3. Operation of Each Business Unit

Cement Business

1.  Product or Service Features

1.1 Product Features

  Product features can be classified according to the manufacturers as
  follows:

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

  Grey cement, ready-mixed concrete, and white cement are for houses,
  factories, large office buildings and facilities construction such as
  roads and infrastructure of the country. Customers range from
  small-sized end users to large contractors. Products are both
  distributed through The Siam Cement Group’s building product exclusive
  dealer network in the Distribution Business and directly sold to large
  users.

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

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

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

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

+-----------+---------+---------+-------+-------+---+------+-------+
| Conce     | L       | Type of | N     | Type  | A | R    | E     |
| ssionaire | ocation | Mineral | umber | of    | r | emai | xpiry |
|           | (Pr     |         | of    | Area  | e | ning | Year  |
|           | ovince) |         | Conce |       | a | Y    |       |
|           |         |         | ssion |       | ( | ears |       |
|           |         |         | (Co   |       | R | of   |       |
|           |         |         | pies) |       | a | Co   |       |
|           |         |         |       |       | i | nces |       |
|           |         |         |       |       | ) | sion |       |
+===========+=========+=========+=======+=======+===+======+=======+
| The Siam  | S       | Li      | 21    | Owned | 5 | 1 –  | 2004  |
| Cement    | araburi | mestone |       | by    | , | 15   | –     |
| Public    |         | for     |       | Royal | 5 |      | 2018  |
| Company   |         | cement  |       | F     | 3 |      |       |
| Limited   |         | i       |       | orest | 5 |      |       |
|           |         | ndustry |       | Depar |   |      |       |
|           |         |         |       | tment |   |      |       |
|           |         |         |       | (RFD) |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Pijit   | Gypsum  | 1     | RFD   | 2 | 9    | 2012  |
|           |         |         |       |       | 9 |      |       |
|           |         |         |       |       | 8 |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Nakorn  | Gypsum  | 3     | RFD   | 8 | 7    | 2010  |
|           | Sawan   |         |       |       | 5 |      |       |
|           |         |         |       |       | 6 |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Lopburi | Iron    | 1     | RFD   | 1 | 7    | 2010  |
|           |         |         |       |       | 9 |      |       |
|           |         |         |       |       | 3 |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Nakorn  | 1.  Li  | 19    | RFD   | 5 | 7    | 2010  |
|           | Sri     | mestone |       |       | , |      |       |
|           | Th      |     for | 1     | Owned | 0 | 12   | 2015  |
|           | ammarat |         |       | by    | 0 |      |       |
|           |         |  cement |       | the   | 7 |      |       |
|           |         |     i   |       | Co    |   |      |       |
|           |         | ndustry |       | mpany | 1 |      |       |
|           |         |         |       |       | 5 |      |       |
|           |         | 2.      |       |       | 0 |      |       |
|           |         |   Shale |       |       |   |      |       |
|           |         |     for |       |       |   |      |       |
|           |         |         |       |       |   |      |       |
|           |         |  cement |       |       |   |      |       |
|           |         |     i   |       |       |   |      |       |
|           |         | ndustry |       |       |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Rayong  | Kaolin  | 2     | Owned | 4 | 2    | 2005  |
|           |         |         |       | by    | 8 |      |       |
|           |         |         |       | the   |   |      |       |
|           |         |         |       | Co    |   |      |       |
|           |         |         |       | mpany |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Lampang | Kaolin, | 5     | RFD   | 9 | 2 -  | 2005- |
|           |         | L       |       |       | 5 | 11   | 2014  |
|           |         | ignite, |       |       | 4 |      |       |
|           |         | Ball    |       |       |   |      |       |
|           |         | Clay    |       |       |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
| Siam      | Lampoon | Lignite | 1     | Owned | 2 | 12   | 2015  |
| Cement    |         |         |       | by    | 2 |      |       |
| Industry  |         |         |       | the   | 8 |      |       |
| Co., Ltd. |         |         |       | Co    |   |      |       |
|           |         |         |       | mpany |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
|           | Sur     | Gypsum  | 1     | Owned | 3 | 6    | 2009  |
|           | atthani |         |       | by    | 9 |      |       |
|           |         |         |       | the   |   |      |       |
|           |         |         |       | Co    |   |      |       |
|           |         |         |       | mpany |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
| The Siam  | Lampang | 1.      | 17    | RFD   | 4 | 15   | 2018  |
| Cement    |         | Li      |       |       | , |      |       |
| (Lampang) |         | mestone | 5     | RFD   | 9 | 8 –  | 2     |
| Co., Ltd. |         | for     |       |       | 8 | 15   | 011 - |
|           |         | cement  |       |       | 7 |      | 2018  |
|           |         | i       |       |       |   |      |       |
|           |         | ndustry |       |       | 1 |      |       |
|           |         |         |       |       | , |      |       |
|           |         | 2.      |       |       | 4 |      |       |
|           |         | Shale   |       |       | 4 |      |       |
|           |         | for     |       |       | 1 |      |       |
|           |         | cement  |       |       |   |      |       |
|           |         | i       |       |       |   |      |       |
|           |         | ndustry |       |       |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+
| The Siam  | S       | 1.      | 10    | RFD   | 2 | 24   | 2027  |
| Cement    | araburi | Li      |       |       | , |      |       |
| (Kaeng    |         | mestone | 3     | Owned | 5 | 24   | 2027  |
| Khoi)     |         | for     |       | by    | 7 |      |       |
| Co., Ltd. |         | cement  |       | the   | 5 |      |       |
|           |         | i       |       | Co    |   |      |       |
|           |         | ndustry |       | mpany | 8 |      |       |
|           |         |         |       |       | 7 |      |       |
|           |         | 2.      |       |       | 4 |      |       |
|           |         | Shale   |       |       |   |      |       |
|           |         | for     |       |       |   |      |       |
|           |         | cement  |       |       |   |      |       |
|           |         | i       |       |       |   |      |       |
|           |         | ndustry |       |       |   |      |       |
+-----------+---------+---------+-------+-------+---+------+-------+

