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November 30, 2016

Unilever sets new margin target with help from zero-based budgeting

Unilever today (30 November) outlined a new target for operating margin, in part driven by plans to widen the company's use of zero-based budgeting.

By Dean Best

Unilever today (30 November) outlined a new target for operating margin, in part driven by plans to widen the company’s use of zero-based budgeting.

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The Knorr to Magnum maker has set a goal for its “core operating margin” to rise between 40 and 80 basis points a year between 2017 and 2019. The new target is up from Unilever’s current goal of annual growth of 20-40 basis points.

Speaking to analysts at Unilever’s Port Sunlight plant and R&D facility in north-west England, CFO Graeme Pitkethly outlined ways in which the company would look to “accelerate” the improvement in its core operating margin, including an extension of the group’s implementation of zero-based budgeting. Unilever had previously said it expected to generate EUR1bn (US$1.06bn) in savings from zero-based budgeting by 2018.

“We will continue to improve the mix of our business with margin-accretive innovation and the focus on margin on the ice cream and home-care category strategies. With the extension to logistics and the roll-out to smaller countries, we expect savings from ZBB and the organisational changes to be greater than EUR1bn by 2019. We expect to be able to take more of our savings to margin, increasing our retention rate, while still investing sufficiently for competitive growth,” Pitkethly said.

The rise of zero-based budgeting in the food industry – a special report

Pitkethly said Unilever’s core operating margin in its 2016 and 2017 financial years would “be in the lower half” of the new target range. “This year and next are years of transition. Restructuring costs will be slightly higher than the normal 100 basis points or so,” he explained.

Asked for the categories or countries that could help Unilever meet its new margin target, Pitkethly said: “Our approach to innovation. Having 75% of our innovation being accretive to gross margin is a very, very large driver of that. Looking around the geographies, whilst we need to invest to remain competitive first and foremost, a lot of the investments over the course of the last three or four years have been focused on North America. Our margin came down in North America as a consequence and we’re now seeing quite a fast recovery of the margin in North America.”

Unilever’s management, meanwhile, also told analysts it is focused on preserving the value of its Flora-to-Becel spreads unit and investing the cash from the under-pressure division into other parts of its operations – but will continue to look at options for the business were sales to remain in decline.

Related Companies

Free Report
img

Unilever- A Deep-dive into Product Launches and Advertising Strategy

Unilever product advertising is mainly through mainstream TV channels. Out of the products advertised so far at least 50% (over 850) of ads have been run on TV, while print media comes second with 496 ads. Unilever also utilizes social media platforms for advertisement. Unilever products are categorized by innovation ratings and tags in our product launch database. The North American region consists of almost 74 products with innovations related to the formulation of the product. Europe and other regions also have more products categorized under formulation-related innovation, followed by the packaging and positioning of the products. Most Unilever products are tagged with “High Vitamins”, “Recyclable”, and “Natural” tags to understand what the product differentiator is from other products available in the market. The majority of products belong to the personal care industry with a total of 5,788 products to date. This report, through the Unilever Example, illustrates how GlobalData Explorer enables you to:  
  • Track product launches by FMCG companies to get an understanding of the product-level strategies including geographic concentrations, innovation types, product claim, category focus and more
  • Monitoring the advertising strategies of various brands and gain insights into channel focus, regional focus, and more
  • Perform company-level analysis to understand business model, size, and geographic focus
Don’t miss out on key market insights that can help optimize your next investment – read the report now.
by GlobalData
Enter your details here to receive your free Report.

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