Disbursed for the Use of the State Capital” and all tax attributable to LVM (60.9 million euros).

According to the accepted basic principles of the Company’s owner, LVM has donated a total of 4.0 million euros during the account year. These donations included 2.2 million euros for sports support, 0.6 million euros for the development of the forestry sector, 0.6 million euros for cultural support and 0.6 million euros for social projects through the charity foundation Ziedot.lv.

Action Plan Unit of

measurement

Economic activity plan

Actual

execution

Sales of assorted roundwood mln m3 4.76 4.81

Sales of growing trees mln m3 0.69 0.68

Sales of fuel woodchips thsd in bulk m3 442 277

Sales of fuel woodchips thsd Mwh 370 236

Forest regeneration thsd, ha 14.6 16.0

incl. natural regeneration thsd, ha 7.0 8.2

Forest (young stand) tending thsd, ha 40.7 41.0

Land registration in the Land Register thsd, ha 142.7 122.5

Construction of forest roads km 297 289

Sales of forest seedlings mln pcs 48.1 46.8

incl. container seedlings and seedlings

with improved root system

mln pcs 43.7 42.4




6


All in all, the estimated sales volume of roundwood assortment was reached; exported pulpwood volumes were lower than budgeted. There were significantly lower fuel chip sales, since in 2015, when the heating season ended, the demand for woodchips dropped rapidly, and in the 2nd and 3rd quarter new buyers were not found.

In 2015, forest was artificially restored in an area of 7.8 thousand hectares with tree species, regeneration technologies, and volumes foreseen in the LVM strategic forestry plan. Increase in natural regeneration compared to the planned volumes is related to reforestation of stands cut in 2010, when the volume of cutting was slightly greater.

The land was registered according to the surveyed land sizes submitted by the land surveyors. The amount of land registration in 2015 was affected both by lack of demarcation on the Latvian-Russian border that delayed the planned works at the end of the year and by surveying work restrictions in the restriction areas of economic activity.

In 2015, 289 km of forest roads were put into service, of which 116 km were reconstructed and 173 km were new roads. These roads are included on the Company’s balance sheet, and 19.3 million euros were invested in their construction. The planned volume of construction in the reference period was not achieved due to constructors' default.

Sales of forest tree seedlings were lower than planned, due to failure to sell the planned amount of seedlings in the Latvian market because of increase of natural regeneration area in private forests. In turn, clients from Lithuania and Germany declined the planned autumn volume due to unapproved projects.

In all eight LVM regions independent certification bodies FSC and PEFC carried out supervisory audits. Auditors had an opportunity to see and assess all works of the forest management cycle, starting with soil preparation, tree planting, and young forest stand tending, up to the harvesting and forest road construction. During the certification supervisory audits, conformity of the economic activity to the requirements of the FSC/PEFC supply chain standards was inspected and assessed (both documentation and in nature), paying extra attention to the knowledge of transport and surveying service providers in the field of enforcement of requirements of FSC/PEFC supply chain standards. During the inspections no material, systematic discrepancy was found.

Quality Management Certificate ISO 9001:2008 was maintained for seedling production and sales

processes.

Most Important Public Relations Projects and Events in 2015

In the school year 2014/2015, more than 12 thousand participants (686 classes and hobby groups in total) applied to Mammadaba (Mother Nature) Master Class - it is 45 schools more than in 2014.

The 9th Forest Olympiad was organised, where six of Latvia’s most knowledgeable and erudite school teams competed for the main prize – a natural expedition to Norway (316 lesson descriptions from 109 educational establishments were submitted in 2015).

For the 8th time, LVM organised a special summer camp (36-hour courses) for 40 teachers. Environmental education courses were held for 50 teachers from Riga and Riga region schools, where they had a chance to try the role of a forestry expert; in turn, a 12-hour further education programme “Development of Teachers’ Occupational Competence in Environmental Education” about sustainable forest management was organised for 150 teachers.

Educational seminar “Forest Resources and Their Management in Latvia’s State Forests” was held for LVM scholarship holders, where students not only acquired theoretical knowledge but also had a practical training in the forest.




7


During the campaign "Do Not Litter the Forest!" Pigman (Cūkmens) met around 10 thousand visitors.

This year, 224 kindergarten groups from different places in Latvia master the ecological

programme “Pigman's Detectives”, and almost 5 thousand children will become Pigman's

detectives.

International Bird watching race “Latvia’s State Forests Bird Rally 2015” was organised in

collaboration with Latvia Birds Fund.

Company and Environment

In 2011, a new identification, mapping and quality control of the protected habitats in Latvia and

the EU, as well as mapping of rare and especially protected species were started in the LVM lands,

which are located outside of the natural territories protected by law. This information about the

protected species and their habitats is used by all LVM employees who plan and implement forest

management.

In 2015, LVM database was supplemented with more than 4.9 thousand new, rare and especially

protected plants, mushrooms, lichens, and invertebrate species and experts filed more than

14.5 thousand encounters with rare and especially protected species in the four-season period.

During five seasons, in addition to the natural forest habitats already protected in the LVM territory

(around 43 thousand hectares), 45.9 thousand hectares of protected habitats in Latvia and the EU

were mapped, representing almost 30 different types of protected habitats, of which 9.3 thousand

hectares were recognised in 2015. The largest share consisted of forests and marsh habitats, of

which the most frequently described forest habitats were swamp forests, old and natural

boreal forests and swampy forests. 87% of the protected forest habitats are of excellent,

good or average quality; 13% of the recognised habitats are low-quality habitats.

LVM employees in verifying the expected sites for the Company’s economic activity, each year

find new nests of protected bird species. The LVM database has information about 2 600 of the big

nests, of which 1 300 are nesting grounds for protected bird species, including information about

historical nesting grounds and artificial nests. All the known nests are provided with appropriate

protection. In 2015, the LVM database was supplemented with 170 new protected bird nests.

Every year, in the territory possessed by LVM, monitoring of the protected birds, plant species, and

habitats is carried out. The monitoring results are used in the planning of the Company’s economic

activity. In order to reduce influence of the economic activity on the natural environment, additional

protection measures are taken. For instance, in the areas surrounding nests of black storks and other

birds, regardless of their protection status, a prohibition within a radius of 500 m from the nest is

imposed on forestry activities during the nesting season. Furthermore, in the spring-summer

period, forestry activity was banned within a radius of 1 000 m from the mating places of the

wood grouse (for 265 mating territories, in an area of 87.6 thousand hectares). LVM forest roads

which lead through the territories where the protected birds are nesting or mating are closed during

the nesting period from March until the end of July.

Every year, LVM performs biotope tending in order to improve the quality or renew the

protected biotopes and habitats. In 2015, more than 255 hectares of forest habitats were improved;

including 112 hectares of mating places for the wood grouse. 371 hectares of forest glades were

cut in order to avoid the afforestation.

Use of ROTSTOP plant protection substance was implemented in long-term logging contract

areas in tending and damaged tree felling sites where roundwood is prepared using motorised

saws.




8


LVM CO2 Footprint

Carbon footprint is carbon dioxide measurement that shows impact of human or Company’s

economic activity. LVM has been calculating its carbon footprint already since 2011, and LVM

calculation methodology is certified in accordance with ISO 14064-3:2006 requirements. LVM

is among the few companies the total CO2 footprint of which is positive, since forest absorbs

more carbon dioxide than forest management activities emit.