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

1) Conditions under Mineral laws

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

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

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

4.  Develop the areas already mined into safety areas.

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

2) Conditions under Forestry Laws

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

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

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

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

3) Conditions under Environmental Laws

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

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

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

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

2.  Market and Competition

2.1 Policy and Market Features of Main Products and Services

  Currently, the Cement Business is responsible for five grey cement
  factories, i.e. Ta Luang, Khao Wong and Kaeng Khoi in Saraburi
  Province, Thung Song in Nakorn Sri Thammarat Province, and Lampang.
  The Business achieves a capacity share and a market share of 42%, the
  highest in the country.

  The Business placed its value on creating products and services that
  respond to customer needs and satisfaction with modern manufacturing
  technology and quality control. Altogether with its 90 years
  manufacturing experiences, it ensures that the products contain higher
  quality than normal standards and competitors’ products. It is the
  only Thai Cement Business with own research and development unit. The
  Business is also the first and the only cement producer in Thailand
  that originated the plastic layer in cement bags to keep the product
  fresh and prevent breakages. The Company provides technical service
  teams to recommend product usage and solve any related problems.
  Customers can notify the problems via the Company’s Customer Complaint
  Call Center.

  The Company has supported assorted marketing and public welfare
  activities. For example, it generated sport activities that include
  Super Original Thai Boxing Champion and Tiger Cement Thailand Open
  Takraw. Public welfare activities comprise projects such as Blankets
  for the Poor, Water Tanks against Drought, and Bus Shelters, etc.

  Regarding distribution, the Company commands 60% domestic sales and
  40% exports. Three channels of domestic distribution exist, i.e.
  through the Group’s dealer network; through subsidiaries who produce
  related products such as ready-mixed concrete, roof tiles, and precast
  concrete slabs, etc.; and through direct sales to concrete product
  manufacturers and large contractors.

  About overseas sales, the Company has engaged SCT Co., Ltd., a company
  in the Group, as its representative to export clinker for foreign
  cement producers and cement for users. Chief markets are in America,
  South Asia, Southeast Asia, and Africa, all of which have a continuous
  increasing demand. Apart from its low manufacturing cost leadership in
  the region, the Company is advantageous to other regions in low
  shipping cost for the South Asia and the Southeast Asia.

2.2 Competition and Capacity

  After the economic crisis in 1997, cement consumption demand in
  Thailand greatly declined, especially in 1999-2001, the grey cement
  demand dropped to 18-19 million tons per year. Even though in 2003, it
  increased to 23 million tons with an export of 13 million tons, the
  grey cement industry still has had excess capacity since total country
  capacity was 55 million tons. This has led to drastic domestic price
  competition. However, the Company has avoided the price war by
  stressing more on product or service quality development, as well as
  distribution network expansion to cover all customer targets for their
  satisfaction and highest shopping convenience.

