The company carries various risks relating to its business both industrial and corporate specific risks on account of internal & external factors. The company pays utmost attentions to various risk factors associated with its business operations to achieve its corporate goods and objectives. The audit committee also reviews various risks associated with its business and advise management from time to time about the appropriateness of the company’s risk management policies and risk mitigation measures.

1 Risk relating to Revenues and Profits

- Risk of fluctuation in raw material prices

  The primary raw material for manufacturing carbon black is carbon
  black feed stock oil, which is mostly imported and constitutes about
  90-95% of the total raw material cost and about 85-90% of cost of
  production. The prices of carbon black feed stock oil are closely
  related to crude oil and fuel oil prices internationally. During the
  year the crude oil prices continued to remain high which was ever
  highest in 2007 and similarly the prices raw material of the company
  was at its highest level in 2007. If the oil prices continue to remain
  high and any further volatility and change in demand / supply
  situation in the world oil market may further affect the prices of
  company’s raw material and its profitability in the year 2007. Going
  forward oil prices are expected to remain high, volatile and
  uncertain.

  The company always exercise prudent judgment in covering and buying
  the larger quantities of oil when the oil prices are at low levels for
  requirement for future periods by constant monitoring of world oil
  price and having regular discussions with energy specialist and by
  this company gets ample time to monitor oil prices closely and tries
  to buy again when oil prices are at lower levels. To reduce the
  overall cost of raw material, the company tries to buy’s large volumes
  and in full vessel loads / bigger vessels to optimize procurement
  cost.

- Risk from carbon black selling prices

  The prices of company’s product “Carbon Black” of various grades is
  generally governed by demand & supply situation in the world market,
  international price trend, oil prices in world market, industry
  situation, situation of auto industry and specific features of the
  product etc. The company has the policy of fixing the price with major
  customers on 3-6 months basis to provide stability in the prices. Also
  the company uses formula based selling prices with major customers to
  reduce price volatility.

  Any further increase in oil prices, adverse world economic situation
  due to continued uncertainty in US economy on account of sub prime and
  related issues and its impact on economies of various countries,
  reduction in demand consumption and impact on Automobile Industry,
  higher inflation etc will affect the company’s profit margins. The
  ability to pass on the full impact of increased cost of raw material
  through higher selling prices of carbon black is limited due to
  competitive market condition of carbon black industry and the company
  may be able to pass on the impact of increase cost only partially.

- Exchange rate risk on Forex flows

  The company exports almost 45-50% of its production. The domestic
  sales prices are also indirectly influenced by exchange rates as the
  major raw material is imported. The company does not have any dollar
  denominated borrowings. As currently the raw material prices are high
  the company will continue to have net deficit of US dollar in 2008.
  Thai Baht is continuously getting stronger and any further
  strengthening of Thai Baht will help company in buying the US dollar
  at lower rates thus will benefit the company, however at the same time
  the weaker Thai Baht does benefit the company for its export and
  domestic sales and any appreciation in the value of Thai Baht may
  impact company’s revenues and profits as it also affects the export
  competitiveness of the local automobile & tire industry and therefore
  may impact our domestic sales volume & pricing. This carries risk as
  well as provide opportunities and it is a normal business situation
  under which the company is operating.

  Under the current dollar deficit situation the company follows the
  policy of regular buying of US dollars on consistent basis to average
  out the volatility.

  Thai Baht has shown continuous strengthening trend during the current
  year and has seen the strongest level in last 10 years and it is
  expected that the strengthening trend will continue in the next year.

2.Risk from operations

- Risk from manufacturing operations

The company has an exhaustive preventive and predictive maintenance system to ensure good health of all its manufacturing equipments. It also has a regulated system of operating equipments after designed life. The company is highly committed to safety. Besides a very high level of safety consciousness amongst all employees, generated through rigorous training and investment in all necessary safety equipment, the company conducts mock drills, emergency plan simulation etc. to ensure highest standard of alertness. The company also have emergency contingency plan in place.

  The company also have robust system of replacing the aging equipments
  in timely manner for better operational efficiency and also carries
  out planned maintenance activities regularly

- Risk related to environmental 

  Generally our production process is environmental friendly and does
  not generate any solid wastes. The liquid waste which is a process
  water is discharged only after proper treatment. The waste gas (flue
  gas) is combusted in dryer and boiler and flue gas is combusted
  through the stacks. Flue gas samples are collected and tested
  regularly which are within the maximum standard limits set by the
  government. In fact our company is the first Asian Carbon Black
  manufacturing plant to receive ISO 14001 certificate for ensuring the
  highest standards of environment cleanliness and company continuously
  monitors its pollution control system to adhere to the standards
  prescribed by authorities like ministry of industry. The actual levels
  are routinely monitored by the company, independent agency and
  government and any situation of improper treatment carries
  environmental and operation risk. The company assigns highest priority
  to remain well within the maximum allowable limit and has made
  substantial investment in the necessary equipments over the year for
  treatment of wastes. The company also have plan of further investment
  in equipments to have improved environment control systems. Also for
  any of its expansion / debottlenecking projects, the company fully
  takes care of the environment related issues.