Carbon footprint is calculated in three stages: the first and second stage include emissions

produced by the Company – fuel, different types of gases, in second – electricity and heating.

The third stage includes consumed fossil fuels from employees’ business trips and CO2

emissions of outsourced service providers.

In 2015, altogether 125 711 tons of CO2 were emitted in LVM economic activity. The

Company's own footprint is relatively small, approximately 5% of total footprint (6 312 tons of

CO2). The remaining 95% (119 399 tons of CO2) are produced by outsourced providers

involved by LVM. In comparison with 2014, as a results of outsourcing, the total amount of

CO2 emissions of LVM economic activity has increased by 8 955 tons.

Emitted C02, tons

2013 2014 2015

LVM 7 158 7 110 6 312

Outsourced services 122 060 109 646 119 399

TOTAL 129 218 116 756 125 771

Planning and Development

Company’s strategy was updated and in March 2016 submitted to the owner for approval,

as well as to the Cross-Sectoral Coordination Centre for its opinion.

In 2015, there were two LVM Nature Days organised to introduce hobby groups to the

Company’s Forest Management and Environment Report 2014, the thinning guidelines,

and technologies for acquisition of small merchantable wood from young forest stands.

According to the scientific research priorities defined in the LVM strategies, LVM has carried out

the following studies:

Forecast for risk changes and its mitigation in forest management;

Use of wood in forest infrastructure;

Growth process equation, GHG emission and CO2 sequestration assessment development

in forest stands that are little affected by economic activity;

Socio-economic assessment of different land management models;

Evaluation of birch seedling withering reasons in restored forest areas;

Forest breeding programme update and forest tree breeding research to select

reproductive material for genetically superior forests;

Methodological support development to mitigate the impact of forest management on

environment, impact of humic substances on planting material quality for monitoring

system;

Reduced tyre pressure on low-carrying-capacity roads;

Development of algorithms and methodology for the Decision-making Support System

for Road Construction;

Adjusting forestry to the climate change;

Energy resources project.




9


Participation in International Processes

LVM was represented in the International Meeting of National Operators that took place in

Brussels in the environmental education programme “Learning about Forests”, which in Latvia is

implemented by the Company.

At the beginning of 2015, LVM represented forest industry in the exhibition International Green

Week 2015 that took place in Berlin bringing together 415 thousand visitors.

In September, LVM was represented in the 10th European Forestpedagogy Congress in Zvolen,

Slovakia.

Financial Risk Management

LVM organises its economic activity according to the strategies approved by the owner. It has

been determined that the Company has to ensure a stable profit and a positive money flow from its

economic activity. The financial management of the Company is carried out in a centralised

manner, and its liquidity provides the Company with the opportunity to fulfil all of its obligations

in time, both to its co-operation partners and to the State.

Conditions and Terms after the End of the Account Period

In the period since the last day of the account period until the day of signing of this report,

there have been no important events that would have significant impact on the Company’s

financial situation on 31 December 2015.

Most Important Business Plans for 2016:

Economic activity plan:

Roundwood assortment sales at least mln m3 4.98

Standing timer sales in accordance with contracts mln m3 0.52

Woodchip sales no less than thsd Mwh 388

Reforestation thsd, ha 15.3

incl. natural regeneration thsd, ha 7.3

Agro-technical tending of regenerated forests thsd, ha 23.3

Forest (young forest stand) tending thsd, ha 31.2

Cleaning of drainage ditches from obstruction thsd,m3 392

Reconstruction of forest drainage systems thsd, ha 15.4

Forest road construction km 259

Registration of land in the Land Register thsd, ha 92.1

Land cadastral survey thsd, ha 101.1

Border renovation and maintenance thsd, ha 56.8

Forest seedling sales not less than mln pcs 45.9

incl. container seedlings and seedlings with

improved root system

mln pcs 42.7

The plan also foresees to ensure proper forest management in accordance with good forest

management practice, to ensure a certificate for forest seedling production and sales quality (ISO).

Start providing forest management services to other forest owners, not only within LVM.

Introduce changes to the forest management planning process by promoting public involvement.

Maintain and develop Nature Park in Tērvete; renew and improve Pokaiņi Forest infrastructure.




10


Continue and begin research according to research priorities defined in the LVM strategy,

including:

• Research programme for improving forest growing conditions for 2016 - 2021;

• Forestry impact on forest and related ecosystem services;

• Assessment of greenhouse effect emissions and CO2 attraction in aged forest stands;

• Forecast for risk changes and its mitigation in forest management;

• Research of factors limiting the spread of root rot;

• Programme for reforestation, forest planting and tending;

• Evaluation of broad-leaved tree forest management regime;

• Research of important environmental factors for wood grouse protection;

• Improvement of growing process patterns;

• Use of wood in chemical processing.

Profit Distribution Suggested by the Board

EUR

Share of profit to be distributed 59 300 125

Suggested profit distribution:

to calculate the dividends for the shareholder 52 614 921*

undistributed profit 6 685 204

*In accordance with Section 5 of Cabinet Regulation No. 806 of 22 December 2015 “The

Procedure by Which State Capital Companies, where State is a Stakeholder (Shareholder), shall

Forecast and Determine the Share of Profit to be Paid in Dividends and Make Payments in the

State’s Budget for the Use of State Capital” and Section 22 of the Law “On Medium-term Budget

Framework for 2016, 2017 and 2018”, it is established that the amount of the dividends to be paid

is 90% of the profit of the account year 2015. In accordance with Paragraph 11.2.5 of the Cabinet

Regulation, a holder of the State capital shares, upon finding that a part of profit is gained by

revaluation of long-term capital investment, may reduce the profit margin to be paid in dividends.

Upon revaluing the real estate on 30 Kristapa Street that was sold to the Ministry of Agriculture,

the profit is EUR 839 102, reducing the amount of distributable share of profit by this amount.

The Management Board recommends to divert the undistributed profit of EUR 6 685 204 for

increasing the fixed capital in accordance with the Company's strategy.

/signature/

Roberts Strīpnieks

Chairman of the Board

JSC "Latvijas valsts meži" Annual Accounts 2015 Address: 1 Vaiņodes Street, Riga, LV-1004 Unified Registration Number: 40003466281

11

Profit and Loss Calculations

Note 2015

EUR

2014

EUR

Net turnover 3 261 551 095 275 717 148

Production costs of sold products 4 (177 838 383) (172 611 995)

Gross profit 83 712 712 103 105 153

Sales costs 5 (1 536 832) (1 515 997)

Administrative costs 6 (8 856 096) (7 938 146)

Other revenue from economic activity 7 2 168 929 1 402 913

Other expenditure of economic activity 8 (4 046 395) (5 408 202)

Other interest revenue and similar revenue 9 758 112 627 403

Interest payments and similar expenditure 10 (33 233) (22 246)

Profit before taxes 72 167 197 90 250 878

Corporate Income Tax 11 (6 789 251) (10 578 006)

Deferred Corporate Income Tax 11 (2 690 580) (812 397)

Other taxes 27 (3 387 241) (3 406 676)

Account year profit

59 300 125 75 453 799

The Annex is an integral part of this financial statement.

