Dear Shareholders,

On behalf of the Board, I am immensely pleased to report that Dream International Limited (the “Company”) and its subsidiaries (collectively the “Group”) have achieved encouraging results for the year ended 31 December 2010.

Over the past few years, toy manufacturers, especially those with production based in China, have faced a variety of challenges. Heavy pricing pressure due to keen competition, rising materials costs, labor shortages in China and appreciation of the Renminbi were just some of the factors that conspired to significantly erode profitability. While cost pressure alleviated, the financial crisis that swept the world had a major impact on the US and Europe Ñ two of the largest toy markets. Having witnessed a substantial number of industry players ousted from the market, we Ñ the largest plush stuffed toy manufacture in the world, became more determined to enhance our competitiveness and overcome the tough period head on.

Our strategies to reorganize and restructure operations commenced more than five years ago, laying a solid foundation for the Group that has allowed us to weather the most difficult times. In the second half of 2009, the global economy, while yet to return to robust growth, has begun developing at a more stable pace. In addition, the numerous players that exited the market have created tremendous business opportunities for sizable, reputable and reliable toy manufacturers such as us. With lower cost production bases in China and Vietnam, a higher-margin product mix and greater bargaining power on pricing, we have managed to achieve sterling results amid improving market conditions. After experiencing a turnaround in 2009, we capitalized on the growth momentum to achieve the highest revenue and net profit increases since our listing in 2002 Ñ new milestones in our Group’s development.

We are extremely glad to share our successful results with shareholders and pleased to propose a final dividend of HK4 cents. Together with an interim dividend of HK2 cents, total dividend for the year will amount to HK6 cents, representing a payout ratio of 20.1%.

The global economy is on the road to recovery, and the toy industry also shows signs of growth. In the US, which was among the hardest hit by the financial crisis, 2% year-on year growth in retail toy sales was recorded in 2010, according to The NPD Group Ñ a leading market research company. However, we still see some challenges emanating from the operation front, including rising wages, continuing appreciation of the Renminbi and possible surge in raw material costs due to political unrest in several petroleum exporting countries. The management therefore remains cautiously optimistic about business prospects, and will aim to maintain stable growth.

To further advance our business, we will leverage the Group’s competitive strengths to explore new opportunities. Following on our initiative to manufacture premium gifts for a Brazilian consumer brand - a large order that drove our business growth during the past year - we are now planning to add a new business; specifically, production of plastic figures which will expand our revenue streams and is expected to be a major growth driver in the future. In addition, we are also studying the feasibility of tapping the high-end plush toys market to diversify our product mix. Our quality client base, consisting of the world’s most prestigious toy brands and retailers, represents a solid platform for supporting these fresh initiatives.

To better manage costs, we will fully capitalize on the cost advantage of our production base in Vietnam, which already boasts relatively low labor rates and is free from the problem of currency appreciation. Accordingly, we expect the Vietnam plants to take up 30% of total production capacity by 2011. While enjoying sizable production capacity afforded by our facilities in Vietnam and China, as well as a solid reputation and healthy financial position, we will remain vigilant, closely monitoring the market to capture new opportunities and prepare for upcoming challenges as they emerge, thus continue delivering fair returns to shareholders.

Appreciation

On behalf of the board, I would like to take this opportunity to thank the management team and staff for their dedication and contributions, which have helped the Group to overcome difficult times and subsequently realize outstanding results. I would also like to extend my gratitude to our shareholders, business partners and customers for their trust and support irrespective of market conditions or temporary fluctuations in our business performance.

Kyoo Yoon Choi
Chairman
25 March 2011