Business Updates of Two FTSE Listed Blue-Chip Stocks: Unilever PLC and Anglo American PLC

Britain’s FTSE 100 surged on Wednesday (22nd April 2020) with positive corporate updates and oil price rebound as major producers showed intentions to cut output further amid the nosedived demand caused by lockdown state of coronavirus. On the other hand, falling retail and commodity prices have brought down the United Kingdom’s inflation rate to 1.5 per cent in March. Today, we will discuss two blue-chip stocks - Unilever PLC (ULVR) and Anglo American PLC (AAL) as they have released their first-quarter business updates. Subsequently, the stock price of ULVR plunged today by over 3 per cent and AAL surged by 1.5 per cent (at the time of writing, GMT 10:00 AM). Let’s get a glimpse over their respective business model, financial position, and outlook to understand the magnitude of their latest trading updates.

Unilever PLC (LON: ULVR)

Unilever PLC is a FTSE 100 listed fast-moving consumer goods (FMCG) company with global operations. The company produces and markets a range of products such as food, beverages, home care, health, and wellbeing products. The company has differentiated its operations in three operating segments: Beauty & Personal Care, Home Care and, Foods & Refreshment.

(Source: Annual Report, Company Website)

Highlights of Business Segments

  • Beauty & Personal Care
    • Key Financials in 2019: 42 per cent of total turnover and 52 per cent of total operating profit.
    • Largest Categories: Skin cleansing, Deodorants, Skincare and Haircare.
  • Home Care
    • Key Financials in 2019: 21 per cent of total turnover and 16 per cent of total operating profit.
    • Largest Categories: Home, Fabric solutions and hygiene.

  • Foods & Refreshment
    • Key Financials in 2019: 37 per cent of total turnover and 32 per cent of total operating profit.
    • Largest Categories: Dressings, Ice cream, Tea and Savoury

Global Operations at a Glance

The Unilever group is a significantly large consumer goods company which is apparent from the below statistics:

  • EUR 52 billion of turnover in FY2019.
  • Provides its 400 plus brands in 190 countries.
  • Serves 5 billion people every day.
  • Having 12 brands with a turnover of over EUR 1 billion in the year.
  • Caters through 25 million retail outlets in their distribution chain.
  • Offers 13 among the top 50 fast-moving consumer goods brands.
  • Serves through 150,000 employees

Significant Updates of 2020

  • 1st April 2020: The group completed the merger of Hindustan Unilever Limited (HUL) with GlaxoSmithKline Consumer Healthcare Ltd. Post this transaction, the Unilever’s holdings have been diluted to 61.9 per cent from 67.2 per cent in HUL.
  • 24th March 2020: Unilever had published the final terms regarding its €2,000,000,000 bonds issuance in European markets.
  • 24th March 2020: The Unilever group announced the contribution of €100m to support the affected population during the coronavirus pandemic.

Trading Statement for the First Quarter of 2020 – Reflecting Decent performance, with Strong Balance Sheet and Cash Position, Despite the Ongoing Crisis

  • Underlying sales were flat against 2019, with a growth of 0.2% in volume and negative price of 0.2%. In Q1 FY20, the group saw growth in Developed markets of 2.8%, while emerging markets tumbled 1.8%. Turnover for the first quarter of 2020 increased by 0.2%.
  • During the lockdown, there is a downturn in food service, out of home ice cream and retail sales, due to the lockdown state in China. In India, the growth was impacted by both the lockdown implemented and the slowing market at the end of March, which stopped shipping and production for several days. Despite a decline in ice cream and food service, the North America and Europe regions were benefitted from the household stocking. According to E-commerce, shoppers are moving to online channels from offline channels, reflecting an increase in this market.
  • As per the segment, the underlying sales from Beauty & Personal Care increased by 0.3%, Home Care surged by 2.4%, and Foods & Refreshment reduced by 1.7%.
  • The company is contributing €100m to support global and national efforts to tackle the Covid-19 pandemic via donations of sanitizer, food, soap, and bleach as well as leveraging the procurement network. For the small-scale retail customers and most vulnerable small and medium-sized suppliers, it is also giving a €500m of cash flow relief.
  • Quarterly dividend per share maintained at €0.4104.

(Source: Trading Update, Company Website)

Share Price Performance

Daily Chart as of April 23rd, 2020, before the market close (Source: Thomson Reuters)

ULVR’s shares, at the time of writing before the market close (at 9:13 AM GMT) on 23rd April 2020, were trading at GBX 4,022. Stock's 52 weeks High is GBX 5,333.00 and Low is GBX 3,583.50.

Short Term Unprecedented Impact, albeit ULVR has Maintained the Supply of Product while Addressing the Changing Demand Patterns

The group has maintained the operations through the crisis. The immediate response has been taken to structure the company’s safety into five areas:

  1. Supporting people.
  2. Protecting supply.
  3. Serving demand.
  4. Contributing to society
  5. Maintaining financial strength.

