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Shares in the FTSE 100 housebuilder Vistry plunged on Friday after it issued a second profit warning in as many months and said cost overruns on building projects were worse than previously thought.
Vistry was the top faller on the blue chip index of stocks, with shares down 18%, wiping about £500m off the value of the company.
The company last month launched an independent review of its operationss in its south division after revealing that it had “understated” total build costs by about 10%. It said at the time that this would probably reduce profits by a total of £115m over the next two years, sending shares down and wiping £1bn off the company’s value.
On Friday, Vistry said it now expects profits to be hit by a total of £165m.
The company now expects profits this year to come in at about £300m “reflecting the additional impact from issues in the south division and reduced expectations of completions in the year”.
Vistry also warned that it was expecting to see some “overall pressure” on build cost inflation next year.
The company added that it was assessing the impact of last month’s budget but had already estimated that the increase in employer national insurance contributions, due to increase from next April, would cost it an additional £5m next year, with the rate increase “also impacting our supply chain”.
In a trading update, it said: “In the open market, we saw some improvement in consumer interest and an uptick in our sales rates following the general election and interest rate cut at the start of August. However, the open market has remained constrained by mortgage affordability and the expectation of future interest rate cuts, in particular for first time buyers in London and the south-east.”
Earlier this week, the rival Persimmon warned of the return of building cost inflation and the impact of the increase to employers’ national insurance contributions announced in Labour’s budget last month.
Vistry’s independent review found that the issues in the south division stemmed from insufficient management capability, noncompliant forecasting processes and poor divisional culture.
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“The independent review process has found little evidence of similar issues to those identified in the south division in other divisions,” the company said on Friday. “The review findings have suggested that the group does have key controls in place and operates them effectively. Some areas of regional cultural and process inconsistencies have been noted.”
The company said that it now expects to complete 17,500 homes this year, 500 fewer than it had previously guided.