Body Shop to manufacture in US: Cost of underused capacity in Britain is out of step with growth

BODY Shop International, the potions-shop franchise run by Anita Roddick, is to begin manufacturing some products in the US despite massive unused capacity at its plant in Britain.

Body Shop announced a pounds 1.3m charge for moving offices in the US and setting up the plant, reporting a fall in profits before tax from pounds 25.2m to pounds 21.5m for the year to 28 February.

Gordon Roddick, the chairman, confirmed that the huge manufacturing plant and warehouse near Littlehampton in Sussex was operating at less than 25 per cent capacity and the cost of it was 'temporarily out of step' with current growth.

But manufacturing locally in the US would save on distribution costs in North America, a fast-growing market. It would also exploit the Free Trade Agreement between the US and Canada.

The aim is to manufacture water-based products on a small scale in the US at first. Eventually 40 per cent of US demand would be met by the plant in Raleigh, North Carolina. The US head office is also being moved there from New Jersey, where employment costs are much higher.

The stock market welcomed the profits figure, which came at the top end of forecasts. Earlier this year Body Shop issued a profits warning because of its poor UK trading. The shares were marked up 61 2 p to 2041 2 p yesterday. A final dividend of 1.02p makes a total dividend of 1.7p, up 6 per cent.

Sales grew 14 per cent to pounds 168.3m, mainly because of new store openings. There were 900 shops at the year-end, almost all of them franchises, and Body Shop expects to open another 150 this year, almost all overseas.

Stripping out the benefit of new stores, UK sales fell 6 per cent in the year. UK operating profit fell from pounds 16.5m to pounds 11.2m.

Mr Roddick said underlying UK sales were continuing at 6 per cent down in the new financial year: 'I think that most of the talk about green shoots may prove as premature as it was last year.'

Body Shop planned to market itself more aggressively, he added. It might consider conventional advertising - until now thought unnecessary - in the light of a joint promotion in the US with American Express.

Like-for-like sales elsewhere did better, growing by 3 per cent in the US and 6 per cent elsewhere in the world: Continental Europe produced an 8 per cent like-for-like improvement, and Asia 15 per cent.

The group is seeking non-executive directors in line with the recommendations of the Cadbury Committee on corporate governance.

During the year borrowings were reduced from pounds 32m to pounds 28.5m, giving gearing of 35 per cent. Debt would continue to fall, Mr Roddick said.

(Photograph omitted)