  Grey cement manufacturers in Thailand comprises:

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

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

  3) TPI Polene Pcl. 9.0 Million Ton/Year

  4) Asia Cement Pcl. 4.8 Million Ton/Year

  5) Jalaprathan Cement Pcl. 2.3 Million Ton/Year

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

  7) Thai Satapana Co., Ltd. 0.2 Million Ton/Year

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

  Total Country Capacity 54.8 Million Ton/Year

3 Product or Service Procurement

3.1 Product Procurement Feature

+----------+-----+--------------------+---------+---------------------+
| Type     | Num | Procurement method | Local/  | Remark              |
|          | ber |                    | Foreign |                     |
|          | of  |                    |         |                     |
|          | S   |                    |         |                     |
|          | ell |                    |         |                     |
|          | ers |                    |         |                     |
+==========+=====+====================+=========+=====================+
| Ma       |     |                    |         |                     |
| in Raw M |     |                    |         |                     |
| aterials |     |                    |         |                     |
+----------+-----+--------------------+---------+---------------------+
| L        | -   | -                  | 100% /  | Has supply source   |
| imestone |     |                    | 0%      | and self-operate.   |
+----------+-----+--------------------+---------+---------------------+
| Shale    | -   | Long-term          | 100% /  | Own supply source.  |
|          |     | contracts with     | 0%      | Long-term contracts |
|          |     | external           |         | with contractors.   |
|          |     | contractors.       |         |                     |
+----------+-----+--------------------+---------+---------------------+
| Sand     | Ab  | Occasional         | 100% /  | Own supply source   |
|          | out | purchase from      | 0%      | kept as reserve.    |
|          | 5   | long-timed         |         | Currently buy from  |
|          |     | sellers.           |         | external sellers.   |
+----------+-----+--------------------+---------+---------------------+
| Clay     | Ab  | Long-term          | 100% /  | Own supply source.  |
|          | out | contracts with     | 0%      | Currently have      |
|          | 3   | external           |         |                     |
|          |     | contractors.       |         | long-term contracts |
|          |     |                    |         | with contractors    |
|          |     |                    |         | and partly buy from |
|          |     |                    |         | external suppliers. |
+----------+-----+--------------------+---------+---------------------+
| Laterite | Ab  | Occasional         | 100% /  | Own supply source   |
|          | out | purchase from      | 0%      | kept as reserve.    |
|          | 8   | long-timed         |         | Currently buy from  |
|          |     | sellers.           |         | external sellers.   |
+----------+-----+--------------------+---------+---------------------+
| Gypsum   | Ab  | Long-term          | 100% /  | Currently buy from  |
|          | out | contracts with     | 0%      | external sellers    |
|          | 6   | suppliers and      |         | and partly operate  |
|          |     | partly operate     |         | from own source.    |
|          |     | from own source.   |         |                     |
+----------+-----+--------------------+---------+---------------------+
| Kraft    | 1   | Buy from           | 100% /  |                     |
| Paper    |     | affiliate.         | 0%      |                     |
+----------+-----+--------------------+---------+---------------------+
| Fuels    |     |                    |         |                     |
+----------+-----+--------------------+---------+---------------------+
| Lignite  | Ab  | Long-term          | 70% /   | Buy 30% from        |
|          | out | contracts with     | 30%     | affiliates and 70%  |
|          | 4   | suppliers and      |         | from external       |
|          |     | occasional buying. |         | suppliers. (Two     |
|          |     |                    |         | external suppliers  |
|          |     |                    |         | with over 30%       |
|          |     |                    |         | purchasing value    |
|          |     |                    |         | exist)              |
+----------+-----+--------------------+---------+---------------------+
| P        | 1   | Long-term          | 0% /    | Buy from affiliate. |
| etroleum |     | contracts with     | 100%    |                     |
| Coke     |     | suppliers and      |         |                     |
|          |     | occasional buying. |         |                     |
+----------+-----+--------------------+---------+---------------------+
| Lignite  | 3   | Long-term          | 0% /    | Buy from 1          |
|          |     | contracts with     | 100%    | affiliate and from  |
|          |     | suppliers and      |         | 2 external          |
|          |     | occasional buying. |         | suppliers.          |
+----------+-----+--------------------+---------+---------------------+
| Bunker   | 4   | Occasional buying. | 100% /  |                     |
| Oil      |     |                    | 0%      |                     |
+----------+-----+--------------------+---------+---------------------+
| Biomass  | 15  | Long-term          | 100% /  | Buy all from        |
| e.g.     |     | contracts with     | 0%      | external suppliers. |
| husk,    |     | suppliers and      |         |                     |
| palm     |     | occasional buying. |         |                     |
| shell,   |     |                    |         |                     |
| s        |     |                    |         |                     |
| aw-dust, |     |                    |         |                     |
| etc.     |     |                    |         |                     |
+----------+-----+--------------------+---------+---------------------+

