Shares in the company plummeted 12p to a five-year low of 39.5p after it revealed that exceptional costs of around pounds 6m at its paints subsidiary would wipe out profits in the second half of 1998. As a result,1998 figures would be "substantially below" market forecast, the company said.
The surprise warning, which follows a bearish trading statement issued in November, prompted analysts to slash their pre-tax profit forecasts from around pounds 12m to around pounds 7m.
The company announced that Jeremy Beeton, the director who was responsible for the paints unit, had left the group.
The chief executive, Richard Taylor, said the collapse in profits had been caused by an accounting blunder at Birmingham-based Haden Drysis International.
The unit, which supplies painting equipment to car manufacturers, had misjudged the costs of two major contracts, worth a total of around pounds 70m, with two leading car makers. It also wrongly assumed that part of the costs could be recouped from the clients and recorded them as recoverable income, Mr Taylor said.
He said the mistakes were "a serious error of judgement" and that a number of staff within Haden Drysis had not complied with the company's internal control procedures. "Some people were skirting around the procedures. This is totally unacceptable."
Mr Taylor said that the company had tightened its controls and hired more staff to check the accounting of its subsidiaries. He added that an internal investigation throughout the group had found no other episodes of mistaken accounting.
The chief executive said that he would take direct responsibility for the running of the Process Engineering division, which includes the troubled paints subsidiary.
Mr Beeton would not be the last person to leave the group as a result of the affair, Mr Taylor added.