Building for the future - PROSPECTUS 2007 - Morningstar
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P R O S P E C T U S 2 0 0 7
GROUP LIMITED
building for the future
Global Reports LLC
Global Reports LLC
Diploma Group Limited ACN 127 462 686
prospectus
For an offer of 12 million Shares at an offer price of
$0.50 each to raise $6 million.
Oversubscriptions of up to a further 6 million Shares at an offer price
of $0.50 each to raise up to a further $3 million may be accepted.
Important Information
This is an important document that should be read in its entirety.
If you do not understand it you should consult your professional advisers without delay.
lead manager
Capital Investment Partners Pty Ltd ACN 110 468 589
Diploma Group Limited Prospectus 1
Global Reports LLC
important This Prospectus is dated 17 October 2007 and was lodged with the ASIC on
that date. The ASIC and its officers take no responsibility for the contents of this
notice Prospectus or the merits of the investment to which this Prospectus relates.
The expiry date of this Prospectus is at 5.00pm WST on that date which is 13 months
after the date this Prospectus was lodged with the ASIC (Expiry Date). No Shares
may be issued on the basis of this Prospectus after the Expiry Date.
Application will be made to ASX within seven (7) days after the date of this Prospectus
for Official Quotation of the Shares the subject of this Prospectus.
The distribution of this Prospectus in jurisdictions outside Australia may be restricted
by law and persons who come into possession of this Prospectus should seek advice
on and observe any of these restrictions. Failure to comply with these restrictions may
violate securities laws. Applicants who are resident in countries other than Australia
should consult their professional advisers as to whether any governmental or other
consents are required or whether any other formalities need to be considered and
followed.
This Prospectus does not constitute an offer in any place in which, or to any person to
whom, it would not be lawful to make such an offer.
It is important that investors read this Prospectus in its entirety and seek professional
advice where necessary.
web site A copy of this Prospectus can be downloaded from the web site of the Company
at www.diploma.com.au. Any person accessing the electronic version of this
electronic Prospectus for the purpose of making an investment in the Company must be an
prospectus Australian resident and must only access this Prospectus from within Australia.
The Corporations Act prohibits any person passing an Application Form onto another
person unless it is attached to a hard copy of this Prospectus or it accompanies the
complete and unaltered version of this Prospectus. Any person may obtain a hard
copy of this Prospectus free of charge by contacting the Company.
exposure This Prospectus will be circulated during the Exposure Period. The purpose of the
Exposure Period is to enable this Prospectus to be examined by market participants
period prior to the raising of funds. Potential investors should be aware that this examination
may result in the identification of deficiencies in this Prospectus and, in those
circumstances, any application that has been received may need to be dealt with in
accordance with Section 724 of the Corporations Act.
Applications for Shares under this Prospectus will not be processed by the Company
until after the expiry of the Exposure Period. No preference will be conferred on
persons who lodge applications prior to the expiry of the Exposure Period.
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contents page
1. CORPORATE DIRECTORY 4
2. CHAIRMAN’S LETTER 7
3. INVESTMENT OVERVIEW 8
4. DETAILS OF THE OFFER 12
5. COMPANY AND PROJECT OVERVIEW 16
6. INDUSTRY OVERVIEW 24
7. BOARD & MANAGEMENT 28
8. FINANCIAL INFORMATION 34
9. INDEPENDENT ACCOUNTANT’S REPORT 50
10. INVESTIGATING ACCOUNTANT’S REVIEW 54
11. RISK FACTORS 58
12. ADDITIONAL INFORMATION 64
13. DIRECTORS’ AUTHORISATION 76
14. GLOSSARY 78
Diploma Group Limited Prospectus 3
Global Reports LLC
1 corporate directory
Directors
Dominic Di Latte (Executive Chairman)
Nick Di Latte (Managing Director)
John Norup (Director)
Ian Olson (Non Executive Director)
Company Secretary
Simon Oaten
Registered Office
First Floor
140 Abernethy Road
BELMONT WA 6104
Telephone: (08) 9479 7922
Facsimile: (08) 9479 7933
Email: reception@diploma.com.au
Website: www.diploma.com.au
Lead Manager
Capital Investment Partners
Level 34, Exchange Plaza
2 The Esplanade
PERTH WA 6000
Telephone: (08) 9421 2111
Facsimile: (08) 9421 2100
Solicitors
Steinepreis Paganin
Lawyers and Consultants
Level 4, Next Building
16 Milligan Street
PERTH WA 6000
Telephone: (08) 9321 4000
Facsimile: (08) 9321 4333
Independent Accountant
Pitcher Partners NSW Corporate Pty. Limited
Level 3, 60 Castlereagh Street
SYDNEY NSW 2000
Telephone: (02) 9221 2099
Facsimile: (02) 9223 1762
Auditor
Ernst & Young
Chartered Accountants & Business Advisors
11 Mounts Bay Road
PERTH WA 6000
Telephone: (08) 9429 2222
Facsimile: (08) 9429 2329
Share Registry
Computershare Investor Services Pty Limited
Level 2, Reserve Bank Building
45 St George’s Terrace
PERTH WA 6000
Telephone: (08) 9323 2000
Facsimile: (08) 9323 2033
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Excelsior Apartments - 152 Mill Point Road, South Perth Diploma Group Limited Prospectus 5 Global Reports LLC
GROUP LIMITED
Dominic Di Latte
Executive Chairman
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chairman’s letter
Dear Investor
On behalf of the Board of Directors of the Company, I am pleased to offer you the opportunity to invest in
Diploma Group, a leading Western Australian construction and property development company.
The Company’s journey commenced in 1976, when my wife Maria and I established Diploma Homes. During the
past 31 years, we have solidified our presence in the marketplace by providing our services to a wide range of
clients across the commercial, residential and industrial sectors.
Moving forward, the Company’s objectives are to build upon these strong foundations with long-standing clients,
as well as to further our market prominence from the position we have established within the construction
industry.
Diploma Group, consisting of Diploma Construction and Diploma Properties, will continue an expansion strategy
across the construction and property development industries, by pursuing interests and options in both sectors
nationally and through acquisitions of already-established businesses interstate and via organic growth.
