3. Operation of Each Business Unit

Chemicals Business

1.  Product or Service Features

1.1 Olefins

  Olefins are the primary petrochemical product comprising of Ethylene
  and Propylene which are the main raw material for downstream
  Polyolefin plastics and related products such as Polyvinyl Chloride
  and Styrene Monomer. By-products from the olefins plant such as
  Mix-C4, Benzene and Toluene are mainly consumed within the Company’s
  and/or subsidiaries’ downstream plants. The Company’s current Olefins
  capacity is 1,200,000 tons per year and is the largest single site
  production in Thailand.

1.2 Polyolefins

  Polyolefins are the Company’s main product and are currently being
  produced at Thailand’s largest single-site capacity of 1,080,000 tons
  per year, covering a wide range of applications as follows:

1)  High Density Polyethylene – HDPE Outstanding features are good
    flowability, easy formation, and good chemical resistance. It is
    appropriate for plastic shopping bags, milk bottles, shampoo and
    cosmetics bottles, lubricant containers, bottle crates, fruit
    crates, trash bins, ropes, fishnets, ring-nets, water pipes, and
    electric power cord insulators, etc.

2)  Medium Density Polyethylene – MDPE Outstanding features are high
    dart impact strength, stable formation, and low temperature
    resistance. Applications are for coolers, water tanks, water
    treatment tanks, and traffic cones, etc.

3)  Linear Low Density Polyethylene – LLDPE Outstanding features are
    high stiffness and high tensal strength. It is proper for industrial
    and agricultural films such as plastic rice bags, etc.

4)  Low Density Polyethylene – LDPE Outstanding features are clearness
    and high stiffness. It is applicable for cold food bags, food
    preservation films, lids, plastic boxes, and surface coatings, etc.

5)  Polypropylene – PP Outstanding features are high dart impact
    strength and high heat resistance. It is appropriate for hot food
    bags, general wrapping films, woven bags, household utensils,
    battery shells, electrical appliance parts, and car components, etc.

  1.3 Jetty & Tank Terminal

  The Company provides its affiliates with pipe transportation as well
  as jetty and tank terminal for storage of petrochemical gases and
  liquids such as naphtha, olefins, benzene, butadiene, MMA, etc. At
  present, the Company owns two jetties with a capacity of 100,000 and
  30,000 dead weight tons.

2.  Market and Competition

  2.1 Policy and Market Features of Main Products and Services

  Polyolefins are a commodity with a fairly volatile price cycle.

1) Competitive Strategy

-   Price and Cost

  Both domestic and export prices of polyolefins are closely correlated
  to the world market prices. The Company manages to create a price
  premium by offering high quality products and differentiated
  value-added services to its customers.

  In term of the cost management, the Company gives priorities to
  maintaining competitive cost position by investing in
  proven-technology, world-scale plants and constantly de-bottlenecking
  the plant capacities to achieve economy of scale with lowest
  investment cost. The Company has invested in advanced IT and
  e-Business systems, such as e-Supply Chain, e-Commerce website, CRM
  Portal, to achieve best-in-class efficiency and customer satisfaction.

-   Product Quality Management

  The Company has a policy for producing high quality products and
  adopting Total Productivity Management (TPM) and Total Quality
  Management (TQM) as the core operating system to promote company-wide
  quality. Every plant is certified by the international quality system,
  namely ISO 9001, ISO 14001 and ISO 18001. The Company invests in
  research and development to constantly improve its product quality to
  meet changing customer expectation.

-   Service

  The Company recognizes that “service is the heart of selling”.
  Therefore, it has developed Customer Relationship Management system by
  applying IT technology to gather customer requirement and analysis so
  that it can accurately and timely responds to customers’ needs leading
  to sustainable customer relationship. Moreover, the Company provides
  technical assistance in polyolefins conversion with fast and accurate
  delivery. It also engages in plans to develop and increase service
  efficiency to a better level of service standard and hence, ability to
  satisfy the needs of different target customers.

-   Management

  In the polyolefins business, product demands and prices change
  rapidly, an excellent management with accurate and rapid decisions is
  very important. Therefore, the Company has implemented Supply Chain
  Management system which consists of forecasts of order, sales,
  delivery, production, raw material procurement, and inventory
  management through computerized system linking between departmental
  functions to achieve speed and accuracy in business operation. This
  will enable the Company to better satisfy customers’ needs and better
  respond to industry’s changes.

2) Customer Features and Target Groups

  Target groups are polyolefins converters which are classified
  according to formation types such as film, injection molding,
  monofilament & yarn, blow molding, and others like lamination,
  extrusion, and piping.

  Since the customers of the Company are small and fragmented;
  therefore, there is no risk in selling products of over 30% of total
  sales to a single customer.

3) Channel of Distribution

  In 2005, domestic and export sales of polyolefins are 60% and 40%
  respectively.

-   Domestic Sales

  There are two types of customers. 80% are domestic customers and 20%
  are re-exporters. For the former, 40% is direct sales by the Company
  while the rest (60%) is sold through agents who manage financial risks
  and distribution of products to polyolefins converters. For
  re-exporters customers, goods are sold mostly through direct sales by
  the company.

-   Exports

  The Company mainly exports to the Asia-Pacific region. Products are
  distributed directly to end-users or local distributors so that
  customers’ needs are satisfied efficiently. At present, the Company
  has 6 representative offices in the World which are located in
  Myanmar, Vietnam, Philippines, China (Shanghai and Guangzhou) and
  Japan. The proportion for the export market is 37% in Southeast Asia,
  24% in East Asia, 6% in South Asia and 33% in other regions.

  As the Company internationally exports around 450,000 tons per year
  without concentrating in any one country, it is able to avoid direct
  confrontation with multinational players and diversify political or
  economical risks. In addition, by having global based customers, the
  Company is able to manage export products quantities for profit
  maximization as prices may differ depending on market conditions of
  each country.

  2.2 Competition and Capacity

-   Domestic

  Thailand has polyolefins capacity of 3.1 million tons per year while
  the country’s demand in 2005 was 1.9 million tons. Therefore, 40% of
  products have been exported. Import tariff for the polyolefins has
  been reduced according to AFTA and WTO, causing higher competition.
  However, when comparing with local producers, the Company has the
  highest polyolefins capacity in the country (about 35%). Details are
  shown below.

Unit: thousand tons/year

  ----------------------------- -------- -------- -------- -------- --------
  Company                       HDPE     LLDPE    LDPE     PP       Total

  The Siam Cement Public        560      100      100      320      1,080
  Company. (SCC)                                                    

  Thai Petrochemical Industry   140      -        150      475      765
  Pcl. (TPI)                                                        

  HMC Polymers (HMC)            -        -        -        455      455

  Siam Polyethylene (SPE) *     -        300      -        -        300

  National Petrochemical (NPC)  250      -        -        -        250

  Bangkok Polyethylene (BPE)    225      -        -        -        225

  Total Capacity                1,175    400      250      1,250    3,075
  ----------------------------- -------- -------- -------- -------- --------

  Remark: * A joint venture between The Siam Cement (Public) Company and
  The Dow Chemical Company of the U.S.A. (50% shareholding)

  Source: SCC, Petroleum Institute of Thailand.

-   Foreign

  In 2005, Polyolefins demand in Asia equaled 39 million tons with China
  as the biggest importer. Major exporters are producers in the Middle
  East, Korea, and Singapore.

  Olefins and Polyolefins Market in 2005 and Trend in 2006.

  In 2005, although the price of Polyolefins has increased from 2004,
  the product-to-feed price margin has decreased. This has resulted from
  an increasing cost of the main raw material ‘Naphtha’ due to high
  crude oil prices. Polyolefins demand growth has been at a slower rate
  due to a slower growth of the world economy and additional capacity of
  Polyolefins especially in China and the Middle East.

