4. Operation of Each Business Unit

SCG Chemicals

1.  Product or Service Features

  1.1 Olefins

  Olefins are the primary petrochemical product comprising of Ethylene
  and Propylene which are the main raw materials for downstream
  Polyolefin plastics and related products such as Polyvinyl Chloride
  and Styrene Monomer. The business’s current Olefins capacity is
  2,900,000 tons per year. By-products from the olefins plant such as
  Mix-C4, Benzene and Toluene are mainly consumed within the business’s
  and/or SCG subsidiaries’ downstream plants.

  1.2 Polyolefins

  Polyolefins are the business’s main products. The business has total
  polyolefins capacity of 1,880,000 tons per year, covering a wide range
  of applications as follows:

  1) High Density Polyethylene – HDPE Outstanding features are good flow
  ability, easy formation, and good chemical resistance. It is normally
  used as the main raw material for the production of plastic shopping
  bags, milk bottles, shampoo and cosmetics bottles, lubricant
  containers, bottle crates, fruit crates, trash bins, ropes, fishnets,
  ring-nets, water pipes, electric power cord insulators, and etc.

  2) Medium Density Polyethylene – MDPE Outstanding features are high
  dart impact strength, stable formation, and low temperature
  resistance. It is normally used as the main raw material for the
  production of coolers, water tanks, water treatment tanks, traffic
  cones, and etc.

  3) Linear Low Density Polyethylene – LLDPE Outstanding features are
  high stiffness and high tensal strength. It is normally used as the
  main raw material for the production of industrial and agricultural
  films, plastic rice bags, and etc.

  4) Low Density Polyethylene – LDPE Outstanding features are clarity
  and high stiffness. It is normally used as the main raw material for
  the production of cold food bags, food preservation films, lids,
  plastic boxes, surface coatings, and etc.

  5) Polypropylene – PP Outstanding features are high dart impact
  strength and high heat resistance. It is normally used as the main raw
  material for the production of hot food bags, general wrapping films,
  woven bags, household utensils, battery shells, electrical appliance
  parts, car components, and etc.

  1.3 Polyvinyl Chloride (PVC)

  PVC products from Thai Plastics and Chemicals Public Company Limited,
  the largest PVC producer in Thailand and ASEAN with total production
  capacity of 813,000 tons per year, can be divided into two main
  categories:

  1) PVC Resin - a type of thermoplastic in pure powder form which can
  withstand heat and pressure without changing its original structure
  and can be reused in different productions. However, it cannot be
  directly formed into finished goods, thus needs various additives to
  adjust its properties according to customers’ specifications.

  2) PVC Compound - normally in powder or pellet form which has already
  been dry-blended with various additives such as additives to increase
  impact strength, additives to help the forming process, additives to
  increase heat resistance capability without changing its form, and
  etc. Due to its many outstanding features such as weather resistance,
  fire retardant, light weight, and rust-free material, it can be used
  as insulator, sheath for electrical wire, telephone cable, pipes, and
  etc.

  1.4 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, and etc. At
  present, the Company owns four jetties with a capacity of 100,000,
  80,000, 20,000 and 10,000 dead weight tons.

2.  Market and Competition

  2.1 Policy and Market Features of Main Products and Services

  Polyolefins are a commodity product with a fairly volatile price
  cycle.

1)  Competitive Strategy

-   High Value-Added Products

  In the past 4-5 years, the business has planned and developed high
  value-added products in order to improve product quality and respond
  to customer needs. In response to this strategy, the business has
  invested in the enhancement of research and development capability and
  efficiency. At present, sales of high value-added products accounts
  for 39 percent of total sales of downstream products. High value-added
  products are namely:

-   Pipe: PE 100 water pipe, gas pipe

-   Rotomolding: “Elixir” water storage, outdoor furniture

-   Wire and Cable: sheath for electrical wire, fiber optic cable,
    telephone cable

-   PE Wax: processing aid, dispersant

-   Propylene compound and Propylene co-polymer: compounds for
    automotive parts

    -   Other specialties: construction materials

  The business aims to further increase sales portion of high
  value-added products to reduce impact of business volatility in the
  down cycle while enhancing overall competitiveness of the business.

-   Price and Cost

  Both domestic and export prices of Polyolefins are closely correlated
  with the global market prices. The business is able to create a price
  premium by offering high quality products and differentiated value
  added services to its customers. The business has adopted Total
  Quality Management (TQM) concept which emphasizes on customer and
  quality, and was awarded with the Deming Application Prize. In terms
  of cost management, the business gives priorities to maintaining
  competitive cost position by investing in proven-technologies,
  world-scale plants and constantly de-bottlenecking the plant
  capacities to achieve economy of scale with lowest investment cost per
  ton. In addition, as a fully integrated player, the business also
  utilizes Total Productivity Management (TPM) concept which emphasizes
  on equipment maintenance, production efficiency, and cost reduction.
  By following TPM concept, the business was awarded with the TPM
  Excellence Award (1^(st) category) for its achievement in production
  efficiency enhancement, energy conservation as well as accident and
  environmental impact reduction, leading to improvement in employee
  morale and capabilities. The business has also invested in advanced IT
  and e-Business systems, such as e-Supply Chain, e-Ordering, Advanced
  Process Control and CRM Portal to achieve best-in-class efficiency and
  customer satisfaction.

-   Product Quality Management

  One of the business’s main policies is to produce high quality
  products without any effects on the environment and communities. In
  addition, the business also gives great importance to occupational
  health and safety management systems, therefore, it integrated ISO
  system with TQM and TPM to come under one quality management resulted
  in being certified by the international quality system, namely ISO
  9001, ISO 14001, and TIS 18001. In addition, the business also applied
  for ISO17025 which is related to laboratory management since the
  business invests in research and development to constantly improve its
  product quality to meet changing customer expectations.

-   Service

  The business 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 customer needs leading
  to sustainable customer relationship. Moreover, the business provides
  technical assistance in Polyolefins conversion and emphasizes on
  delivery timeliness and accuracy. It continuously 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. Therefore, an excellent management with accurate and rapid
  decisions is very important. The business has implemented Supply Chain
  Management system which consists of order forecasts, 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
  business to better satisfy customer needs and respond to changes in
  the industry. Moreover, the business is using new technologies to
  continuously improve its Supply Chain Management system including
  implementing Vender Management Inventory (VMI) system to reduce the
  amount of inventory in stock, setting up Hub and Spoke warehouses both
  domestically and internationally to reduce delivery time and create
  new transportation routes such as train and ship. Also, it is using
  Radio Frequency Identification (RFID) to increase efficiency of
  feedstock management, and using Warehouse Management Operation
  Excellence (WOEX) and Global Positioning System (GPS) to enhance
  real-time inventory and product delivery management.

  2) Customer Features and Target Groups

  Target groups are Polyolefins converters which are classified based on
  formation types such as film, injection molding, monofilament & yarn,
  blow molding, and others which are lamination, extrusion, and piping.
  For PVC business, target groups are plastic converters, using PVC as
  raw materials.

  The business’s customers are mostly small and fragmented so the
  business aims to diversify the customer base into diverse segment and
  region. Hence, the Company is risk adverse as it is not dependent on
  one customer.

  3) Channel of Distribution

  In 2010, domestic and export sales of Polyolefins are accounted for 50
  percent and 50 percent respectively.

-   Domestic

  There are two types of customers of which 86 percent are domestic
  customers and 14 percent are re-exporters. For the former, 48 percent
  is through direct sales by the business while the rest (52 percent) 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 business.

-   Exports

  The business mainly exports to the Asia-Pacific region. Products are
  distributed directly to end-users or local distributors so that
  customer needs are satisfied efficiently. At present, the business has
  9 representative companies internationally which are located in
  Myanmar, Vietnam, Philippines, Indonesia (Jakarta and Surabaya), China
  (Shanghai and Guangzhou), Japan, and United Arab Emirates. The
  proportion for the export market is 33 percent in Southeast Asia, 24
  percent in East Asia, 7 percent in South Asia, and 36 percent in other
  regions.