Diploma Group is led by an experienced executive team, who hold a significant shareholding in the Company
following the Offer, thereby further maintaining their commitment to the Company.
This Offer will raise up to $9 million by way of both a sell down of up to 16 million Vendor Sale Shares at an offer
price of $0.50 each and a placement of up to 2 million New Shares at an offer price of $0.50 each. Subscribers
to the Offer will hold approximately 15% of the undiluted issued capital of the Company. The Executive Directors
have agreed to enter into voluntary escrow arrangements in respect of 100% of their post sell down shareholding
for a period of 12 months from the Listing Date.
Diploma Group’s turnover for the financial year ending 30 June 2008 is expected to be approximately $100
million, realising profits before tax of approximately $10 million (based on the assumptions contained in Section
8 of this Prospectus). It is the Board’s belief that being listed on the ASX will assist in unlocking and capitalising
on further potential to provide growth and expansion for the business. It will also provide the Company with a
platform for enhancing its ability to attract and retain high-quality staff.
This Offer presents investors with the prospect of sharing in the future of the Company. Before making any
decision on this investment, I encourage you to read this Prospectus carefully and seek appropriate advice.
On behalf of the Directors, I commend this investment to you and look forward to welcoming you as a
Shareholder of Diploma Group.
Dominic Di Latte
Chairman
Diploma Group Limited Prospectus 7
Global Reports LLC3 investment overview
3.1 Important Notice
This Section is not intended to provide full information for investors intending
to apply for Shares offered pursuant to this Prospectus. This Prospectus
should be read and considered in its entirety.
3.2 Business Overview
Diploma Group is a commercial construction and property development
business which offers a complete vertically integrated business by managing
the entire design process of a project from initial conception through to final
handover of the completed product. Diploma Group currently employs over
80 staff across both the property and development divisions and conducts
business with over 150 subcontractors and suppliers.
Diploma Group’s growth strategy involves taking advantage of the position
it has established in the construction industry in Western Australia by
geographical expansion to other Australian states, whether through
acquisitions or organic growth. The Company will also explore opportunities to
diversify into related industries such as civil engineering.
3.3 Key Statistics
The following table sets out the key Offer statistics based on the Offer Price.
FY08
Market capitalisation on the Listing Date $60 million
Enterprise Value 1 $56.1 million
Basic EPS (cents) 2 5.9 cents
Price Earnings Ratio at Offer Price (times) 3 8.5x
Market Capitalisation/ EBIT FY2008 (times) 5.9x
Enterprise value/ EBIT FY2008 (times) 5.5x
Notes.
1
Market Capitalisation plus pro-forma net debt (includes all interest bearing
borrowings).
2
Earnings per Share, being forecast net profit after tax, divided by undiluted
Shares outstanding on completion of the Offer.
3
Offer Price divided by EPS.
3.4 Investment Highlights
The investment highlights include:
• the opportunity to invest in one of Western Australia’s pre-eminent
construction and property development companies;
• a track record of historical revenue and profit growth;
8
Global Reports LLC• the implementation of an acquisition strategy to facilitate further expansion of current business
activities; and
• a committed executive and management team.
3.5 Investment Risk
The main investment risks include:
• a downturn in the Western Australian construction industry;
• increased competition from new and existing competitors;
• labour constraints and rising labour costs;
• risk associated with future acquisitions;
• reliance on key management, including the Managing Director;
• risks associated with fixed price, lump sum building contracts; and
• a downturn in the sale of residential apartments and dwellings in Western Australia.
Please refer to Section 11 of this Prospectus for a description of some of the risk factors that could affect
the business, financial performance or financial results of the Company’s operations.
3.6 Indicative Timetable
Lodgement of Prospectus with the ASIC 17 October 2007
Opening Date 24 October 2007
Closing Date 5:00pm WST on 26 November 2007
Dispatch of Holding Statements 30 November 2007
Expected date for listing on ASX 5 December 2007
The above dates are indicative only and may change without notice. The Company reserves the right to
extend the Closing Date or close the Offer early without notice.
3.7 Objectives
The Company’s main objectives in undertaking the Offer include:
• providing access to capital markets to enhance the Company’s ability to take advantage of growth
opportunities;
• raising the Company’s public profile;
• achieving the required spread of Shareholders to enable the Shares to be listed on the Official List of
ASX;
• providing the broader business benefits of increased visibility, transparency and credibility that arise
from being a listed company; and
• promoting ownership of Shares by employees, and assisting the Company in retaining and attracting
quality staff.
On completion of the Offer, the Board believes the Company will have sufficient working capital to achieve
these objectives.
Diploma Group Limited Prospectus 9
Global Reports LLC3 investment overview
3.8 Purpose of the Offer and Use of Proceeds
The purpose of the Offer is to position the Company to seek to achieve the
objectives set out in Section 3.7 above.
From the proceeds of the Offer, the Company will retain a total of $267,630
which will be used for working capital purposes, in addition to the Company’s
existing cash reserves as referred to in Section 8.3. The remainder of the
proceeds of the Offer (being between $5 million and $8 million) will be retained
by the Existing Shareholders in equal proportions as consideration for the sell
down of a proportion of their respective shareholdings in the Company.
3.9 Effect of the Offer
The principal effect of the Offer on the Company, if fully subscribed, will be to:
(a) increase cash reserves by approximately $267,630 after deducting
estimated expenses of the Offer; and
(b) increase the number of Shares on issue from 118 million as at the date of
this Prospectus to 120 million.
3.10 Capital Structure
The capital structure of the Company following completion of the Offer is
summarised below:
Shares Number
Shares on issue at date of Prospectus 118 million
New Shares to be issued1 2 million1
Total Shares on issue at completion of the Offer 120 million2
Options Number
Options on issue at date of Prospectus 11.8 million
Total Options on issue at completion of the Offer 11.8 million
Notes:
1
Total Shares offered comprise of 2 million New Shares, 10 million
Vendor Sale Shares and oversubscriptions of up to 6 million Vendor
Sale Shares (with the Vendor Sale Shares forming part of the 118 million
Shares on issue at the date of this Prospectus). Refer to Independent
Accountant’s Report in Section 9 of this Prospectus for further information.
