Despite a pipeline of multi-million dollar projects the Diploma Group faces the challenge of converting those dollars into profits.
WITH more than $1 billion of work in hand, Diploma Group CEO Nick Di Latte sees plenty of opportunities but also faces a challenge winning investor support.
The Perth-based property development and construction company’s shares have been on the decline during the past 12 months, valued at 46 cents almost a year ago and closing at 17.5 cents in the past week.
Diploma’s shares plummeted to 16 cents on February 25, its lowest value in 12 months following the release of the company’s half-year results.
The company recorded a half-year loss before tax of $599,000 on revenue of $61.6 million for the period ended December 31 2010, compared to a net profit after tax of $5.29 million for the period ended December 31 2009.
The result was attributed to the slower take-up of completed stock on the $62 million Rise development at Adelaide Terrace and delayed starts on a number of construction projects.
However, Mr Di Latte remains optimistic about the company’s order book.
He said the company expected to report a stronger second half, and that its diversified operations and strong forward order book would put Diploma in a better position for the 2012 financial year and beyond.
Diploma’s project pipeline paints a positive picture with a development portfolio exceeding $520 million and a construction portfolio of more than $630 million over the next three financial years.
Mr Di Latte said managing capital was a key issue for developers in WA.
“The most challenging aspect is managing your capital and trying to find that right balance between what’s needed for the next deal and what’s needed internally to continue to operate, so I see that as the biggest challenge for a business that is growing like ours,” he said.
Mr Di Latte said the company had not experienced any problems in securing finance for its projects.
“We have strong support from the major banks and we have been able to go out there aggressively and acquire more development sites on the basis that we will be able to fund these projects through construction,” he said.
Diploma’s real estate arm, Allegro Realty, has continued to grow as it prepares for the launch of five new developments in 2011, consisting of 750 apartments.
Allegro managing director Peter Gianoli was approached by Diploma two years ago to form a subsidiary business to focus purely on selling Diploma’s product to the market.
Mr Gianoli said Diploma’s business model allowed it to target different sections of the property market.
“Diploma offers transit oriented developments like Joondalup and Midland, then what we call the ‘cappuccino ring’ developments three to five kilometres outside of the city, and of course developments in the CBD,” he said.
Despite rapid development in the state’s north-west, Mr Di Latte said that Diploma has no interest in expanding its operations outside of the Perth area.
“We like to have a spread of geographic locations and exposure to different suburbs in the WA markets to diversify and spread our risk, but we are quite happy developing in the metro area and we don’t see the need to venture from that,” he said.
Diploma’s varied business means that it faces competition from both developers and construction companies.
“I would say Finbar is our major competitor in the CBD market, but because we also build for third parties we are competing with likes of Broad, Doric and BCG for external clients,” Mr Di Latte said.
Diploma has teamed up with international developer Frasers Property Group to construct the $110 million stage-one phase of Queens Riverside on Adelaide Terrace, the company’s second largest project to date.
“It was a significant award for the company and we’re pretty confident that we will pick up the further stages on that site given the strong relationship with the client,” Mr Di Latte said.
Diploma expects an improved second half with three development projects including the $75 million CBD Zenith apartments, the $18 million Foundry apartments at Midland and the $30 million apartments at Cove in Joondalup expected to settle prior to June 30.