TOP101 2023 Latvian Company Appraisal: Between Crisis and Opportunities | By Kārlis Krastiņš


This is the 18th year we have been making the TOP101 of most valuable Latvian companies. This time we are creating it in a very complicated time. During the COVID-19 pandemic, it seemed that calmer times would follow and the TOP101 would be created in a more stable environment. Still, in 2022 Russia started a full-scale war in Ukraine and shook the global safety situation. That created a crisis in the European energy markets where the prices for certain commodities rose multiple times over. These events together with the high demand of the post-COVID-19 era created an unprecedented rise of inflation in OECD and in smaller, less developed countries where inflation reached double-digit numbers. Central banks took action and increased interest rates. The fight with inflation and the rise of interest rates is still ongoing, despite inflation slowing down recently. Consumers, companies, and governments are not pleased about this situation and the realized politics of the central banks. Governments are pressured to intervene in their economies, issue subsidies and support for consumers and companies who are suffering from rising energy prices and high-interest payments. Banks are subjected to criticism for having large profits and being passive in issuing credit. Many countries are introducing specific bank taxes.

All these events have impacted Latvian companies in a direct way. In the financial reports of 2022, many Latvian companies mention the full-scale war Russia started against Ukraine, the impact of sanctions, and the rise in interest rates as important factors.

The methodology of TOP101 uses the latest publicly available financial reports which are for the 2022 calendar year (some companies have different reporting periods) and the multiples of the European stock market from the end of July 2023. Consequently, the events that occurred in 2023 are not represented in the financial reports of the companies, however, their impact is included through multiples.

Overall, despite all the turbulence of 2022 and 2023, the total company value has grown by 5 percent. This is a good achievement. Let us try and understand what fuelled it.

The most valuable Latvian company for the second year is SWEDBANK BALTICS, AS. It is not a surprise after the Swedbank group decided to consolidate all Baltic operations under a Latvian Company in 2021. This bank group is the biggest in the Baltics by size of operations and thus does not raise any questions about its position. This year SWEDBANK BALTICS, AS has demonstrated a value increase of 7% reaching almost 3,4 billion in value.

It should be noted that the whole financial services industry shows moderate value increases or - for the insurance industry - decreases. On the one hand, banks saw increased profitability for the second half of 2022. On the other hand, investors saw risks in the industry, and bank multiples in European markets did not increase significantly.

In our opinion, the criticism of the banks by the governments of many European countries and Latvia is not fully justified, because the banking industry has been facing various difficulties for a long time. In the case of Latvia, banks have to work in a very strict supervision regime, which was introduced during the so-called "supervisory overhaul", and in Latvia there is still a lot to be done in the field of protecting the rights of creditors and minority shareholders. All this weakens the international competitiveness of Latvian banks and does not promote the inflow of investments - both in the banking sector and the economy as a whole, and hinders banks' willingness to lend. The situation will also not be improved by possible "bank taxes", which are being discussed in Latvia and which have been introduced by Lithuania, Estonia, Italy, and other European countries.

The Manufacturing industry, or simply put - production, has done well. 31 company has entered the TOP101, which is a new record, with a total value of almost 6 billion EUR. It is interesting that the value of 15 companies has fallen, and 16 have grown, of which 4 are new entrants, the largest of which is PULSAR OPTICS, SIA with a value of almost EUR 122 million. Industry leader and the 4th most valuable Latvian company MIKROTĪKLS, SIA has lost 10% in value, citing the Russian war and supply chain problems as the main negative factors in its annual report. The largest increase in value has been shown by optical fibers and manufacturers of optical equipment, including production plants in Līvāni, LIGHT GUIDE OPTICS INTERNATIONAL, SIA and CERAM OPTEC, SIA, which have increased by 55% and 41%, respectively. VALMIERAS STIKLA ŠĶIEDRA, AS has shown a solid increase of 21%.

From the manufacturers, almost all wood industry companies have shown a decline. After records of the increase in value in TOP101 2022, a decline has followed. This was due to a drop in profits for almost all companies, which in turn has been caused by a drop in prices and demand in world markets and, of course, the factor of the Russian war. The only exception is STIGA RM, SIA, which made and continues to make serious investments in production plants, and in 2022 has worked with a significant increase in profit and, accordingly, its value has increased by 26%.

AIR BALTIC CORPORATION, AS, the national aviation company, has shown the biggest increase in value by 115%. Another representative of the aviation industry, SMARTLYNX AIRLINES, SIA, has also shown a good increase, respectively +55%. This is determined by the large increase in demand for air transport, which already started in the second half of 2021 when the impact of the COVID-19 pandemic subsided. People want to travel, to relax, and business representatives want to meet their partners not only in video format but also in person. In 2022, AIR BALTIC CORPORATION, AS has managed to reach pre-COVID-19 business volumes in terms of turnover, but more importantly, to significantly increase its profitability. We hope that this will help the company's plans to realize the company's initial public offering on the stock exchange, or IPO, in 2024.

It is also nice to see the increase in the value of the majority of TOP101 companies from the IT and telecommunications services (IT&T) sector. In total, the IT&T industry in TOP101 is represented by 10 companies with a total value close to EUR 2.3 billion. It is interesting to mention the newcomer DISCOVER CAR HIRE, AS, which is a car rental search platform, that operates globally. If the company continues to grow as fast in the future, it can potentially become the next Latvian unicorn, a company that reaches a value of EUR 1 billion. Global business company ZABBIX, SIA, whose value has exceeded EUR 100 million, continues to grow steadily. ZABBIX, SIA develops software and provides a service that allows monitoring of the operation of company networks and equipment. It must be said here that the Latvian unicorn Printful has a lower value in our TOP101, because only the business of PRINTFUL LATVIA, AS has been evaluated in the TOP. The company does not consolidate all the annual reports of the group in Latvia.

This year's TOP101 estimate of Latvia's most valuable companies is shining proof of our entrepreneurs' resilience and ability to adapt to the changing global environment. Despite geopolitical conflicts, the consequences of the pandemic, and economic instability, Latvian companies, especially those owned by private capital, have shown performance by adapting to new conditions and providing high-quality goods and services both on the domestic and foreign markets.

Latvian companies have shown their resilience and innovation capabilities in difficult times, but we must admit that there is still a lot to be done. Although we see positive trends and business growth in the future, we must continue to work on improving the business environment, promoting innovation, and increasing competitiveness. Only a systematic and targeted approach will allow Latvia to strengthen its position, promoting the strengthening of the economy and international recognition.


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