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 80-85% 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 remained high till Quarter 3 of 2008 which
  was ever highest in 2008 and similarly the raw material price of the
  company was at its highest level in 2008. In Quarter 4 of 2008, the
  oil price and raw material prices of the company started coming down
  and fell sharply. However, the oil price started going up again
  gradually. 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 2009. Going forward oil prices are expected
  to remain volatile and uncertain.

  The company always exercise prudent judgment in covering and buying
  the larger volumes of raw material 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
  by reducing the average freight 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 quarterly 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, global economic recession, adverse
  world economic situation due to continued uncertainty in US economy on
  account of financial turmoil and related issues and its impact on
  economies of various countries, sharp, reduction in demand /
  consumption and impact on Automobile Industry 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. On the other hand under current falling oil
  prices scenario , there will be pressure on company’s selling prices
  and on profit margins downward.

- Exchange rate risk on Forex flows

  The company exports almost 40-45% of its production. The domestic
  sales prices are also indirectly influenced by exchange rates as the
  major raw material is imported and price are mostly fixed in US
  dollar. The company does not have any dollar denominated borrowings.
  As currently the raw material prices are still high the company will
  continue to have net deficit of US dollar in 2009 as almost 60% sales
  is in domestic market in domestic currency. Under the current weaker
  Thai Baht scenario, it may benefit the company for its export and
  domestic sales and any further depreciation in the value of Thai Baht
  may improve company’s revenues and it also improves the export
  competitiveness of the local automobile & tire industry and therefore
  may improve 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 gradual weakening trend during past few months and
  it is expected that it will be further weak but in gradual manner and
  will be range bound.

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.

  The company is certified for ISO/TS 16949, OHSAS 18001 & ISO 14001
  from BV Certification (Thailand) for its quality system as well as
  Occupational Health, Safety & Environment and ISO/IEC 17025 ; Lab
  Accreditation from Thai Industrial Standards Institute and these
  certifications demonstrates company's commitment to Quality, Safety &
  Environment.

  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 44% 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,
  although under the current economic recession the possibility of
  immediate expansion is remote. 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. Currently the import
  duty on carbon black is 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 loans 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 ie 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 40-45% of its production and at the same
  time the major raw material is 100% imported. Both exports and imports
  are dollar denominated.

  During the year, the company had situation of high raw material prices
  and there was 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 as during the year the
  Thai Baht was stronger for most of the period, it was beneficial due
  to net deficit of US dollars. In the future, if Thai Baht becomes
  weaker it may impact the company.

5.External Risks

-   Geo – political Risk

  The geo political events like terrorism cast their repercussions
  worldwide, increasing costs and risks of business and impacting supply
  and demand cycles

-   Risk from Regulatory changes in countries where the company has
    investments

  The company has made strategic investments by subscribing in equity
  capital of companies registered in other countries, along with other
  group companies. While the company does envisage the general business
  risks to such investments, a regulatory change in those countries may
  have some impact on their financial performance.

-   Global Economy

  The impact of global economic crisis as shown affect on the company’s
  performance. It is expected that demand in the auto industry supply
  chain would reduce affecting capacity utilization, revenues and
  profitability despite macro economic action by several countries to
  prop up growth and consumption.