  As the business internationally exports around 706,000 tons per year
  without concentrating in one particular 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 business is able to manage export products quantities
  for profit optimization as prices may differ depending on market
  conditions of each country.

  In 2010, Domestic and export sales of PVC through Thai Plastic and
  Chemicals Public Company Limited are 52 percent and 48 percent
  respectively.

-   Domestic

  In respect of local distribution, the Company emphasizes on direct
  selling to plastic manufacturers in various industries. The objectives
  are to know the real customer demand and to be able to promptly
  provide technical assistances to the customers.

  There are two types of customers of which 77 percent are domestic
  customers and 23 percent are re-exporters. For the former, 96 percent
  is through direct sales by the business while the rest (4 percent) is
  sold through agents. For re-exporters customers, goods are sold
  through direct sales by the business.

-   Exports

  The Company exported 76 percent, in volume, through agents and 24
  percent directly to customers. Main export areas are Turkey, Eastern
  Europe, Southeast Asian countries, South Asia, Middle East and Africa.
  To sell through agents, the Company has selected only capable
  companies in distribution of plastic products and chemicals with the
  addition of good relationships with customers. They are also capable
  of negotiations, co-ordination and providing assistances to customers
  in all areas.

  2.2 Competition and Capacity

  1) Domestic

  Thailand has Polyolefins capacity of approximately 5.6 million tons
  per year while the country’s demand in 2010 was approximately 2.3
  million tons. Therefore, 51 percent of products have to be exported.
  Import tariff for Polyolefins has been reduced according to AFTA and
  WTO, causing higher competition. However, when comparing with local
  producers, the business has the largest Polyolefins capacity in the
  country –about 40 percent of total domestic capacity. Details are
  shown as follows:

Unit: thousand tons / year

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

  SCG Chemicals         940        120       100       720       1,880

  Integrated Refinery   152        -         -         475       627
  and Petrochemical                                              
  (IRPC)                                                         

  TPI Polene (TPIPL)    -          -         160       -         160

  HMC Polymers (HMC)    -          -         -         755       755

  Siam Polyethylene     -          650       -         -         650
  (SPE) *                                                        

  PTT Chemical (PTTCH)  300        400       300       -         1,000

  Bangkok Polyethylene  500        -         -         -         500
  (BPE)                                                          

  Total Capacity        1,892      1,170     560       1,950     5,572
  --------------------- ---------- --------- --------- --------- ---------

  Remark: * A joint venture between SCG Chemicals and The Dow Chemical
  Company of the U.S.A. (50 percent shareholding)

  Source: SCG Chemicals Co., Ltd. and Petroleum Institute of Thailand.

  Thailand has total PVC production capacity of 887,000 tons per year.
  Thai Plastic and Chemicals Public Company Limited is the largest
  producer, accounting for 57 percent of total domestic capacity.
  Details are shown as below:

Unit: thousand tons / year

  ---------------------------------- ------------ ----------- ------------
  Company                            PVC          VCM         EDC

  Thai Plastic and Chemicals (TPC)   507          500         520

  Vinythai (VNT)                     280          400         320

  Apex Plastic (APEX)                100          -           -

  Total Capacity                     887          900         840
  ---------------------------------- ------------ ----------- ------------

  Source: Thai Plastic and Chemicals Public Company Limited

2)  Foreign

  In 2010, Polyolefins demand in Asia equaled 63 million tons with China
  as the largest importer. Major exporters are producers in the Middle
  East, USA, Korea, and Singapore. For PVC, PVC demand in 2010 was 20
  million tons. Demand growth was mainly driven by China which is the
  largest importer in Asia.

Market situation in 2010 and Trends in 2011

  In 2010, the petrochemical prices were in the downcycle stage due
  mainly to the additional Olefins and Polyolefin capacities from the
  Middle East and China.

  The average Naphtha price in 2010 was 724 USD per ton or increased by
  170 USD per ton from 2009 as a result of price increased in crude oil
  and feedstock as well as depreciation in USD currency. The polymer
  price increased in accordance to feedstock cost and improving in
  global economy. The average polyethylene price in 2010 was at 1,224
  USD per ton or increased by 90 USD per ton from the previous year.
  Nevertheless, polyethylene price increased at lower rate than an
  increase in Naphtha cost since there were additional capacities
  produced from Middle East. The average Polypropylene price in 2010 was
  1,343 USD per ton or increased by 234 USD per ton from the previous
  year due to the recovery in automotive and electronic sectors as well
  as a small supply added from new capacities.

  It is estimated that Naphtha price in 2011 will increase in consistent
  with an increase in crude oil price. Meanwhile, there will be a strong
  demand in Polymer due to the expansion in global economy; particularly
  in continuous growth in China and India. In Thailand, the additional
  supplies in Polyethylene and Polypropylene have been added from newly
  opened plants running at full capacity. As a result, the Polymer is
  expected to be more exported from Thailand this year.

  In 2010, PVC demands significantly increased by 7% from the previous
  year due mainly to the recovery in global economy. Nevertheless, PVC
  demands still not reached the level of demand achieved before economic
  crisis in 2007. The demands in 2010 were mainly driven by construction
  sector within developing countries; such as, China, India, Bangladesh,
  Brazil, Mexico, Russia, and Thailand as well as the recovery in
  demands from developed countries including US, and Western Europe. In
  Thailand, PVC demands in 2010 increased by 7 percent from the previous
  year due to recovery in Thai economy and government’s economic
  stimulus package. However, the demands were slowed down in consequence
  of few negative factors including uncertain political situations,
  flooding problems, and appreciation in THB currency as a result in
  diminishing Thai exporter’s competitiveness. The average PVC price was
  960 USD per ton or increased by 185 USD per ton from the previous year
  due mainly to global economic recovery, increase in feedstock price
  and stronger demands from China.

  In 2011, PVC global demand is expected to increase at higher growth
  rate than the previous year driven by continuous growth in economy in
  China, and other developing countries. PVC price is expected to
  improve in light of stronger demands and increase in oil price.

Product or Service Procurement

  3.1 Product Procurement Feature

  1) Production

The business has 2 Olefins plant and 9 Polyolefins plants located in Map Ta Phut Industrial Estate, Rayong Province. Nameplate capacities are displayed below:

+----------------------+-------------+----------+---------+-----------+
| Company              | Product /   | Capacity | Year    | %         |
|                      | Service     |          | First   | Sha       |
|                      |             | (Ton /   | O       | reholding |
|                      |             | Year)    | perated |           |
+======================+=============+==========+=========+===========+
| Rayong Olefins       | Ethylene    | 800,000  | 1999    | 64        |
|                      |             |          |         |           |
|                      | Propylene   | 400,000  |         |           |
+----------------------+-------------+----------+---------+-----------+
| Map Ta Phut Olefins  | Ethylene    | 900,000  | 2010    | 67        |
|                      |             |          |         |           |
|                      | Propylene   | 800,000  |         |           |
+----------------------+-------------+----------+---------+-----------+
| Thai Polyethylene    | HDPE 1      | 160,000  | 1989    | 100       |
|                      |             |          |         |           |
|                      | HDPE 2      | 180,000  | 1997    |           |
|                      |             |          |         |           |
|                      | HDPE 3      | 200,000  | 2001    |           |
|                      |             |          |         |           |
|                      | HDPE 4      | 400,000  | 2010    |           |
|                      |             |          |         |           |
|                      | LLDPE       | 120,000  | 1990    |           |
|                      |             |          |         |           |
|                      | LDPE        | 100,000  | 1995    |           |
+----------------------+-------------+----------+---------+-----------+
| Thai Polypropylene   | PP 1        | 140,000  | 1993    | 100       |
|                      |             |          |         |           |
|                      | PP 2        | 180,00   | 1997    |           |
|                      |             | 0400,000 |         |           |
|                      | PP 3        |          | 2010    |           |
+----------------------+-------------+----------+---------+-----------+
| Thai Pl              | PVC Resin   | 507,000  | 1971    | 46        |
| astics and Chemicals |             |          |         |           |
|                      | PVC         | 55,000   |         |           |
|                      | Compound    |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| TPC Paste Resin      | PVC Paste   | 36,000   | 1993    | 46        |
|                      | Resin       |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| PT. TPC Indo Plastic | PVC Resin   | 120,000  | 1996    | 78        |
| & Chemicals          |             |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| TPC Vina Plastic and | PVC Resin   | 150,000  | 1995    | 32        |
| Chemicals            |             |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| Viet-Thai Plastchem  | PVC         | 16,500   | 1994    | 33        |
|                      | Compound    |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| Map Ta Phut Tank     | Jetty and   | -        | 1998    | 81        |
| Terminal             | Tank        |          |         |           |
|                      | Terminal    |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| Rayong Pipeline      | Pipe        | -        | 1998    | 91        |
|                      | Tra         |          |         |           |
|                      | nsportation |          |         |           |
+----------------------+-------------+----------+---------+-----------+
| Rayong Engineering   | Engineering | -        | 2001    | 100       |
| and Plant Service    | and Plant   |          |         |           |
|                      | Service     |          |         |           |
+----------------------+-------------+----------+---------+-----------+

