Vistry shares were sharply lower on Friday after the company announced further profit reductions due to cost miscalculations at projects within its South Division.
The Vistry share price was down 13% at the time of writing.
Housebuilder Vistry Group has disclosed that problems in its South Division will more severely impact profits than initially reported, forcing the company to lower its full-year profit guidance to around £300 million.
Vistry had initially reduced profit guidance to £350 million when the issues first came to light.
The company revealed today that the total impact from issues in its South Division will reach £165 million, spread across three years, with £105 million hitting profits in 2024, £50 million in 2025, and £10 million beyond 2025. This represents a significant increase from earlier estimates, with issues primarily affecting sites from the former Housebuilding business.
An independent review conducted by a forensics team from a major accounting firm found that the problems were largely confined to the South Division and stemmed from “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture.”
The investigation identified 18 sites with cost adjustments exceeding £1 million each, with five large multi-phase sites accounting for about 60% of the total cost increases.
“Vistry delivered some more bad news for investors to build into their expectations. To set the scene, back in October, news broke that total build costs at nine of its housebuilding projects in the South had been underestimated. Revised estimates at the time caused a big £115mn hit to profit expectations, spread over a three-year period,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
The additional costs related to the South Division have overshadowed what was otherwise a positive trading update.
Vistry now expects to complete around 17,500 units in 2024, a reduction from previous targets. Despite challenging market conditions, the company reported a year-to-date sales rate of 1.02, up 42% from 0.72 in the previous year, though activity slowed during September and October.
Vistry outlook
The outlook may offer some solace for investors. Vistry maintains a strong forward sales position of £4.8 billion, up 12% from the previous year. While the company remains committed to its medium-term targets and capital distribution policy, including plans to distribute £1 billion to shareholders, it is reviewing the timeline for achieving these goals in light of the South Division issues.
The company welcomed recent government initiatives announced in the Autumn Budget, including a five-year social housing rent settlement and an additional £500 million for the Affordable Homes Programme, bringing the annual budget to £3.1 billion.
However, Vistry noted that the April 2025 increase in Employer National Insurance contributions will cost the company approximately £5 million in 2025.