To optimise costs and operational processes, it is planned to merge the three subsidiaries of “Latvijas dzelzceļš” SJSC (LDz) – LDz Cargo Ltd, “LDz ritošā sastāva serviss” Ltd and “LDz loģistika” Ltd, according to the draft order prepared by the Ministry of Transport (MoT).
The ministry explains that there has been a significant decline in the rail freight market, which has affected LDz Cargo, “LDz ritošā sastāva serviss”, and “LDz loģistika”. Over the past five years, rail freight volumes in the Baltics have decreased from 134 million tonnes annually to 52 million tonnes, with an average annual decline of 14.9% since 2018. Latvian businesses using LDz Group’s services have also been impacted by reduced turnover due to the geopolitical situation.
A comparison with railway freight operators in the Baltics and Poland shows that LDz is the only infrastructure manager in the region that provides freight and service operations through separate subsidiaries.
MoT notes that LDz Cargo’s turnover has dropped by a third –
from 148.4 million euros in 2022 to 100.4 million euros in 2024, driven by a fall in transported cargo volumes from 19.97 million tonnes in 2022 to 8.4 million tonnes last year.
“LDz ritošā sastāva serviss” generates 60–70% of its revenue from LDz Cargo and about 10% from LDz itself. The company has only five major external clients accounting for 80% of its external revenue. Its turnover has declined from 59.6 million in 2022 to 44.3 million euros in 2024.
Meanwhile, “LDz loģistika” operates in a highly fragmented forwarding market. Despite challenging conditions, some players have managed to grow their revenue and maintain strong profitability. In 2023, the company’s client base shrank by 32, down to 67. Its revenue decreased from 19.2 million in 2022 to 10.4 million euros in 2023.
All three companies have implemented and continue to implement optimisation measures, the ministry notes.
LDz Cargo plans to reduce its workforce from 1 017 employees in January 2024 to 595 by December 2026. Thanks to these efforts, the company finished 2024 with a core operational profit of 965 000 euros. Its five-year financial plan, assuming stable market conditions, projects revenue of 98 million euros and a profit of 5.2 million euros in 2029.
“LDz ritošā sastāva serviss” reduced its staff from 678 to 530 over the past year but ended 2024 with 2.7 million euros in losses. Losses are expected to reduce to 1.3 million euros annually by 2029, though it will remain unprofitable unless external customer volumes increase.
At the same time, the ministry notes that “LDz loģistika” has already downsized staff and sees no further optimization potential. It ended 2024 with a loss of 0.4 million euros and is projected to operate with an annual loss of around 0.2 million euros until 2029.
As a result, the Ministry of Transport concludes that, if kept separate, “LDz ritošā sastāva serviss” will continue to be unprofitable each year, while “LDz loģistika” risks bankruptcy by 2028.
The proposed merger of all three companies would create a single, more efficient entity expected to become profitable by 2026 and begin paying dividends from 2028. The merger would simplify currently complex administrative procedures between the entities, reduce management costs, lower the total number of employees, and improve pricing policy.
Cost savings due to synergies in 2025 are estimated at 1.4 million euros (excluding 2.6 million euros in severance payments). Over five years, total synergy-related benefits are projected to reach 25.9 million euros.
The consolidated company is expected to generate 120 million euros in revenue and 7.5 million euros in profit by 2029.
The Ministry of Transport recommends initiating the reorganization by merging “LDz ritošā sastāva serviss” and “LDz loģistika” into LDz Cargo. The proposal was reviewed in November 2024 by both the LDz board and the shareholders’ meeting.
As part of the reorganization, the share capital of the acquiring company LDz Cargo will be increased from 114 697 851 to approximately 152 000 000 euros.
The reorganization process will begin once approved by the Cabinet of Ministers and is expected to be completed by the end of 2025.
According to preliminary assessments, the overall benefit to the LDz Group from the merger may reach 1–2 million euros in the short term, with long-term gains of 3–4 million euros annually. Since LDz is classified under the general government sector, increased dividend payments after the reorganization will reduce the company’s negative fiscal impact by approximately 3–4 million euros per year. This will also reduce the annual need for state budget support to maintain the company’s financial stability.
As previously reported, the LDz Group’s total turnover in 2024 was 233.738 million euros, a drop of 11.3% compared to 2023. Losses increased 2.4 times, reaching 7.794 million euros.
LDz is the manager of public railway infrastructure and the parent company of the LDz Group. The group includes “LatRailNet” (responsible for infrastructure access fees and capacity allocation), LDz Cargo (rail freight and international passenger transport), “LDz ritošā sastāva serviss” (rolling stock maintenance and repair), “LDz apsardze” (a security company), and “LDz loģistika” (a logistics company).