Design Studio

CEO's Business Review

Bernard Lim Leng Foo

Dear Shareholders,

2015 had proven to be a challenging year for both the global economy and Design Studio Group. As such, in my first annual report as CEO, I would like to extend my sincere appreciations to all our valued customers for their support in 2015; and to our management and employees for their loyalty, dedication and hard work.

Financial Review

Design Studio Group delivered firm results in FY2015, with revenue of S$166.9 million, net profit after tax of S$16.8 million and earnings per share of 6.48 Singapore cents. While the overall earnings were lower than the previous financial year, our core business divisions continue to demonstrate strength in light of the slower business environment.

The Hospitality and Commercial division remained our largest revenue contributor at 55.7% of total FY2015 revenue, and achieved a 4.6% increase in contributions to S$92.9 million, from S$88.8 million a year ago. The Distribution division accounted for the remaining S$0.4 million of Group revenue in FY2015.

The Residential Property division accounted for approximately S$73.6 million or 44.1% of total FY2015 revenue, a decrease of 16.7% from S$88.4 million in FY2014. The lower year-on-year contribution was mainly a result of fewer project completions and a soft property market in the Group's core geographical markets of Singapore, Malaysia and China.

Geographically, Singapore continues to be our largest market with contributions of S$141.8 million or 84.9% of total revenue. Revenue from Singapore declined from S$149.1 million in FY2014, due mainly to fewer residential property projects completed during the review year. Malaysia, our second largest geographical market at 10.6% of FY2015 revenue, contributed S$17.7 million in the review year, compared to S$19.8 million in FY2014. This was largely due to a slower completion pace for the Group's hospitality and commercial projects in Malaysia.

Revenue from China in FY2015 was S$0.3 million compared to S$5.1 million a year ago, due mainly to the completion of key projects in the prior year. Revenue from other countries, which includes Japan, UAE, Thailand, and USA rose to S$7.1 million in FY2015, from S$3.8 million a year ago, backed by the completion of a Japan project.

The Group's gross margin, while lower due to an overall decrease in project margins, remained healthy at 20.7% in FY2015, compared to 22.3% in FY2014.

Marketing and distribution expenses in FY2015 were lower by 19.8% to S$4.8 million, from S$5.9 million in FY2014 due mainly to a reduction in staff costs and related travelling expenses, as well as lower showrooms expenses incurred in China.

General and administrative expenses rose marginally by 3.8% to S$10.3 million in FY2015, from S$10.0 million in FY2014, due mainly to higher foreign exchange charges and professional fee, offset by a decrease in staff cost.

As a whole, we ended the review year with a net profit after tax of S$16.8 million, compared to S$20.6 million a year ago. Our balance sheet also remains healthy with a net cash position of S$54.1 million with no borrowings.

Operational Review

I am proud of the way we finished the year with a solid and steady financial performance even against the backdrop of tepidity in the economies and property markets of where we operate. Our resilience is underpinned by Design Studio Group's established brand name and unparalleled track record, which continues to win us the confidence of a wellestablished, reputable, tier-1 customer base in Singapore and across the region.

Operationally, our contract win momentum in 2015 was encouraging with 19 new projects across multiple geographical markets. Our strong showing on the business development front once again demonstrates the breadth and depth of Design Studio Group capabilities as a premier furniture manufacturer and interior fitting-out specialist.

Residential Property

Even from our early beginnings, the Residential Property segment has been a cornerstone of Design Studio Group's growth and success. Over the years, we have, through our commitment to quality and innovation, built up an enviable project portfolio. We have established a leadership status as the premier furniture specialist in Singapore's residential property market. Leveraging our well-earned successes in the domestic market, we have since set our sights on the international stage, and is today an active participant in opportunities across the globe.

The review year continues to be a busy one for Design Studio Group, as we sought out and secured participation in a series of exciting residential developments in the region, including:

Outside of Singapore, we improved the Group's market presence in Malaysia with new projects for joinery and related fitting-out works. These include:

Across the wider region, significant contract wins during the year included a new project in New York City, USA for the provision of kitchen cabinets to the 626 First Avenue residential development and joinery works for the Politan Rive condominium in Bangkok, Thailand.

Hospitality and Commercial

The Group's Hospitality and Commercial division, operated under our wholly-owned DDS Group, is another core aspect of Design Studio Group's growth strategy. In 2015, DDS Group continues to tap on its holistic suite of interior fitting-out solutions to pursue opportunities across the regional hospitality and commercial sectors, closing the year with eight new contract wins with a combined value of S$86.8 million.

DDS Group's project wins in Singapore and Malaysia include:

The Group's foray into the wider region also gained traction with:

The Path Ahead

We move into 2016 with renewed concerns over a global economic slowdown: China, the world's second largest economy, is projecting slower growth in 2016. Meanwhile, our home market of Singapore has forecasted low GDP growth in the 2-3% range. The soft outlook may inevitably limit growth prospects and we will stay vigilant of risk factors that could impact our businesses.

Even against this backdrop, we hold a firm commitment towards value-generation for our stakeholders. Design Studio Group is an established industry name, and we will seek to leverage the Group's premier branding to target available opportunities in our core markets of Singapore, Malaysia and China. To expand revenue streams, we are tapping further opportunities to expand our geographical footprint in the emerging and international markets. On the operational level, we will strive to maintain the highest of qualities for our products and services, while keeping a close watch on cost and improving operational efficiency to stay competitive.

With the above strategies, I believe the Group is wellpositioned to endure challenges that may come our way.

Appreciation

In closing, I would like to reiterate my appreciation to our Board, management and staff for the support and guidance rendered in the past months as I transited into this new role as CEO of Design Studio Group. To our valued clients, business partners, and suppliers, thank you for your unwavering support and I look forward to more opportunities in working with you. Finally yet importantly, my heartfelt gratitude goes to our loyal shareholders for the continuing faith in us.

Much of our success is due to the invaluable support of all our stakeholders, and I sincerely look forward to your continued support and confidence in the years ahead. Thank you!

Ku Wei Siong
Chief Executive Officer