/signature/

Roberts Strīpnieks



12

BALANCE SHEET

Assets Note: 31.12.2015 31.12.2014

LONG-TERM INVESTMENTS EUR EUR

Intangible assets

Concessions, patents, licenses, trademarks and

similar costs

13

14

710 657 709 666

TOTAL

Fixed assets

Land, buildings, structures

14

710 657

251 739 214

709 666

249 707 071

Equipment and machines 14 5 519 353 7 476 937

Other fixed assets 14 3 847 945 3 636 403

Creation of fixed assets and costs of unfinished construction facilities 14 6 834 774 7 407 627

Advance payments for fixed assets 467 670 866 386

TOTAL

268 408 956 269 094 424

Investment properties 14 1 377 882 1 899 905

Biological assets 15 12 866 205 10 688 531

Long-term finance investments

Participation in the capital of related companies

16

1 620 936

1 620 936

Participation in the capital of associated companies 16 566 872 566 872

Other securities 21 441 090 441 090

TOTAL 2 628 898 2 628 898

LONG-TERM INVESTMENTS, TOTAL 285 992 598 285 021 424

CURRENT ASSETS

Stock

Raw materials, basic materials and consumables 1 345 053 771 185

Finished products and goods for sale 18 22 672 114 20 736 687

Advance payments for goods 41 421 64 086

Working animals 262 262

TOTAL

24 058 850 21 572 220

Debtors

Trade receivables 19 14 981 964 17 681 663

Debts of related companies 17,28 57 255 61 020

Debts of associated companies 28 - 88 220

Loans to related companies 17 - 42 672

Other debtors 20 8 424 404 1 230 024

Future period costs 728 511 465 569

TOTAL 24 192 134 19 569 168

Securities and participation in capitals

Other securities

21 - 25 917 292

TOTAL - 25 917 292

Cash and cash equivalents 22 25 859 356 15 017 629

CURRENT ASSETS, TOTAL 74 110 340 82 076 309

ASSETS TOTAL 360 102 938 367 097 733


13

BALANCE SHEET Liabilities

Note: 31.12.2015 31.12.2014

EQUITY EUR EUR

Share capital 23 270 270 640 264 052 390 Undistributed profit

undistributed profit of the account year 59 300 125 75 453 799

EQUITY, TOTAL 329 570 765 339 506 189

SAVINGS

Other savings 24 13 323 846 13 333 274 SAVINGS, TOTAL 13 323 846 13 333 274

CREDITORS

Long-term creditors

Deferred tax liabilities 11 5 025 668 2 335 088 Other creditors 122 462 72 148

TOTAL 5 148 130 2 407 236 Short-term creditors

Advance payments received from buyers 317 725 594 967 Trade and other payables 5 469 382 6 619 818

Debts to related companies 28 869 424

Debts to associated companies 28 41 888 27 283 Taxes and state compulsory social insurance contributions 27 866 450 859 150

Other creditors 25 909 479 938 796 Accrued liabilities 26 4 454 404 2 810 596

TOTAL 12 060 197 11 851 034

CREDITORS, TOTAL 17 208 327 14 258 270

LIABILITIES, TOTAL 360 102 938 367 097 733


/signature/

Roberts Strīpnieks



14

Cash Flow Statement

Cash flow of the main activity

2015

EUR

2014

EUR

Revenue from product sales and service provision

266 230 725 273 692 130

Payments to providers, employees, other main activity costs (157 594 470) (154 194 352)

Other revenue or costs of the Company's main activity 482 353 441 034

Gross cash flow of the main activity 109 118 608 119 938 812

Costs of tax payments (23 491 718) (19 240 300)

Donations (4 000 000) (5 200 000)

Net cash flow of the main activity 81 626 890 95 498 512

Cash flow of the investment procedure

Purchase of fixed assets and intangible assets (28 885 945) (31 096 217)

Received interest 45 661 51 583

Repayment of loan 42 672 -

Deposits with credit institutions 25 899 697

(18 279 844)

Net cash flow of the investment procedure (2 897 915) (49 324 478)

Cash flow of the financing procedure

Dividends received 21 171 21 172

Dividends paid (67 908 419) (54 447 305)

Net cash flow of the financing procedure (67 887 248) (54 426 133)

Decrease of cash/ (growth) 10 841 727 (8 252 099)

Cash at the beginning of the account year 15 017 629 23 269 728

Cash at the end of the account year 25 859 356 15 017 629


/signature/

Roberts Strīpnieks



15

Statement of Changes in Equity

Share capital Undistributed profit of

the account year Total

31 December 2013 258 002 689 60 497 006 318 499 695

Payment of dividends - (54 447 305) (54 447 305)

Increase of fixed capital 6 049 701 (6 049 701) -

Profit of the account year - 75 453 799 75 453 799

31 December 2014 264 052 390 75 453 799 339 506 189

Payment of dividends - (67 908 419) (67 908 419)

Increase of fixed capital 6 218 250 (6 218 250) -

Transaction with shareholder - (1 327 130) (1 327 130)

Profit of the account year - 59 300 125 59 300 125

31 December 2015 270 270 640 59 300 125 329 570 765


/signature/

Roberts Strīpnieks



16

Annex to the Financial Statement

1. General Information about the Company

JSC "Latvijas valsts meži" (Latvia’s State Forests, hereinafter - the Company) was registered in the Register of

Enterprises of the Republic of Latvia on 28 October 1999, and re-registered in the Commercial Register of the

Republic of Latvia on 1 November 2004.

The Company’s main fields of activity include production of assorted roundwood, forest renewal, cultivation,

tending, forest stocktaking, forest road construction, repairs and maintenance, as well as real estate management.

The Company’s financial statement for 2015 has been approved with the Decision of 2 May 2016 of the

Management Board of the Company. The Company’s shareholder is entitled to amend the financial statement

after its issue.

2. Summary of Significant Principles of the Accounting Policy

Guidelines for Drawing up the Financial Statement

The financial statement of JSC “Latvijas valsts meži” has been drawn up in accordance with the Annual

Accounts Law of the Republic of Latvia. The financial statement has been drawn up in accordance with the

initial value accounting method. The euro (EUR) has been used as the monetary unit in the financial statement.

The financial statement covers the time period from 1 January 2015 to 31 December 2015.

Changes to the Accounting Principles

No changes in the Company’s accounting principles were made in 2015.

Foreign Currency Translation

The Company’s functional currency and the currency used in the financial statement is the euro monetary unit

(EUR). All transactions in foreign currencies have been translated into the euro, according to the rate officially set by

the European Central Bank on the date when the transaction was made. Monetary assets and liabilities denominated

in foreign currencies have been translated into euros according to the exchange rate set by the European Central

Bank on the last day of the account year. Currency exchange rate differences arising from transactions in other

currencies or when reporting the items of assets and liabilities, using the exchange rates that differ from the initially

used currency rates for the transaction accounting are recognised in the profit and loss calculations in the net value.

Intangible Assets

Intangible assets are listed according to their initial value, which is amortised during the useful life of the assets using

the linear method. If any event or change of conditions suggests that the value of the intangible assets may be

irrecoverable, the value of such intangible assets will be reviewed in order to state their value reduction. Losses as a

result of a value reduction are recognised if the balance value of the intangible assets surpasses the recoverable sum.