  In 2006, The Company expects a decrease in Polyolefins price due to
  supply expansions from China and the Middle East, which will intensify
  the market competition. Naphtha price is expected to remain high
  following the crude oil prices in H1/06 while prices are expected to
  decline in the latter half of 2006.

3. Product or Service Procurement

3.1 Product Procurement Feature

1) Production

The Company has 1 olefins plant and 7 polyolefins plants located in Map Ta Phut Industrial Estate, Rayong Province. Nameplate capacity is displayed below:

+-----------------+----------------+----------+---------+------------+
| Company         | P              | Capa     | Year    | %          |
|                 | roduct/Service | city (To | First O | Sh         |
|                 |                | n/Year)  | perated | areholding |
+=================+================+==========+=========+============+
| Rayong Olefins  | Ethylene       | 800,000  | 1999    | 63         |
|                 |                |          |         |            |
|                 | Propylene      | 400,000  |         |            |
+-----------------+----------------+----------+---------+------------+
| Thai            | HDPE 1         | 140,000  | 1989    | 100        |
| Polyethylene    |                |          |         |            |
|                 | HDPE 2         | 180,000  | 1997    |            |
| Thai            |                |          |         |            |
| Polyethylene    | HDPE 3         | 240,000  | 2001    |            |
| (1993)          |                |          |         |            |
|                 | LLDPE          | 100,000  | 1990    |            |
| Thai            |                |          |         |            |
| Polypropylene   | LDPE           | 100,000  | 1995    |            |
|                 |                |          |         |            |
| Thai            | PP 1           | 140,000  | 1993    |            |
| Polypropylene   |                |          |         |            |
| (1994)          | PP 2           | 180,000  | 1997    |            |
+-----------------+----------------+----------+---------+------------+
| PT. TPC Indo    | PVC Resin      | 120,000  | 1996    | 77         |
| Plastic and     |                |          |         |            |
| Chemicals       |                |          |         |            |
+-----------------+----------------+----------+---------+------------+
| Map Ta Phut     | Jetty and Tank | -        | 1998    | 81         |
| Tank Terminal   | Terminal       |          |         |            |
+-----------------+----------------+----------+---------+------------+
| Rayong Pipeline | Pipe           | -        | 1998    | 91         |
|                 | Transportation |          |         |            |
+-----------------+----------------+----------+---------+------------+
| Rayong          | Engineering    | -        | 2001    | 100        |
| Engineering and | and Plant      |          |         |            |
| Plant Service   | Service        |          |         |            |
+-----------------+----------------+----------+---------+------------+

2) Raw Material Procurement

-   Olefins Production

  The key raw material in Olefins production is Naphtha in which 30%
  comes from local oil refineries and the other 70% are imported from
  the Middle East. In addition, the plant has been designed so that it
  is able to use other substitute raw materials such as LPG, raffinate
  and condensate, in the case that prices of Naphtha are higher than
  other raw materials.

-   Polyolefins Production

  The Company has long-term Olefins purchase contracts with PTTCH at a
  total of 325,000 tons per year where price formula is referenced
  against the world market price. In addition, Olefins that has been
  produced by the Company will be supplied to Polyolefins plants within
  the Group which accounts for 56% of its total capacity or 679,000 tons
  per year. The other 44% are sold to external customers who are the
  Company’s olefins plant shareholders. Moreover, the Company is also
  able to buy more Olefins from PTTCH or import in the case of Olefins
  shortages.

3) Environmental Impact

  One of the Company’s main policies is “Concern for Social
  Responsibility” which also covers the environment. Therefore, the
  Company has chosen to use clean and low effluent technology and
  installed waste treatment systems since the plant’s commencement.
  Currently, the Company has implemented an evaluation system on
  environmental impacts both in the plants and the offices. These
  results will enable the company to standardize its environmental
  conservation and impact prevention guidelines. As a result, all of the
  Company’s plants have received ISO 14001 certifications.

4. Undelivered Projects or High-Valued Purchase Agreements

None

Paper Business

1.  Product or Service Features

 The Siam Pulp and Paper Public Company Limited and its subsidiaries are leaders in pulp and paper products in Thailand. Since the Company is the only Thai integrated investor in related pulp, paper, and container industries starting from preparing pulp for affiliates to produce printing and writing paper, packaging paper, and containers, it can efficiently control the cost, reduce profit fluctuations, and add value to its products. There are three major groups of business as follows:

1.  Pulp and Printing & Writing Paper Business

  Main products are eucalyptus pulp, bagasse pulp, and printing &
  writing paper. Pulp is used as raw material for Kraft paper and
  printing & writing paper. Printing paper is used for magazines,
  notebooks, textbooks, photocopy paper, some types of containers and
  labels.

2.  Packaging Paper Business

  Major products comprise Kraft paper for corrugated paper boxes or
  extensible sack kraft bag cored paper, gypsum liner board, and coated
  duplex board.

3.  Containers Business

  Key products consist of corrugated paper boxes for various packaging
  and containers such as for electrical appliances, food, and
  agricultural products.

The Company morally operates its business according to The Siam Cement
Group’s philosophy, business ethics, and code of conduct for employees.

2.  Market and Competition

  2.1) Marketing

  2.1.1 Marketing Strategy

Due to intense competition, the Company places important value on
product, service and technology development for highest customer
satisfaction. In 2005, Packaging Paper Business developed new product as
“Mira Board”, paperboard laminated with metalized PET, giving it a
highly smooth and glossy finish and excellent water repellent
properties. It helps boast a distinctive modern appeal to products. This
kind of paper used for display box on showing shelf.

Containers Business, a big corrugated paper box producer in country,
continually developed basic quality on great strength for protecting
goods in transit. It also developed printing for adding fine-look. In
2005, Containers Business launched new products to match customer needs
as Paper Pallet and Slip Sheet. These are specially designed to provide
great strength, increasingly used as an alternative to wood pallets. In
addition, it developed Triple Wall sheet board, made from 7 piles of
kraft paper bonded together, is used for the manufacture of corrugated
containers for heavy loads.

The Company developed its service via implementing information
technology to improve customer comfort and effectiveness. This is
Product Catalogue Ordering Service System, so that its customers are
able to track the progress of order.

Printing and Writing Paper Business did well for marketing campaign by
introducing Green Read Paper. It is an innovative eyesight friendly
paper launched to pocket-book printing business, whereas improved
colorful printing process for reader attractions. Three outstanding
properties are reduced light reflection to contact readers’ eyes, light
weight and new-looking.

In addition, the Company build its own trademark “Offset PRO” for new
offset paper. This kind of paper was developed by new technology to
boost better resolution in high quality printing.

  2.1.2 Customer Features

Pulp and Printing & Writing Paper Business

  Pulp

  Bagasse Pulp: Mostly supplied to affiliates in the Paper Business

  Eucalyptus Pulp: Supplied to affiliates in the Business, outside local
  paper producers, and foreign clients.

Printing & Writing Paper

  Domestically sold to external customers like agents, direct users such
  as printing houses, and paper processing plants. Exports are for Hong
  Kong, the U.S.A., Singapore, Malaysia, etc.

Packaging Paper Business

  Kraft Paper: Sold to SCG affiliates and other container producers as
  well as exported to Malaysia, Singapore, Vietnam and China, etc.

  Gypsum Board Paper: Sold to two domestic gypsum board producers and
  exported to Indonesia and Malaysia.

  Coated White Paper Box: Sold to domestic customers.

Container Business

Sold to Group affiliates and external customers in various industries,
e.g. food (beverages, milk, frozen seafood, canned vegetable and fruit,
canned seafood, and agricultural products), electrical appliances,
computers, electronics, and consumer goods.