The rights attaching to the Shares are summarised in Section 12 of this
Prospectus.
2
This figure assumes the Offer is fully subscribed and all
oversubscriptions are received.
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Global Reports LLC3.11 Dividend Policy
The payment of dividends by the Company, including any dividend for the 2008 financial year, will be at the
complete discretion of the Directors and will depend upon the availability of distributable earnings and the
Company’s franking credit position, operating performance against Directors’ forecasts, available cashflow,
financial condition, outlook, taxation position, future capital requirements or acquisitions as well as general
business and financial conditions and any other factors the Directors may consider relevant. On that basis,
the Directors can give no assurance regarding the payment or level of dividends, the level of franking of
such dividends or the extent of payout ratios for the 2008 financial year, or for any future period.
3.12 Business and Investment Risks
In addition to the general risks associated with any investment in the stock market, there are certain risks
inherent in investing in a commercial construction and property development business. Investors should
be aware that an investment under this Prospectus is likely to involve exposure to risks specific to the
Company’s operations. A more detailed description of some of the risk factors is contained in Section 11 of
this Prospectus. Investors should consider all risks and seek professional advice before investing.
Diploma Group Limited Prospectus 11
Global Reports LLC4 details of the offer
4.1 The Offer
Pursuant to the Offer, the Company invites applications for up to 18 million
Shares, comprising:
(a) 2 million New Shares;
(b) 10 million Vendor Sale Shares; and
(c) oversubscriptions of up to 6 million Vendor Sale Shares,
at an offer price of $0.50 each to raise up to $9 million.
The Shares offered under this Prospectus will rank equally with the existing
Shares on issue. All Vendor Sale Shares are unencumbered.
4.2 Applications
Applications for Shares under the Offer must be made using the Application
Form.
Payment for the Shares must be made in full at the offer price of $0.50 per
Share. Applications for Shares must be for a minimum of 4,000 Shares and,
thereafter, in multiples of 1,000 Shares. Completed Application Forms and
accompanying cheques must be mailed to:
Computershare Investor Services Pty Limited
Level 2, Reserve Bank Building
45 St George’s Terrace
PERTH WA 6000
or delivered to:
Computershare Investor Services Pty Limited
Level 2, Reserve Bank Building
45 St George’s Terrace
PERTH WA 6000
Cheques should be made payable to “Diploma Group Limited – Share Offer
Account” and crossed “Not Negotiable”. Completed Application Forms must
reach one of the above addresses by no later than the Closing Date.
The Company reserves the right to close the Offer early.
4.3 Allotment and Transfer
Subject to ASX granting approval for the Company to be admitted to the
Official List, allotment and transfer of Shares offered by this Prospectus will
take place as soon as practicable after the Closing Date. Prior to allotment
and transfer, all application monies shall be held by the Company on trust.
The Company, irrespective of whether the allotment and transfer of Shares
takes place, will retain any interest earned on the application monies.
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Global Reports LLCThe Directors reserve the right to allot and transfer Shares in full for any application, or to allot and transfer
any lesser number, or to decline any application. Where the number of Shares allotted and transferred is
less than the number applied for, or where no allotment or transfer is made, the surplus application monies
will be returned by cheque to the applicant within seven (7) days of the allotment and transfer date.
4.4 Minimum Subscription
The minimum subscription to be raised pursuant to the Offer is $6 million.
If the minimum subscription has not been raised within four (4) months after the date of this Prospectus, all
applications will be dealt with in accordance with the Corporations Act.
4.5 ASX Listing
The Company will apply to ASX within seven (7) days after the date of this Prospectus for admission to the
Official List and for Official Quotation of the Shares offered under this Prospectus. If ASX does not grant
permission for Official Quotation of the Shares within three (3) months after the date of this Prospectus, or
such longer period as is permitted by the Corporations Act, none of the Shares offered by this Prospectus
will be transferred, allotted or issued. In that circumstance, all applications will be dealt with in accordance
with the Corporations Act.
4.6 Applicants outside Australia
This Prospectus does not, and is not intended to, constitute an offer in any place or jurisdiction, or to any
person to whom it would not be lawful to make such an offer or to issue this Prospectus. The distribution
of this Prospectus in jurisdictions outside Australia may be restricted by law, and persons who come into
possession of this Prospectus should seek advice on and observe any such restrictions. Any failure to
comply with such restrictions may constitute a violation of applicable securities laws. No action has been
taken to register or qualify the Shares or otherwise permit a public offering of the Shares the subject of this
Prospectus in any jurisdiction outside Australia.
It is the responsibility of applicants outside Australia to obtain all necessary approvals for the allotment and
issue or transfer of the Shares pursuant to this Prospectus. The return of a completed Application Form
will be taken by the Company to constitute a representation and warranty by the applicant that all relevant
approvals have been obtained.
4.7 Commissions Payable
The Company reserves the right to pay a commission of 5% (inclusive of Goods and Services Tax) of
amounts subscribed to any licensed securities dealers or Australian financial services licensees in respect
of any valid applications lodged and accepted by the Company and bearing the stamp of the licensed
securities dealer or Australian financial services licensee. Payments will be subject to the receipt of a proper
tax invoice from the licensed securities dealer or Australian financial services licensee.
4.8 CHESS
The Company will apply to participate in the Clearing House Electronic Subregister System (CHESS).
CHESS is operated by ASX Settlement and Transfer Corporation Pty Ltd (ASTC), a wholly owned
subsidiary of ASX, in accordance with the Listing Rules and the ASTC Settlement Rules.
Diploma Group Limited Prospectus 13
Global Reports LLC4 details of the offer
Under CHESS, the Company will not issue certificates to investors. Instead,
holders of Shares will receive a statement of their holdings in the Company. If
an investor is broker sponsored, ASTC will send a CHESS statement.
4.9 Privacy Statement
If you complete an Application Form, you will be providing personal information
to the Company. The Company collects, holds and will use that information to
assess your application, service your needs as a Shareholder and to facilitate
distribution payments and corporate communications to you as a Shareholder.
The information may also be used from time to time and disclosed to persons
inspecting the register, including bidders for your securities in the context
of takeovers; regulatory bodies, including the Australian Taxation Office;
authorised securities brokers; print service providers; mail houses and the
Share Registry.