Revenue Recognition

Revenue is recognised corresponding to the assurance that the Company will gain an economic benefit, and in an

amount that is possible to determine, minus the Value Added Tax and sales-related discounts. When recognising

revenue, the following conditions are also taken into account:

• Sales of goods

o Revenue is recognised when the Company has delivered to the Buyer the most significant risks and

remunerations related to the ownership of goods.


17

• Provision of services

o Revenue from services is recognised in the period when the services are provided.

• Penalties and delay charges

o Revenue from penalties and delay charges is recognised at the moment when received.

• Interest

o Revenue is recognised corresponding to the particular period of time.

Fixed Assets

Fixed assets are listed according to their initial value, minus the accumulated depreciation and decrease in value.

Depreciation for land is not calculated. If on a purchased plot of land there is a forest stand, the land is accounted in

its cadastral value and the remaining sum of the purchase is considered as the purchase value of the biological asset

(forest stand). Depreciation is calculated during the useful use of such an asset, using the linear method:

Buildings: 10-20 years

Roads: 15 years

Equipment and machinery: 5 -10 years

Computers and communication facilities: 2.85 years

Other fixed assets: 5 years

De-recognition of a fixed asset’s accounting value will take place if it is alienated, or in a case where there are no

future expectations of economic benefits from further use of the fixed asset. Any profit or loss arising from de-

recognition of the fixed asset item (calculated as the difference between the net income from the alienation and the

balance value of the fixed asset) is recognised in the profit and loss statement for the period in which de-recognition

of the fixed asset took place.

Construction in progress represents an expenditure incurred for fixed asset creation and an expenditure of unfinished

construction facilities, and is stated at its initial value. The initial value consists of the construction costs and other

direct costs. Construction in progress is not depreciated, as long as the respective assets are not completed and put

into operation.

Biological Assets Biological assets are assets which are characterised by regeneration and changes in value as a result of growth. For

the Company, biological assets include forest stands, the value of which changes as a result of their growth and the

Company holds them in order to obtain raw materials for production and for sales.

Forest stands are initially recorded at their acquisition value and after the initial recognition – at their fair value at the

end of the year. For the fair value evaluation, the method is used in which the present value of the biological asset’s

net cash flow is calculated using a discount rate. The difference between the accounting value and the value

established in the re-evaluation is recognised as income or expenditure during the account period, according to

whether the value as a result of the re-evaluation increases or decreases.

The discount rate re-calculation for the account year is carried out according to the WACC (Weighted Average Cost

of Capital) methodology, where the necessary values of the assumptions are based on objectively identifiable values

in the free market, and equivalent businesses and similar companies, resulting in a discount rate of 5.31% (previously

5.31%). The following assumptions have been taken into account for calculations:

The US government short-term (6-month) securities % rate, averaged over the period from 1958 to January

2016, serves as a risk-free rate value;

The premium for the equity risk is updated on the basis of similar forestry company average returns on

equity in northern regions in 2009 - 2013;

The average difference in the US government short-term securities % rate and the Latvian Government

short-term securities % rate from February 1997 to 2014 has been used as a state risk rate.


18

Participation in Subsidiary and Associated Companies

Investments in subsidiaries (i.e. where the Company holds more than 50% of the capital shares, or otherwise controls

them) and associated companies (i.e. where the Company has a substantial influence, but where the Company does

not own the shares/capital controlling interest; but in which it owns 20-50% of the shares or capital) are stated in

accordance with the cost method. Following the initial recognition, investments in the subsidiaries and associated

companies are listed at their initial value, deducting the losses from the decrease in value. If any event or change of

conditions suggests that the balance value of the investments in the subsidiaries or associated companies may be

irrecoverable, the value of the respective investments in the subsidiaries or associated companies will be reviewed in

order to state their value reduction. The Company recognises the income from this participation only to the extent in

which the Company receives the accrued profit shares of its subsidiary or associated company, which is received

after the date the shares/capital were purchased. The distribution of any profit received in excess of such profits is

considered as the recovery of investments, and is recognised as a reduction of the initial value of the investments.

Stock Stock is accounted according to the lowest cost value or the net sales value. All stock is evaluated by applying the

FIFO method. The net sales value is the calculated selling price, which is normally used in a business by subtracting

the expenditures needed to finish and sell the stock. In cases where the net selling value of the stock is lower than its

cost, for such stock, accumulation will be created for the reduction of its value to its net sales value.

All direct costs associated with seedling cultivation, assorted roundwood preparation and seed production during the

year are recorded in the profit and loss statement and are adjusted at the end of the year, with the evaluation of the

stock according to the lowest of the sales value or prime cost and included in the stock record as “Finished goods and

goods for sale”.

Trade Receivables and Other Receivables Debts of buyers and customers are shown in the balance sheet at their amortised value, with a deduction of the

reserves for doubtful and bad debts. Reserves for doubtful and bad debts are calculated in cases when there is

objective evidence that the Company will not be able to receive the whole amount of the debt in accordance with the

initially fixed repayment dates. The amount of the reserves for doubtful and bad debts is the difference between the

amortised purchase value of the receivables and the recoverable amount. The recoverable value of the receivable

debts is the present value of the estimated cash flow.

Cash and Cash Equivalents Cash and cash equivalents comprise money in bank accounts, cash in hand and short-term deposits, the original

maturities of which are up to three months.

Short-term Investments in Securities Investments in securities include investments in deposits with an original maturity longer than 90 days. Investments

in securities that are actively traded are measured at their fair value. Investments in deposits are reflected with the

addition of the accrued interest receivable.

Reserves Reserves are recognised if the Company has a current obligation (legal or arising from practices) caused by a past

event, and if there is a probability that in order to meet the liabilities, the Company will have to use its economically

beneficial resources, and when it is possible to plausibly estimate the amounts of these liabilities. The Company is

obliged to carry out the renewal of forest areas cut as a result of its economic activity. Forest renewal must be

performed 3-5 years after cutting. During this period, the actual outflow of the economic benefits from the Company

takes place and reserves for reforestation must be created for this.


19

Reserves for the costs of reforestation works are made on the basis of the amount of actually cut areas at the

beginning of 2016 and the planned renewal costs, taking into account the actual expenditure for reforestation during

the account year. The sum of the created reserve changes is recorded in the profit and loss statement.

Corporate Income Tax Corporate Income Tax is made of the calculated and deferred Corporate Income Tax for the account year. Corporate

Income Tax for the account year is calculated by applying the rate of 15% to the taxable income generated by the

Company during the taxation period.

Deferred Corporate Income Tax arising from temporary differences, including separate items in tax returns and this

financial statement, is calculated using the liability method. The deferred Corporate Income Tax assets and liabilities

are determined on the basis of the tax rates that are expected to be applicable when the timing differences will cease

to exist. The principal temporary timing differences arise from different depreciation rates used for accounting and

tax needs for the fixed assets and for the separate reserves which are non-deductible for tax needs.

Use of Estimates When preparing the financial statement, the management has to rely on estimates and assumptions that affect

particular balances of the balance sheet and the profit and loss calculation items reflected in this statement, as well as

the possible amount of the liabilities. Future events may affect the assumptions on the basis of which these estimates

are made. Any effect of changes in the estimates will be recorded in the financial statement, when identified.