3.2 Environmental Protection

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

1.  1) Environmental Protection

    1.  Dust Control: The Company has installed electrostatic
        precipitators, the most sophisticated technology, and filter bag
        dust collectors in every manufacturing process that causes dust.
        It has invested over Baht 4,300 million or 10% of total
        machinery capital expenditure for the environmental protection
        equipment. Besides, its preventive maintenance plans enable the
        plants to work efficiently all the time. It also provides raw
        material silos and closed transportation systems to reduce dust
        spread. Regarding mining, the modernized Semi-Open Cut Mining
        has been introduced. This opens the face of the mine deep into
        the middle of the hills like stairways while the surface still
        maintains the mountain features, preventing noise and dust from
        scatter. During the mining process, water is sprayed nearby the
        raw material receipt basin and when piles are scattered. To
        reduce dust spread in transportation, water is also sprayed on
        raw materials and roads.

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

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

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

2) Natural Resources Conservation

  2.1) Raw Material and Fuel Substitutes: The Company has reused scraps
  and industrial waste as raw material and fuel substitutes in cement
  production without any impact on product quality and the environment.
  This reduces natural resources consumption and helps the country
  eradicate industrial waste. At present, every grey cement plant in The
  Siam Cement Group acquired Total Waste Quality Adjustment Permit
  (Number 101) from The Ministry of Industry to operate such activity as
  a plant. The Company is the first to receive the permit. In 2003, the
  Company installed more machinery to manage scraps and waste in eight
  projects with a value of Baht 57 million. This annually utilizes over
  500,000 tons of scraps and waste in cement burners. In addition, The
  Concrete Products and Aggregate Co., Ltd. has replaced some of its raw
  material with 500,000 tons of Fly Ash. Nowadays, about 300 factories
  have contacted the Company to treat their scraps and industrial waste.

  2.2) Machinery Modification: The Company has surveyed each plant
  energy usage and has continuously modified the machinery to increase
  its efficiency to reduce electricity and heat consumption. In 2003,
  over 20 modification projects with a value of Baht 180 million were
  implemented, for example, the cement mill modification at Ta Luang
  Plant, and the clinker cooler efficiency increase at Kaeng Khoi Plant,
  etc.

3) Sustainable Development

  3.1) Communal and Social Support: Apart from strictly conserving the
  environment, the Company has generated regular community relation
  activities, including the “Tiger Cement for Thailand” Project which
  supports and promotes creative activities and quality of life.
  Different dimensions prevail such as environmental protection, native
  Thai sport conservation, educational support, public welfare
  enrichment, fundamental public health enhancement, and Thai cement
  plastering man career promotion. The Company strongly intends to
  develop local communities with creativity and participation in
  assorted activities to improve the quality of life for the surrounding
  people and society.

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

  3.3) Management System: In order to efficiently manage the environment
  and safety as a fundamental working system, every company has to
  comply to the ISO 14001-Environment Management Standard and the TIS
  18001-Occupational Health and Safety Management Standard with
  consistent reviews and evaluations. The Siam Cement (Ta Luang) Co.,
  Ltd. was the first to receive every certification in management
  system, namely, ISO 9001, ISO 14001, and TIS 18001. Nowadays, every
  grey cement plant of the Group has already acquired all of the above
  certifications.

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

4 Undelivered Projects or High-Valued Purchase Agreements

None

Petrochemical Business

1.  Product or Service Features

1.1 Olefins

  Olefins is primary petrochemical product comprising Ethylene and
  Propylene which are main raw materials for Polyolefins plastic and
  related products such as Polyvinyl Chloride and Styrene Monomer. The
  Company’s current capacity is 1,200,000 tons per year (Ethylene +
  Propylene), the largest capacity in Thailand. It also incurs
  by-products, e.g. Mix-C4, Benzene, and Toluene, most of which are fed
  to plants of the Company and subsidiaries.

1.2 Polyolefins

  Polyolefins is chief product of the Company with the country largest
  capacity of 1,080,000 tons per year. It covers a wide range of
  applications as follows:

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

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

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

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

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

  1.3 Jetty & Tank Terminal

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

2.  Market and Competition

  2.1 Policy and Market Features of Main Products and Services

  Polyolefins is a commodity with a fairly volatile price cycle.

