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Key Points:
- Vistry Group's South Division understated costs for 9 developments by about 10%.
- This will reduce the Group’s FY24 profit by £80 million, with further impacts in FY25 and FY26.
- Despite the setback, Vistry expects to complete over 18,000 units in FY24 and continue its £130 million share buyback program.
Vistry Group PLC (LSE:VTY) has issued an update on its profit guidance for the 2024 financial year (FY24) following the discovery of issues within its South Division. The Group revealed that the cost projections for 9 out of 46 developments in the South Division had been understated by approximately 10% of the total build costs. This error could have a significant impact on the Group’s financial performance in the coming years.
The discovery of the cost understatement affects large-scale projects, but Vistry Group emphasized that these developments represent only a fraction of its overall operations. The Group has approximately 300 developments in total. The 9 developments in question, however, have caused a downward revision in profit expectations for the next three years.
The adjustment to the development cost assumptions is expected to reduce the Group’s adjusted profit before tax for FY24 by approximately £80 million, for FY25 by £30 million, and for FY26 by £5 million. This reflects the increased overall cost estimates over the full life of the affected developments. As a result, the Group now anticipates adjusted profit before tax for FY24 to be around £350 million, down from previous expectations.
In response to the discovery of these issues, Vistry Group is taking action to address the situation. The problems have been traced to the South Division, and the Group has begun making changes to the management team in that division. An independent review will also be conducted to thoroughly investigate the root causes of the cost miscalculations. The company expressed confidence that these issues are isolated to the South Division.
Despite the setback, Vistry Group remains committed to its overall goals for the year. The Group still expects to complete over 18,000 housing units in FY24, in line with previous projections. Additionally, Vistry aims to achieve a net cash position by 31 December 2024, compared to net debt of £88.8 million as of 31 December 2023. The Group is also continuing with its £130 million share buyback program, which was announced in September 2024.
Vistry Group remains optimistic about its unique Partnerships strategy, which focuses on delivering a mix of tenure housing. The Group reaffirmed its medium-term target of achieving £800 million in adjusted operating profit and distributing £1 billion in capital to shareholders, despite the current challenges.
This update comes at a time when the UK construction and housing sectors are facing cost pressures due to inflation and supply chain disruptions. While the cost misstatement in the South Division is an unwelcome development, Vistry Group’s leadership is taking steps to mitigate its impact and maintain confidence in its long-term strategy. The Group's ability to adjust to these financial challenges while remaining on track with key performance indicators highlights its resilience and commitment to growth.
The upcoming independent review will provide further clarity on the nature of the issues within the South Division, and Vistry Group’s management will likely implement additional measures to prevent similar issues in the future. The company’s strong housing completion targets, financial strategies, and dedication to shareholder returns will help it navigate the short-term impacts of this profit adjustment.