  2.1.3 Strengths and Weaknesses

Pulp and Printing & Writing Paper Business

Pulp

Strengths:

-   Bleached and unbleached pulp with consistent good quality.

-   Most products are sold to subsidiaries in the Paper Business to
    produce paper and converted into finished products such as
    corrugated paper boxes and cement bags, etc.

-   Total Quality Management (TQM) and Total Productivity Management
    (TPM)

Weaknesses:

-   Quantity of bagasse depends on sugar cane produces.

-   Eucalyptus is partly obtained from the Paper Business subsidiaries’
    forests while most relies on agriculturists inside and outside
    forest plantation projects of subsidiaries in the Business.

  Printing & Writing Paper

  Strengths:

-   Integrated business

-   Strong channel of distribution and marketing systems

-   Member of prestigious and well known Siam Cement Group

-   Market leader with the highest market share

-   Long and good relationship with customers

-   Capable and experienced employees

-   Management by TQM, ISO 9002, ISO 14001, and TIS 18001

-   The Deming Application Prize by JUSE

-   Thailand Quality Award

Packaging Paper Business

  Strengths:

-   Integrated business

-   Highest capacity

-   Market leader

-   Eight machines available to respond to market needs

-   Long and good relationship with customers

-   Member of prestigious and well known Siam Cement Group

-   Capable and experienced employees

-   Management by TQM, ISO 9000, ISO 14000, and TIS 18000

  Weaknesses:

-   Still rely on imported raw materials, i.e. waste paper and long
    fibre pulp

-   Machines have been used for several years as well as not be the most
    up-to-date technology

Container Business

  Strengths:

-   Market leader with the highest market share.

-   Eight plants all over the country to serve customers.

-   Technological teams for structural design, graphical design, and
    problem solutions for customers.

-   Joint venture with Rengo, the leading Japanese container producer,
    hence getting acceptance from Japanese clients.

-   Member of prestigious and well known Siam Cement Group

-   Staff with Master Degree in Packaging & Printing Technology

-   Management by TQM, ISO 9000, ISO 14000, and TIS 18000

  Weaknesses:

-   Unable to extend customer base to “NO VAT” ones.

  2.1.4 Channel of Distribution

Pulp and Printing & Writing Paper Business

  Pulp

  Channel : Pulp produced and sold to Kraft paper plants and printing &
  writing paper plants of subsidiaries in the Paper Business. A few are
  sold to external customers.

  Proportion: 100% direct sales

  Printing & Writing Paper

  Channel : It sold to domestic customers via dealers and direct users
  i.e. printing house and factory.

  Proportion: 85% Domestic and 15% Export

Packaging Paper Business

  Channel : Sold to affiliates and external customers by direct sales.
  Products sold are comprise of big rolls for paper processors and
  processed paper such as corrugated board, paper bags, ream paper, and
  small rolls.

  Proportion: 100% direct sales

Container Business

Channel : Sold to affiliates and external customers by direct sales. 

Proportion : 100% direct sales

  2.2) Industry, Competition, and Trend

Thai pulp and paper business has consistently grown according to growing
economy as well as the government policy boosting export effected to
increased demand on containing paper. Likewise, printing media business
such as magazine, pocket book and other printing media, etc. grew
continually cause from efficiency in meeting target group. Internal
printing house productivity also is one of substantial factors guide to
an increasing domestic demand. All mentioned factors led to more pulp
demand.

1)  Industry and Competition of Pulp and Printing & Writing Paper
    Business

  Pulp

In 2005, supply of short fibre pulp grew 5% to 1,143,000 tons per year
as a result of new coming producers.

Pulp world price in 2005 was in up trend over 2004. Average short fibre
pulp price was higher than average long fibre pulp price as a consequent
of bigger supply in the later This caused by a lot of pine tree from
stormed in Europe.

In 2006, pulp business is expected to have 6% growth on domestic short
fibre pulp demand regarding higher demand on containing and packaging
paper, writing paper and tissue paper. With local capacity expansion,
import of short fibre pulp would be reduced

Pulp industrial structure can be described below:

1.  New coming producer is obstructed due to high investment for new
    technology as well as large machinery to build Economy of Scale. It
    should have curtain raw material source; for example, eucalyptus
    takes 5 years before it can be cut down.

2.  With environment concern, reused papers are more utilized instead.
    Nevertheless, there are limitations in reuse paper classification
    and machine investment.

3.  Domestic price refers to pulp world price even though there are a
    few local producers, and produces for its own business.

4.  Most pulp manufacturers have their own paper factories; their pulp
    feed to their company. The rest sold to other paper manufacturers.
    There are about three main competitors in domestic market.

  Printing & Writing Paper

1.  Trend. The demand in 2005 increased 6%, inferior than last year
    degree, as a result of declining in economic and printing
    consumption.

2.  External Factors

-   Price fluctuations of raw material such as wood, pulp and chemical
    ingredient

-   Heighten energy cost from increasing fuel price

-   Amplified international freight

-   Intensified regional capacity

3.  New Rivals. This has a low possibility since current market does not
    support new entrants due to high investment, economy of scale, and
    competitive low cost are required.

4.  Product Substitute. Even though computer technology enters into
    daily life, printing paper consumption adds up by usage for business
    communication and educational matters.

5.  Bargaining power. Buyers have more power due to excess domestic
    supply couple with the entrance from regional players to join
    domestic competition.

6.  Competitive Situation and Competitors’ Market share. In 2005, by
    means of tense rivalry, export was necessary to utilize machines and
    avoid price war in the country regarding excess supply.

7.  About 3 major competitors exist.

2)  Industry and Competition of Packaging Paper Business

In 2005, local demand increased 5% benefiting from the slow growth of
economy, coped with export. The competition was more intense because of
oversupply. Furthermore, impacted factors reflected to higher raw
material price i.e. elevated energy price, volatized raw material price
etc.

Asian manufacturers; especially China, continually expanded capacity is
the reason of competitive tension in export similar to domestic one.

Industry structures of packaging paper business are narrated below:

1.  In 2005, local producers raised their capacity, causing excess
    supply. In 2006, local demand will increase 5 %, depending on the
    country, regional, and world economies. More capacity will be
    available from local and regional players.

2.  External Factors

-   Raw material price fluctuations and up trend fibred material price

-   Increasing energy costs

-   Increasing freight both in and out bound

-   Limited shipping line

-   Trend of paper world price

-   Increasing regional capacity

3.  Entry Barrier. Medium possibility due to more minor machine
    producers in the market thus lowering new investment. Raw material
    scarcity and volatile prices may be an obstacle for management.

4.  Product Substitute. Medium possibility; either be substituted by
    plastic or use for plastic substitute.

5.  Bargaining Power. Buyers still conquer since excess supply exists.
    Particularly, the end containing buyers of value chain have more
    power.

6.  Local Competition and Markets. Year 2005 was a year of high
    competition in price, quality, and service. Raw material prices
    fluctuated whereas producers had rigid selling price adjustments.
    Increasing regional capacity stipulated price war in export markets.

7.  Number of key domestic competitors is 12.

3)  Industry and Competition of Container Business

In 2005, corrugated paper box demand increased 5% from economic growth
and raising export which supported by lower degree of trade barrier.
Core industry still expanded; for example, food/ beverage industry and
consumer products.

Industry Structure of container business is described below:

1.  In 2005, major container producers expanded capacities causing
    excess supply. In 2006, expected demand of corrugated paper box will
    increase approximately 5% due to expanded export market, supported
    government and private policies.

2.  External Factors

    1.  Trend of paper price

    2.  Increasing oil price

    3.  Increasing regional capacity

    4.  Product substitution price as plastic

3.  Entry Barrier. High possibility due to low investment.

4.  Product Substitute. High possibility

5.  Bargaining Power. Buyers still conquer since excess supply exists.

6.  Local Competition and Markets. Year 2005 was a year of medium
    competition since rivals used price as a main strategy in gaining
    market share.