You can access, correct and update the personal information that we hold
about you. If you wish to do so, please contact the Share Registry at the
relevant contact number set out in this Prospectus.
Collection, maintenance and disclosure of certain personal information are
governed by legislation, including the Privacy Act 1988 (as amended), the
Corporations Act and certain rules such as the ASTC Settlement Rules.
You should note that if you do not provide the information required on the
application for Shares, the Company may not be able to accept or process
your application.
4.10 Queries
This Prospectus provides information for investors to decide if they wish
to invest in the Company and should be read in its entirety. If you have any
questions about investing in the Company, please contact your stockbroker,
financial planner, accountant, lawyer or independent financial adviser.
4.11 Escrow of Executive Directors’ Shares
The Executive Directors’ shareholdings will be subject to voluntary escrow
arrangements in respect of 100% of their shareholding (post-sell down) for a
period of 12 months from the Listing Date. Refer to Section 12 for details of
the escrow arrangements.
14
Global Reports LLCLeederville Post Office, Leederville
design &
construction
Peak Apartments, Perth
Edge Apartments Peak Apartments, Perth
Excelsior Apartments, South Perth Midland Gate
Diploma Group Limited Prospectus 15
Global Reports LLC5 company and project overview
5.1 The Company
The Company has two wholly-owned subsidiaries, which are responsible for
carrying out the Company’s activities:
• Diploma Construction; and
• Diploma Properties.
GROUP LIMITED
CONSTRUCTION PROPERTIES
Diploma Construction comprises:
• Design capabilities;
• Quality construction;
• Construction management;
• Site supervision and administration;
• Joint venture partnerships; and
• Total service capability from concept drawings through to interior design.
Diploma Properties comprises:
• Feasibility studies and site acquisitions;
• Building design;
• Project management;
• Joint venture partnerships; and
• Sales and marketing coordination.
Each subsidiary operates independently, sourcing its own projects while
remaining owned, resourced and integrated into the overall group, drawing
upon its wide-ranging skills and resources.
Projects vary in size and scope from retail and commercial units to multi-storey
apartment buildings and large-scale shopping centres.
The Company aims to expand its existing operations by reviewing
opportunities in other States of Australia. It also plans to expand upon existing
activities within Western Australia.
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Global Reports LLCBox Building - 918 Hay Street, Perth Diploma Group Limited Prospectus 17 Global Reports LLC
5 company and project overview
5.2 History
The Company originated in 1976, when founder and Chairman, Dominic Di
Latte (Dominic), established Diploma Homes, a business specialising initially in
residential building.
Sensible expansion saw the business grow and move to new premises
located in Osborne Park in 1987, before expanding again in 2004 and moving
to the current premises in Belmont.
Dominic assumed the responsibility of Chairman of Directors of Diploma
Construction in April 2005.
Involved in the building industry all his working life, Dominic has always
passionately believed in maintaining an absolute commitment to quality and
the highest standards of service. It is these fundamental tenets that have
permeated the business for the past 31 years, leading Diploma Homes from
a small, family-run firm to become Diploma Group Limited, a large, diversified
company that has reached the most exciting point in its history, to date.
In 1996, Dominic’s son, Nick Di Latte, a qualified lawyer, joined the Company.
Apart from a 14 month hiatus in 2001 when he practised law full-time, Nick
has been with the Company continuously, and was appointed Managing
Director in April 2005.
John Norup joined the Company as General Manager in 2005, and was
primarily responsible for the procurement of new work. As a certified engineer,
John’s background has been crucial, and he now heads Diploma Construction
and has a seat on the Board of Directors.
Later in 2005, Drew Gillespie also joined the Company, overseeing
construction of property developments. His extensive knowledge and
experience in the industry is invaluable. Drew is a member of the Board of
Diploma Construction.
In 2006, Geoff Simpson was appointed to be responsible for the operational
day-to-day issues of the business, and was promoted to General Manager
when John Norup assumed his new duties.
These key team members are committed to furthering the success of the
Company.
5.3 Business Scope
Areas of expertise include:
• Commercial;
• Small-scale Retail;
• Large-scale Retail;
• Low-rise Residential; and
• High-rise Residential.
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Global Reports LLCDiploma Group has an established position in the marketplace, and has developed continuing relationships
with numerous clients. Its excellent industrial relations record and environment management practices are
two fundamental reasons for Diploma Group’s achievements.
Over time, the construction world has become a more complex, multi-disciplinary industry, heightened by
increased legislation. Throughout Diploma Group’s history, the team has developed a set of principles that
has offered clients absolute commitment to each project, every step of the way, delivering cost-efficient
outcomes.
The business has been able to reach this point in its evolution through adhering to this philosophy and by
developing a professional, dedicated team across the board via its ability to attract and retain a high-level
skills base.
Over the past 20 years, the Company has undertaken property development work from time to
time. However, in August 2003, a separate business, the Di Latte Group, was formed to undertake
developments, with the building of these projects completed by Diploma Construction.
Diploma Construction has now entered into joint venture agreements with the Di Latte Group on two
ventures to be completed over the next three years. Diploma Construction, in its own right, has acquired a
mixed use development at 1174 Hay Street, West Perth.
All future property development opportunities will now be wholly owned by the Company, through its
subsidiary, Diploma Properties.
A goal of the Company is to expand its base in key areas where the Company’s expertise gives it a
strategic business advantage. Diploma Group is able to carry through with feasibility analysis for new
developments with the added benefit of constant pricing and design input from the Construction Division.
This equates to devising schemes and concepts that are the most economical to construct, which
ultimately results in higher project returns.
The two divisions provide a more integrated business model. The advantages include:
• an ability to operate in a range of property businesses;
• the derivation of profits at either stage of the property life cycle;
• the generation of a more diverse income stream for security holders; and
• the capacity to leverage opportunities between the business streams.
5.4 Recently Completed Projects
Residential
Box Building, 918 Hay Street, Perth
Completed in 2002, this was the Company’s first multi-storey (12 levels) venture in the Perth Central
Business District (CBD). At that time, it was one of only two CBD projects with tower cranes. The challenge
was to retain the heritage façade while transforming the interior with contemporary style. The project value
in 2002 was $12 million.