Possible Liabilities and Assets In this financial statement, the possible liabilities are not recognised. Liabilities are recognised only when the

possibility that funds will be spent becomes plausible enough. Possible assets in this financial statement are not

recognised, and are shown only when the plausibility that an economic benefit related to a transaction will reach the

Company becomes adequately grounded.

Cash Flow Statement The cash flow statement has been drawn up using the direct method. Cash flow is presented in the gross amount,

including the Value Added Tax.

Events after the Balance Sheet Date In the financial statement, such events are shown after the end of the account year that will give additional information

about the Company’s financial situation on the date of drawing up the balance sheet (corrective events). If events after

the balance sheet date are not corrective, they are presented in the annexes to the financial statement only if they are

significant.


20

3. Net Turnover

Business segment

2015 2014

Sales of assorted roundwood 229 319 023 239 087 004

Sales of growing trees 19 369 713 24 619 837

Sales of forest seedlings 4 832 421 3 994 348

Woodchip sales 2 540 220 2 971 693

Lease of land 1 817 369 1 202 324

Sales of mineral resources 1 084 086 1 198 749

Hunting and recreation services 1 035 789 950 998

Revenue from hunting area rentals 614 974 616 311

Sales of forest seeds 43 008 40 056

Other revenue 894 492 1 035 828

TOTAL 261 551 095 275 717 148

4. Production Costs of Products Sold

2015

2014

Remuneration for work and services, incl.: 114 490 322 112 535 033

production costs of assorted roundwood, incl.: 87 541 140 87 369 719

assorted roundwood preparation costs 33 790 585 32 013 428

assorted roundwood transportation costs 27 283 535 28 508 095

costs of delivery of assorted roundwood to the road 23 991 115 23 443 615

forest road maintenance and repair 9 236 417 9 214 141

tending of young stands 4 785 735 4 620 233

drawing up land properties 3 487 046 2 410 687

agro-technical maintenance of forest areas 2 324 101 2 413 956

woodchip production costs 2 609 972 2 259 161

soil preparation 893 786 928 751

forest planting 754 743 856 169

land amelioration system maintenance 582 321 702 408

natural resource management costs 820 125 463 066

forest protection measures 445 833 412 790

production of reproductive materials 305 898 357 350

maintenance of sites important for the community

and with heritage value

264 792 174 540

restored forest area replenishment 138 526 142 336

hunting management costs 101 265 99 903

forest fire prevention measures 88 616 84 177

growing tree pruning 17 854 21 042

forest inventory 92 152 4 604


21

4. Production Costs of Products Sold

(continued)

2015 2014

Depreciation and amortisation 27 402 608 25 495 875

Personnel costs, incl.: 25 250 054 24 514 416

Basic salaries 15 763 199 15 526 086

State compulsory social security

contributions

4 774 776 4 637 067

Bonuses 3 194 514 3 017 013

Allowances and grants 1 517 565 1 334 250

Purchase of other materials 2 101 279 2 457 960

Insurance payments 2 175 030 2 150 855

Fuel costs 1 485 789 1 989 773

Production unit office maintenance costs 2 087 057 1 226 478

Purchase of equipment 743 809 708 650

Motor vehicle maintenance costs 451 094 472 377

Communication services 425 383 461 733

Scientific research and consultations 874 725 453 657

State fees 85 001 68 114

Legal services 31 371 44 636

Changes in stocks of finished products (1 935 427) 552 099

Other production costs, incl. 2 170 288 (519 661)

Changes in reserves, net (286 630) (2 955 530)

incl. reforestation (1 047 222) (2 704 410)

for bonuses 870 196 (262 610)

for unused annual leaves (109 604) 28 659

TOTAL 177 838 383 172 611 995

5. Cost of Sales

2015

2014

Timber measurement costs 1 536 832 1 515 997

TOTAL 1 536 832 1 515 997


22

6. Administrative Costs 2015 2014

Personnel costs, incl.: 3 792 362 3 615 196

Basic salaries 2 387 994 2 340 157

State compulsory social security contributions 684 722 655 717

Bonuses 511 758 495 855

Allowances and grants 207 888 123 467

Information system maintenance and database

subscriptions

1 222 270 1 054 384

Amortisation 758 809 708 955

Insurance 375 402 335 795

Advertisements and announcements 322 410 316 000

Museum services 517 215 502 152

Consultations and other external services 301 753 173 254

Fuel 116 661 153 848

Personnel development costs 245 549 133 767

Business trip costs 115 559 116 614

Transport costs 35 270 72 341

Purchase of equipment 32 242 64 853

Office maintenance costs 42 260 59 040

Representation costs 51 436 57 705

Legal services 31 452 21 981

Communication costs 22 521 19 149

Remuneration paid to the RL Sworn audit companies 8 211 16 249

Other management and administrative costs, incl.: 864 714 516 863

changes in reserves (net) of which: 164 978 (22 644)

for bonuses 167 598 (30 358)

for unused annual leaves (2 620) 7 714

TOTAL 8 856 096 7 938 146


23

7. Other Revenue from Economic Activity 2015 2014

Increase in the value of biological assets (see Note 15) 1 021 352 699 015

Profit from sales of fixed assets and current assets, net 20 704 426 572

Profit from sales of investment property 839 102 -

Other revenue from economic activity 287 771 277 326

TOTAL 2 168 929

1 402 913

8. Other Costs of Economic Activity 2015 2014

Reserves for doubtful debtors 46 395 208 202

Donations 4 000 000 5 200 000

TOTAL 4 046 395 5 408 202

9. Other Interest Revenue and Similar Revenue 2015 2014

Fines received 358 446 388 105

Revenue from defaults with regard to road construction 237 188 108 502

Interest revenue 29 736 67 785

Other revenue 132 742 63 011

TOTAL 758 112 627 403

10. Interest Payments and Similar Costs 2015 2014

Losses from exchange rate changes, net 13 057 2 417

Other costs 20 176 19 829

TOTAL 33 233 22 246


24

11. Corporate Income Tax 2015 2014

Corporate Income Tax calculated for the account year 8 875 094 10 578 006

Corporate Income Tax for 2012, correction* (2 085 843) -

Deferred Corporate Income Tax resulting from

temporary differences 2 690 580 812 397

Corporate Income Tax reflected in the profit and loss

calculations:

9 479 831 11 390 403

Deferred Corporate Income Tax: Balance Profit and loss calculation

31.12.2015 31.12.2014 2015 2014

Deferred Corporate Income Tax liabilities

Accelerated depreciation for tax purposes 6 355 460 6 443 634 (88 174) 263 395

Fair value of biological assets (see Note 15) 847 460 694 257 153 203 104 852

Gross deferred Corporate Income Tax liabilities 7 202 920 7 713 891 65 029 368 247

Deferred Corporate Income Tax assets

Accumulated leave and bonus liabilities (503 423) (364 588) (138 835) 38 489

Temporary difference for reforestation reserves (1 673 829) (1 830 912) 157 083 405 661

Reserves for deposits - (2 607 303) 2 607 303 -

Gross deferred Corporate Income Tax assets (2 177 252) (4 802 803) 2 625 551 444 150

Deferred tax liabilities, net 5 025 668 2 335 088 2 690 580 812 397

The Company’s management believes that in the coming years, when the deferred tax liabilities implement, these liabilities will be covered by the aforementioned tax assets.

