UN Unilever NV

By Nina Trentmann 

Unilever PLC plans to save up to EUR6 billion ($6.4 billion) using a decades-old financial tactic that is coming into vogue again.

The Anglo-Dutch consumer giant plans to extend its use of zero-based budgeting to reduce spending in its marketing and logistics departments, according to finance chief Graeme Pitkethly.

In zero-based budgeting, finance managers plan each year's budget as if starting their department from scratch -- contrary to the prevailing method of adjusting the previous year's spending. The technique forces them to justify the costs and evaluate benefits every 12 months.

"Zero-based budgeting brings much greater visibility to exactly what we are spending and where," Mr. Pitkethly said during a call with analysts Thursday. "It's also a great process for challenging the status quo."

More European firms are following the example set by their U.S. peers and use a budgeting technique initially invented in the 1970s to reduce spending. More efficient technology, greater data and artificial-intelligence tools are helping drive the resurgence, as the technique allows finance managers to look at spending at a more granular level.

"By starting with a clean balance sheet, it is easier to strip out some of the historic behavioral problems one comes across in budgeting -- like for example people creating extra cushions and contingencies," said Caroline Stockmann, chief executive of the Association of Corporate Treasurers in London.

Several big European firms, among them Anheuser-Busch InBev NV and Diageo PLC, have publicly stated on recent quarterly conference calls that they are applying zero-based budgeting. Both companies declined to comment.

Still, the pickup rate in Europe is said to be lower than in the U.S., where 38% of firms surveyed in 2016 by Bain & Co. said they were using zero-based budgeting, up from just 10% in 2014.

3G Capital Partners LP implemented the practice at Heinz Kraft Co. Mondelez International Inc. and Campbell Soup Co. also use zero-based budgeting.

"Companies are looking for a new set up tools in their tool kit to drive productivity and efficiency in times of lower economic growth," said Jason Heinrich, head of Bain's performance improvement practice.

French liquor group Pernod Ricard SA uses zero-based budgeting for specific projects and areas that aren't salary related, said finance chief Gilles Bogaert. "We don't do it every year. This is something that we revise when we consider that...we have to deliver more value."

Less than 40% of members of the Association of Corporate Treasurers in the U.K. currently apply zero-based budgeting, said Ms. Stockmann. Nevertheless, takeup is growing, she said.

Zero-based budgeting also will allow Unilever to slash the number of consultants it hires. The CFO said he would cut the number of creative agencies it works with from 3,000 to 1,500 and reduce advertising by 30%.

Mr. Pitkethly said the company can reduce cost and head count by 40%, "without impacting either our growth or compromising our controls or our efficiency."

Two-thirds of the savings, to be achieved by 2019, are supposed to be reinvested, he said.

--Rheaa Rao contributed to this article.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

April 07, 2017 13:33 ET (17:33 GMT)

Unilever NV (NYSE:UN)
Historical Stock Chart
From Mar 2024 to Apr 2024

Unilever NV (NYSE:UN)
Historical Stock Chart
From Apr 2023 to Apr 2024