Vistry Group (LON: VTY), a leading UK housebuilder, saw its shares plummet by more than 15% on Friday after the company issued a profit warning and revealed deeper-than-expected cost issues within its South division.
The company's independent review found that the total profit impact of the issues in the South division would be £165 million, significantly higher than the initial estimate.
The company now forecasts an additional profit impact of the issues in the South Division of £25 million in FY24, £20 million in FY25 and £5 million in FY26.
They explained that this is primarily due to understated full-life cost projections for certain developments and reduced expectations for completions in the region.
The review also highlighted issues related to management capability, commercial forecasting processes, and a poor divisional culture within the South division.
However, the company stressed that these issues are confined to this specific region and have not been identified in other parts of the business.
Despite a strong sales performance in the year to date, with average weekly sales rates up 42%, Vistry now expects to deliver fewer completions in 2024 than previously anticipated.
This, coupled with the additional cost pressures, has led to a significant downward revision of its adjusted profit before tax forecast for the year. Vistry now sees its profit before tax for the fiscal year at £300 million, down from the previous £350 million estimate.
The company said it is taking steps to address the issues in the South division, including organisational changes, enhanced commercial assurance, and increased training and support.
Additionally, Vistry said it remains committed to its medium-term targets and capital distribution policy, although it is reviewing the timeframe for achieving these goals.
The profit warning and increased cost pressures have raised concerns among investors, leading to a significant decline in the company's share price.
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