  2) Raw Material Procurement

-   Olefins Production

  The key raw material in Olefins production is Naphtha in which 71
  percent of total consumption comes from local oil refineries and the
  other 29 percent is imported from the Middle East, India and
  Indonesia. In addition, the plant has been designed to use alternative
  raw materials such as LPG, raffinate, and condensate in the production
  if Naphtha price is higher than other raw materials.

-   Polyolefins Production

  The business has long-term Olefins purchase contracts with PTT
  Chemicals PLC (PTTCH) at a total of 325,000 tons per year where price
  formula is referenced against the World market price. In addition, 51
  percent of the total Olefins production or 468,500 tons per year is
  supplied to Polyolefins plants within the Group. The rest is sold to
  external customers who are the business’s olefins plant shareholders.
  Moreover, the business is also able to procure more Olefins from PTTCH
  or import in case of Olefins shortages.

-   PVC Production

  The key raw material for PVC production is Vinyl Chloride Monomer
  (VCM) in which is 100 percent self-contained. Other raw materials are
  domestically supplied and imported from overseas. The raw materials
  for VCM production are ethylene dichloride (EDC) and ethylene. TPC
  produces 65 percent of its EDC demand in Rayong province and purchases
  the rest quantity through agents such as Mitsui, Mitsubishi, and
  Arkema.

  For ethylene, the business holds share in Rayong Olefins Co., Ltd. and
  PTTCH, and has ethylene purchasing contracts with both companies.

  3.2 Environmental Impact

  One of the SCG’s Philosophies is “Concern for Social Responsibility”
  which includes the environment conservation. Therefore, the business
  has chosen “Clean Technology” which is up-to-date, efficient, energy
  saving and environmental friendly technology – in the production
  process. The business has implemented the Environmental Management
  Best Practices by using 3Rs (Reduce, Reuse/recycle, and Replenish) and
  eco-efficiency concepts together with Best Available Control
  Technology which are one of the business’ commitment to protect the
  environment and operate its business on sustainability concept.

  Moreover, the business has applied and certified with ISO 14001
  Environmental Management Standard as well as examined the
  Environmental Performance Assessment Program (EPAP) by external
  institutions which are internationally accredited.

4. Undelivered Projects or High-Valued Purchase Agreements

  None

SCG Paper

1.  Product or Service Features

SCG Paper is the country’s leading manufacturer of pulp, paper, and corrugated containers. The business is the only integrated producer in Thailand with production process starting from pulp preparation to manufacture of printing and writing paper, packaging paper, and corrugated containers. Being in such position allows it to appropriately allocate the production capacity, efficiently control the costs, make it relatively less vulnerable to external changes, and add value to its products. There are two major groups of business as follows:

1.  Pulp and Printing & Writing Paper Business

 The main products are eucalyptus pulp and printing & writing paper. Pulp is used as raw material for kraft paper and printing & writing paper. Printing & writing paper is used for magazines, notebooks, textbooks, photocopy paper, and certain types of containers and labels.

2.  Packaging Paper & Corrugated Containers Business

 The major products comprise of kraft paper for the manufacture of corrugated containers, extensible sacks, kraft bags, core paper, gypsum linerboard, coated duplex board, and various types of corrugated containers packaging.

2.  Market and Competition

  2.1) Policy and Market Features of Main Products and Services

  1) Marketing Strategy

 To increase competitive advantage, SCG Paper focuses on continuous cost reduction and introduces the innovative product in order to achieve the high satisfaction and customer needs. 

  In 2010, SCG Paper has developed new packaging paper products called
  “light weight” paper, featuring lower basis weight with the same
  strength to serve the need of customers to reduce cost. Moreover,
  Nature Brown Liner TD-Duo has been launched as an alternative to serve
  customers who are keen on better inventory management. The product can
  be used as both fluting and liner with high stacking and creasing
  resistance properties, which help increase efficiency of automatic
  packing system.

  SCG Paper has also developed various new products to serve
  non-corrugated packaging industries such as high strength paper for
  fiber drum and, paper for versatile functions (“Bwave”), which is
  suitable for transportation, moving and antifouling from various
  activities. Furthermore, the company also provided consulting service
  on design and usage of packaging paper, and launched new packaging
  design in response to the environmental betterment. For instance, Mega
  Box, a large carton with paper pallet, is made for containing
  heavy-weighed products. The product is used to substitute wood pallet
  while still protects high-valued products. In 2010, Mega Box was
  awarded the World Star Award Prize for its unique packaging design.

  Moreover, the company has installed Computer-to-plate, technology that
  provides high quality printing with shorter production time.
  Therefore, SCG Paper can deliver high quality products with shorter
  lead time to customers.

  For Printing and Writing paper, SCG Paper continuously develops new
  products on the principle of “Environmental-Friendly”, for instance
  “Green Matt,” an environmental-friendly coated paper which composes of
  60% eco-fiber. Green Matt is categorized in the “Green Series”,
  comprising of Green Offset and Green Card.

  For office paper, SCG Paper has introduced “Idea Max”, a 70-grams
  office paper that has higher opacity than traditional 70-grams paper.
  Therefore, “Idea Max” is absolutely suitable for both sides printing,
  resulting in better paper usage.

  2) Customer Features and Channel of Distribution

  Pulp and Printing & Writing Paper Business

  Pulp

  Channel : Directly sold to affiliates in the Paper Business and
  external customers.

  Printing & Writing Paper

  Channel : 70 percent of total sales served to domestic market by
  different channels, including Modern Trade and Stationeries Stores,
  and the rest sold to export markets; Malaysia, Vietnam, Hong Kong,
  Japan, South Korea, Australia and the Middle East Countries, etc.

  Packaging Paper & Containers Business

  Channel : Directly sold to affiliated firms under SCG Paper and
  external customers. Products include paper rolls for converting plants
  and converted products such as sheet board, paper bags, ream paper,
  and small rolls. The products are also exported to several countries
  such as Malaysia, Indonesia, Hong Kong, Singapore, Vietnam and China,
  etc.

  2.2) Industry, Competition, and Trend

  1) Pulp and Printing & Writing Paper Business

  In 2010, world bleached chemical pulp (BCP) demand was flat comparing
  to the previous year, with high growth in the first half of the year.
  World BCP supply suddenly dropped due to the earthquake in Chile,
  which affected Chilean manufacturers such as Arauco and CMPC,
  resulting in a temporary production halt. Consequently, the market
  pulp price jumped 76 % comparing to the first half of 2009.

  In the second half of 2010, 3 % y-o-y decrease in BCP world demand,
  coupled with the high pulp inventory level, the production resumption
  operation in Chile and the new capacity startups in China led to the
  drop in pulp prices. However, Asian market pulp price was still
  considered high comparing to the second half of 2009.

