Despite the boom in house sales nationally and in the South West in particular, a major house builder has seen its annual profits all but wiped out by a host of internal problems discovered at the end of last year.

Prowting Homes, which has 10 development sites in Swindon and area, saw sales falling to a five-year low as over-optimistic selling prices and cost overruns damaged the business.

But chairman Richard Fraser said a recovery strategy was now in place and that the underlying performance in the business was beginning to pick up.

He warned, however, that an improvement from the Uxbridge-based business was unlikely in the first half of the current financial year. He added the final dividend payout to shareholders was also being scrapped.

The group's shares tumbled to a two-month low of nine per cent on the announcement.

"It has been a particularly difficult year, but we are in the process of putting Prowting Homes back on firm foundations," Mr Fraser said.

Profits in the year to February 28 crashed to just £3.7 million compared with £27.5 million in the previous 12 months.

This 87 per cent drop followed the discovery of deep-rooted problems in the Midlands region of the business after a review instigated late last year.

The review, initially into poor trading, found the division was taking on too much risk and not sticking to the group's central operating systems.

Its findings led to the departure of chief executive Steve Rosier and finance director Bob Templeman in January.

Prowting sold only 1,307 homes in the most recent financial year, a 15 per cent drop, as group turnover fell six per cent to £231 million.

Mr Fraser said the Midlands business was now being closed down and that the group would focus on its stronger South East and South West operations.

He would continue to take on the acting chief executive role while the recovery strategy was implemented across the business.

Prowting initially warned in October that orders were down by 15 to 20 per cent following the September 11 terrorist attacks in the US.

The group is controlled by the Prowting family which, analysts believe, is the only reason a takeover offer has not come in.