House builder Vistry has vowed to change its management team after discovering that build costs on nine of its projects had been understated by £115m.
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The group, which is on course to unseat Barratt as the UK’s biggest house builder, issued a profit warning on 8 October that revised its expected profit for 2024 down by 19% due to the error.
Vistry’s shares fell 31% to 896.5p on Tuesday morning after it issued its profit warning, recovering slightly later in the day.
In a trading update, Vistry said it had recently become aware that within one of its six divisions, the South Division, cost projections on nine out of 46 schemes had been understated by around 10% of total build costs.
“Some large-scale schemes” were affected by the error, it said. However, it stressed that the group as a whole has around 300 developments.
The house builder expects to take a one-off profit hit of £115m. The board expects to make £80m less profit before tax in 2024, £30m less in 2025 and £5m less in 2026 compared to previous projections.
As a result, Vistry expects adjusted profit before tax in 2024 to be £350m, down from £430m.
The house builder vowed to make leadership changes and said it was investigating the cause of the error.
It said: “We believe the issues are confined to the South Division and changes to the management team in the division are underway. We are commencing an independent review to fully ascertain the causes.”
Vistry told Inside Housing it was not naming the nine developments where build costs had been understated, nor was it detailing changes to the management team.
The builder continues to expect more than 18,000 completions in 2024 and is targeting a net cash position by 31 December. It also remains committed to a £130m share buyback programme announced on 5 September.
“Notwithstanding the one-off adjustment announced today, we remain committed to delivering a strong increase in high-quality mixed-tenure housing, our medium-term target of £800m adjusted operating profit, and £1bn of capital distributions to shareholders,” it added.
Vistry’s next trading update is scheduled for 8 November.
Last month, the developer said it was on track to build more than 18,000 homes this year, which would represent an increase of 12% on last year’s total of 16,118, and put the house builder significantly ahead of rival Barratt.
Vistry reported a 9.1% increase in completions, to 7,792, compared with the same period in 2023, which it said was driven by the introduction of its partnerships model a year ago.
Under the model, Vistry pre-sells a minimum of 50% of the homes on every development to its partners and targets a 40% return on capital employed, which it says enables it to build more quickly.
The developer said the model also attracts investment, such as the £580m build-to-rent deal it agreed with private equity giants Blackstone and Regis in June.
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Picture: Alamy