  For Printing and Writing Paper business, domestic demand increased by
  12 % y-o-y. Demand in the first half of 2010 increased by 25 % y-o-y
  due to the economic recovery together with the stimulus package, “Thai
  Khem Khaeng”, while demand in the second half of 2010 decreased by 2%
  y-o-y. However, there was higher competition in the domestic market,
  especially in the coated woodfree paper, which was affected by
  imported papers from China, Indonesia, and Japan. SCG Paper has
  continued to develop new high value-added products and implemented
  cost reduction programs to increase company’s long-term
  competitiveness.

  2) Packaging Paper & Corrugated Container Business

  In 2010, demand for packaging paper increased by 8 % y-o-y as a result
  of the recovery of the global economy and the stimulus package, which
  stimulated public and private spending. In addition, FIFA World Cup
  2010 also raised packaging paper usage in the period. However, the
  continued Baht appreciation has resulted in the increased volumes of
  imported packaging paper.

  For Corrugated Containers business, the general economic recovery also
  led to the increase in demand for packaging, especially in the
  Electrical and Electronics segments. However, the Baht appreciation
  has negatively impacted on the export sectors.

3.  Product or Service Procurement

3.1 Raw Material and Suppliers

1) Pulp and Printing & Writing Paper

  Pulp

Raw Material Type: Eucalyptus logs and chips

  Source: Eucalyptus log and chips are bought mainly from open market
  and contract farming.

  Printing & Writing Paper

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

  Source:

-   Bleached long fiber pulp from import.

-   Bleached short fiber pulp from local vendors.

-   Wastepaper from local and import.

-   Chemicals, synthetic latex, kaolin powder, calcium carbonate, and
    others from local and import.

  Obstacles: Bleached long fiber pulp is entirely imported with 30-45
  days lead-time.

2) Packaging Paper & Containers Business 

  Packaging Paper

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

  Source:

-   Wastepaper: 70 percent wastepaper from local vendors and 30 percent
    from import.

-   Bleached and unbleached short fibre pulp: All from local vendors.

-   Bleached and unbleached long fibre pulp: All from import.

-   Main chemicals such as starch, sizing agent, color, and others: From
    local vendors and import.

  Obstacles: Bleached and unbleached short fibre pulps are procured
  domestically. Unbleached long fiber pulp is entirely imported from a
  few suppliers within 30-45 days lead-time. The domestic supply of
  wastepaper is also limited, leading to the need to import wastepaper,
  which has higher price than domestic wastepaper.

  Corrugated Containers

  Raw Material Type: Kraft paper.

  Source: From Siam Kraft Industry Co., Ltd., a subsidiary of SCG Paper

  Obstacles: No problem on raw materials due to adequate supplies and
  controllable quality. Selling price is set by referring to current
  market price to optimize fair and competitive cost.

  (Supply over 50 percent of raw material throughout the past 3 years
  from Siam Kraft Industry Co., Ltd.)

Environmental Impact

  In 2010, SCG Paper was determined to continuously implement an
  environmental-friendly business or Green business with 2 important
  strategies.

1.  Environmental-friendly production process (Green Process)

    -   The sustainable wood sourcing, following the sustainable forest
        management policy

  Eucalyptus plantation following the FSC standard (Forest Stewardship
  Council) benefits farmers and pulp manufacturers, while mitigates
  environmental impacts, since the FSC forest management standards
  required at least 10% of certified plantation area for conservation of
  natural forests. Moreover, SCG Paper has also contributed to increase
  social awareness in sustainable natural resources and environment
  towards many activities such as restoration of destroyed forests,
  biodiversity conservation, and a solidarity program that enhance a
  sense of responsibility for the health of the environment to young
  people in the communities.

-   Better technology for alternative fuel and energy savings

  SCG Paper optimizes its technology to the better use of energy. For
  example, using alternative fuel such as residue chemical and bark from
  pulp production, wastepaper contaminant and sludge from waste water
  treatment, to produce electricity and steam instead of fossil fuels.

-   Increasing use of recycle raw materials

  Currently, SCG Paper uses 30% of virgin fiber and 70% of wastepaper.
  With intention to consume less virgin fiber, the company plans to
  increase number of bailing stations throughout Thailand and purchase
  of several grades of wastepaper, which will not only promote the
  healthy environment, but also create income in the communities.

-   Develop cleaned process to lessen pollutant, leading to employees
    and communities’ safety

  At SCG Paper, almost all of the residues from the pulp and paper
  production process are non-toxic, such as bark, limestone sediment,
  residues from paper production, sludge from waste water treatment and
  ashes from power boiler.

2.  Research and Development in environmental-friendly products and
    services (Green Products)

  SCG Paper pays attention to the research and development in
  environmental-friendly products and services under Green Label and SCG
  eco value in order to offer consumers new and better
  environmental-friendly choices. In 2010, the company obtained 29
  certified products under Green Label and SCG eco value and held the
  first runner up for the environmental-friendly pulp tube in the Green
  Design category of the Design Innovation Contest 2010.
  Environmental-friendly pulp tube is made from recycled paper pulp and
  sludge. The product is truly unique and innovative and currently in
  patent application process with the Department of Intellectual
  Property.

4. Undelivered Projects or High-Valued Purchase Agreements

None

SCG Cement

1.  Types of Products and Services

  1.1 Products

  Products and services in cement business are primarily classified by
  companies 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 (Elephant |
|                                | Brand)                              |
|                                |                                     |
|                                | - 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     |
|                                | Super Cement Brand)                 |
|                                |                                     |
|                                | - Precast Cement (Elephant Brand)   |
+--------------------------------+-------------------------------------+
| The Siam Cement (Kaeng Khoi)   |                                     |
| Co., Ltd.                      |                                     |
+--------------------------------+-------------------------------------+
| The Siam Cement (Thung Song)   |                                     |
| Co., Ltd.                      |                                     |
+--------------------------------+-------------------------------------+
| The Siam Cement (Lampang) Co., |                                     |
| Ltd.                           |                                     |
+--------------------------------+-------------------------------------+
| The Kampot Cement Co.,Ltd.     |                                     |
|                                |                                     |
| (Incorporated in Cambodia)     |                                     |
+--------------------------------+-------------------------------------+
| The Concrete Products and      | Concrete Products                   |
| 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 Cement Brand)              |
|                                |                                     |
|                                | - Mixed White Cement (White Tiger   |
|                                | Cement Brand)                       |
+--------------------------------+-------------------------------------+
| Siam Mortar Co., Ltd.          | - Dry Mortar (Tigers Mortar Brand)  |
|                                |                                     |
|                                | - Tile Adhesive (Tigers Mortar      |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| The Siam Refractory Industry   | - Fireclay Bricks (Elephant Brand)  |
| Co., Ltd.                      |                                     |
|                                | - Special Refractory (Elephant      |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| SCI Plant Services Co., Ltd.   | - Engineering Design, Building,     |
|                                | Construction, Installation,         |
|                                | Improvement ,and Maintenance        |
+--------------------------------+-------------------------------------+
| SCI Eco Services Co., Ltd.     | - Disposal of Industrial Waste      |
+--------------------------------+-------------------------------------+

  Grey cement, ready-mixed concrete, precast concrete products,
  post-tension concrete and white cement are typically used for the
  construction of houses, factories, office buildings, and large
  infrastructures such as roads and bridges. Therefore, the main groups
  of SCG Cement customers range from individual end users to large-scale
  contractors. Traditionally, products and services are sold through
  dealer network and direct sales to large construction contractors.

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

  (All companies incorporated directly under SCG Cement are not in the
  scope of BOI promoted industries; therefore, they do not receive the
  investment privileges.)

  Cement production requires key raw materials such as limestone, shale,
  and gypsum. Thus, SCG Cement secures its raw material sources by
  acquiring the sources and entering into long-term concessions from the
  government.