1) Competitive Strategy

-   Price and Cost

  Domestic and export prices are closely correlated with world prices,
  therefore, the Company adds consistent quality and customer
  satisfaction service as the product premium. In addition, the Company
  stresses low manufacturing cost as its first priority to counter the
  competitive price. Since petrochemical industry needs high investment,
  the Company emphasizes new plant buildings and capacity expansion to
  get an economy of scale with lowest investment cost per unit and
  integrated production to augment competitive advantages. The Company
  has also regularly reduced its manufacturing cost with Total Quality
  Management-TQM, and brought Information Technology-IT into both
  manufacturing and marketing processes, e.g. Advanced Process Control
  to increase production efficiency and effectiveness.

-   Product Quality

  The Company has a policy for qualified products without environmental
  and communal impact. Every plant acquired ISO 9002 certification.
  Research and development teams also constantly improve polyolefins
  quality to fully respond to customer needs.

-   Service

  The Company substantiates that service is the heart of selling aiming
  to maximize customer satisfaction. It has developed CRM (Customer
  Relationship Management), an IT application, to correctly and timely
  suit customer needs, which leads to sustainable customer relationship.
  Under CRM, customers can order products via the Internet e-Selling
  system. Moreover, the Company provides technical recommendations in
  polyolefins transformation, altogether with fast and accurate
  delivery. It engages plans to develop and increase service efficiency
  simultaneously with customers’ plans to level up service standard and
  react to different customer targets’ needs.

-   Management

  Since polyolefins quickly changes in both demand and price,
  administering as well as accurate and rapid decision are very
  important. The Company consequently installed the Supply Chain
  Management to computerize linkages between departmental systems. This
  increases ability to match customer needs and industry changes. The
  Supply Chain Management consists of forecasts of order, sales,
  delivery, production, and raw material purchase as well as inventory
  management.

2) Customer Features and Target Groups

  Target groups are polyolefins transforming factories classified
  according to formation types. They are 58% film, 18% injection
  molding, 11% monofilament & yarn, 8% blow molding, and 5% others such
  as lamination, extrusion, and piping.

  Most customers are small and diffused. The Company has no risk from
  sales to any customer over 30% of its total sales.

3) Channel of Distribution

  The Company had 60% domestic sales and 40% exports in 2003.

-   Domestic Sales

  There are two types of customers. 70% are domestic customers and 30%
  are re-exporters. For the former, 35% is direct sales while the rest
  (65%) is sold through agents who bear financial risks and distribute
  products to small users. The latter is mostly direct sales.

-   Exports

  Exports are mainly sold within the Asia-Pacific region. Products are
  directly distributed to end-users or local distributors to efficiently
  match customer needs. At present, the Company has 7 representative
  offices in Myanmar, Vietnam, the Philippines, China (Shanghai and
  Guangzhou), Japan, and Australia. The proportion is Indochina (20%),
  China (18%), Africa (17%), Southeast Asia (15%), U.S.A. (10%), South
  Asia (6%), Europe (5%), and others (9%).

  The company internationally exports over 400,000 tons per year without
  concentration in any one country to avoid direct confrontation with
  multinational players and reduce political or economical risks. Global
  customer base enables the Company to manage the export quantities for
  profit optimization since price in each country differs, depending on
  market conditions.

2.2 Competition and Capacity

-   Domestic

  Thailand possesses polyolefins capacity of 2.8 million tons per year
  while country demand in 2003 was 1.7 million tons. Hence, 40% were
  exported. Import tariff for the polyelefins has been reduced according
  to AFTA, causing high competition. However, when comparing with local
  producers, the Company has the highest polyolefins capacity in the
  country (about 40%). Details are shown below.

Unit: thousand tons/year

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

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

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

  HMC Polymers (HMC)           -        -        -        455      455

  Siam Polyethylene (SPE) *    -        300      -        -        300

  Bangkok Polyethylene (BPE)   200      -        -        -        200

  Total Capacity               900      400      250      1,250    2,800
  ---------------------------- -------- -------- -------- -------- --------

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

  Source: SCC, Petroleum Institute of Thailand.

-   Foreign

  In 2003, Polyolefins demand in Asia equaled 32 million tons with China
  as the biggest importer. Major exporters are The Middle East, Korea,
  and Singapore.

Polyolefins Market in 2003 and Trend in 2004.

  In 2003, demand in the country and Asia was rising. Even though there
  was a little slowdown from The Middle East war and SARS outbreak,
  demand continuously grew in the second half of the year due to growing
  Thai and world economies. The rather tight supply from problems in
  some regional plants and stable high oil prices caused by the OPEC
  pushed up the polyolefins price.

  In 2004, it is estimated that demand will be continuously mounting as
  a result of improving world economy whereas new capacity is limited.
  Consequently, the situation will become tighter, pursuing the upward
  price trend.

