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View from City Road: Body Shop is not so different

IF Body Shop's pioneering spirit was ever attractive to investors it now reeks of misplaced self-satisfaction.

When it was one of only a handful of Stock Exchange companies growing at 25 per cent a year, Body Shop could plausibly argue that Anita Roddick's approach - her enthusiasm together with the green image, team work and massive publicity - was a factor in the company's success. Now it has to accept that neither Anita, nor her husband, Gordon, nor their methods make their company very different from any other in a recession.

Profits fell by 10 per cent to pounds 8.3m before tax in the six months to 31 August, which was, if anything, better than expected after the company's recent warning. The shares gained 2p to 163p yesterday, having slid from a high earlier this year of 370p.

While this performance is better than that of many other retailers, it is by no means unique. Marks & Spencer, whose performance remains hard to beat in a downturn, increased profits, albeit only slightly, in the six months to March. And M&S presents few of the risks of Body Shop.

Like any high-profile company - witness the ups and downs of Barratt, Next and Saatchi in recent years - Body Shop is vulnerable to swings in fortune. The collapse in its share price earlier this year is proof of that.

Yet its self-confidence remains undiminished, despite the recession. Mr Roddick talks of an unchanged 'vision' of long-term growth. He says expansion in the UK was anyway due to slow, in favour of further expansion overseas, which already accounts for almost half of turnover.

Investors might consider that Body Shop should be planning a more risk-averse programme but Mr Roddick does not accept there are any lessons to be learnt from downturn. In the UK it has 230 shops of which 200 are run by franchisees. Though this system has allowed the company to expand much faster than direct ownership, it has its problems. The first half saw a painful row with one franchisee, Pauline Rawle, and more could follow.

Despite its reliance on franchises, the company's own borrowings stand at 50 per cent of shareholders' funds, which looks high, even allowing for the fact that the company makes half its own products.

Ethical investors may like the fact that Body Shop is planning a wind farm together with National Power and is building a filtration plant using water plankton to clean effluents, but others should continue to sell.

(Photograph omitted)