Details of Currently Utilized Concessions of The Siam Cement Public
Company Limited and Companies under SCG Cement

+-----------+---------+---------+-------+-------+----+------+------+
| Conce     | L       | Type of | N     | Type  | Ar | R    | Ex   |
| ssionaire | ocation | Mineral | umber | of    | ea | emai | piry |
|           | (Pr     |         | of    | Area  | (  | ning | Year |
|           | ovince) |         | Conce |       | Ra |      |      |
|           |         |         | ssion |       | i) | Y    |      |
|           |         |         | (Co   |       |    | ears |      |
|           |         |         | pies) |       |    | of   |      |
|           |         |         |       |       |    | Co   |      |
|           |         |         |       |       |    | nces |      |
|           |         |         |       |       |    | sion |      |
+===========+=========+=========+=======+=======+====+======+======+
| The Siam  | S       | Li      | 16    | Owned | 4  | 8    | 2018 |
| Cement    | araburi | mestone |       | by    | ,5 |      |      |
| Public    |         | for     |       | Royal | 80 |      |      |
| Company   |         | cement  |       | F     |    |      |      |
| Limited   |         | i       |       | orest |    |      |      |
|           |         | ndustry |       | Depar |    |      |      |
|           |         |         |       | tment |    |      |      |
|           |         |         |       | (RFD) |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           |         | Pyrop   | 1     | RFD   | 94 | 18   | 2028 |
|           |         | hyllite |       |       |    |      |      |
|           |         |         | 2     | RFD   | 1  | 22   | 2032 |
|           |         |         |       |       | 82 |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           | Pijit   | Gypsum  | 1     | RFD   | 2  | 1    | 2012 |
|           |         |         |       |       | 98 |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           | Nakorn  | Gypsum  | 1     | RFD   | 2  | 21   | 2031 |
|           | Sawan   |         |       |       | 97 |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           | Nakorn  | Shale   | 1     | Owned | 1  | 5    | 2015 |
|           | Sri     | for     |       | by    | 50 |      |      |
|           | Th      | cement  |       | the   |    |      |      |
|           | ammarat | i       |       | Co    |    |      |      |
|           |         | ndustry |       | mpany |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           | Lampang | Kaolin, | 2     | RFD   | 3  | 1    | 2011 |
|           |         | L       |       |       | 61 |      |      |
|           |         | ignite, | 1     | RFD   |    | 4    | 2014 |
|           |         | Ball    |       |       | 2  |      |      |
|           |         | Clay    |       |       | 97 |      |      |
|           |         | for     |       |       |    |      |      |
|           |         | cement  |       |       |    |      |      |
|           |         | i       |       |       |    |      |      |
|           |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
| SCG       | Surat   | Gypsum  | 1     | Owned | 78 | 1    | 2012 |
| Cement    | Thani   |         |       | by    |    |      |      |
| Co., Ltd. |         |         |       | the   |    |      |      |
|           |         |         |       | Co    |    |      |      |
|           |         |         |       | mpany |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           | Lumphun | Lignite | 1     | Owned | 2  | 5    | 2015 |
|           |         |         |       | by    | 28 |      |      |
|           |         |         |       | the   |    |      |      |
|           |         |         |       | Co    |    |      |      |
|           |         |         |       | mpany |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           | Lampang | Lignite | 1     | RFD   | 2  | 22   | 2032 |
|           |         |         |       |       | 09 |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
| The Siam  | Lampang | Li      | 17    | RFD   | 4  | 8    | 2018 |
| Cement    |         | mestone |       |       | ,9 |      |      |
| (Lampang) |         | for     |       |       | 87 |      |      |
| Co., Ltd. |         | cement  |       |       |    |      |      |
|           |         | i       |       |       |    |      |      |
|           |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           |         | Shale   | 3     | RFD   | 8  | 1    | 2011 |
|           |         | for     |       |       | 44 |      |      |
|           |         | cement  | 2     | RFD   |    | 8    | 2018 |
|           |         |         |       |       | 5  |      |      |
|           |         | i       |       |       | 97 |      |      |
|           |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
| The Siam  | S       | Li      | 10    | RFD   | 2  | 17   | 2027 |
| Cement    | araburi | mestone |       |       | ,5 |      |      |
| (Kaeng    |         | for     |       |       | 75 |      |      |
| Khoi)     |         | cement  |       |       |    |      |      |
|           |         | i       |       |       |    |      |      |
| Co., Ltd. |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           |         | Shale   | 3     | Owned | 8  | 17   | 2027 |
|           |         | for     |       | by    | 74 |      |      |
|           |         | cement  |       | the   |    |      |      |
|           |         |         |       | Co    |    |      |      |
|           |         | i       |       | mpany |    |      |      |
|           |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
| The Siam  | S       | Li      | 5     | RFD   | 9  | 20   | 2030 |
| Cement    | araburi | mestone |       |       | 54 |      |      |
|           |         | for     |       |       |    |      |      |
| (Ta       |         | cement  |       |       |    |      |      |
| Luang)    |         | i       |       |       |    |      |      |
| Co., Ltd. |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
|           |         | Ind     | 1     | Owned | 2  | 16   | 2026 |
|           |         | ustrial |       | by    | 79 |      |      |
|           |         | soil    |       | the   |    |      |      |
|           |         | for     |       | Co    |    |      |      |
|           |         | cement  |       | mpany |    |      |      |
|           |         | i       |       |       |    |      |      |
|           |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+
| The Siam  | Nakorn  | Li      | 19    | RFD   | 4  | 23   | 2033 |
| Cement    | Sri     | mestone |       |       | ,9 |      |      |
| (Thung    | Th      | for     |       |       | 73 |      |      |
| Song)     | ammarat | cement  |       |       |    |      |      |
| Co., Ltd. |         | i       |       |       |    |      |      |
|           |         | ndustry |       |       |    |      |      |
+-----------+---------+---------+-------+-------+----+------+------+

The concessionaires shall operate within the applicable laws as follows:

  1) Conditions under the Mineral Laws

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

2.  Operate the mine strictly to the mining project layout and pay the
    royalty fee for the quantity used.

3.  Operate under safety standards and occupational health measures
    harmlessly to employees, contractors, third parties, the environment
    and any properties.

4.  Develop the used mine areas to have good safety conditions.

5.  Submit a monthly report regarding the mine operation to The
    Department of Primary Industries and Mines.

  2) Conditions under the Forestry Laws

1.  Pay compensation for forest plantation in used mine areas at the
    rates required by law.

2.  Operate the mine by minimizing the damaging effects to the forest
    and reducing the forest destruction.

3.  Prepare the post evaluation report and present to The National
    Environment Committee after the mine operation is carried out for 10
    years.

4.  Strictly work under the required conditions specified in the legal
    permission to utilize the forestry areas.

  3) Conditions under the Environmental Laws

1.  Duly implement the preventive and corrective measures as described
    in The Environmental Impact Assessment Report (EIA).

2.  Improve the used mine areas and the nearby environment as well as
    set up an environmental improvement fund by allocating budget to
    implement environmental-related activities which will be annually
    reported to The Office of Natural Resources and Environment Policy
    and Planning.

3.  Evaluate the quality of the air, water, noise and vibration around
    the mine, and annually report the official results to The Office of
    Natural Resources and Environment Policy and Planning to ensure that
    the measured qualities were conformed to the government standards.

4.  Conduct the EIA report on potential area utilization and present to
    The Mining Expert Committee and The National Environment Committee
    before renewing the concession extension.

2.  Market and Competition

  2.1 Policy and Market Features of Main Products and Services

  Presently, SCG Cement has five grey cement plants in Thailand:

  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), and
  one overseas cement plant in Cambodia, Kampot Cement Company Limited.
  SCG Cement is regarded as the largest cement producer in Thailand with
  the production capacity and domestic market share of approximately 42
  percent.

