Four weeks ago house-builder Vistry Group revealed that it had uncovered costing errors in its South division that would wipe £115m off its profits over the next three years.
Since then, it has done more work and finds that the actual cost will be £165m – a full £50m more than it previously thought.
Now it will have to bear additional losses of £105m in the current financial year, £50m in FY25 and £10m after that.
In a trading update today, Vistry said: “Following the cost issues identified in the South division and reported in our 8th October 2024 update, we initiated a programme of independent and internal reviews to verify the nature and scope of the issues, confirm the impact, and determine any resultant actions required.”
It continued: “The scope of the review has primarily focused on the cost reporting process, culture and management in the South division, and also includes a wider review across the group to ascertain if similar issues to those identified in the South division existed in other parts of the business.”
It said that the findings of the review were broadly consistent with the initial findings and that issues are only in the South division.
It said: “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. The South division was led by a management team from the former Housebuilding business and the managing directors of all four regions within the South division were from the group's former Housebuilding business. 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.”
The understated costs in site forecasting processes 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”, the review said. A total of 18 sites in the South division have adjusted full-life costs by greater than £1m, with five large, multi-phase sites accounting for roughly 60% of the total full-life cost movements.
Not only have the costs of the forecasting errors gone up in the past month, the expected number of completions for the year has been reduced. A month ago Vistry expected to complete 18,000 units in 2024. Now it says 17,500.
With this reduced expectation for completions in the year and the additional impact on profit from issues in the South division, Vistry Group expects to deliver adjusted profit before tax in for 2024 of around £300m, rather than the £350m it was saying just a month ago.
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