Vistry reduces profit forecast by further £50m as ‘poor divisional culture’ blamed for underestimated build costs

Vistry has said the hit to its profit from under-estimated build costs will be £50m more over three years than it previously announced.

The housebuilder, following an internal review into issues in its south division which first came to light last month, now expects the problems to reduce its adjusted pre-tax profit by £165m over three years, instead of £115m as it estimated last month.

This includes a £105m hit in 2024 (instead of £80m as previously forecast), £50m in 2023 (previously £30m) and £10m in 2026 (instead of £4m).

Due to the £25m hit and a reduction in expected completions, the group said it is now expecting adjusted pre-tax profit of around £300m this year instead of £350m as previously stated last month and £430m as initially forecast.

Vistry, in a trading update today, said a forensics team from a large accounting firm have carried out an independent review focused on the cost reporting process, culture and management in its south division along with a wider review across the group.

It said the review found that the significant issues have been found to be “confined to the south division and can be attributed to “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture”

It said the managing directors in its south division were all from the housebuilding side of the business. Vistry has in over the past couple of years shifted fully into partnerships work.

It said: “None of the group’s other divisions are managed exclusively by former housebuilding management. The independent review has highlighted the pressure being felt from organisational change as a fundamental driver underlying the issues in the south division.”

Vistry said the increased hit to profit “reflects additional developments where the total full-life cost projections to complete the development were understated, and a reduced expectation of FY24 activity across the south division.”

It said the understated costs were found to be from a wide range of cost types and are symptomatic of general control issues, rather than any one particular cost type. A total of 18 sites in the south division have adjusted full-life costs by greater than £1m. Five large, multi-phase sites have accounted for around 60% of the cost movements.

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It has also made some “small value adjustments” from across the company’s other 22 division resulting in a reduction in adjusted pre-tax profit of £8m this year. It however said that the review found “no systemic issues” outside its south division.

Vistry said the review found the housebuilder’s management “took robust and prompt action upon becoming aware of the issues.”

The group said management in the south division “have stepped away from the business pending completion of formal processes” and it is reviewing organisation changes, “considering new appointments improving transparency, enhancing management capability, reducing the length of reporting lines and ensuring closer proximity of the CEO to the business

It is also looking to mandate adherence to new standardised controls and processes, in addition stepping up training and support to regional teams and improving whistleblowing procedures

Vistry said it now expects to complete around 17,500 homes this year, down slightly on the 18,000 forecast it gave last month.

It said its forward sales totals £4.8bn, up 12% on the previous year while its average weekly sales rate in the year to date is up 42% to 1.02.