  SCG Cement places its value on creating products and services that
  fulfil the various requirements and satisfactions of customers by
  employing the most advanced modern manufacturing technology and
  quality control system. With more than 97 years of manufacturing
  experiences, all of the products and services maintain superior
  quality than normal standards and those of competitors. Apart from
  considerable professional experiences, SCG Cement is the only Thai
  cement company that has its own Research and Development unit which
  allows SCG Cement to efficiently develop its goods and services to
  serve the needs of each customer segment. In 2010, SCG Cement has
  continuously launched new products as follows;

-   Super Fast Setting Cement that shortens concrete mold removal time
    and suits for concrete repaired works and those that have time
    constraint.

-   CPAC Porous Concrete used for concrete flatwork application such as
    sidewalks, driveways, and parking lots. Its high porosity allows
    water to drain directly through the concrete to the ground, reducing
    the runoff from a site and allowing groundwater recharge.

-   CPAC Easy Work Concrete that is easy to use and pour, reducing the
    need for concrete vibrating.

-   Special Hollow Core Precast Slab used as insulator in cool storage
    to control temperature more effectively.

  Besides, SCG Cement also has its own technical teams to provide
  customers professional advice and recommendation about production
  process, quality control, and cost reduction as well as suggest
  possible solution of any related problems. Therefore, customers can
  promptly and directly notify their problems to the Customer Complaint
  Call Center to get quick response.

  Moreover, SCG Cement has additionally emphasized the importance of
  social and environment by supporting marketing and public welfare
  activities. For example, it annually organizes educational activities
  such as the Elephant Concrete Fair which aims to enhance knowledge and
  develop concrete technological skills, the Tiger Innovation Awards
  granted to young students especially in architecture field for the
  best design of the concrete wall surface. SCG Cement also support
  other public welfare activities such as providing grey cement for
  students in both vocational schools and universities to use for
  educational purpose, offering active support for the Rural Development
  Volunteer Camp of all academic institution nationwide as well as
  building residential structures with Department of Skill Development.
  Furthermore, SCG Cement has active role in water conservation
  activities under the SCG Conserving Water program inspired by the King
  Initiative Project to build check dams in rural areas. The Elephant
  Brand Fan Club Project is also initiated to build artificial reef for
  marine animals by using Sea Resistance Elephant Cement.

  Sales markets of SCG Cement comprise of both domestic and export sales
  at 60 percent and 40 percent respectively. The 3 main domestic
  distribution channels are through: 1) dealer networks, 2) subsidiaries
  that produce concrete-related products such as ready-mixed concrete,
  roof tiles, and precast concrete slabs, and 3) direct sales to
  concrete-related product manufacturers and large contractors.

  For international sales, SCG Cement has assigned SCG Trading Co.,
  Ltd., a trading company under the SCG group, as its representative to
  export clinker to foreign cement producers and bulk cement for general
  cement users.

  The major export destinations are mainly in South Asia and Southeast
  Asia as SCG Cement has comparative advantage, especially in sea
  transport cost and production cost, to export cement to those
  countries. Besides, cement is also exported to South America and
  Africa which have continuously increasing cement demand in both
  clinker and bulk cement.

  2.2 Competition and Capacity

-   In 2010, the domestic cement demand increased by 10% compared to
    that of the previous year, primarily due to the recovery of the
    world economy, the implementation of stimulus package of the
    government as well as the improvement of consumer and investor
    confidence. Although the economy is on the path to recovery, SCG
    Cement witnessed strong price competition among cement producers as
    they tried to secure or improve their market position. We establish
    business strategies to maintain our market leadership and avoid
    price competition by creating value to customers through highvalue
    added products and services (HVA), building good relationship with
    our customers as well as implementing cost reduction program in
    order to be more competitive in the market. In addition, we have
    also improved and expanded distribution network nationwide to
    increase points of purchase to facilitate our customers,
    accessibility to our products.

  List of Grey cement manufacturers in Thailand are as follows:

  ---- ----------------------------------------- -------------------------
                                                 Million tons per year

  1)   SCG Cement Co., Ltd.                      23.2

  2)   The Siam City Cement PLC                  14.5

  3)   TPI Polene PLC                            9.0

  4)   Asia Cement PLC                           4.8

  5)   Jalaprathan Cement PLC                    2.3

  6)   Thai Pride Cement Co., Ltd.               0.9

  7)   Cemex (Thailand) Co., Ltd.                0.7

  8)   Thai Satapana Co., Ltd.                   0.1

  9)   Samakki Cement Co., Ltd.                  0.1

       Total Country Capacity                    55.6
  ---- ----------------------------------------- -------------------------

3. Products and Services Procurement

  3.1 Product Procurement Feature

+---------+---+------+---+------------------+--------+-----------------------+
| Type    | N |      | P |                  | Local  | Remark                |
|         | u |      | r |                  | /      |                       |
|         | m |      | o |                  |        |                       |
|         | b |      | c |                  | F      |                       |
|         | e |      | u |                  | oreign |                       |
|         | r |      | r |                  |        |                       |
|         | o |      | e |                  |        |                       |
|         | f |      | m |                  |        |                       |
|         | S |      | e |                  |        |                       |
|         | e |      | n |                  |        |                       |
|         | l |      | t |                  |        |                       |
|         | l |      | m |                  |        |                       |
|         | e |      | e |                  |        |                       |
|         | r |      | t |                  |        |                       |
|         | s |      | h |                  |        |                       |
|         |   |      | o |                  |        |                       |
|         |   |      | d |                  |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Main    |   |      |   |                  |        |                       |
| Raw     |   |      |   |                  |        |                       |
| Ma      |   |      |   |                  |        |                       |
| terials |   |      |   |                  |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Li      |   | -    |   | -                | 100% / | Own supply sources    |
| mestone |   |      |   |                  | 0%     | and self-operated.    |
+---------+---+------+---+------------------+--------+-----------------------+
| Shale   |   | -    |   | Long-term        | 100% / | Own supply sources.   |
|         |   |      |   | contracts with   | 0%     | Long-term contracts   |
|         |   |      |   | external         |        | with contractors.     |
|         |   |      |   | contractors.     |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Sand    |   | A    |   | Occasional       | 100% / | Own supply sources    |
|         |   | bout |   | purchase from    | 0%     | kept as reserve.      |
|         |   | 3    |   | well known       |        | Currently buy from    |
|         |   |      |   | sellers.         |        | external sellers.     |
+---------+---+------+---+------------------+--------+-----------------------+
| Clay    |   | A    |   | Long-term        | 100% / | Own supply sources.   |
|         |   | bout |   | contracts with   | 0%     | Currently have        |
|         |   | 3    |   | external         |        |                       |
|         |   |      |   | contractors.     |        | long-term contracts   |
|         |   |      |   |                  |        | with contractors and  |
|         |   |      |   |                  |        | partly buy from       |
|         |   |      |   |                  |        | external suppliers.   |
+---------+---+------+---+------------------+--------+-----------------------+
| L       |   | A    |   | Occasional       | 100% / | Own supply sources    |
| aterite |   | bout |   | purchase from    | 0%     | kept as reserve.      |
|         |   | 3    |   | well known       |        | Currently buy from    |
|         |   |      |   | sellers.         |        | external sellers.     |
+---------+---+------+---+------------------+--------+-----------------------+
| Gypsum  |   | A    |   | Long-term        | 100% / | Currently buy from    |
|         |   | bout |   | contracts with   | 0%     | external sellers and  |
|         |   | 6    |   | suppliers and    |        | partly from own       |
|         |   |      |   | partly operate   |        | sources.              |
|         |   |      |   | from own         |        |                       |
|         |   |      |   | sources.         |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Kraft   |   | 4    |   | Buy from SCG     | 90% /  | Currently buy from    |
| Paper   |   |      |   | affiliates and   | 10%    | SCG Trading and       |
|         |   |      |   | international    |        | international         |
|         |   |      |   | suppliers        |        | suppliers             |
+---------+---+------+---+------------------+--------+-----------------------+
| Fuel    |   |      |   |                  |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Lignite |   | 3    |   | Long-term        | 100% / | Self-operate from its |
|         |   |      |   | contracts with   | 0%     | supply sources and    |
|         |   |      |   | suppliers        |        | buy from external     |
|         |   |      |   |                  |        | suppliers.            |
+---------+---+------+---+------------------+--------+-----------------------+
| Pe      |   | 1    |   | Long-term        | 0% /   | Buy from SCG Trading  |
| troleum |   |      |   | contracts with   | 100%   |                       |
| Coke    |   |      |   | suppliers        |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Lignite |   | 5    |   | Long-term        | 0% /   | Buy from SCG Trading  |
|         |   |      |   | contracts with   | 100%   | and external          |
|         |   |      |   | suppliers and    |        | suppliers.            |
|         |   |      |   | occasional       |        |                       |
|         |   |      |   | buying.          |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Bunker  |   | 4    |   | Occasional       | 100% / |                       |
| Oil     |   |      |   | purchase.        | 0%     |                       |
+---------+---+------+---+------------------+--------+-----------------------+
| Biomass |   | 18   |   | Long-term        | 90% /  | Buy from SCG Trading  |
| e.g.    |   |      |   | contracts with   | 10%    | and external          |
| husk,   |   |      |   | suppliers and    |        | suppliers.            |
| palm    |   |      |   | occasional       |        |                       |
| shell,  |   |      |   | buying.          |        |                       |
| sa      |   |      |   |                  |        |                       |
| w-dust, |   |      |   |                  |        |                       |
| etc.    |   |      |   |                  |        |                       |
+---------+---+------+---+------------------+--------+-----------------------+