7.  Number of domestic competitors both major and minor are 400.

3.  Product or Service Procurement

3.1 Raw Material and Suppliers

Pulp and Printing & Writing Paper Business

  Pulp

Raw Material Type: Eucalyptus portions, and Bagasse.

  Source: Eucalyptus portions bought from agriculturists supported by
  the Company and from general agriculturists. Bagasse bought from sugar
  factories.

  Printing & Writing Paper

  Raw Material Type: Bleached long fibre pulp, bleached short fibre
  pulp, and chemicals.

  Source:

-   Bleached long fibre pulp from 8 foreign vendors.

-   Bleached short fibre pulp from 4 local suppliers.

-   Chemicals, synthetic latex, kaolin powder, calcium carbonate, and
    others from 50 Thai and foreign suppliers.

  Obstacles:

  Bleached long fibre pulp is entirely imported with 30-45 days
  lead-time. Bleached short fibre pulp is locally supplied.

Packaging Paper Business 

  Raw Material Type: Waste paper, bleached and unbleached short fibre
  pulp, bleached and unbleached long fibre pulp, and chemicals.

  Source:

-   50% Waste paper from 250 local suppliers and 50% from 50 foreign
    vendors.

-   Bleached short fibre pulp from 4 domestic suppliers.

-   Unbleached short fibre pulp from 2 domestic suppliers.

-   Bleached and unbleached long fibre pulp from 12 overseas vendors.

-   Main chemicals such as cassava starch, sizing agent, color, and
    others from 53 local and foreign sellers.

  Obstacles:

 Unbleached long fibre pulp is all imported which takes 30-45 days. Bleached and unbleached short fibre pulps are totally found in the Country. Unbleached long fibre pulp was limited supplied, so that it depended on particular players. Local waste paper is in limited supply with a rather competitive buying. Import is therefore made with a higher price.

Container Business 

  Raw Material Type: Kraft paper.

  Source: From Siam Kraft Industry Co., Ltd., a Group company.

  Obstacles:

No obstacle due to plentiful supply and controllable quality. Selling price is referred to market price to support fair cost and competitive capability.

Seller upon which over 50% raw material purchases for three consecutive years relies: Siam Kraft Industry Co., Ltd.

3.2 Environmental Impact

The Company intends to build awareness in environmental importance for
every level of employees by improving one’s work, the unit’s work, and
cross-unit works. The main objective is to systematically and
consistently seek better environment with a policy to reduce pollution
from water, smoke, dust, noise, odor, and waste caused by production
process, transportation of raw materials and products, and other
processes. Such measures are shown below:

1.  Minimize pollution that destroys quality of water, air, soil,
    plants, and animals in the ecosystem. Pollution necessary to be
    emitted must be controlled to meet or exceed the government
    standards.

2.  Waste or water treatment must be done with safety and
    responsibility. Such waste and water would be recycled as much as
    possible.

3.  In case of accidents or emergency affecting the environment,
    occupational health, and employee and communal safety, emergency
    plans with modern technology and methods are regulated as well as
    regular training for staff’s readiness for the incidents.

4.  Formulate and review objectives and targets in environment
    management to achieve systematic and consistent improvement.

5.  Monitor, audit, and evaluate the environmental management to meet
    government regulations and comply with the system.

6.  Cooperate with governmental agencies and private organizations
    interesting in environment management to publicize the Company.

This environmental management policy was documented and submitted to
every level of employees for their understanding and preservation.

Environmental Management for plants at Ban Pong, Ratchaburi Province and
Wang Sala District, Amphur Ta Muang, Kanchanaburi Province is the total
pollution treatment system, which can be categorized into three aspects
as follows:

1. Treatment of Waste Water from Production Process

In the Waste Minimization System, installed traps capture fibres escaped
from the production process for reuse. Clear water is also re-used in
appropriate areas, and then treated in The Activated Sludge Treatment
with the first high treatment efficiency technology of Jet Aeration in
Thailand. This technology better reduces energy consumption and
maintenance than The Surface Aerator (Jet Aeration is from the U.S.A.
and is widely used in the U.S.A., Canada, and the EU). In addition,
about 10,000 cubic meters a day of treated wastewater is gravitated sand
filtered and germicide by ultraviolet before being recycled for plant
usage instead of water from artesian wells.

2. Treatment of Air from Energy Production

Steam boilers currently used are Circulating Fluidized Beds which are
designed to use scraps, e.g. sugarcane pith, bark, and dregs from
wastewater treatment system, combining with domestic lignite. Moreover,
Electrostatic Precipitators with 99.9% efficiency as well as sulphur
dioxide treatment systems with limestone entrapping and burning
temperature controls are used to limit nitrogen dioxide quantity.

3. Treatment of Production Scraps

There are two types of production scraps as described below:

-   Reusable Scraps For example, sugarcane pith, bark, and dregs from
    wastewater treatment can be used as fuels to partly replace lignite
    in steam boilers.

-   Non-reusable Scraps For example; fly ash which contractors collect
    as ready-mixed concrete ingredient, and bottom ash that is covered
    up in the factory area.

In summary, both Ban Pong plants and Wang Sala Plants of the Company
exceed the standards regulated by The Department of Industrial Works,
The Ministry of Industry, to control wastewater treatment, air emission,
and occupational health concerns.

3.3 Major Award received

 In 2005, Thai Containers Group Co. Ltd. and received FTA’s Excellence in Flexography Awards 2005 such as Gold Award (Graphic Design) / Silver Award (Graphic Design) / Honorable Mention Award / Bronze Award 9Corrugated) 

4.  Undelivered Projects or High-Valued Purchase Agreements

None

Cement Business

1.  Types of Products and Services

1.1 Products and Services

  Products and services in cement business are primarily classified
  according to their manufacturers as follows:

+--------------------------------+-------------------------------------+
| Company                        | Products and Services               |
+--------------------------------+-------------------------------------+
| The Siam Cement (Ta Luang)     | Grey Cement                         |
| Co., Ltd.                      |                                     |
|                                | - Portland Cement Type I (Elephant  |
|                                | Brand)                              |
|                                |                                     |
|                                | - Portland Cement Type II           |
|                                |                                     |
|                                | - Portland Cement Type III          |
|                                | (Elephant Brand)                    |
|                                |                                     |
|                                | - Portland Cement Type V (Elephant  |
|                                | Brand)                              |
|                                |                                     |
|                                | - Portland Cement Pozzolan          |
|                                | (Elephant Brand)                    |
|                                |                                     |
|                                | - Portland Cement Oil Well          |
|                                | (Elephant Brand)                    |
|                                |                                     |
|                                | - Mixed Cement (Tiger Brand and     |
|                                | Tiger Plus Brand)                   |
+--------------------------------+-------------------------------------+
| The Siam Cement (Kaeng Khoi)   |                                     |
| Co., Ltd.                      |                                     |
+--------------------------------+-------------------------------------+
| The Siam Cement (Thung Song)   |                                     |
| Co., Ltd.                      |                                     |
+--------------------------------+-------------------------------------+
| The Siam Cement (Lampang) Co., |                                     |
| Ltd.                           |                                     |
+--------------------------------+-------------------------------------+
| The Concrete Products and      | Concrete Product                    |
| Aggregate Co., Ltd.            |                                     |
|                                | - Ready-mixed Concrete (CPAC Brand) |
|                                |                                     |
|                                | - Precast Concrete Products (CPAC   |
|                                | Brand)                              |
|                                |                                     |
|                                | - Post-Tension Concrete (CPAC       |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| The Siam White Cement Co.,     | - Portland White Cement (White      |
| Ltd.                           | Elephant Brand)                     |
|                                |                                     |
|                                | - Mixed White Cement (White Tiger   |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| Siam Mortar Co., Ltd.          | - Dry Mortar (Twin Tigers Brand)    |
|                                |                                     |
|                                | - Tile Adhesive (Twin Tigers Brand) |
+--------------------------------+-------------------------------------+
| The Siam Refractory Industry   | - Fireclay Bricks (Elephant Brand)  |
| Co., Ltd.                      |                                     |
|                                | - Special Refractory (Elephant      |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| SCI Plant Services Co., Ltd.   | - Engineering Design, Buiding,      |
|                                | Construciton, Installation,         |
|                                | Improvement ,and Maintenance        |
+--------------------------------+-------------------------------------+

