Labour’s housebuilding partner warns on profit after cutting home prices

One of Labour’s key housebuilding partners has warned of “significantly lower” profit after it was forced to cut house prices to boost sales.Shares in Vistry Group plunged by as much as 11.5pc in early trading after the company warned its decision to deepen discounts would dent profits more than previously expected.The London-listed housebuilder resorted to the cost-cutting strategy earlier this year to help entice buyers as it sought to generate more cash to pay down its £144m debt pile.Vistry, which is also delaying construction at some sites and pausing a share buyback, has suffered a 55pc drop in its share price since the start of the year.It marks the latest in a string of profit warnings at the housebuilder, which is facing a cash squeeze after underestimating the cost of building homes in the south of England.This has been compounded by uncertainty triggered by the outbreak of war in the Middle East, with the company warning of “upward pressure” on material and labour costs as a result of the conflict.Bosses said they were trying to mitigate the impact of higher costs by negotiating with contractors and suppliers.Recent data submitted to the Government show more than half of Vistry’s payments to suppliers have been late amid reports it has been demanding deferrals and discounts from subcontractors in at least two of its key regions.Vistry’s financial troubles will pile more pressure on Labour to explain why it has handed the housebuilder around £315m in taxpayer-backed loans and contracts.Paul Holmes, the shadow housing minister, said there were “questions about Labour’s judgement” after details of the Government’s partnership with Vistry to deliver affordable housing emerged earlier this year.Mr Holmes raised further concerns that Homes England, the housing quango responsible for allocating the funds, does not directly monitor the financial viability of the companies it works with.‘Execution risks remain high’Vistry warned in April that rising cost pressures could trigger a cash crunch. Under what it called a “severe but plausible downside scenario”, the company said it could exceed its committed borrowing facilities and breach certain loan agreements.A broader review of the business is being undertaken by Adam Daniels, the new chief executive, who took the helm after the abrupt exit of Greg Fitzgerald, the long-serving boss, in March.Mr Fitzgerald’s departure signalled the end of an era for the housebuilder amid its troubled shift from private housebuilding towards a so-called partnerships model focusing on building homes on behalf of housing associations, local authorities and private rented sector landlords.Despite the gloomy outlook, Vistry said its aggressive discounting strategy had delivered a rise in sales and that its full-year profit was on track to meet analyst expectations.Anthony Codling, an analyst at RBC Capital Markets, warned that while progress was being made, market conditions were providing “little if any help and execution risks remain high”.RBC previously calculated that Vistry had been cutting house prices much more aggressively than its peers, with prices cut on around 43pc of a sample of 1,258 homes.The profit warning comes as the housebuilder braces for a potential investor backlash over executive pay before a shareholder meeting on Wednesday.Two advisory firms, ISS and PIRC, have urged shareholders to oppose the company’s pay report in protest against policies that would allow executives to increase their bonus payouts as well as cash them in faster.