Body Shop sells off manufacturing arm

BODY SHOP International, the eco-friendly cosmetics firm founded by Anita Roddick, has agreed to sell its manufacturing business to South Africa's Pac Creative as part of the ailing group's strategy to focus on its retailing operations.

The deal values Body Shop's manufacturing division, based at Littlehampton, West Sussex, at pounds 13.2m. A Body Shop spokesman said: "We want to focus on the front-end of our business to channel all our investment and management expertise there."

Ian Macdougall, an analyst at Williams de Broe, said: "Managing vertical integration is always difficult, particularly when you have a business as geographically diverse as Body Shop. The manufacturing tail often wags the retail dog."

The price agreed for the sale comprises pounds 6.8m in fixed assets and pounds 6.4m in stock. The stock will be paid for in cash on completion of the disposal and the fixed assets are being paid for under a non-interest bearing hire- purchase agreement with repayment over a 10-year period.

The transaction also includes an option for Pac Creative to sell the business back to Body Shop after three years at net book value. Body Shop has a similar right to buy back stock and assets from Pac within the three- year period. The Body Shop spokesman said: "The put and call option is a safety net for both parties."

The manufacturing business's 500 employees, including its management team, will transfer to Pac Creative once the deal is completed. Body Shop shares closed up 1.5p at 115.5p.