Housebuilding group Vistry has issued a profit warning after a costings error was revealed in the company’s southern division
In a trading update released on Tuesday morning, Vistry have released a profit warning after a costings error was identified in the company’s southern division, with build costs on nine of 46 schemes under-estimated by around 10%.
The revised total full life cost projections are now expected to lower the forecast pre-tax profit for 2024 to £350m.
Vistry indicated they had identified those responsible
In the statement, Vistry said that they believed that “the issues are confined to the South Division and changes to the management team in the division are under way[…]We are commencing an independent review to fully ascertain the causes.”
Vistry still expects to deliver over 18,000 units in this financial year and will continue to target a net cash position after 2023’s net debt of £89m.
The firm also reiterated its commitment to the £130m share buyback programme announced last month.
The profit warning saw projected profits fall by £80m
In the statement, the partnerships housing specialist said: “The estimated one-off impact of adjusting for the revised development cost assumptions reduces the board’s expectations for adjusted profit before tax for FY24 by £80m, for FY25 by £30m, and FY26 by £5m.”
The firm said: “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 £1 billion of capital distributions to shareholders.”
Vistry’s shares decreased sharply, taking £1bn off the value of the company
The news sent Vistry’s share price tumbling down 35%, going from 1273 pence to 829.5 pence in the early trading.
The shares surfaced to 963.5 pence by closing, a 25% decrease from the previous day.
The Financial Times described the costings error as exposing ‘faultlines’ in Vistry’s partnership model.
Berenberg analyst Harry Goad said: “While Vistry has indicated that the cost issues underpinning its large profit downgrade were a localised issue, we think the profit warning nevertheless raises some questions more generally about its partnership business model, and particularly the midterm margin outlook.
“Specifically, while the cost issue was presented as something of a one-off event, we think it is useful to consider what the (hypothetical) outcome would have been if these costs had been accurately reflected through the development budgets at the appropriate time; the result would have simply been slightly lower than expected profit margins over 2024-26. This would not have been a disastrous outcome but it would have raised questions among investors about the chances of the group achieving its midterm target of a 12%+ operating profit margin.
“Secondly, we think this issue raises a traditional industry concern about the risks faced by any house-builder that is growing volumes at pace given the associated challenge of achieving acceptable and well-balanced outcomes across matters such as build quality, customer service and profitability.
“We certainly do not think that this profit warning challenges the fundamentals of the partnership business model, but it does serve to raise questions, in our view, about what is an achievable and sustainable midterm profit margin, which in turn also has an impact on ROCE [return on capital employed] outcomes.”