  3.2 Environment Protection

SCG Cement has enacted environment policies as follows:

  1) Environment Protection

1.  Green and Clean Plant: SCG Cement consistently implements
    environment protection policy by requiring all cement plants and
    their surrounding areas to be “Green and Clean Plants”. The policy
    aims to reduce dust as well as protect nearby local communities and
    environments. Besides, SCG Cement has initiated and implemented the
    Total Preventive Management (TPM) under “Dust Free Plant” campaign
    to control the dust within the plant areas at below 1 mg/m³
    (standard regulation < 10 mg/ m³). To do so, both employees and
    business partners have the full responsibility to keep their working
    areas and machines in a good and safety condition.

2.  Dust Control: SCG Cement has installed electrostatic precipitators
    and bag filters to collect dust in every point of manufacturing
    process. Besides, SCG Cement systematically implements preventive
    maintenance plans to enable the plants to operate more efficiently
    during working time. Raw material silos and closed transportation
    systems were put in place to control dust. For mining operation, the
    modernized and environmental-friendly Semi-Open Cut Mining has been
    employed. This mining technique preserves much of the natural
    landscape by extracting our limestone while leaving the outside of
    the mountain intact to maintain surrounding scenery and reduce noise
    and dust pollution. In addition, during the mining process, water is
    sprayed onto raw material receipt basin, raw material and
    transportation routes to reduce the spreading of dust. For the
    depleted mining areas, SCG Cement establishes environmental plans to
    rehabilitate the areas to its original condition by improving land
    surface and planting native trees to restore ecosystem and
    biodiversity.

3.  Water Consumption: Water management under the Closed Circuit System
    was conducted by recycling all used water from cool down process in
    cement burning production and machinery within the factories.
    Besides, the water wells are established within the factory areas to
    preserve water during the rainy season. The reserved water will be
    used in the dry season as well as in Waste Heat Power Generation.

4.  The quality control of environment: Apart from installing efficient
    machines to control the quality of environment in manufacturing
    process to meet or even exceed government standards, SCG Cement
    regularly measures air quality from factory stacks, in the community
    areas around the factories, and in the offices as specified in the
    environmental impact analysis report. Moreover, the automatic system
    known as “The Continuous Emission Monitoring Systems (CEMS)” has
    been installed at every smokestack to observe the emitted air.
    Mobile cars are employed to monitor air quality around the plant
    areas. In addition, environmental laboratories are set up to
    investigate and prevent environmental impact from business
    operations.

5.  Water Conservation: SCG Cement has further taken on HM the king’s
    initiative in conserving the sources of water by supporting the
    communities to build check dams in the deforestation areas nearby
    cement plants. All check dams are built to reduce the flow of water
    in rainy season, increase moisture to soils, prevent wildfire, and
    can be used as water reservoirs during a severe drought. As of 2010,
    total check dams built by SCG Group are at 26,000 dams countrywide.

  2) Natural Resources Conservation

1.  Raw Materials and Fuel Substitutes: In 2010, SCG Cement used
    alternative fuels (AF) at approximately 12% of heat consumption in
    its manufacturing process. The sources of alternative fuels come
    mainly from biomass and industrial waste which are used as raw
    materials and fuel substitutes in cement production without
    producing any impact on product quality and environment. The use of
    alternative fuel is not only to reduce natural resources
    consumption, but also to help the country eliminate industrial
    waste. Presently, every SCG Cement plant has been granted Total
    Waste Quality Adjustment Permit (Number 101) from the Ministry of
    Industry.

2.  Energy Consumption: SCG Cement has regularly monitored energy usage
    of each cement plant which indicates cement production efficiency.
    Thus, the efficiency of existing machines are continuously improved
    to reduced energy consumption in the forms of both electricity and
    fuel utilization.

3.  Waste Heat Power Generation (WHG): SCG Cement has installed
    electricity generators fuelled by waste heat energy from cement
    production process, at 3 cement plants in 2008 and 5 cement plants
    (4 local cement plants and 1 international cement plant) in 2009
    respectively. Total investment is estimated at Baht 5,850 million
    and shall contribute to cost saving at Baht 1,500 million per year
    and carbon dioxide (CO2) reduction of 309,000 tons per annum.
    Additionally, in 2010, 2 WHG projects have been registered as the
    Clean Development Mechanism (CDM) in reducing the emission of
    greenhouse gases from the United Nation Framework on Climate Change
    Convention (UNFCCC).

  3) Sustainable Development

1.  Community and Social Support: Apart from strictly conserving the
    environment, SCG Cement has regularly taken part in social
    activities to strengthen relationship with communities by exploring
    their requirements and satisfaction toward the company with the
    sincere hope to improve standard of living as well as facilitate the
    community development. The activities include the One Cell One
    Project for social relationship development and educational related
    projects by providing cement for students in vocational education
    and universities nationwide. Moreover, SCG Cement has participated
    in social activities such as providing cement for renovating school
    building, giving cement to college student volunteer camps, sports
    activities including boxing, etc.

2.  Employee Support: SCG Cement believes that employees are the most
    valuable resource; thus, it places an importance on their welfare
    and quality of life, and ensuring occupational health and work
    safety for every employee. Therefore, the continuing improvement in
    working environment, building awareness and safety precautions were
    clearly observed with strong intentions to prevent accidents among
    all employees and business partners.

3.  Management System: In order to efficiently manage the environment
    and safety as a fundamental working system, every company under SCG
    Cement has required to operate with the Environment Management
    Standard (ISO 14001) and the Occupational Health and Safety
    Management Standard (TIS 18001) with consistent reviews and
    evaluations. The Siam Cement (Ta Luang) Co., Ltd. was the first
    company that receives all certification in management system,
    namely, ISO 9001, ISO 14001, and TIS 18001. Presently, every grey
    cement plant has already received all of the above certifications.

4.  Awards: SCG Cement places an importance on the quality management of
    organization, aiming to satisfy all stakeholders ranging from
    customers, suppliers, shareholders, employees to the society. Thus,
    SCG Cement has been widely accepted from both communities as well as
    government and private sectors through the received rewards which
    reflect its intentions to archive the development and improvement in
    all aspects as follows;

-   The Siam Cement (Ta Luang) Co., Ltd.

-   Outstanding Award for Safety, Occupational Health, and Working
    Environment for the 5^(th) consecutive year from The Ministry of
    Labour

-   Honorable Mention Award for Guiding in Recreation, Outstanding
    Factory from The Ministry of Tourism & Sports

-   The Siam Cement (Kaeng Khoi) Co., Ltd.

