Vistry Group Shares Drop Over 14% Due to Profit Guidance Cut

Shares of UK homebuilder Vistry Group (LON:VTYV) fell by more than 14% on Friday after the company lowered its 2024 profit guidance by nearly 15% following a comprehensive review that revealed problems in its Southern Region house building division.

Vistry now estimates a profit before tax of £300 million for the fiscal year, down from the earlier estimate of £350 million.

Operational Issues

The revised outlook is attributed to deeper-than-expected operational challenges discovered in the Southern Region, including:
– Poor divisional management
– Inaccurate forecasting
– An unsustainable work culture

These issues are primarily found in five major, multi-phase projects, forcing Vistry to reduce its anticipated completions for the year from over 18,000 to approximately 17,500 units.

Broader Context

The challenges are mainly linked to Vistry’s housebuilding operations rather than its partnership sites. However, falling volumes in the partnership market during September and October also influenced the guidance cut.

While no systemic issues were identified outside the Southern Region, Vistry's shift toward a partnership-focused model has intensified pressures across the company.

Financial Impact

The company anticipates the financial repercussions of these operational issues will extend into the next fiscal years, projecting a £25 million impact in 2024, £20 million in 2025, and £5 million in 2026. Total costs to remedy these issues are now estimated at £165 million, stemming largely from unexpected full-life costs linked to the Southern Region projects.

Vistry revised its capital and cost expectations, now forecasting net debt to be lower than last year's £88.8 million, but falling short of achieving a positive net cash position by year-end. Furthermore, while Vistry plans to return £1 billion to shareholders, the timeline may be delayed due to current operational challenges.

The £130 million share buyback is on course for completion by Vistry's annual meeting in May, but the overall capital returns strategy is under review due to the ongoing issues.

Building Safety Provisions

Vistry is also conducting a new review to assess potential liabilities stemming from new building safety regulations, particularly concerning second staircase requirements. Although this review is not expected to significantly affect cash flow, it represents another obstacle in the months ahead.

Market Activity

In recent market activity, the group reported a 42% increase in weekly sales rates year-to-date, indicating resilient consumer demand, albeit challenged by ongoing mortgage affordability issues. To boost sales, Vistry is offering up to 5% of home prices in buyer incentives.

Demand from Registered Providers remains inconsistent, with robust interest in the Midlands and North, while London and the South East show less enthusiasm.

Cost Forecast

Vistry expects modest pressure on build costs for 2025, with a recent increase in National Insurance contributions expected to affect its bottom line by about £5 million, adding additional pressure as the company navigates a challenging operational landscape.