Arcadia Court, Subiaco
Built in two stages and completed between December 2003 and June 2004, this was the Company’s
largest project of the era. It consisted of 89 apartments and 4000m² of commercial space, with a project
value of $19.1 million.
Diploma Group Limited Prospectus 19
Global Reports LLC5 company and project overview
Thaymas Apartments, West Perth
Located in West Perth, this project consisted of 26 apartments over 9 levels
with 2 basement car park levels. Apartments were typically 1 and 2 bedroom
apartments with two penthouses on the top floor. This project was completed
in June 2006, with a construction value of $5 million.
Kensington on Grand Apartments, Joondalup
Approximately 40 kilometres from Perth, this project consisted of 56
apartments, swimming pool and gymnasium, and two commercial tenancies,
and was completed in October 2003. The project value was $6.3 million.
Lake Reflections Apartments, Joondalup
Covering approximately 7,450m², with a project value of $13.6 million, 87
apartments were constructed, with pools, gymnasiums and landscaped
gardens. This contract was awarded following the successful delivery of
Kensington on Grand Apartments, and was completed in two stages between
December 2003 and June 2004.
Commercial / Retail
Midland Central
This large scale bulky goods centre consisted of 24,000m2 of showrooms
and was completed in August 2006. The project also included extensive fitout
works for retailers such as The Good Guys, Officeworks and BCF (Boating,
Camping, Fishing). This project was valued at $15 million.
BBC Hardware Houses, Innaloo and O’Connor
These superstores comprised 7,500m² of warehouses/showrooms and
500m² of offices and amenities. The Company was successful in completing
each project and handing them over to the client six weeks ahead of the date
prescribed in the project contracts. The project value of each was $4.6 million.
Officeworks Superstores
Since 1997, the Company has delivered six Officeworks superstores in
the Perth metropolitan area and Bunbury, ranging in size from 1,500m² to
2,300m². Each project was valued at between $1.5 million and $2.2 million.
Erskine Shopping Centre, near Mandurah
Erskine Shopping Centre is a modern regional shopping centre totaling
approximately 5,000m². Work on this project included an extensive fit-out to
the 3,000m² Coles supermarket. The project was valued at $6.3 million.
Leederville Post Office
This project presented the challenge of restoring a heritage building and
liaising closely with the Heritage Council and local government authority. This
is now one of the iconic buildings in Leederville. The project was valued at
$2.2 million.
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Global Reports LLC5.5 Current and Pending Projects
Work in hand has a combined value of approximately $220 million, and includes the following projects:
Excelsior Apartments
A 13-level apartment tower consisting of 10 full floor luxury apartments - Mill Point Road, South Perth, WA.
Saracen Winery
New winery, cellar door and micro brewery facility for Saracen Estates - Caves Road, Margaret River, WA.
Ord Street Office
An A-grade 4500m2 office building over five levels with a 4.5 star Green Star Rating - Ord Street, West
Perth, WA.
Peak Apartments
54 luxury apartments over 20 levels - 229 Adelaide Terrace, Perth, WA.
Fremantle Shopping Centre
A 4300m2 shopping centre over three levels, including 13 specialty shops and Woolworths as the anchor
tenant.
Sky Apartments
118 apartments over 22 levels with seven apartments on each floor - 148 Adelaide Terrace, East Perth,
WA.
Rise Apartments
72 apartments over 25 levels -155 Adelaide Terrace, East Perth, WA.
Vale
19 individual homes - Stage 1 - combined single-level and two-level homes.
Juniper Gardens
45 apartments over four levels - Keane Street, Midland, WA.
Criterion
Stage 1 contract for piling and retaining works to a 24-level apartment tower - Murray Street, Perth, WA.
Belgrave Residential
25 two-level homes on individual titles - Belgrave Street, Maylands, WA.
Herdsman Office Park
Four level 5000m2 A-Grade office building with above-ground parking - Walters Drive, Herdsman, WA.
Outram Street Mixed Use Development
Eight level mixed office/residential building with nine luxury apartments and three levels of strata office -
Outram Street, West Perth, WA.
Bulky Goods Showrooms
5000m2 of showrooms - Reserve Drive, Mandurah, WA.
East Perth Apartments
36 apartments over four levels, Hill Street, East Perth, WA.
Diploma Group Limited Prospectus 21
Global Reports LLC5 company and project overview
Durack House Stage 2
9000m2 5 star Green Star rated Office building over four levels - corner Victoria
Avenue and Terrace Road, Perth, WA.
Further details of some of the projects under construction are summarised in
Section 12 of this Prospectus.
5.6 Property Development Projects
Sky Apartments - 148 Adelaide Terrace, Perth
Diploma Properties holds an 80% interest in this development through a joint
venture agreement with a related party of the Company called ATD Developments
Pty Ltd (ACN 117 947 878). This project consists of 118 residential apartments
over 22 levels, plus two commercial tenancies. The project is currently under
construction and is due for completion in December 2008. At present, 118 of
the 120 lots in the development have been pre-sold. The value of this project is
estimated at $66 million.
Rise Apartments - 155 Adelaide Terrace, Perth
Diploma Properties holds an 80% interest in this development pursuant to a joint
venture agreement with a related party of the Company called 155 Adelaide Tce
Pty Ltd (ACN 120 748 218 155). This project consists of 72 apartments over 25
levels plus one commercial tenancy at ground level. The project is currently under
construction and is due for completion in May 2009. At present, 52 of the 73 lots
in the development have been pre-sold. The value of this project is estimated at
$64 million.
1174 Hay Street, West Perth
1174 Hay St Pty Ltd, a subsidiary of Diploma Construction, has a mixed use
development site under contract. The project is currently in the design phase and
proposes to offer office space of A-grade quality up to 4500m2 plus approximately
30 residential luxury apartments. Diploma intends to lodge the project for
Development Approval with the City of Perth by 30 November 2007. Completion
is scheduled for June 2010. Gross sales are anticipated to reach approximately
$70 million.
Joondalup Village
Diploma Construction has a 100% interest in this proposed apartment project
located on the door step of Edith Cowan University in Joondalup. This proposed
project consists of 189 apartments over four and five levels, plus 800m2 of
commercial space at ground level and is currently awaiting development approval.
