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Design Studio Group Ltd’s 2017 Annual Report: What I Learnt from the CEO’s Statement

Design Studio Group Ltd (SGX: D11) is a Singapore based high-end interior fit-out and joinery manufacturing company with automated manufacturing facilities in China and Malaysia. It has completed several residential, hospitality, and retail projects in geographies such as Singapore, Malaysia, United Arab Emirates, and China.

The company released its annual report for the financial year ended 31 December 2017 (FY2017) earlier this month. I learnt a few things as I was reading through the Chief Executive Officer’s statement, one of the many sections of the report. Here are three things that stood out for me.

2017 was a challenging year

Design Studio’s chief executive, Edgar Ramani, said that his company’s financial performance in 2017 was “adversely impacted by a slowdown in some of the markets we operate in, coupled with a changeover in management and close-out of problem projects.”

For the year, Design Studio’s revenue tumbled 20.6% year-on-year to S$142.0 million, while its net profit attributable to shareholders plunged some 94% to S$1.2 million.

Ramani further explained the reasons behind the poor performance in 2017:

“The Singapore commercial and hospitality segment reported mixed performance in 2017 with some good performing projects, but failed to win sufficient new work throughout the year to replenish the order book. The Singapore residential segment and Malaysia business both performed poorly due to project cost overruns, prolongation on project construction durations and lower revenue.”

One bright spot was that the balance sheet remained healthy with cash and short-term deposits of S$28.9 million and negligible debt, as of 31 December 2017. The cash hoard should provide the company with some cushion as it transforms its business.

Three phases of transformation

Design Studio has been embarking on a three-phase transformation strategy that started in 2017, with a planned ending in 2019.

The first phase involved resetting, restructuring, and turning around the business, and it was completed last year. The phase included revamping the company and employing key personnel, addressing reputational issues, and resizing overheads. Design Studio also introduced an enterprise resource planning system to strengthen its risk management framework.

The next phase is to reinvigorate its business and it started in 2018. Ramani provided the following information:

“[W]e expect to deliver predictable returns and strive to re-establish Design Studio Group as a market leader in Singapore and regionally. We will continue to expand internationally, drive innovation, convert identified pipeline opportunities and increase backlog.

We will also focus on training, developing and attracting talent in our business and realising cost reductions from efficiencies and initiatives implemented in FY2017. We have embarked to rebrand our business from Design Studio Group to DSG with a new logo to reflect our new company vision.”

Come 2019, the third phase of “sustainable growth” will kick off. The company plans to “establish a sizeable market share in new geographies and market segments.” It also intends to be a “relevant-sized business” and to “continuously seek new opportunities for growth and value enhancement to realise our vision.”

Future growth areas

On top of growing in its current segments of commercial, hospitality, and residential, Design Studio is also planning to expand its reach into other areas. Ramani said:

“We will keep up the momentum by continuing to grow in the commercial, hospitality and residential segments in Singapore and the countries we operate in, as well as expanding our offering into the cruise segment where we see great potential.

Other growth areas, which are still in their infancy, comprise initiatives in virtual reality, smart furniture and rooms, as well as 3D printing. The Company has already commenced research and development projects in these areas, which we believe will reap benefits in coming years.”

The Foolish takeaway

In terms of financial performance, Design Studio had a year to forget in 2017. However, from reading the annual report, it looks like the one-off items such as the write-down on slow-moving inventory and the impairment of doubtful receivables recorded during the year were necessary for the company to start the next phase of its growth afresh. It would be interesting to watch how the company performs in the coming years after it completes all three phases.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.