The group is keeping the factories running through the several unprecedented challenges in local operating environments across the value chain, while it is also opening up new capacity for hand hygiene and food. As well as, the business has been able to maintain the supply of the products. The group saw upswings in sales of hygiene and in-home food products and is also adapting to new demand patterns. Through donations and partnerships, it is supporting communities. Whilst the Domestos and Lifebuoy brands are leading the way on hygiene education programmes. Due to COVID-19 pandemic, the company is withdrawing the prior growth and margin outlook for 2020.

Anglo American PLC (LON: AAL)

Anglo American PLC is a FTSE 100 listed mining company with significant operations in Australia, Southern Africa, South America, and North America, and is headquartered in London, United Kingdom. It produces a range of metals and minerals including Diamond, Copper, Platinum group metals (PGMs), Coal, Iron Ore, Nickel & Manganese and Polyhalite. The Company was founded in 1917 in South Africa by Sir Ernest Oppenheimer. Today, the group employees 90,000 people worldwide and having USD 29.9 billion in revenue with USD 10 billion in underlying EBITDA, as per the financial year 2019 results.

(Source: Presentation, Company Website)

Key Business Operations at a Glance (as of FY2019)

  • Diamonds – De Beers
    • Production: 30.8 million carats.
    • EBITDA contribution: USD 558 million of Underlying EBITDA, represented 6 per cent of Group underlying EBITDA.
  • Copper
    • Production: 638 thousand tonnes.
    • EBITDA contribution: USD 1,618 million of Underlying EBITDA, represented 16 per cent of Group underlying EBITDA.
  • Platinum Group Metals (PGMs)
    • Production: 1,386 thousand ounces of palladium and 2,051 thousand ounces of platinum.
    • EBITDA contribution: USD 2,000 million of Underlying EBITDA, represented 16 per cent of Group underlying EBITDA.

Major Developments of 2020

  • 17th April 2020: AAL group declared the final dividend of 47 US cents, to be paid on 7th May 2020.
  • 2nd April 2020: The group announced the prospectus for its subsidiary - Anglo American Capital PLC regarding USD 750,000,000 Senior Notes (5.375%, due 2025) and the USD 750,000,000 Senior Notes (5.625%, due 2030), which had been approved by Financial Conduct Authority.
  • 17th March 2020: AAL announced the slowdown of its Peru’s Quellaveco copper project since most of its contractors and employees were suspended. The Government of Peru had announced a 15-day break of employees as a preventive measure to curb the spread of COVID-19. This had affected the construction work on the project and would result in a delay in the projects.

(Source: Annual Report, Company Website)

Production Report for the First Quarter Ended 31 March 2020 – Reflecting Lower Production Except for Minas-Rio and Nickel

  • In Q1 FY20, the Minas-Rio continued its robust operational performance in Brazil, with 6.4 million tonnes of premium grade iron ore production, reflecting P101 productivity initiatives.
  • Led by higher plant throughput, higher copper recovery, and planned higher grades, the attributable production rose by 16% to 66,500 tonnes at Collahuasi in Chile.
  • Export metallurgical coal production for the first Q1 of 2020 reduced by 8% to 3.8 million tonnes mainly driven by a longwall move at Grosvenor.
  • Rough diamond production was in line with the previous year at 7.8 million carats in Q1 FY20, with limited impact from Coronavirus measures introduced in producer countries.
  • In South Africa, the company had a limited impact of 2 per cent on Q1 production during the start of a COVID-19 lockdown. However, refined PGMs production was significantly decreased by the announced convertor plant outage.
  • The group has completed the cash acquisition of Sirius Minerals PLC and its UK Woodsmith polyhalite project for a total consideration of $0.5 billion, with net debt of $0.2 billion plus fair value adjustments.

(Source: Production Report, Company Website)

Share Price Performance

Daily Chart as of April 23rd, 2020, before the market close (Source: Thomson Reuters)

AAL’s shares, at the time of writing before the market close (at 10:30 AM GMT) on 23rd April 2020, were trading at GBX 1,368.80. Stock's 52 weeks High is GBX 2,294.00 and Low is GBX 1,018.20.

Production Outlook and Growth Catalysts

The company has many value-accretive projects in the pipeline with low risk and higher production. Anglo American has taken extensive measures to help safeguard against the spread of Coronavirus. The onset of varying degrees of COVID-19 lockdown couples with the impact of longwall moves in the Metallurgical Coal business, resulted in 4% lower production, despite continued robust iron ore production at Minas-Rio. Below image shows the impact of known disruptions from the COVID-19 pandemic on the earlier issued 2020 production guidance.

(Source: Production Report, Company Website)