Design Studio

CEO Statement

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Extracted from Annual Report 2011

Chairman

Dear Shareholders,

On behalf of Design Studio's Board of Directors, I am delighted to share that financial year 2011 was a productive year for the Group with the achievement of significant milestones marking our expansion path. On the back of successful completion of major projects, we remained focused on our growth strategies and secured considerable new and pivotal projects both in Singapore and abroad; a result of planned and greater synergy derived from our new subsidiary, DDS Group, and a firm testament to the Group's efforts in forging further inroads into the burgeoning market of China.

All of these underscore our long-term vision, strategic approaches, execution ability and determination to be a significant player in the customised furniture and interior fit-out fields.

Achievements

Coming on the back of 21 consecutive quarters of profitable growth, we registered revenue of S$93.2 million and S$15.3 million net profit in FY2011. We also managed to maintain a healthy 29.2% gross margin for the year in review, compared with 29.6% a year before. On a per share basis, earnings were 5.98 cents while net asset value as of 31 December 2011 was 37.13 cents. Compared against the previous year's results, we did observe a relative decline in revenue and profit performance, but we believe that our undeterred growth plans, beyond Singapore, particularly into China and with our new subsidiary DDS Group will undergird our expansion targets as we move steadily forward.

With increased efforts in targeted marketing activities in Singapore and China, our marketing and distribution expenses increased 32.1% to S$4.3 million in FY2011. We increased our participation in trade exhibitions in the two localities to strategically reach out to industry players, business partners, prospects and clients. We remain steadfast in marketing and branding initiatives, as part of long-term investments we see as necessary to continually enhance and boost our corporate profile and brand awareness amidst an increasingly competitive global market.

During the year in review, we recognised S$2.5 million of profit from our then associate company, DDS Group, a leading interior fit-out specialist with significant presence in the hospitality and commercial sectors in Singapore, Malaysia and Thailand. DDS Group has since become a fully-owned subsidiary as at February 2012, following a strategic acquisition exercise we undertook in late 2011(this compares with the S$1.8 million earned in FY2010).

Following our steady financial performance and progress as a corporation, we are pleased to issue a final dividend of 1.25 cents per ordinary share to be approved at the upcoming Annual General Meeting.

One of our operational themes for the year was the synergy with and acquisition of DDS Group. With its established presence in South East Asia and the commercial and hospitality sectors, DDS Group will complement Design Studio's core businesses on interior fit-out services, while sub-contracting joinery work to Design Studio.

We believe there is much potential in our alliance and in November 2011, Design Studio proposed acquiring the remaining 55% equity of DDS Group from Depa Interiors LLC for S$15.1 million. We successfully completed this acquisition in February 2012, making it our wholly-owned subsidiary, and giving us full management control and equity rights. The DDS Group has delivered a strong list of projects since its inception in 2008 which included the 2 prominent Integrated Resorts in Singapore - Resorts World at Sentosa and Marina Bay Sands.

China Focus

China is a strategic growth market for the Group where we have further established our footprint as we embarked with our two fully operational stateof- the-art manufacturing facilities situated on 360,000 sq ft of land in Huizhou, Guangdong, bolstered with highly computerised machinery and equipment. The facilities will be optimally leveraged to service our Group's business in China as well as from other regions.

In addition, complementing this development is our first, large-scale 40,000 sq ft three-storey showroom cum sales office in Dongguan, Guangdong province. When completed in 2012, this will be the first in a series of showrooms cum sales offices across key cities in China's most affl uent zones, especially in Eastern, Northern and Southwestern China. Establishing these megashowrooms and branding initiatives will give us diverse opportunities in dynamic China. Discerning home owners in China are now able to experience for themselves the style and quality of our products that have received acceptance of acclamation from around the world through professional consultation.

As part of our marketing strategy, we are also making direct entries into the residential, commercial and hospitality projects whereby we will work with developers and their consultants as well as construction companies to meet their requirements. Concurrently, we will step up a series of branding activities such as participating in local exhibitions so as to enlist distribution partners leveraging on their local network and knowledge and further establish our brand presence in dynamic China market.

Strategy and Outlook

The overall business climate remains fairly subdued as the Group inevitably feel the effects of uncertainties in the wider global operating environment with the prolonged sovereign debt crisis in Europe and weak growth in Japan and the US, the major economies of the world that generate the bulk of global demand. Nonetheless, we are confident that the growth plans we have taken in the burgeoning markets of China and South East Asia, remain unaffected and together with the tremendous potential of DDS Group, will stand us in good stead as we move forward.

Already, with concerted marketing efforts, our combined order book has expanded to S$234.2 million as of 17 February 2012 with progressive project completion till 2014. As always, we stay relentlessly focused on positioning ourselves as forerunners in the manufacturing, product designs and interior fit-out arenas in particular the areas of product innovation, technology and people excellence.

These values and qualities have shored up our branding and positioning in the marketplace over the years and form the backbone of new and major accounts that we progressively garner. One of our new wins included the Frasers Hospitality Pte Ltd, a world leader with 65 serviced residences in 29 cities. We are undertaking Alteration and Addition ("A&A") works to the 173 apartments & penthouses in Fraser Suites River Valley in Singapore. On the residential front in Singapore, we have secured a number of condominium projects from leading developers such as Twin Peaks by Overseas Union Enterprise Limited, Terrase by MCL Land Ltd, The Laurels by Sing Holdings Ltd and the Glyndebourne by City Developments Ltd. As for overseas projects, we secured the renowned Cleveland Clinic Abu Dhabi, whose U.S. counterpart is well-known for its heart programme, Tropicana Grande condominium in Kuala Lumpur and Wora residential apartments in Bangkok, Thailand.

Building on its achievements, DDS Group has also continued to secure more contracts, one of which is the ID fitting-out works to the guestrooms and suites of the Westin Singapore Marina Bay, which forms an integral part of Asia Square Tower 2, located at the Marina Bay Financial Centre. The mixed-use development together with the hotel is scheduled to open at end-2013.

Beyond Singapore, China and its rapidly increasing affl uence offers prime opportunities that will continually open with the rise of industrialisation and urbanisation as many more people move to its cities in the next 15 to 20 years. With our progressive establishment of retail and manufacturing presence in China, we are poised to nimbly tap the nascent demand for quality, innovative furniture and fittings as the country develops while mitigating the attendant risks including increasing infl ation and labour costs that may exist during the course of our expansion.

As a Group, we are financially prudent and well-positioned with a strong balance sheet comprising net assets of S$94.8 million at financial year-end 31 December 2011, and a healthy cash position with cash and cash equivalents of S$27.1 million. This will facilitate our intended future expansion.

Conclusion

To conclude, on behalf of the Board, I would like to sincerely thank our directors, management and staff for their manifold efforts and dedication in consistently reaching our Group targets and delivering on our 2011 objectives. Gratitude must also be extended to our business partners, clients and our loyal shareholders for their unwavering support. We anticipate a vigorous 2012 with expansion plans along many fronts, a solid order book and a forward-looking mindset always on the look-out for long-term growth opportunities. We are confident that with the continued support of all, we will achieve that much more.


Bernard Lim Leng Foo
Executive Chairman & CEO