3 Product or Service Procurement

3.1 Product Procurement Feature

1) Production

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

+-----------------+-----------------+---------+---------+------------+
| Company         | Product/Service | Capaci  | Year    | %          |
|                 |                 | ty (Ton | First O | Sh         |
|                 |                 | /Year)  | perated | areholding |
+=================+=================+=========+=========+============+
| Rayong Olefins  | Ethylene        | 800,000 | 1999    | 62         |
|                 |                 |         |         |            |
|                 | Propylene       | 400,000 |         |            |
+-----------------+-----------------+---------+---------+------------+
| Thai            | HDPE 1          | 140,000 | 1989    | 100        |
| Polyethylene    |                 |         |         |            |
|                 | HDPE 2          | 180,000 | 1997    |            |
| Thai            |                 |         |         |            |
| Polyethylene    | HDPE 3          | 240,000 | 2001    |            |
| (1993)          |                 |         |         |            |
|                 | LLDPE           | 100,000 | 1990    |            |
| Thai            |                 |         |         |            |
| Polypropylene   | LDPE            | 100,000 | 1995    |            |
|                 |                 |         |         |            |
| Thai            | PP 1            | 140,000 | 1993    |            |
| Polypropylene   |                 |         |         |            |
| (1994)          | PP 2            | 180,000 | 1997    |            |
+-----------------+-----------------+---------+---------+------------+
| Map Ta Phut     | Jetty and Tank  | -       | 1998    | 81         |
| Tank Terminal   | Terminal        |         |         |            |
+-----------------+-----------------+---------+---------+------------+
| Rayong Pipeline | Pipe            | -       | 1998    | 91         |
|                 | Transportation  |         |         |            |
+-----------------+-----------------+---------+---------+------------+

2) Raw Material Procurement

-   Olefins Production

  Key raw material for olefins is naphtha with 30% from local oil
  refineries and 70% imported from The Middle East. In addition, The
  Plants are designed to use other substitute raw materials, such as
  LPG, raffinate, and condensate, when their prices are lower than
  naphtha.

-   Polyolefins production

  The Company has long-term purchase contracts with The National
  Petrochemical Pcl. (NPC) at 186,000 tons per year and with Thai
  Olefins, Pcl. at 139,000 tons per year. Price formula is referred to
  world price. Olefins produced by the Company will be supplied to
  polyolefins plants within the Group at 679,000 tons per year or 56% of
  its capacity. The rest is sold to external customers who are
  shareholders of its polyolefins plants. Besides, the Company can buy
  olefins from NPC and TOC since both have excess supply over the
  purchase agreements. Currently, Thailand has excess olefins supply,
  hence becoming a net olefins exporter.

3.2 Environmental Impact

 One major policy of the Company is environmental and social responsibilities awareness. It chose clean and low effluent technology and installed waste treatment systems since the plant inception. The Company now evaluates environmental impact both in the plants and in the offices so as to study and prepare standards for environment conservation and impact prevention. Consequently, all plants acquired the ISO 14001 certifications.

4 Undelivered Projects or High-Valued Purchase Agreements

None

Paper and Packaging Business

1.  Product or Service Features

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

1.  Pulp and Printing & Writing Paper Business

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

2.  Industrial Paper Business

  Major products comprise Kraft paper for cement bag, corrugated paper
  boxes, coated white paper, and gypsum board paper.

3.  Packaging Business

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

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

2.  Market and Competition

  2.1) Marketing

  2.1.1 Marketing Strategy

Due to intense competition, the Company places important value on
product, service and technology development for highest customer
satisfaction. In 2003, it emphasized on consistent service by extending
the Web Ordering System for Printing & Writing Paper segment to order
via the Internet. In addition, the Company started to help develop
inventory management systems for customers.

Nowadays, apart from being used as containers to prevent transportation
damages for general products, paper containers are widely used for
electrical appliances, electronic equipment, medical appliances and
equipment, as well as food. Consequently, producers of paper containers
are aware of safety and occupational health concerned. In 2003, The
Container Business of the Group has implemented the Good Manufacturing
Practice (GMP) in its production process to assure that every item has a
standardized quality. GMP covers all manufacturing process, including
raw material control, manufacturing sites, machinery, and
health-concerned training for employees. As a result of this strict GMP
implementation in all production procedures, Thai Containers Co., Ltd.,
Thai Containers Industry Co., Ltd., and Thai Containers Ratchaburi
(1989) Co., Ltd., acquired certifications of standardized production
process from BVQI, a world-class institute. These three companies were
the first corrugated paper box producers to obtain the GMP awards.