-   The Prime Minister Industry Award 2009 from The Ministry of Industry

-   Outstanding Award for Safety, Occupational Health, and Working
    Environment from The Ministry of Natural Resources and Environment

-   The Siam Cement (Thung Song) Co., Ltd.

-   Green Mining Award 2010 from The Ministry of Industry

-   The Siam Cement (Lampang) Co., Ltd.

-   EIA Monitoring Awards for Excellence (Mining Category) form The
    Ministry of Natural Resources and Environment

-   Outstanding Award for Labour Relations for the 5th Consecutive Year
    from The Ministry of Labour

-   Green Mining Award 2010 from The Ministry of Industry

4. Undelivered Projects or High-Valued Purchase Agreements

  None

SCG Building Materials

1.  Product or Service Features There are products and services as the
    follows:

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

2.  Board & Wood substitutions

3.  Aerated lightweight concrete

4.  Light-weight products

5.  Concrete products such as paving blocks and concrete floor tile

6.  Others e.g. insulation product

2.  Market and Competition

  2.1 Competitive Strategy

SCG Building Materials avoids cost competition and sets first priority
on development of high value-added products and services, in order to
create differentiation and to better satisfy consumers’ need. For
example, continuous development to maintain market leader position or
trend setter, develop environmental friendly products and reduce natural
resource consumption, etc.

To serve customer need for a thorough systematic solution, including
installation and services, SCG Building Materials offers total solutions
through Home Solution, Roofing Center, and COTTO Studio which provide
One-stop Shop, One-Stop Service including consultancy, design, budget
estimation, and installation.

Furthermore, SCG Building Materials has a policy to improve production
efficiency and continuously reduce cost, i.e., energy consumption
reduction plan, raw material cost reduction plan, and waste reduction
plan.

  2.2 Target Customer Group

-   Roofing product target groups can be classified by 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 Tiles , SOSUCO and  Medium to low income    Medium
  CAMPANA                 segment                 
  ----------------------- ----------------------- -----------------------

-   Aerated lightweight concretes are sold to developer projects,
    own-built house and condominium.

-   Concrete products are 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 Distribution

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

-   Roof and concrete products: 95 percent domestic sales and 5 percent
    export sales, mainly export to Indochina and Myanmar.

-   Ceramic tiles: 80 percent domestic sales and 20 percent export
    sales, mostly export to the U.S.A., Australia, Europe, and ASEAN
    countries.

  2.4 Management

  The business continues its organization development projects in order
  to achieve sustainable growth. For example, the future leader
  development project which prepares all levels of management for future
  business plan.

  2.5 Competition

  Due to an intensely growing demand for domestic building products in
  the past 4-5 years, the business adheres to its policy to increase
  sales by developing better product and service. It also continuously
  launches new products for more customer choices.

-   Major competitors in Roofing products:

1.  Mahaphant Group

2.  Diamond Roofing Tile PLC

3.  Oran Group

-   Major competitors in Ceramic Tile Products:

1.  Dynasty Ceramic PLC

2.  The Union Mosaic Industry PLC

3.  The Royal Ceramic Industry PLC

-   Major competitors in Board & Wood substitution:

1.  Mahaphant Group

2.  Diamond Roofing Tile PLC

3.  Conwood Co., Ltd.

-   Major competitors in Aerated lightweight concrete:

1.  Thai Light Block and Panel

2.  Super Block PLC

-   Major competitors in Concrete Products:

1.  Chonburi Concrete Products Co., Ltd.

2.  Southern Concrete Block Co., Ltd.

  SCG Building Materials has the highest market share and capacity share
  in all of these product markets.

3.  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
    SCG Cement has the largest cement capacity.

-   Ceramic tile and ceramic roof tile use clay as their raw materials.
    The business buys clay from several domestic suppliers. In addition,
    SCG owns some sources of clay that can be used for over ten years.

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

For environmental impact, the business has a strict policy on safety and
environmental treatment that might be affected by its production
process, as well as raw material or service procurement, by investing
inpollution control devices installation. At present, most companies
under SCG Building Materials were accredited ISO certifications.

4.  Undelivered Projects or High-Valued Purchase Agreements

  None

SCG Distribution

1. Product or Service Feature

SCG Distribution is responsible for both domestic and international
trading and providing logistics services for a number of SCG’s
affiliates and outside customers. SCG Distribution Co., Ltd. is the
Holding company with the following key subsidiaries.

1.  SCG Network Management Co., Ltd. is responsible for domestic
    distribution of building materials and home improvement products
    through network of authorized dealers and Home Mart stores
    nationwide.

2.  SCG Logistics Management Co., Ltd. provides logistics services in
    both domestic and ASEAN countries in order to build strong logistics
    network in neighbor countries including coastal logistics.

3.  SCG Trading Co., Ltd. is responsible for international trading
    including imports and exports as well as offshore trade.

4.  SCG Experience Co., Ltd. is SCG’s construction and design innovation
    exhibition center which provides consultation by experts, creative
    services, cutting edge technology, and quality products for home
    owners, engineering profession such as architects/engineers, as well
    as the general public.

2. Markets and Competition

  Market Policy and Features

SCG Distribution mainly focuses on creating values for customers and
business partners. This can be done by continuous development of
effective standard distribution system for various building materials
and home improvement products to efficiently meet customers’ need in the
region, and by synergizing all companies to offer a full range of
quality services for customers.

SCG Network Management Co., Ltd.

  Competitive Strategy

  Management and Service

  The business provides strong domestic distribution network for
  building materials and home improvement products through 450 dealers
  across Thailand with an aim to timely respond to all type of
  customers’ need.

  To increase service potential for suppliers and customers, the
  business has developed an IT network which links the company, the
  manufacturers, and all dealers to efficiently coordinate through the
  internet in the form of Business-to-Business e-Commerce.

  In addition, the Company adopted the Customer Relationship Management
  (CRM) concept to manage customer relationship through 3 channels,
  which are wholesaling, retailing and project channels. Moreover, the
  SAP-CRM software has been installed as a tool to enhance the
  collecting and analyzing of marketing data. This allows an effective
  coordination between the central unit and all field units throughout
  the country.

SCG Logistics Management Co., Ltd.

  Competitive 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 across
  borders. The Company emphasizes on transportation efficiency to reduce
  costs and improve services for internal and external customers with
  concerns for the environment and safety.

  SCG Trading Co., Ltd.

  Competition Strategy

  Management and Service

  SCG Trading Co., Ltd. is one of the top international trading
  companies in ASEAN. Products are categorized into 5 main categories,
  which are cement products, building material products, energy and
  industrial products, recycling products, import-export, including
  freight and logistics service for overseas operations. The Company
  focuses significantly on value-added services, especially for energy
  products and raw material to serve certain requirements of customers
  which are factories inside and outside of SCG. Furthermore, the
  company also focuses on backward integration for sourcing supplies.

  Currently, the company has 36 branches in various countries across the
  world, i.e. Cambodia, Vietnam, Myanmar, Malaysia, the Philippines,
  Singapore, India, Bangladesh, The United Arab Emirates, Jordan,
  Australia, Laos, China, Taiwan, Indonesia, Canada, Tanzania, the
  U.S.A., Russia, Poland, and South Africa.

  SCG Experiences Co., Ltd.

  Competitive Strategy

  Management and Service

  The company is strategically set to be a holistic solution provider as
  a representative of SCG, the largest construction material
  manufacturer with a complete range and wide variety of products to
  satisfy customers’ requirement.

  Furthermore, the intensive expert staff selection process at SCG
  Experience is one of the strategies ensuring differentiation from
  competitors. The unique organization structure, staff qualifications
  and skills, whole-hearted service mind, and construction material
  knowledge presentation have proven the superior service and guarantee
  customers’ impressive experience in anytime they visit SCG Experience.