*Company’s income statement for 2012 has been corrected in accordance with Section 9, Paragraph 2, Clause 1 of the Law "On Corporate Income Tax" reducing the taxable income by the remaining receivables of JSC “Latvjas Krājbanka” (Latvian Savings Bank) which have not been recovered (LVL 12 216 155/ EUR 17 382 023, rate 0.702804).

Actual Corporate Income Tax compared with the theoretical calculations:

2015 2014

Profit before taxes 72 167 197 90 250 878

Real estate and natural resources taxes (3 387 241) (3 406 676)

Profit before Corporate Income Tax 68 779 956 86 844 202

Theoretically calculated Corporate Income Tax - 15% 10 316 993 13 026 630

Permanent differences:

Costs that are not related to economic activity 751 273 932 044

Other 630 339 76 230

Tax relief for donations (2 218 774) (2 644 501)

Actual Corporate Income Tax for the account year: 9 479 831 11 390 403


25

12. Personnel Costs and Number of Employees 2015 2014

Remuneration for work

State compulsory social security contributions

Changes in reserves for bonuses

Changes in reserves for leaves

TOTAL: 29 967 986 27 873 017

Total personnel costs included in the following profit and loss items:

2015

2014

Production costs of products sold 26 010 646 24 280 464

Administrative costs 3 957 340 3 592 553

TOTAL: 29 967 986 27 873 017

Top management remuneration for work

Members of the Management Board 2015 2014

Remunerations for work 386 812 360 839

State compulsory social insurance contributions ____________________________ 45 859 _______ 43 783

TOTAL: 432 671 404 622

* In 2015, the Company had no Supervisory Council.

_________________________________________________________________ 2015 ________ 2014

The average number of employees in the account year ________________________ 1 233 ________ 1 272

TOTAL: 1 233 1 272

23 582 918 22 836 829

5 459 498 5 292 783

1 037 794 (292 968)

(112 224) 36 373


26

13. Intangible Assets

Software Unfinished TOTAL

programming

1 January 2014

Initial value 3 991 936 - 3 991 936

Accumulated amortisation (3 312 512) - (3 312 512)

Balance value, net 679 424 - 679 424

2014

Opening balance value 679 424 - 679 424 Acquisition 666 549 250 166 916 715

Reclassification 250 166 (250 166) -

Amortisation (886 473) - (886 473)

Closing balance value 709 666 - 709 666

31 December 2014

Initial value 4 900 386 - 4 900 386



2015

Opening balance value 709 666 - 709 666

Acquisition 688 862 96 693 785 555

Reclassification 96 693 (96 693) -

Amortisation (784 564) - (784 564)

Closing balance value 710 657 - 710 657

31 December 2015

Initial value 5 388 554 - 5 388 554



Amortisation

Total amortisation costs have been included in the following items of the profit and loss statement:

2015 2014

Production costs of products sold 317 580 600 816

Administrative costs 466 984 285 657

TOTAL: 784 564 886 473


27

14. Fixed Assets

Land Buildings and

constructions

Equipment and machinery

Other fixed assets

Investment properties

Construction in progress

TOTAL

1 January 2014 Initial value 1 449 171 336 392 266 12 200 261 12 560 514 1 171 728 11 248 792 375 022 732 Accumulated

depreciation

- (94 347 001) (5 875 909) (8 841 052) - - (109 063 962)

Balance value, net 1 449 171 242 045 265 6 324 352 3 719 462 1 171 728 11 248 792 265 958 770

2014

Opening balance value 1 449 171 242 045 265 6 324 352 3 719 462 1 171 728 11 248 792 265 958 770 Acquisition 25 500 20 631 2 699 933 1 104 349 206 154 25 530 462 29 587 029 Liquidation - - (72 722) (19 067) - (7 710) (99 499) Reclassification 293 436 27 171 539 421 523 211 581 1 265 838 (29 363 917) - Depreciation - (22 011 203) (1 896 149) (1 406 159) (4 846) - (25 318 357) Reclassified depreciation - 712 732 - 26 237 (738 969) - -

Closing balance value 1 768 107 247 938 964 7 476 937 3 636 403 1 899 905 7 407 627 270 127 943

31 December 2011

Initial value 1 768 107 363 559 310 13 315 432 13 213 914 2 643 720 7 407 627 401 908 110 Accumulated

depreciation

- (115 620 346) (5 838 495) (9 577 511) (743 815) - (131 780 167)


2015

Opening balance value 1 768 107 247 938 964 7 476 937 3 636 403 1 899 905 7 407 627 270 127 943 Acquisition - 9 822 2 820 967 448 - 26 590 659 27 570 749 Liquidation - (435) (51 285) (1 223) (488 101) (461 627) (1 002 671) Reclassification 336 900 25 361 380 265 950 737 655 - (26 701 885) - Depreciation - (23 675 524) (2 175 069) (1 492 338)

0)

(33 922) - (27 376 853) Closing balance value 2 105 007 249 634 207 5 519 353 3 847 945 1 377 882 6 834 774 269 319 168

31 December 2015

Initial value 2 105 007 388 809 338 13 491 905 14 511 308 1 377 882 6 834 774 427 130 214 Accumulated

depreciation

- (139 175 131) (7 972 552) (10 663 363) - - (157 811 046)


The Company manages real estate taken over from the State Forest Service and other institutions with the value of

EUR 1 890 415 (in 2014: EUR 1 614 108), which is not included in the fixed assets of the Company (see Note 30 of

the Annex).

Cadastral Value of Real Estate

The cadastral value of the land owned by the Company on 31 December 2015 is EUR 1 898 415 (in 2014:

EUR 1 684 369). The cadastral value of buildings is EUR 1 041 455 (in 2014: EUR 1 645 750).

Fully Depreciated Fixed Assets

A number of fixed assets that have been fully depreciated are still being actively used in the Company's main business

practices. The total purchase value of such fixed assets, as at the end of the account year, was EUR 12 099 956

(in 2014: EUR 10 819 227).


28

14. Fixed Assets (continued)

Depreciation

Total depreciation costs are included in the following items of the profit and loss statement:

2015 2014

Production costs of products sold 26 935 624 24 895 059

Administrative costs 441 229 423 298

TOTAL: 27 376 853 25 318 357

15. Biological Assets

2015 2014

At the beginning of the account year 10 688 531 8 684 649

Acquisition 1 156 322 1 304 867

Increase in fair value of assets* 1 021 352 699 015

TOTAL: 12 866 205 10 688 531

Revenue in the account year from the sale of biological assets in the area of 13.0 hectares is EUR 371 635 (on

31 December 2014 the area was 13.2 hectares and the value was EUR 178 339).

*The increase in the value of biological assets in 2015 was affected by the fact that the logging costs decreased by

1%, and the timber transportation costs - by 3%; 179.5 hectares of forest land were restored; as a result of forest

tending, forests have become more valuable, the existing tree species have been replaced with more valuable.

16. Participation in the Capital of Subsidiaries and Associated Companies

On 16 February 2004, the Company purchased 100% of capital shares of "Jaunmoku pils” Ltd. "Jaunmoku pils” Ltd.

offers hotel, restaurant, entertainment and recreation services, as well as museum services.

