Chesterton boss steps down as audit reveals pounds 1.4m hole

The chief executive of Chesterton International, the property services and estate agency group, left the company with immediate effect yesterday after the group's auditors uncovered a series of problems that have devastated its annual profits.

Giles Ballantine agreed to stand down when it emerged that the group had made a pounds 1.4m provision to cover the problems which were uncovered by Price Waterhouse in its annual audit. The exceptional charges include pounds 500,000 for professional indemnity claims, pounds 600,000 for the double counting of commission on some rented properties and a pounds 300,000 unrecovered balance at a Spanish subsidiary.

The announcement caused Chesterton's shares to plunge by a third to 69p. They were priced at 100p when the company came to the stock market two years ago.

Chesterton will instruct an independent firm of accountants to conduct a thorough review of its internal financial systems and controls.

A Chesterton spokesman said: "We have no excuses. We are making significant apologies. We recognise that heads must roll and they have. But the company believes it has got to the bottom of the situation and the slate is being wiped clean."

The company said the problems had come to light during the past week.

Mr Ballantine was chief executive for six years and will be in line for compensation for loss of office. He was on a six-month contract and was paid pounds 128,000 last year.

Chesterton appointed a new finance director, Ian Fleming, in July to replace Angus Palmer who had retired a month earlier. In April, a number of Chesterton directors, including Mr Palmer, sold large parts of their shareholdings at prices between 88p and 95p.

"It looks a little unfortunate in the light of what has happened but there was nothing sinister in that," the company said. Asked whether any legal action would be taken against any of the directors, a spokesman said: "Nobody has even put their minds to that yet."

The problems are certain to anger Chesterton's institutional shareholders such as Mercury Asset Management, Fidelity Investments and Gartmore.

The company is seeking a new chief executive. In the meantime, Gavin Black, head of the group's UK business, will take over.

The provisions scarred Chesterton's results for the year to 30 June. Pre-tax profits fell to pounds 2.4m compared with pounds 5.3m the previous year. The company is maintaining the dividend at 3p per share as a demonstration of confidence in the future.

The company said the improvements in the property market would help. "Current trading and order levels are strong and the property market has picked up," the chairman, William Wells, said. In March Chesterton bought back Chestertons Residential, the upmarket, central-London estate agency it sold to the Prudential at the height of the 1980s property boom.

In February it acquired a number of British Gas Facilities Management contracts. In the past year the company has made a large investment in building up a Private Finance Initiative Unit. So far it has won 60 consultancy contracts.