Once development approval is obtained, a sales and marketing campaign will
commence to achieve required pre sales. The development consists of three
villages with staged completion occurring between January 2009 and December
2009. Gross sales are anticipated to be approximately $80 million.
Further details of the development projects are summarised in Section 12 of this
Prospectus.
22
Global Reports LLCFremantle Shopping Centre, Fremantle
building for
the future
Outram Street Apartments, West Perth
Peak Apartments, Perth Rise Apartments, Perth
Excelsior Apartments, South Perth Ord Street Offices, Perth
Diploma Group Limited Prospectus 23
Global Reports LLC6 industry overview
6.1 Overview
Statements included in this Section have been extracted from the IBIS
World Pty Ltd Industry Report entitled “Commercial and Industrial Building
Construction in Australia: E4114”.
The commercial and industrial building industry’s primary activity is the
provision of prime contracting building services to non-residential property
developers for the construction of buildings. Approximately two-thirds of
industry revenue is estimated to be generated from new building construction
activity, with the balance generated from alterations, additions and
maintenance work on existing premises (mainly renovation and refurbishment).
The Company’s activity is driven primarily by new building construction.
6.2 Current Trends in the Building Industry
Strong growth has been recorded in the commercial and building industry
since recovering from a sharp contraction in the early 2000s, with the value
of work done in the commercial and industrial building market growing by an
estimated average 8.8% per annum over the five years to 2006-07, supported
by sustained growth in the Australian economy, and particularly strong growth
in company profits and employment. The commercial and institutional building
industry is estimated to have generated revenue growth averaging 8.4% per
annum over the five years to 2006-07, far exceeding the pace of GDP growth
(3.4% per annum). The annual value of work done in the commercial and
industrial building market is estimated to average $15.59 billion per annum
over the five years to 2006-07, or 17.5% above the average of $13.26 billion
per annum over the previous five years to June 2002 (in constant 2005-06
prices).
The BIS Shrapnel report ‘Building in Australia 2007 – 2022 27th Edition’
reports that Western Australian non-dwelling building (which includes
social and institutional building in sectors such as office, retail, hotel other
business, factory, education, health, entertainment and recreation) has also
experienced significant growth in recent years. Activity has risen from $1.1
billion in 2001/2002, during which period no major projects commenced,
to approximately $2.0 billion in 2006. The five year annual average building
activity to 2006 is $1.67 billion, which represents a 14% increase on the
previous five year period. As at 2007, the Company’s building activities are
carried out solely in Western Australia.
6.3 Building Industry Outlook
The commercial and industrial building industry is expected to continue to
record solid cycle growth, supported by generally buoyant economic growth
conditions and a favourable investment environment. The graphs below show
the general upward trends on revenue and gross product in the industry up
until 2006-2007.
24
Global Reports LLCRevenue for The Commercial and Revenue Growth Rate for The Commercial and
Industrial Building Industry Industrial Building Industry
14000 20
15
12000
10
10000 5
0
$ Million
8000
%
-5
6000
-10
4000 -15
-20
2000
-25
0 -30
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Gross Product (Value of Work Done on The Commercial and Industrial Building Market)
Gross Product $ Million Growth %
1988-89 2,840.0 N/A
1989-90 3,000.0 5.6
1990-91 2,525.0 -15.8
1991-92 1,800.0 -28.7
1992-93 1,580.0 -12.2
1993-94 1,530.0 -3.2
1994-95 1,820.0 19.0
1995-96 2,075.0 14.0
1996-97 2,400.0 15.7
1997-98 2,460.0 2.5
1998-99 2,720.0 10.6
1999-00 2,550.0 -6.3
2000-01 1,820.0 -28.6
2001-02 1,950.0 7.1
2002-03 2,400.0 23.1
2003-04 2,675.0 11.5
2004-05 2,850.0 6.5
2005-06 3,200.0 12.3
2006-07 3,315.0 3.6
Diploma Group Limited Prospectus 25
Global Reports LLC6 industry overview
Gross Product (Value of Work Done on The Commercial and Industrial Building Market)
4000
3500
3000
2500
$ Million
2000
1500
1000
500
0
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Gross Product Growth Rate (Value of Work Done on The Commercial and Industrial Building Market)
30
20
10
0
%
-10
-20
-30
-40
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
Anticipated growth in demand for commercial and industrial buildings is
underpinned by several factors including investment into industrial buildings
to service the booming resource sector; increased demand for storage and
warehouse facilities to facilitate growth in consumer spending and international
trade; a return to long-term levels of investment into hotel construction to meet
expected foreign tourism demand; and stronger demand for premium office stock
in the major capitals.
The annual value of work done on total non-residential buildings and on
commercial and industrial buildings is estimated to grow, as is the annual level of
industry revenue. Demand for commercial building construction is predicted to
grow, supported principally by steady growth, projected household disposable
income, total employment, and company profitability.
26
Global Reports LLCThe commercial and industrial building industry is expected to record stronger revenue growth, resulting from an
Increase in the value of work done in the downstream building markets, reflecting the renewed rise in the office
construction market. Within the factory and industrial building market, the value of construction is projected to
climb also, as this is associated with the construction of resource processing facilities in Western Australia and
Queensland to service the burgeoning mining sector.
6.4 Property Development - Overview and Outlook
The report entitled ‘Jones Lang LaSalle Asia Pacific Property Digest, Australasia, second quarter 2007’ reports
on both the office and industrial property market in Western Australia. It states that the Western Australian
economy is continuing to thrive on the back of the booming mine sector, and with the high levels of population
growth, ongoing strong tenant demand for both office space and industrial space has reached capacity.
On the industrial property front, Jones Lang LaSalle reports that the requirements of logistics companies are
leading to structural changes in the Perth industrial sector, with a move towards larger and more efficient
warehouse/ distribution centres now being in demand. Furthermore, the commencement of office projects
for the quarter totalling some 64,000m2, boosted new and refurbished office stock under construction to
123,000m2, with almost 60% of this space being already pre-committed. Additionally, office vacancy levels in
Western Australia have been kept below 1% for three consecutive quarters, and these high levels of tenant
demand are driving increased levels of construction activity. The report predicts the Western Australian
economy will be very much dependent on the future of the commodities boom, although it expects demand for
both office and industrial space to remain strong in 2008.