In addition, The Container Business has stressed on new container forms
and styles for each product category, especially in creative format,
convenience, and environment protection. In 2003, it participated in
providing knowledge and recommendations for general and OTOP
entrepreneurs to develop Thai products to be internationally accepted.

  2.1.2 Customer Features

Pulp and Printing & Writing Paper Business

  Pulp

  Bagasse Pulp : Mostly supplied to affiliates in the Paper Buisness

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

Printing & Writing Paper

  Domestically sold to external customers like agents, direct users such
  as printing houses, and paper processing plants.

  Exports are for Hong Kong, the U.S.A., Singapore, Malaysia, etc.

Industrial Paper Business

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

  Gypsum Board Paper Sold to two domestic gypsum board producers.

  Coated White Paper Box Sold to domestic customers and exported to
  Malaysia, for example.

Container Business

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

  2.1.3 Strengths and Weaknesses

Pulp and Printing & Writing Paper Business

Pulp

Strengths:

-   Bleached and unbleached pulp with consistent good quality.

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

-   Total Quality Management - TQM and Total Productivity Management –
    TPM

Weaknesses:

-   Quantity of bagasse depends on sugar cane produces.

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

  Printing & Writing Paper

  Strengths:

-   Integrated business

-   Strong channel of distribution and marketing systems

-   Member of prestigious and well known Siam Cement Group

-   Market leader

-   Long and good relationship with customers

-   Capable and experienced employees

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

Industrial Paper Business

  Strengths:

-   Integrated business

-   Highest capacity

-   Market leader

-   Eight machines available to respond to market needs

-   Member of prestigious and well known Siam Cement Group

-   Long and good relationship with customers

-   Capable and experienced employees

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

  Weaknesses:

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

Container Business

  Strengths:

-   Market leader

-   Eight plants all over the country to serve customers.

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

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

-   Member of prestigious and well known Siam Cement Group

-   Staff with Master Degree in Packaging & Printing Technology

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

  Weaknesses:

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

  2.1.4 Channel of Distribution

Pulp and Printing & Writing Paper Business

  Pulp

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

  Proportion: 100% direct sales

  Printing & Writing Paper

  Channel :

Proportion (%)

Domestic Sales 

  - Distributor 28

  - Direct 53

Exports

  - Distributor 19

Total 100

  Authorization of dealers: There are 15 domestic dealers and 31 foreign
  dealers.

Criteria, number, and material of authorization contracts:

 Factors considered in selection of dealers:

1.  Financial status, e.g. capital, liabilities, working capital, etc.

2.  Market Potential, e.g. market coverage, service capability

Main objective in the agreement aims to provide discount to dealers so
they can serve end-users, usually small ones.

Industrial Paper Business

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

  Proportion: 100% direct sales

Container Business

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

Proportion : 100% direct sales

  2.2) Industry, Competition, and Trend

Thai pulp and paper business has consistently grown due to growing
economy from domestic consumption and increasing export, leading to
container needs. Besides, print media advertising by various businesses
as well as export potential development of printing houses, have
encouraged local demand for printing & writing paper. All these factors
have led to more pulp demand.

In 2003, every Thai pulp producer geared to short-fibred pulp at its
full capacity, thus countering customer needs. Import of short-fibred
pulp will be descending while one of long-fibred pulp will be ascending
due to a lack of local source.

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

  Pulp

In 2003, supply of short-fibred pulp grew 3% to 987,000 tons as a result
of machine modification to increase production efficiency.

Pulp world price in 2003 greatly fluctuated, with high price caused by a
lack of timber in the beginning of the year. However, price lowered in
the second quarter from reduced world demand as a result of SARS in
Asia. After SARS was controlled, China rejoined the market demand; world
price therefore has rallied up.

Pulp industrial structure can be described below:

1.  A 6% growth of domestic short-fibred pulp is projected due to
    increasing demand in industrial paper for export, printing & writing
    paper and sanitary paper. Every pulp plant utilizes at its full
    capacity, reducing import of short-fibred pulp.

2.  Entry Barrier

-   High investment, large machinery, and sophisticated technology.

-   Large capacity needed to acquire economy of scale.

-   Secured supply source needed, for example, eucalyptus takes 5 years
    before it can be cut down.

3.  Raw Material Substitute. If eucalyptus is sufficient in the future,
    it might replace bagasse short-fibred pulp.

4.  Bargaining Power. Since a few local pulp producers exist while one
    or two of them sell for affiliates only, they have some bargaining
    power. On the other hand, they cannot impose too high a price
    because pulp price is always referred to world price.