  Grey cement, ready-mixed concrete, precast concrete products,
  post-tension concrete and white cement are typically used for building
  houses, factories, office buildings, including large infrastructures
  of the country such as roads, bridges. Customers, thus, range from
  small-sized end users to large contractors. Traditionally, products
  and services are sold through: 1) dealer network nationwide under the
  distribution business of The Siam Cement Group 2) direct sale to large
  construction contractors.

  1.2 Factors affecting opportunities or constraints in business
  operations: Concession and its conditions

  (Cement Business is not in the scope of BOI promoted industries;
  therefore relevant companies do not earn the privileges.)

  Cement manufacturing needs key raw materials such as limestone, shale,
  and gypsum. The Company consequently assures its raw material sources
  by purchasing some sources and request for long-term concessions from
  the government.

Details of Currently Utilized Concessions of The Siam Cement Public
Company Limited and Companies under The Siam Cement Industry Co., Ltd.

+-----------+---------+---------+-------+-------+---+------+------+
| Conce     | L       | Type of | N     | Type  | A | R    | Ex   |
| ssionaire | ocation | Mineral | umber | of    | r | emai | piry |
|           | (Pr     |         | of    | Area  | e | ning | Year |
|           | ovince) |         | Conce |       | a | Y    |      |
|           |         |         | ssion |       | ( | ears |      |
|           |         |         | (Co   |       | R | of   |      |
|           |         |         | pies) |       | a | Co   |      |
|           |         |         |       |       | i | nces |      |
|           |         |         |       |       | ) | sion |      |
+===========+=========+=========+=======+=======+===+======+======+
| The Siam  | S       | 1.      | 16    | Owned | 4 | 13   | 2018 |
| Cement    | araburi | Li      |       | by    | , |      |      |
| Public    |         | mestone | 1     | Royal | 5 | 23   | 2028 |
| Company   |         | for     |       | F     | 8 |      |      |
| Limited   |         | cement  |       | orest | 0 |      |      |
|           |         | i       |       | Depar |   |      |      |
|           |         | ndustry |       | tment | 9 |      |      |
|           |         |         |       | (RFD) | 4 |      |      |
|           |         | 2.      |       |       |   |      |      |
|           |         | Pyrop   |       | RFD   |   |      |      |
|           |         | hyllite |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Pijit   | Gypsum  | 1     | RFD   | 2 | 7    | 2012 |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 8 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Nakorn  | Gypsum  | 3     | RFD   | 8 | 5    | 2010 |
|           | Sawan   |         |       |       | 5 |      |      |
|           |         |         |       |       | 6 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lopburi | Iron    | 1     | RFD   | 1 | 5    | 2010 |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 3 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Nakorn  | 1.  Li  | 19    | RFD   | 5 | 5    | 2010 |
|           | Sri     | mestone |       |       | , |      |      |
|           | Th      |     for | 1     | Owned | 0 | 10   | 2015 |
|           | ammarat |         |       | by    | 0 |      |      |
|           |         |  cement |       | the   | 7 |      |      |
|           |         |     i   |       | Co    |   |      |      |
|           |         | ndustry |       | mpany | 1 |      |      |
|           |         |         |       |       | 5 |      |      |
|           |         | 2.      |       |       | 0 |      |      |
|           |         |   Shale |       |       |   |      |      |
|           |         |     for |       |       |   |      |      |
|           |         |         |       |       |   |      |      |
|           |         |  cement |       |       |   |      |      |
|           |         |     i   |       |       |   |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           |         |         |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lampang | Kaolin, | 4     | RFD   | 7 | 9    | 2014 |
|           |         | L       |       |       | 4 |      |      |
|           |         | ignite, |       |       | 5 |      |      |
|           |         | Ball    |       |       |   |      |      |
|           |         | Clay    |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Sur     | Gypsum  | 1     | Owned | 7 | 7    | 2012 |
|           | atthani |         |       | by    | 8 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| Siam      | Lampoon | Lignite | 1     | Owned | 2 | 10   | 2015 |
| Cement    |         |         |       | by    | 2 |      |      |
| Industry  |         |         |       | the   | 8 |      |      |
| Co., Ltd. |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Sur     | Gypsum  | 1     | Owned | 3 | 4    | 2009 |
|           | atthani |         |       | by    | 9 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | Lampang | 1.      | 17    | RFD   | 4 | 13   | 2018 |
| Cement    |         | Li      |       |       | , |      |      |
| (Lampang) |         | mestone | 5     | RFD   | 9 | 6-13 | 20   |
| Co., Ltd. |         | for     |       |       | 8 |      | 11 - |
|           |         | cement  |       |       | 7 |      | 2018 |
|           |         | i       |       |       |   |      |      |
|           |         | ndustry |       |       | 1 |      |      |
|           |         |         |       |       | , |      |      |
|           |         | 2.      |       |       | 4 |      |      |
|           |         | Shale   |       |       | 4 |      |      |
|           |         | for     |       |       | 1 |      |      |
|           |         | cement  |       |       |   |      |      |
|           |         | i       |       |       |   |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | S       | 1.      | 10    | RFD   | 2 | 22   | 2027 |
| Cement    | araburi | Li      |       |       | , |      |      |
| (Kaeng    |         | mestone | 3     | Owned | 5 | 22   | 2027 |
| Khoi)     |         | for     |       | by    | 7 |      |      |
| Co., Ltd. |         | cement  |       | the   | 5 |      |      |
|           |         | i       |       | Co    |   |      |      |
|           |         | ndustry |       | mpany | 8 |      |      |
|           |         |         |       |       | 7 |      |      |
|           |         | 2.      |       |       | 4 |      |      |
|           |         | Shale   |       |       |   |      |      |
|           |         | for     |       |       |   |      |      |
|           |         | cement  |       |       |   |      |      |
|           |         | i       |       |       |   |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | S       | Li      | 5     | RFD   | 9 | 25   | 2030 |
| Cement    | araburi | mestone |       |       | 5 |      |      |
| (Ta       |         | for     |       |       | 4 |      |      |
| Luang)    |         | cement  |       |       |   |      |      |
| Co., Ltd. |         | i       |       |       |   |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+

The Siam Cement Public Company Limited and companies under The Siam
Cement Industry Co., Ltd. shall operate within the conditions of the
laws regarding the concessions as follows:

1) Conditions under Mineral laws

1.  Pay special benefits for the government in exchange for the
    concession within the first ten years since receiving the
    concession.

2.  Strictly operate the mine according to the mining project layout and
    pay the royalty fee subject to the quantity used.

3.  Operate under safety and occupational health measures without
    causing harm to employees, contractors, third parties, the
    environment and any properties.