The Australian Bureau of Statistics assesses Perth’s progress in its report numbered 1367.5 and entitled
‘Western Australian Statistical Indicators, Dec 2006’, and reports that over the past two years, Perth’s
Consumer Price Index (CPI) has grown by 9.1%, much faster than in Melbourne (6.6%), Sydney (6.8%),
Brisbane (7.3%) and the 7.1% increase recorded nationally. The stronger CPI growth in Perth has mainly been
the result of escalating housing costs and the lag in Perth’s housing cycle behind the 2002-03 boom in the
eastern states of Australia.
The rate of growth in Perth’s CPI has been particularly strong over the last year, accelerating from 4.1% to 4.8%
between the September quarters of 2005 and 2006 in through the year terms. The latest rise of 4.8% was the
largest annual increase recorded since the June quarter 2001 (6.0%).
Perth’s CPI Growth
Annual (through the year) growth
%
Quarterly growth
6
4
2
0
-2
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Consumer Price Index, Australia, cat. ID 6401.0.
The main driver of CPI growth in Perth has been housing, which accounted for 41.5% of the total change
in Perth’s CPI between the September quarters of 2004 and 2006. The contribution of housing to Perth’s
growth over the past two years has exceeded that of other Australian capital cities. This current demand for
housing may generate positive sales for the Company’s residential apartment products.
Diploma Group Limited Prospectus 27
Global Reports LLC7 board and management
7.1 Directors and Company Secretary
Dominic Di Latte - Executive Chairman
Diploma of Building
Diploma of Builders Registration
WA Builders Registration No. 4213
Dominic has spent his entire working life in the building industry. He began his
career as a tradesman and progressed to become a registered builder, finally
starting his own construction company in 1976.
Dominic’s success in residential housing led to commercial, retail, medium and
high-density residential developments. With obvious hands-on experience,
Dominic has an intrinsic understanding of every aspect of the industry. He
takes a personal interest in every undertaking. Dominic’s passion for building,
uncompromising approach to quality and meticulous attention to detail is the
foundation of an ethos that flows throughout the Company.
Under Dominic’s watch, the Company has been responsible for numerous
successful residential, retail and commercial developments, including Box
Building Apartments in Perth’s CBD, Arcadia Court in Subiaco, multiple
Officeworks Superstores and the sensitive heritage redevelopment of the
Leederville Post Office site.
Nick Di Latte - Managing Director
Bachelor of Arts
Bachelor of Law
Nick joined the Company in 1996 and has always shared his father’s passion
for the industry.
Nick’s predominate role has been to liaise with clients and joint venture
partners, from the initial concept and planning stage through to completion,
as well as overall responsibility for the performance of Group activities. He
brings a great deal of experience in the property industry to the fore and will
continue to work with and oversee both divisions of the Company. A qualified
Barrister and Solicitor, having been admitted to the Supreme Court of Western
Australia in February 2002, Nick’s role includes liaising with clients with
respect to new developments as well as involvement with site acquisitions
and conceptualisation of commercial and residential projects through
to completion. Nick’s role further includes the implementation of growth
strategies of the Company.
Nick’s multi-disciplinary leadership on projects such as Thaymas Apartments,
West Perth, Arcadia Court, Subiaco, Ennis Tavern & Commercial Centre,
Rockingham, Box Building Apartments, Perth CBD and Clarkson Commercial
& Retail Centre, Clarkson, will assist the Company to expand its business to
the next level.
28
Global Reports LLCJohn Norup - Director
Bachelor of Engineering (Hons)
Registered Builder WA No. 10313
Member of Institute of Engineers Australia
Certified Practising Engineer
As a qualified engineer, John brings a wealth of experience in the WA construction marketplace to
the Company.
Joining the Company in 2005, John will have a pivotal role in the next stage of the Company’s
history as head of the Construction Division.
During his career, John has been directly involved in the management of over $1 billion worth of
construction work within Western Australia.
As a Director, John has been overseeing the Company’s operations, and is involved in the
strategic business planning of the organisation.
John’s previous experience as a director of a major national construction business provides
the Company with the experience and knowledge of the national construction market. This,
combined with the strength of his management team, gives the Company the ability to undertake
large and complex projects anywhere within Australia.
John has been engaged in myriad projects, such as the HBI plant at Port Hedland, the Dawesville
Channel project, Mt Gibson iron ore storage, Kwinana Fertiliser storage facility, Geraldton
Hospital, The Vines Resort, Seashells Resort, Broome and Heritage Resort, Shark Bay, to name a
few.
Ian Olson - Non-Executive Director
Chartered Accountant
Bachelor of Commerce
Registered Company Auditor
Member AICD
Member AIM
As an accountant, Ian has been involved in corporate advisory, audit and assurance and
management consulting over the past 18 years.
Ian’s areas of expertise include corporate finance, external and statutory audit, investigating
accountant’s and independent expert’s reports, advising on the process of initial public offers
leading to ASX listings, and seed and venture capital raising. During his career, Ian also spent
three years working with two major global investment banks in London and New York.
As the Managing Partner of PKF Chartered Accountants, Ian also co-heads the Corporate
Services practice. He is a member of relevant professional bodies, including the Institute of
Chartered Accountants in Australia, the Institute of Company Directors, holds two further public
company directorships and is a Registered Company Auditor.
Ian’s industry experience includes energy and natural resources, engineering and construction,
property and aged care, manufacturing and retail.
Diploma Group Limited Prospectus 29
Global Reports LLC7 board and management
Simon Oaten - Chief Financial Officer and
Company Secretary
Chartered Accountant
Bachelor of Commerce
An Accounting and Finance graduate, Simon joined the Company in
September 2007.
Previously General Manager of Finance and the Company Secretary of GRD
Minproc Limited, Simon has experience in advising on financial matters for
both listed and unlisted companies in Australia.