  We have also received the international awards like Deming Prize, TPM
  excellence award , Prime Minister Productivity and Thailand quality
  class award and these awards include stringent criteria for
  environmental control, which the company have positively demonstrated.

  In the year 2002, the company also received ISO 9001: 2000,
  OHSAS-18000: 1999 and ISO/IEC 17025 and in 2004 the company receive
  ISO/TS 16949: 2002 by BVQI for its quality systems and these
  certifications also demonstrates company’s commitment for
  environmental safety.

  Despite above the company perceives the risk of any accidental
  disturbance to environment to be medium to high

  - Risk from storage and handling

  The company transport and store its raw material carbon black feed
  stock oil which is highly viscous and have permissible sulphur
  contents and also its finished product carbon black which is in the
  form of small colloidal particles. The company follows all
  international standards stipulated for their safe transportation and
  storage. Though there has never been any major accident relating to
  these products. the company perceives the risk of accident or
  misoperation.

3.Risks relating to marketing

 - Competitive Environment

  Thai Carbon Black is one of the largest producers of Carbon Black in
  the world at single location. Due to its excellent quality and
  customer services together with its low cost of production, Thai
  Carbon Black is competitively placed in the world market. In addition,
  due to company’s capabilities to develop Carbon Black grades as per
  the customers’ requirement, it is able to meet important customer
  needs which give the company more competitive advantage.

  Domestically company is market leader and commands 48% market share.
  There are 2 other carbon black producers in Thailand. Any capacity
  expansion by other 2 producers of carbon black may change the market
  share and may impact the company’s profitability and product pricing.
  Any cheaper imports from China & other Asian countries may also impact
  our market share though with better quality we would be able to serve
  market better. Recently the import duty on carbon black has been
  reduced from 5% to zero and this may invite more import in Thailand
  and may have impact on company’s domestic market share

  - Risk from Product Substitute

  Silica is being developed as a probable product substitute. However,
  it is not a commercially developed product and it will be a long time
  before silica will become commercially viable and it may replace
  carbon black partially. Also its cost of production is much higher
  than carbon black. At present there is no threat from silica to carbon
  black industry.

4.Risk relating to financial management 

-   Interest rate and foreign exchange risk on loans

  The company does not have any foreign currency and Thai Baht loan and
  is therefore not exposed to either exchange rate or interest rate risk
  on loans.

-   Interest rate and credit risk on Short Term Investments

Interest rates fluctuates from time to time with international trends.
The company has surplus cash position, which are placed on short term
deposit both in Thai Baht and foreign currency, particularly in US
Dollars. The rate variations impact the interest income earned by the
company. The company makes every effort to exercise significant prudence
in selecting healthy financial institutions and fixing up credit
exposure limit for each institution at varying maturity tenors but not
over one year for such investments.

-   Exchange risk on forex flows

  The company exports almost 45-50% of its production and at the same
  time the major raw material is 100% imported. Both exports and imports
  are dollar denominated.

  Under the current situation of high raw material prices, there is a
  continuous deficit of US dollar after matching import payments with
  export earnings and company follows the policy of uniform buying for
  net deficit of US dollars to avoid any exchange fluctuation, which is
  averaged out. More over under the current continuous strengthening
  trend of Thai Baht, the company will be benefited due to net deficit
  of US dollars.

5.External Risks

-   Global Economy

  Under post WTO Scenario, the manufacturing industry in particular has
  been facing fierce competition. Higher oil prices poses biggest threat
  to control production cost and any further volatility in oil prices
  may adversely affect the growth of automobile industry and in turn
  carbon black in industry. The business cycles across all commodities
  have become shorter and volatile thereby raising risk of sharp
  fluctuation in business volumes and profitability margins. The
  company’s product is well established in the international market,
  which along with strong financial position will help consistent
  salability during the period of economic recession and volatility.

-   Geo Political risk

  The geo political events like terrorism cast their repercussions
  worldwide, increasing costs and risk of business and impacting supply
  and demand cycles. Also any adverse event / development in oil
  producing countries will further aggravate the demand / supply
  situation of crude oil and related products and this will have major
  impact on world economy.