On 18 October 2005, the Company purchased 38% of the shares of "Meža un koksnes produktu pētniecības un

attīstības institūts" Ltd (Forest and Wood Products Research and Development Institute). On 7 May 2009,

shareholders decided to increase the share capital and on 31 December 2012 the Company owned 40% of the shares

of "Meža un koksnes produktu pētniecības un attīstības institūts" Ltd. The institute provides services in the field of

testing and applied research, further education and vocational education, as well as research and development

projects.

31.12.2015 31.12.2014

"Jaunmoku pils" Ltd 1 620 936 1 620 936

"Meža un koksnes produktu pētniecības un attīstības institūts" Ltd 566 872 566 872

TOTAL: 2 187 808 2 187 808


29

Information about Subsidiaries and Associated Companies:

Company Equity capital Profit/(loss) of the account period

31.12.2015 31.12.2014 2015 2014

"Jaunmoku pils" Ltd 1 228 462 1 186 400 42 062 93 472

"Meža un koksnes produktu

pētniecības un attīstības institūts" Ltd

681 774 634 992 46 782 101 697

TOTAL: 1 910 236 1 821 392 88 844 195 169

17. Loans to Related Companies

On 5 April 2005, an agreement between the Company and its subsidiary “Jaunmoku pils” Ltd. was concluded with regard to a loan for the amount of EUR 284 574 in the form of a credit line for the provision of economic activity, which must be repaid within 5 years. RIGIBOR 6-month rate was applied to the loan. In 2010, the issued loan agreement was amended and the loan repayment was to be made within 4 years starting from 2012. The loan was repaid in full in 2015.

18. Finished Products and Goods for Sale

31.12.2015 31.12.2014

Forest seedlings 8 863 680 8 935 833

Assorted roundwood near roads and in ports 5 481 621 3 757 325

Decorative seedlings 1 909 515 2 655 022

Woodchips 2 671 626 1 742 847

Forest seeds 3 741 612 3 644 629

Decorative seeds 4 060 1 031

TOTAL: 22 672 114 20 736 687

19. Trade Receivables

31.12.2015 31.12.2014 Trade receivables 15 028 359 17 889 865 Reserves for doubtful debts (46 395)

(208 202)

TOTAL: 14 981 964 17 681 663


30

20. Other Debtors

31.12.2015 31.12.2014 Overpaid Corporate Income Tax (see Note 27) 6 537 641 77 937

VAT overpayment (see Note 27) 1 594 349 673 089

Advance payments for services 277 323 476 673

Deferred VAT - 1 546

Other 15 091 779

TOTAL: 8 424 404 1 230 024

21. Other Securities and Deposits

31.12.2015 31.12.2014

Type of securities

Number Amount, EUR Number Amount, EUR

JSC "Latvijas finieris” shares

31 441 090 31 441 090

Deposits with credit institutions, incl.*

- 25 917 292

Total long-term: 441 090 441 090

Total short-term: - 25 917 292

* On 31.12.2015, there were no deposits with credit institutions in the form of time deposits with Latvian commercial banks, thus in the balance value there is no accrued interest revenue (31.12.2014: EUR 17 596.32).

22. Cash and Cash Equivalents

31.12.2015 31.12.2014

Cash in hand 1 097 111

Cash in banks 22 358 230 13 117 213

Deposits with credit institutions (savings account)

3 500 029 1 900 305

TOTAL: 25 859 356 15 017 629


31

23. Share Capital

On 31 December 2015, the registered share capital of the Company was EUR 270 270 640 (on 31 December 2014:

EUR 264 052 390). The fully paid-up share capital was EUR 270 270 640 (on 31 December 2014:

EUR 264 052 390) consisting of EUR 270 270 640 of ordinary shares with the nominal value of EUR 1 each

(in 2014 the share capital consisted of EUR 264 052 390 in ordinary shares with the nominal value of EUR 1 each).

The Meeting of Shareholders on 8 July 2015 adopted a decision to increase the Company’s share capital by investing

the profit of 2014 in the amount of EUR 6 218 250. The changes were recorded in the Commercial Register on

9 July 2015.

Dividends paid in 2015 and 2014 accounted for EUR 67 908 419 (EUR 0.257 per share) and EUR 54 447 305

(EUR 0.21 per share), respectively.

24. Other Savings 31.12.2015

Decrease/increase 31.12.2014

Reserves for reforestation 11 158 857 (1 047 222)* 12 206 079 Reserves for bonuses 2 164 989 1 037 794 1 127 195

TOTAL: 13 323 846 (9 428) 13 333 274

* Decrease in the reserves for reforestation can be explained with the planned cost reduction.

25. Other Creditors 31.12.2015

31.12.2014

Remuneration for work

909 182 900 686

Instalments of the Ministry of Agriculture of RL for the purchase of land - 24 549 Other payables 297 13 561

TOTAL: 909 479

938 796

26. Accrued Liabilities 31.12.2015

31.12.2014

Reserves for leaves 1 191 168 1 303 392 Other accrued liabilities 3 263 236 1 507 204

TOTAL: 4 454 404 2 810 596


32

27. Taxes and State Compulsory Social Insurance Contributions

31.12.2015 Declared

correction(-)/

Repaid in the

account(+)

Calculated Paid 31.12.2014

State Compulsory Social

Insurance Contributions

536 655 - 7 943 000 (7 927 213) 520 868

Personal Income Tax 295 896 - 4 327 093 (4 331 528) 300 331

Corporate Income Tax (6 537 641) (2 085 843) 8 875 094 (13 248 955) (77 937)

Value Added Tax (1 594 349) 5 481 381 25 622 037 (32 024 678) (673 089)

Real Estate Tax 152 3 214 603 (3 216 857) 2 406

Natural Resources Tax 33 316 - 172 638 (174 433) 35 111

Corporate Risk Fee 431 - 5 461 (5 463) 433

TOTAL: (7 265 540) 3 395 538 50 159 926 (60 929 127) 108 123

incl. liabilities 866 450 859 149

Claims (8 131 990) (751 026)

28. Transactions with Related Parties

Related parties are the subsidiaries and associated companies of the Company, its shareholder, the senior

officials of the Company or the Ministry of Agriculture of the Republic of Latvia, and any close family

member of the above individuals, as well as any companies controlled by these persons.

The pricing policy for transactions with related parties does not differ from the Company's usual pricing

policies for transactions with unrelated parties.

The Company is controlled by the Ministry of Agriculture of the Republic of Latvia, which owns 100% of Company’s

capital shares.

Related party Products and

services sold to related parties

Products and services

purchased from related

parties

Debts of related parties on 31 December

Amount owed to related

parties on 31 December

Ministry of Agriculture of the

Republic of Latvia*

2015

2014

1 327 130

-

-

-

-

-

-

-

"Jaunmoku pils" Ltd** 2015 1 873 532 163 57 255 869

2014 4 903 527 214 61 020 424

"Meža un koksnes produktu

pētniecības un attīstības

institūts" Ltd

2015

2014

16 431

-

1 141 174

594 145

-

88 220

41 888

27 283

TOTAL 2015: 1 345 434 1 673 337 57 255 42 757

TOTAL 2014: 4 903 1 121 359 149 240 27 707


33

*On 16 December 2015, in accordance with Cabinet Order No. 788 of 15 December 2015 and the delivery-

acceptance certificate of 16 December 2015 the real estate on 30 Kristapa Street, Riga, LV-1046 was

alienated. The property consisted of the office building on 30 Kristapa Street, Riga and plots of land of

1 056 m2 and 252 m2 with the fair value of EUR 1 327 130.