4.  Develop the areas already mined into safety areas.

5.  Monthly report the mining to The Department of Primary Industries
    and Mines.

2) Conditions under Forestry Laws

1.  Pay compensation by the legal rates for forest plantation in mined
    areas.

2.  Operate the mine by controlling the effect to the forest and
    minimizing the wood cut down.

3.  When 10 years is reached, prepare the post evaluation report and
    present to The National Environment Committee.

4.  Strictly obey the conditions in the permission to utilize the
    forestry area.

3) Conditions under Environmental Laws

1.  Obey the conditions, and the preventive and corrective measures on
    environmental impact as described in The Environmental Impact
    Assessment Report (EIA).

2.  Revive the environment nearby the mines as well as set up an
    environment revival fund by allocating budget for such activities.
    Annually report the progress to The Office of Natural Resources and
    Environment Policy and Planning.

3.  Measure the quality of the air, water, noise and shakes around the
    mine. Annually report the result to The Office of Natural Resources
    and Environment Policy and Planning to ensure that the quality is
    within the government standards.

4.  Present an evaluation report on potential utilization of the area to
    The National Environment Committee before extending the concession
    maturity.

2.  Market and Competition

2.1 Policy and Market Features of Main Products and Services

  Currently, the Cement Business has five grey cement plants, namely as
  follows: 1) Ta Luang cement plant (Saraburi) 2) Khao Wong cement plant
  (Saraburi) 3)Kaeng Khoi cement plant (Saraburi) 4) Thung Song cement
  plant (Nakorn Sri Thammarat) 5) Lampang cement plant (Lampang). With
  its total capacity of 23.2 million tons/year and market share of
  approximately 42%, the Siam Cement Industry is the largest cement
  producer in the country.

  The Business placed its value on creating products and services that
  timely respond to customers’ needs and meet customer satisfactions
  with state of the art of modern manufacturing technology and quality
  control system. Altogether with its 90 years manufacturing
  experiences, these ensure that its products and services contain
  higher quality than normal standards and competitors’ products.
  Furthermore, Siam Cement Industry is the only Thai Cement Company that
  owns research and development unit. As a result, Siam Cement Industry
  is the first and the only cement producer in Thailand that originated
  the plastic layer in cement bags to keep the product fresh and prevent
  breakages. The Company also provides technical service teams to
  recommend product usage and solve any related problems. In addition,
  customers can promptly notify their problems via the Company’s
  Customer Complaint Call Center.

  The Company has supported assorted marketing and public welfare
  activities. For example, it annually generates educational activities
  including Elephant Concrete Fair, a project with its main purpose of
  enhancing knowledge and developing concrete technological skills. It
  also provides grey cement for educational purpose to universities and
  vocational schools. Moreover, the company supports sport activities,
  i.e. Tiger Cement Thai Boxing, and other public welfare such as
  donating blankets for the poors, supporting college student volunteer
  camps nationwide as well as building permanent structures with
  department of skill development, etc.

  Regarding the proportion of product distribution, the Company commands
  63% domestic sale and 37% export. Key channels of domestic
  distribution are through: the Group’s dealer network, subsidiaries
  that produce related products such as ready-mixed concrete, roof
  tiles, and precast concrete slabs, etc.; and direct sales to concrete
  product manufacturers and large contractors.

  About overseas sale, the Company has assigned SCT Co., Ltd., a trading
  agent company under SCG group, as its representative to export clinker
  for foreign cement producers and bulk cement for general cement users.
  Nowadays, major export markets are in America, South Asia, Southeast
  Asia, and Africa, all of which have a continuously increasing demand
  both in forms of clinker and bulk cement. Apart from its low
  manufacturing cost leadership in the region, the Company gains more
  advantage over other regions in low shipping cost for the South Asia
  and the Southeast Asia.

2.2 Competition and Capacity

  After the economic crisis in 1997, cement consumption demand in
  Thailand had greatly declined, especially in 1999-2001, the grey
  cement demand dropped to 18-19 million tons per year. Even though in
  2005, it increased to 28 million tons with an export of 13.5 million
  tons, the grey cement industry still has had excess capacity since
  total country capacity was 55 million tons. This has inevitably led to
  a drastic domestic price competition. To avoid such competition, , the
  Company has exerted more emphasis on research and development of new
  products and services , as well as on distribution network expansion
  and channel improvement nationwide, with an utmost aim to strengthen
  the company’s competitive edge in the long term, along with enhancing
  customer satisfaction in terms of providing more convenience in buying
  products and services.

  Grey cement manufacturers in Thailand are currently comprised:

  1) The Siam Cement Industry Co., Ltd. 23.2 Million Tons/Year

  2) The Siam City Cement Pcl. 14.5 Million Tons/Year

  3) TPI Polene Pcl. 8.9 Million Tons/Year

  4) Asia Cement Pcl. 4.8 Million Tons/Year

  5) Jalaprathan Cement Pcl. 2.3 Million Tons/Year

  6) Cemex (Thailand) Co., Ltd. 0.7 Million Tons/Year

  7) Thai Satapana Co., Ltd. 0.1 Million Tons/Year

  8) Samakki Cement Co., Ltd. 0.1 Million Tons/Year

  Total Country Capacity 54.5 Million Ton/Year

3. Products and Services Procurement

3.1 Product Procurement Feature

+----------+-----+--------------------+---------+--------------------+
| Type     | Num | Procurement method | Local/  | Remark             |
|          | ber |                    | Foreign |                    |
|          | of  |                    |         |                    |
|          | S   |                    |         |                    |
|          | ell |                    |         |                    |
|          | ers |                    |         |                    |
+==========+=====+====================+=========+====================+
| Ma       |     |                    |         |                    |
| in Raw M |     |                    |         |                    |
| aterials |     |                    |         |                    |
+----------+-----+--------------------+---------+--------------------+
| L        | -   | -                  | 100% /  | Own supply sources |
| imestone |     |                    | 0%      | and self-operate.  |
+----------+-----+--------------------+---------+--------------------+
| Shale    | -   | Long-term          | 100% /  | Own supply         |
|          |     | contracts with     | 0%      | sources. Long-term |
|          |     | external           |         | contracts with     |
|          |     | contractors.       |         | contractors.       |
+----------+-----+--------------------+---------+--------------------+
| Sand     | Ab  | Occasional         | 100% /  | Own supply sources |
|          | out | purchase from      | 0%      | kept as reserve.   |
|          | 5   | long-timed         |         | Currently buy from |
|          |     | sellers.           |         | external sellers.  |
+----------+-----+--------------------+---------+--------------------+
| Clay     | Ab  | Long-term          | 100% /  | Own supply         |
|          | out | contracts with     | 0%      | sources. Currently |
|          | 3   | external           |         | have               |
|          |     | contractors.       |         |                    |
|          |     |                    |         | long-term          |
|          |     |                    |         | contracts with     |
|          |     |                    |         | contractors and    |
|          |     |                    |         | partly buy from    |
|          |     |                    |         | external           |
|          |     |                    |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| Laterite | Ab  | Occasional         | 100% /  | Own supply sources |
|          | out | purchase from      | 0%      | kept as reserve.   |
|          | 8   | long-timed         |         | Currently buy from |
|          |     | sellers.           |         | external sellers.  |
+----------+-----+--------------------+---------+--------------------+
| Gypsum   | Ab  | Long-term          | 100% /  | Currently buy from |
|          | out | contracts with     | 0%      | external sellers   |
|          | 6   | suppliers and      |         | and partly operate |
|          |     | partly operate     |         | from own sources.  |
|          |     | from own sources.  |         |                    |
+----------+-----+--------------------+---------+--------------------+
| Kraft    | 1   | Buy from           | 100% /  |                    |
| Paper    |     | affiliates.        | 0%      |                    |
+----------+-----+--------------------+---------+--------------------+
| Fuels    |     |                    |         |                    |
+----------+-----+--------------------+---------+--------------------+
| Lignite  | Ab  | Long-term          | 70% /   | Buy 30% from       |
|          | out | contracts with     | 30%     | affiliates and 70% |
|          | 4   | suppliers and      |         | from external      |
|          |     | occasional buying. |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| P        | 3   | Long-term          | 0% /    | Buy from 1         |
| etroleum |     | contracts with     | 100%    | affiliate and from |
| Coke     |     | suppliers and      |         | 2 external         |
|          |     | occasional buying. |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| Lignite  | 4   | Long-term          | 0% /    | Buy from 1         |
|          |     | contracts with     | 100%    | affiliate and from |
|          |     | suppliers and      |         | 3 external         |
|          |     | occasional buying. |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| Bunker   | 4   | Occasional buying. | 100% /  |                    |
| Oil      |     |                    | 0%      |                    |
+----------+-----+--------------------+---------+--------------------+
| Biomass  | 21  | Long-term          | 100% /  | Buy from 1         |
| e.g.     |     | contracts with     | 0%      | affiliates and     |
| husk,    |     | suppliers and      |         | from 20 external   |
| palm     |     | occasional buying. |         | suppliers.         |
| shell,   |     |                    |         |                    |
| s        |     |                    |         |                    |
| aw-dust, |     |                    |         |                    |
| etc.     |     |                    |         |                    |
+----------+-----+--------------------+---------+--------------------+

