Doubts raised over direct-mail firm

Colleagues Group, the direct mail specialist, has earned itself the questionable accolade of having some of the most improbable financial ratios of any company in its sector, an annual survey of the advertising industry will reveal this week.

The news may cast another cloud over the company, which shocked the market in August after it was forced to bring forward publication of its interim figures in order to announce an unexpected profits warning.

Its shares collapsed to 97.5p, from a high of 288p at the start of this year. The business was floated at 115p in early 1995.

Colleagues obtained its full listing with high hopes from investors, based on a proven management team with a strong growth record.

But in its annual advertising survey, Financial Performance of Marketing Services Companies, 1996, Bob Willott, of accountants Willott, Kingston, Smith & Associates, highlights what he sees as several anomalies in the group's 1995 report and accounts.

The group comes top in the sector, ranked by operating profitability per member of staff. On an operating profit of pounds 3.57m in 1995 - the last available report and accounts - each employee, on average, made pounds 35,970. That was against an average of pounds 6,468 per employee for the sector as a whole. Aegis, the quoted media buyer, comes second, with only pounds 19,556 a person. Of the total operating profit, only pounds 751,000 made its way into the company as cash. The rest was lost to a pounds 3.3m rise in net debtors.

Mr Willott also commented on the high listing costs of pounds 749,000, to raise a net pounds 1.3m. "It's much cheaper to enter the National Lottery, and you could win just as much," he said.

Most of the pounds 1.3m went on company vehicles and computer equipment.

The company, however, rebutted any criticisms. The rise in debtors, said James Robson, executive chairman and founder of the business, was a reflection of the strong growth the business had experienced. Sales of pounds 36m in 1994 had climbed to pounds 51m in 1995.

"Debtors were clients who had not paid their bills by December and deferred paying them until the new financial year," he explained. He added that many bills the company sends out are in the millions of pounds, and as it happened, the company had received large payments in January.

He agreed that the listing costs were "exorbitant", but said that was the price to be paid for using top quality City firms, such as Panmure Gordon, the stockbrokers, and NatWest Securities as financial adviser. He said the company had always run a tight ship, so a high profitability per employee was to be expected.