**On 5 April 2005, an agreement between the Company and its subsidiary “Jaunmoku pils” Ltd. was concluded

with regard to a loan for the amount of EUR 284 574 in the form of a credit line for the provision of economic

activity, which must be repaid within 5 years. On 31 December 2015, the issued loan was repaid (on

31 December 2014 - EUR 42 672). RIGIBOR 6-month rate was applied to the loan. In 2010, the issued loan

agreement was amended and the loan repayment was to be made within 4 years starting from 2012.

29. Long-term Contracts

At the end of the account year, the Company had concluded a number of long-term contracts for the construction of

forest roads. Their total amount on 31 December 2015 was EUR 12 599 725 (of which EUR 211 897 was reported

for facilities under construction in accordance with contracts entered into in 2014) (on 31 December 2014:

EUR 16 288 371) and the amount of work performed from the total value on 31 December 2015 was

EUR 2 223 009 (of which EUR 72 068 for facilities under construction from previous years) (on 31 December

2014: EUR 2 388 398).

At the end of the account year, the Company had concluded a number of long-term contracts for renovation of forest

amelioration systems. Their total amount on 31 December 2015 was EUR 1 018 903, the amount of work performed

from the total value on 31 December 2015 was EUR 126 401.

At the end of the account year, the Company had a number of long-term contracts in force for forest road bed

maintenance work. The total amount on 31 December 2015 was EUR 1 969 050, and the amount of work performed

from the total value on 31 December 2015 was EUR 806 889.

At the end of the account year, the Company had a number of long-term contracts in force for cutting grass and shoots.

Their total amount on 31 December 2015 was EUR 1 180 682, and the amount of work performed from the total

value on 31 December 2015 was EUR 586 285.

At the end of the account year, the Company had a number of long-term contracts in force for winter daily

maintenance work (snow removal and site cleaning of forest roads). Their total amount on 31 December 2015 was

EUR 1 805 510, and the amount of work performed from the total value on 31 December 2015 was EUR 85 866.

30. Off-balance Assets

In accordance with Contract No. 5.8.-21-0005-101-13-1 of 8 January 2013, the existing fixed assets in the possession

of LVM, registered in the Land Register in the name of the State represented by the Ministry of Agriculture and

belonging to the State represented by the Ministry of Agriculture, are accounted by the RVS Horizon of the Ministry

of Agriculture, and they are not included in the list of Company’s fixed assets.

In accordance with the Forest Law, the Company manages and administrates 1.62 million hectares of land in the

Republic of Latvia, the cadastral value of which is EUR 272.76 million, including 1.36 million hectares of forest areas

where the value of the forest stands is EUR 1 115.49 million. Company’s balance sheet represents 8 020 hectares of

forest areas. Of the total lands managed and administrated by the Company, 1.3 million hectares of land are surveyed

and recorded in the Land Register.

31. Financial Risk Management

The main financial risks arising from the Company’s financial instruments are liquidity and credit risks.


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Liquidity risk

The Company manages its liquidity risks by maintaining an adequate amount of cash and cash equivalents. According

to its business cycle, free funds are placed in low-risk short-term (up to one year) financial instruments.

Credit risk

The Company is exposed to credit risk through its trade receivables, loans and cash and cash equivalents in loans to

its related companies. The Company manages its credit risk by continuously assessing the debt payment history of its

customers and assigning credit terms on an individual basis. In addition, the Company continuously monitors its

debtors’ debts to reduce the risks of irrecoverable debts.

Capital management

The State owns 100% of the shares of JSC "Latvijas valsts meži".

The Company’s objective for its capital management is to ensure the Company’s ability to continue its

operations and to provide the capital returns set by the Company’s Meeting of Shareholders.

The State, as the sole owner of the Company’s capital, has the right to make decisions related to the Company’s

capital increase, reduction, dividend distribution or redirection for the Company’s development.

32. Events after the Balance Sheet Date

During the time period from the last date of the account year to the date of signing this financial statement, there have

been no events that would result in the financial statement requiring an adjustment, or which should be explained in

this financial statement.


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SIA “Ernst & Young” SIA “Ernst & Young”

Muitas iela 1A Muitas iela 1A

Rīga, LV-1010 Riga, LV-1010

Latvija Latvia

Tālr.: +371 6704 3801 Tel.: +371 6704 3801

Fakss: +371 6704 3802 Fax: +371 6704 3802

[email protected] [email protected]

www.ey.com/lv www.ey.com/lv

Reģ.Nr.. 40003593454 Reg. No. 40003593454

PVN maksātāja Nr. LV40003593454 VAT Payer Code: LV40003593454

INDEPENDENT AUDITORS' REPORT

to the shareholder of JSC “Latvijas valsts meži”

Report on the Financial Statement

We have audited the financial statement of JSC “Latvijas valsts meži” (Latvia's State Forests) (hereinafter - the Company), which has been presented on pages 11 to 34 of the Annual Accounts 2015. The audited financial statement includes the balance on 31 December 2015, profit and loss statement calculation, statement of changes in equity and cash flow statement, as well as a summary of significant accounting principles and other explanatory notes.

Management's Responsibility for Preparation of the Financial Statement The management is responsible for the preparation of the financial statement and fair presentation of the information contained therein in accordance with the Annual Accounts Law of the Republic of Latvia, as well as for such internal controls which the management considers necessary to ensure drawing up of a financial statement that is free of discrepancies caused by fraud or errors.

Auditors' Responsibility We are responsible for the opinion expressed in this financial statement based on the audit results. We conducted the audit in accordance with International Standards on Auditing. These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statement is free of material non-compliances.

Audit involves procedures that are performed to obtain audit evidence that the amounts and information presented in the financial statement are justified. The procedures are selected depending on the auditors’ professional assessment of risk of material discrepancies caused by fraud or errors in the financial statement. In making this risk assessment, auditors take into account the internal control for ensuring preparation of the financial statement and fair presentation of the information contained therein in order to establish auditing procedures suitable for the specific conditions, but not for the purpose of expressing an opinion on the efficiency of controls. The audit also includes assessment of the validity of the accounting principles used and significant estimates made by the management, as well as general assessment of the information provided in the financial statement.

We consider that the audit evidence we have obtained is sufficient and appropriate for expressing our

auditors' opinion.

Opinion In our opinion the financial statement gives a true and fair view of JSC "Latvijas valsts meži" financial position on 31 December 2015 and of its financial performance and cash flows in 2015 in accordance with the Annual Accounts Law of the Republic of Latvia.

mailto:[email protected]

mailto:[email protected]

http://www.ey.com/lv


36

Report on Compliance with Other Legal and Regulatory Requirements

We have read the Management Report for 2015, presented in the Annual Accounts for 2015 on pages 4 to 10, and have not found any material non-compliances between the financial information contained in this Management Report and in the Financial Statement for 2015.

SIA "Ernst & Young Baltic"

Licence No. 17

/signature/

Iveta Vimba

Member of the Board

Sworn auditor of the Republic of Latvia

Certificate No. 153

Riga, 3 May 2016


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