3.2 Environmental Protection

The Siam Cement Industry Co., Ltd. has pursued environmental plans as follows:

1.  1) Environmental Protection

    1.  Green and clean plant: The Company sets an environmental policy
        by requiring all cement plants and their surrounding areas to be
        “Green and Clean Plants. This helps reduce scattering dust as
        well as protect surrounded local communities and environments.
        Additionally, to promote environmental concerns among employees,
        the Company has initiated and implemented environmental caring
        campaigns of which are named “Do It Clean” and “Do it Green”
        since 2004 and 2005 respectively.

    2.  Dust Control: The Company has installed electrostatic
        precipitators, the most efficient machine, and bag filer
        machines to collect dust in every manufacturing process that
        causes dust. It has invested over Baht 4,300 million or 10% of
        total machinery capital expenditure for the environmental
        protection equipment. Besides, its preventive maintenance plans
        enable the plants to work efficiently all the time. It also
        provides raw material silos and closed transportation systems to
        reduce dust spread. Regarding mining, the modernized Semi-Open
        Cut Mining has been introduced. This opens the face of the mine
        deep into the middle of the hills like stairways while the
        surface still maintains the mountain features, preventing noise
        and dust from scatterings. During the mining process, water is
        sprayed nearby the raw material receipt basin and when piles are
        scattered. To reduce dust dispersion while transporting, water
        is also sprayed on raw materials and roads. For previously mined
        area, the Company revived the area back to its original nature
        by planting big tree and suitable ground cover.

    3.  Water Usage: Water used to reduce gas temperature from cement
        burning process and machinery chilling process is reused via The
        Closed Circuit System, encouraging worthy water usage with no
        impact on the environment.

    4.  Environmental Quality Monitoring and Auditing: Apart from
        installing efficient machines to control environment quality in
        manufacturing process to meet or exceed government standards,
        the Company also regularly measures the quality of air from
        factory stacks, in the community around the factories, and in
        the offices by using The Continuous Emission Monitoring Systems
        (CEMS). Other equipments include mobile vans to monitor air
        quality and environmental laboratories to prevent environmental
        impact probably caused by business operations.

    5.  Forest Plantation: The Company has conserved the environment
        around the plants by cooperating with government agencies and
        organizations to make several forest plantations such as Forest
        Conservation Project at Mae Sai Kham Forest in Lampang, and 9
        Minutes 9 Million Trees Project for the King and 72,000 trees
        project for the Queen, etc.

2) Natural Resources Conservation

  2.1) Raw Material and Fuel Substitutes: The Company has reused scraps
  and industrial waste as raw material and fuel substitutes in cement
  production without any impact on product quality and environment. Not
  only does this reduce natural resources consumption, but also helps
  the country eradicate industrial waste. Thus, the company is the first
  to receive Total Waste Quality Adjustment Permit (Number 101) in the
  country that officially allows every cement plant of The Siam Cement
  Industry to operate such activity at a cement plant. In 2005, the
  Company utilized over 180,000 tons of scraps and waste in cement
  burners. In addition, The Concrete Products and Aggregate Co., Ltd.
  has replaced some of its raw material with 766,000 tons of pulverized
  fuel ash. Nowadays, about 700 factories have contacted the Company to
  treat their scraps and industrial waste.

  2.2) Clean Fuel Usage: The Company has used biomass such as husk, saw
  dust, bark and palm shell to replace fossil fuel type. In 2005, the
  Company used biomass 733,000 tons, or 2.5 times increased from last
  year. It invested approximately Baht 35 million for related machine
  installation. For example, machine for feeding husk to Pre-Calciner of
  the burner, wood grinding machine for the burner.

  2.3) Energy Usage: The Company has regularly monitors energy usage of
  each plant in order to improve machine efficiency. This has reduced
  energy consumption either in forms of electricity or fuel in
  production process.

3) Sustainable Development

  3.1) Communal and Social Support: Apart from strictly conserving the
  environment, the Company has regularly generated social activities to
  reinforce relationship with community by exploring needs and
  satisfaction of local community toward the company. It also strongly
  intends to develop local communities with creativity and participation
  in assorted activities to improve the quality of life for the
  surrounding people and societies. Different dimensions prevail such as
  sport activity including boxing, educational activity including
  providing cement for educational purpose for department of vocational
  education and various universities nationwide. In addition, the
  Company supported social activity such as providing cement for
  rebuilding school, giving cement to college student volunteer camps,
  etc.

  3.2) Employee Support: The Company believes that employees are the
  most valuable resource, so it places significance on their welfare and
  quality of life, including occupational health and work safety for
  every employee. The Company provides working environment improvement,
  knowledge and understanding development, as well as safety awareness
  for their workforce, intending to have no accidents among all of them.

  3.3) Management System: In order to efficiently manage the environment
  and safety as a fundamental working system, every company has to
  comply with the ISO 14001-Environment Management Standard and the TIS
  18001-Occupational Health and Safety Management Standard with
  consistent reviews and evaluations. The Siam Cement (Ta Luang) Co.,
  Ltd. was the first to receive every certification in management
  system, namely, ISO 9001, ISO 14001, and TIS 18001. Nowadays, every
  grey cement plant of the Group has already received all of the above
  certifications. Moreover, the company joined with Thailand Environment
  Institute (TEI) to set up a prototype project namely “Greening the
  supply Chain” to help, develop and improve small to medium suppliers
  to environmental friendly operate the business and this should not
  increase operational costs. Another project was assessing the effect
  of Cement Life Cycle in order to statistically collect fundamental
  data of Thailand for future reference.

  3.4) Awards: The Company places importance on qualified organization
  management aiming for satisfaction and contentment of stakeholders
  that include customers, suppliers, shareholders, employees, and the
  society. The Siam Cement (Thung Song) Co., Ltd. was the first cement
  manufacturer in the world to receive the 2002 Deming Application Prize
  from the Union of Japanese Scientists and Engineers (JUSE). This is
  the most famous and widely accepted prize for the Total Quality
  Management: TQM. The Siam Refractory Industry Co., Ltd. was also the
  first refractory manufacturer in the world to obtain this prize in
  2003. In addition, continuous social and environment contribution of
  the Company accomplishes its good acceptance from communities,
  government, and private agencies as can be seen from several awards,
  e.g. Prime Minister Awards for Environmental Conservation from The
  Ministry of Industry, Compliance to Environmental Impact Reduction
  Measures Award from The Ministry of Science, Technology, and
  Environment, Outstanding Awards for Safety in Workplace from The
  Ministry of Labour and Social Welfare, and Occupational Safety/Health
  Awards from National Safety Council of The United States of America.
  All of them have expressed the company’s ambition to develop and make
  a stride of progress toward every management aspect so as to achieve
  the highest level of efficiency.

