Police move in at Wainhomes

TOM STEVENSON

City Editor

The police moved into a subsidiary of recently floated housebuilder Wainhomes yesterday to investigate alleged valuation irregularities, over-invoicing and theft. The company, which responded to the crisis by dismissing its chief executive, also issued a profits warning. Its shares plunged 38 per cent.

The cost of the accounting irregularities, estimated at pounds 2m by the company, will blow a hole in profits which reached pounds 10m in the year to last March but have been under pressure this year as a result of the stagnant housing market.

Gavin Reed, chairman, said the dismissal of Ron Smith was not directly related to the police investigation into Wainhomes Northern but he was unequivocal about the reasons for the chief executive's departure: "In view of the board's loss of confidence in him generally, Mr Smith has been dismissed and will cease to be a director of the company."

Industry sources said they believed two employees at the division had already been sacked and two more suspended. Further dismissals at the highest levels within Wainhomes Northern are expected this week.

Bill Ainscough, founder of what is now the Northern division in 1972 and deputy chairman, will take over as chief executive and will conduct a full review of the company's internal controls.

A senior figure at a rival housebuilder said it was extremely unlikely that the problems at Wainhomes Northern were restricted to that division.

He also pointed to possible conflicts of interest at the company where non-executive directors are among the largest shareholders. Trevor Hemmings, the former chairman, owns 9.3 million shares, 15 per cent of the total, while Mr Ainscough, also a former chairman, owns 14.3 million shares, almost a quarter of the business.

The value of their combined holdings fell by almost pounds 10m yesterday as Wainhomes shares, floated at 170p in March 1994, fell 41p to 68p. At that level, the company is valued at pounds 42.4m.

Mr Smith joined the company in 1989 as chief executive and was paid pounds 192,000 in the 12 months to March 1995. That represented a 35 per cent increase on the pounds 142,000 he earned the previous year. He was on a two- year rolling contract, suggesting he could be in line for a compensation payment of almost pounds 400,000. Negotiations are continuing.

The police investigation is understood to be focusing on the possibility of over-invoicing, whereby staff at the division colluded with outside suppliers or sub-contractors to create false documentation. They are also looking into theft of building materials.

More damaging to the company's reputation in the City, however, is the suggestion by one source that the division's work in progress was deliberately overstated to enhance profits.

It is thought that shared costs, such as roads and sewers, did not appear in the accounts in the early years of a building site's expected life in the hope that rising house prices would hide the impact of higher cost of sales in subsequent years. When house prices stagnated, the discrepancy was discovered.

Analysts yesterday re-drew forecasts for the year to March to show a 40 per cent underlying fall in profits from pounds 10m to pounds 6.1m. After the cost of adjusting Wainhomes Northern's work in progress, profits are expected to emerge at just pounds 4.1m half the level of forecasts before yesterday's news.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe