UPM withdraws its 2020 outlook and does not provide a new outlook until further notice. The business operations have performed during the first quarter as expected. However, the fast developing corona virus pandemic represents significant uncertainty for the rest of the year.
UPM’s financial position is strong. UPM has net cash in the balance sheet and high liquidity reserves. Liquidity was further strengthened by the EUR 750 million revolving credit facility which was signed on 17 March 2020.
As indicated in UPM’s financial statements release for 2019, UPM identified the risks related to the COVID-19 virus in China in January. Since then the development of the local epidemic to a worldwide pandemic has been fast. Until now the UPM businesses have not been adversely impacted by the pandemic and the customer demand has been on expected level.
UPM is taking extensive precautions to protect the health and safety of its employees and to ensure business continuity. Despite these efforts it is possible that during an extended pandemic the operation of one or more units or the supply chain and logistics could be disrupted. In these circumstances some units would need to limit operations or be temporarily shut down. Although many UPM products serve essential everyday needs, it is likely that the customer demand for some UPM products would deteriorate due to the slowing world economy. These possible impacts can be caused by both the pandemic itself as well as by the extensive public restrictions to limit the spreading of the virus and may differ in various business areas and operating locations.
In order to prepare for different scenarios, UPM is planning to use shift arrangements, temporary layoffs, or reduced working hours to adjust its operations. Employee consultation processes regarding the plans will proceed in line with local legislation to enable fast decision making, would such decisions be needed. Decisions on measures are subject to the impact of the pandemic on UPM’s operations, and also subject to appropriate consultation process being completed in each country.
For reference, in January UPM issued the following outlook for 2020:
Global economic growth is expected to continue in 2020, albeit at a modest level. Growth is expected to be slow in Europe. Potential intensification or easing of trade tensions between major economic areas cause uncertainty to the business environment. These issues may impact UPM’s product and raw material markets in 2020.
In 2020, robust demand is expected to continue for most UPM businesses, whereas demand decline is expected to continue for UPM Communication Papers.
In the beginning of the year 2020, paper prices are expected to decrease moderately, compared with Q4 2019. Pulp prices are starting the year 2020 at a low level, after the decreases that took place throughout the year 2019.
UPM will continue its actions to reduce fixed and variable costs. In 2020, the intensifying phase of UPM’s transformative growth projects is expected to add project-related costs to the fixed costs.
UPM’s comparable EBIT in H1 2020 is expected to be significantly lower than in H1 2019, due to lower sales prices, partly offset by decreases in variable costs. Comparable EBIT is expected to recover in H2 2020.
RELATED NEWS