4. Undelivered Projects or High-Valued Purchase Agreements

None

Building Products Business

1.  Product or Service Features

1.  Roofing products such as fibre-cement tile, concrete roof tile, and
    ceramic roof tile.

2.  Ceramic wall and floor tile

3.  Concrete products such as paving blocks, and concrete floor tile.

4.  Others, e.g. insulation product

2.  Market and Competition

2.1 Competition Strategy

Avoid price war but emphasize on product development to serve customer
needs with quality control and compliance to international standards and
environment protection measures. This strategy reflects in the receiving
of Deming Application Prize from the Union of Japanese Scientists and
Engineers (JUSE) of Thai Ceramic Co., Ltd.

2.2 Target Groups

-   Roofing product target groups can be classified according to
    product, price, and application as follows:

+----------------------+----------------------+-----------------------+
| Product              | Target               | Price                 |
|                      | Group/Application    |                       |
+----------------------+----------------------+-----------------------+
| Fibre-Cement Roof    | Up-country           | Medium                |
| Tile                 | owner-built houses   |                       |
+----------------------+----------------------+-----------------------+
| Concrete Roof Tile   | Housing Project,     | Medium to high        |
|                      |                      |                       |
|                      | Owner-built houses   |                       |
+----------------------+----------------------+-----------------------+
| Ceramic Roof Tile    | Owner-built houses   | High                  |
+----------------------+----------------------+-----------------------+

-   Ceramic products can be classified as follows:

  ----------------------- ----------------------- -----------------------
  Product                 Target                  Price
                          Group/Application       

  COTTO                   Medium to high income   Medium to high
                          segment                 

  SGI                     Medium to low income    Medium
                          segment                 
  ----------------------- ----------------------- -----------------------

  - Concrete products can be grouped according to application and
  beauty, e.g. paving blocks, which can be used on road, sidewalk, lawn,
  multi-purpose yard, and parking lot, etc.

2.3 Channel of Distribution

  Most products are sold through the Group’s exclusive dealers
  throughout the country.

-   Roof and concrete products are 95% domestic sales and 5% foreign
    sales. Most exports are for Indochina and Myanmar.

-   Ceramic tiles are 70% domestic sales and 30% foreign sales. Most
    exports are for the U.S.A., ASEAN countries, Australia, and Europe.

2.4 Management

The Company started continuous organization development for its
flexibility along the current line of business operation. For example,
future leader development project which prepare every level of
management to be ready for future expansion.

2.5 Competition

An intensely growing demand for domestic building products in the past
4-5 years, the Company adheres to the policy to increase sales via
better product and service development. It also regularly launches new
products for more customer choices.

-   Major Competitors in Roof Products:

1.  Mahaphant Group

2.  Diamond Roofing Tile Co., Ltd.

3.  Oran Group

-   Major Competitors in Ceramic Tile Products:

1.  Thai-German Ceramic Industry Pcl.

2.  Dynasty Ceramic Pcl.

3.  The Union Mosaic Industry Pcl.

4.  The Royal Ceramic Industry Pcl.

-   Major Competitors in Concrete Products:

1.  Chonburi Concrete Products Co., ltd.

2.  Southern Concrete Block Co., Ltd.

The Company has the highest market share and capacity share in roofing
tiles, ceramic tile, and concrete product markets.

2. Raw Material Procurement

There are two main raw materials:

-   Fibre-cement roof tile, concrete roof tile, and concrete products
    use cement as their key raw materials. There is no shortage because
    the Group has the largest cement capacity.

-   Ceramic tile and ceramic roof tile use clay as their raw materials.
    The Company buys clay from several domestic suppliers. In addition,
    the Company and the Group own some sources that last for over ten
    years.

Regarding other raw materials, the Company secures long-term contracts
with local and foreign vendors without profoundly depending on any
specific supplier to ensure the sufficiency.

About environmental impact, the Company has a strict policy to treat
safety and the environment that might be affected by production process
and raw material or service procurement. Pollution control devices were
installed. At present, most companies accredited ISO certifications.

3.  Undelivered Projects or High-Valued Purchase Agreements

None

Distribution Business

1. Product or Service Feature

The Distribution Business of Siam Cement Group is responsible for both
domestic and international trading and providing logistic services for a
number of SCG’s affiliates and outside customers. Cementhai Distribution
Co.,Ltd. is the Holding company with the following key subsidiaries.

1.  Cementhai Sales and Marketing Co., Ltd., is responsible for domestic
    distribution of building material and home improvement products
    through network and Cementhai Home Mart store nationwide.

2.  Cementhai Logistics Co., Ltd., handles the logistics operation both
    domestic and ASEAN countries including coastal logistics.

3.  SCT. Co., Ltd., is responsible for international trading includes
    imports and exports as well as offshore trade.

2. Markets and Competition

Market Policy and Features

The Distribution Business is mainly focused on creating values for
customers, business partners, and business’ owner. This can be done by
continuous development of IT systems to achieve efficient customer
responses, and by synergizing all companies to offer a full range of
services for customers.

Cementhai Sales and Marketing Co., Ltd.

  Competition Strategy

  Management and Service

  The Company provides a strong distribution domestic network for every
  segment of customers.

  To increase service potential for suppliers and customers, the company
  developed computerized network which links the company, the
  manufacturers, and all dealers to efficiently coordinate through the
  Business-to-Business e-Commerce.

  In addition, the Company adopted Customer Relationship Management
  (CRM) concept to manage customer relationship in 3 channels, which are
  wholesaling, retailing and project. Moreover, it installed SAP CRM
  software as a tool to enhance the collecting and analyzing of data.

  Channel of Distribution

  Building material and home improvement products are locally
  distributed through over 500 dealers, 330 of which are Cementhai Home
  Mart stores. 230 of them are in new Cementhai Home Mart format.

Cementhai Logistics Co., Ltd.

  Logistics market has a high potential to grow, and several companies
  tend to outsource more on logistics. This is an opportunity for the
  Company to expand its network.

  Competition Strategy

  Management and Service

  The Company provides modern, accurate, and prompt transportation
  services and warehouse management through a transportation contractor
  network. Modern information technology links all operations to timely
  and correctly distribute products to every segment of retailers,
  wholesalers, factories, and projects throughout the country and along
  the borders. The Company emphasizes on transportation efficiency to
  reduce costs and improve services for internal and external customers
  with concerns for environment and safety.

SCT Co., Ltd.

  SCT. Co. Ltd. is one of the top international trading companies within
  ASEAN.

  Competition Strategy

  The Company focuses significantly on value-added services, especially
  for energy products and raw material to match certain requirements of
  customers which are factories inside and outside the Group.

  Channel of Distribution

  The Company has 17 branches in various countries, i.e. Cambodia,
  Vietnam (2 branches), Myanmar, Malaysia, the Philippines, Singapore,
  Hong Kong, India, Bangladesh, The United Arab Emirates, Australia,
  Laos, China (2 branches), Taiwan, and the U.S.A.. Products are
  categorized into 12 groups, which are, cement, steel products,
  building material products, home improvement products, general
  products, retail development, agro-industrial products, plastics &
  chemical products, aluminum products, mineral & spare parts, energy
  products, steel scrap and waste paper.

Business Policy of Cementhai Distribution Co., Ltd.

The business has a strong ambition to create value for customers and
trade partners by building the most accurate and fastest selling and
distribution systems of building and home mart products in ASEAN. The
Company adopted modern Information Technology system; that are
Enterprise Resource Planning (ERP), Supply Chain management and Customer
Relationship management (CRM), etc..