With GRD, Simon was responsible for the effective and efficient management
of finance departments across four continents. Simon has also been Financial
Controller and Company Secretary of the Multiplex Group of companies. As
part of this role, Simon prepared financial reports to ASX and ASIC, liaised with
the Board of Directors regarding financial reporting and prepared forecasts
and budgets.
Earlier in his financial career, Simon worked for KPMG and completed a two
year secondment to the United Kingdom.
Drew Gillespie - Director - Diploma Construction
Diploma in Building
Registered Builder WA No. 10209
Member of the Building Institute of WA
Drew has 25 years of construction and management experience in the Western
Australian and Asian marketplaces. He has been directly involved in the
management and successful completion of over $1 billion of construction work in
these markets.
As Operations Manager with Concrete Constructions (Thailand) Co. Ltd, Drew
has worked in Thailand looking after the procurement of many large office, retail &
residential projects, including the Baskin Robins ice cream factory, high-rise towers
(34+ storeys), Central Hotel & Shopping Centre Hatyai, Bangkok, Krabi Hospital
and Central Resort, Koh Samui.
In Western Australia, Drew established Q-Con Pty Ltd, carrying out the design
and construction of projects for Erceg Management Pty Ltd and Condor Projects
(Australia) Pty. Ltd. In this time, Drew was involved in the design and construct of
the award winning Manhattan Towers on Adelaide Terrace, Perth. Drew’s building
experience allows him to value engineer projects by using new construction
methods and materials both from Australia and overseas, specifically suited to
individual project needs.
In the earlier stages of his career, Drew worked for John Holland Pty Ltd, and was
involved in the design and construct of many large projects, including the Australian
Taxation Office building in Northbridge, Capital Centre Building stages 1 & 2 and the
Forrest Chase Retail Mall and Myer store project, Perth Central. Drew’s experience
helps expedite the procurement and completion of large projects.
30
Global Reports LLCGeoff Simpson - General Manager - Diploma Construction
Graduate Diploma of Business in Management Studies
Associate Diploma in Quantity Surveying
Diploma in Building
Diploma in Construction Estimating
Registered Builder WA No. 4679
Associate of the Australian Institute of Quantity Surveyors
Member of the Australian Institute of Building
Geoff brings 32 years of experience in the WA construction industry to the Company’s
management team. He has a wealth of business management, quantity surveying as well as
estimating and building qualifications, which he has brought to bear on major projects including
chapels and libraries for a number of schools, including Hale, Christ Church Grammar School,
Penrhos College, Aranmore College and the Catholic Education Commission.
Geoff has also been very active in the residential and commercial sectors and has enormous
depth of experience in all scale and manner of projects across the board, giving him
immeasurable skills to draw upon with obvious benefit to the Company.
As General Manager Geoff oversees the projects from inception providing input into design,
estimating and construction. His experience and attention to detail provides valuable leadership
to his project teams. He takes a personal involvement with the Company’s clients and is
highly regarded by them, remaining involved on complex projects during the entire duration of
construction.
7.2 Corporate Governance
The Company’s main corporate governance policies and practices are outlined below:
7.2.1 The Board of Directors
The Company’s Board of Directors is responsible for corporate governance of the Company. The
Board develops strategies for the Company, reviews strategic objectives and monitors performance
against those objectives. The goals of the corporate governance processes are to:
(a) maintain and increase Shareholder value;
(b) ensure a prudential and ethical basis for the Company’s conduct and activities; and
(c) ensure compliance with the Company’s legal and regulatory objectives.
Consistent with these goals, the Board assumes the following responsibilities:
(a) developing initiatives for profit and asset growth;
(b) reviewing the corporate, commercial and financial performance of the Company on a regular
basis;
(c) acting on behalf of, and being accountable to, the Shareholders; and
(d) identifying business risks and implementing actions to manage those risks and corporate systems
to assure quality.
The Company is committed to the circulation of relevant materials to Directors in a timely manner to
facilitate Directors’ participation in the Board discussions on a fully-informed basis.
7.2.2 Composition of the Board
Election of Board members is substantially the province of the Shareholders in general meeting.
However, subject thereto, the Company is committed to the following principles:
Diploma Group Limited Prospectus 31
Global Reports LLC7 board and management
(a) the Board is to comprise Directors with a blend of skills, experience and
attributes appropriate for the Company and its business; and
(b) the principal criterion for the appointment of new Directors is their ability to
add value to the Company and its business.
No formal nomination committee or procedures have been adopted for the
identification, appointment and review of the Board membership, but an informal
assessment process, facilitated by the Chairman in consultation with the
Company’s professional advisors, has been committed to, by the Board.
7.2.3 Independent professional advice
Subject to the Chairman’s approval (not to be unreasonably withheld), the
Directors, at the Company’s expense, may obtain independent professional
advice on issues arising in the course of their duties.
7.2.4 Remuneration arrangements
The remuneration of an Executive Director will be decided by the Board, without
the affected Executive Director participating in that decision-making process.
The total maximum remuneration of Non-Executive Directors is the subject of
a Shareholder resolution in accordance with the Company’s Constitution, the
Corporations Act and the ASX Listing Rules, as applicable. The determination of
Non-Executive Directors’ remuneration within that maximum will be made by the
Board having regard to the inputs and value to the Company of the respective
contributions by each Non-Executive Director. The current limit, which may
only be varied by Shareholders in general meeting, is an aggregate amount of
$150,000 per annum.
The Board may award additional remuneration to Non-Executive Directors
called upon to perform extra services or make special exertions on behalf of
the Company. The Company intends to implement a remuneration committee
following the Company’s listing on the Official List of ASX.
7.2.5 External audit
The Company in general meetings is responsible for the appointment of the
external auditors of the Company, and the Board from time to time will review the
scope, performance and fees of those external auditors.
7.2.6 Audit committee
The Company will not initially have a separate constituted audit committee,
however it intends to implement an audit committee following the Company’s
listing on the Official List of ASX. The functions of the audit committee are set out
in a charter within the Corporate Governance Policy.
7.2.7 Identification and management of risk
The Board’s collective experience will enable accurate identification of the
principal risks that may affect the Company’s business. Key operational risks and
their management will be recurring items for deliberation at Board meetings.
7.2.8 Ethical standards
The Board is committed to the establishment and maintenance of appropriate
ethical standards.
32
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