5.  Local Market. Most pulp producers serve their internal use like
    their own paper plants. On the contrary, excess supply will be
    balanced by selling to external local paper plants such as printing
    & writing paper ones and sanitary paper ones. The rest is exported.

6.  There are 2 pulp competitors.

  Printing & Writing Paper

1.  Trend. The demand in 2003 increased 9% to 469,000 tons per year as a
    result of growing local economy that enhanced print consumption.

2.  External Factors

-   Price fluctuations of imported raw material

-   Trend of paper world price

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

4.  Product Substitute. Low opportunity for this because this type of
    paper is mostly consumed in business communication and educational
    matters.

5.  Bargaining power. Buyers have more power due to:

-   Excess domestic supply.

-   Regional players’ capacity increase encourages more competition in
    the market.

6.  Competitive Situation and Competitors’ Market share. In 2003,
    capacity utilization was 48%, leading to tense rivalry. Export was
    necessary to utilize machines and avoid price war in the country.
    Simultaneously, export competition became tough due to uncertain
    world economy and excess supply.

7.  About 3 competitors exist.

2)  Industry and Competition of Industrial Paper Business

In 2003, local demand increased 8%, benefiting from general health of
Thai economy, especially in quarter 1 and 3, while turnover in quarter 2
was slow down from SARS outbreak. Paper and its raw material price moved
with a great variation.

Industry structure of industrial paper business are narrated below:

1.  In 2003, two local producers raised their capacity, causing excess
    supply. In 2004, local demand will increase 7%, depending on the
    country, regional, and world economies. More capacity will be
    available from local and regional players.

2.  External Factors

-   Raw material price fluctuations.

-   Trend of paper world price.

-   In creasing regional capacity.

3.  Entry Barrier. Low possibility due to high investment, scarce raw
    material, volatile prices, and some downstream businesses needed.

4.  Product Substitute. Low possibility.

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

6.  Local Competition and Markets. Year 2003 was a year of high
    competition in price, quality, and service. Raw material prices
    fluctuated whereas producers had rigid selling price adjustments.
    Increasing regional capacity stipulated price war in export markets.

7.  Number of key domestic competitors is 12.

3)  Industry and Competition of Container Business

In 2003, corrugated paper box demand increased 8% from private
consumption and investment. The Country export accomplished a high
growth, especially in electrical appliances. The Company had a 6% sales
increase from 8 plants throughout the country to cover the market and
speed up the service. This enables the Company to become the market
leader of corrugated paper boxes.

In 2003, large and small producers total 400. Original producers added
their capacity and aggressively stepped into the corrugated paper box
market and sheet board plants. Not so high a competition this year, but
price is still the tool. Even though the economy is better, several
customers try to reduce cost, for example, finding outsourcers. Some
uses e-Auction, encouraging suppliers to bid at lower prices.

3.  Product or Service Procurement

3.1 Raw Material and Suppliers

Pulp and Printing & Writing Paper Business

  Pulp

Raw Material Type: Eucalyptus portions, and Bagasse.

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

  Printing & Writing Paper

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

  Source:

-   Bleached long-fibred pulp from 8 foreign vendors.

-   Bleached short-fibred pulp from 2 local suppliers.

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

  Obstacles:

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

Industrial Paper Business 

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

  Source:

-   50% Waste paper from 240 local suppliers and 50% from 25 foreign
    vendors.

-   Bleached short-fibred pulp from 2 domestic suppliers.

-   80% Unbleached short-fibred pulp from 1 Thai vendor and 20% from 1
    foreign supplier.

-   Bleached and unbleached long-fibred pulp from 8 overseas vendors.

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

  Obstacles:

 Unbleached and bleached long-fibred pulp are all imported. Unbleached short-fibred pulp is bought domestically and from abroad which takes 30-45 days. Bleached short-fibred pulp is totally found in the Country. Local waste paper is in limited supply with a rather competitive buying. Import is therefore made with a higher price.

Container Business 

  Raw Material Type: Kraft paper.

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

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

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

3.2 Business Potential Creation for Customers

To enhance knowledge and potential in business administration for customers in the paper industry, the Company organized an Executive Management Seminar 2003 led by qualified instructors from a world-class institute for over 100 customers. The Company has continuously organized the project to support the government policy of knowledge management to calibrate Thailand’s competitiveness in the global market.

3.3 Environmental Protection

The Company and its subsidiaries have participated in “The Paper Life
Cycle Evaluation” originated by Chulalongkorn University and The
Thailand Research Fund (TRF). The research covers related industries,
i.e. eucalyptus plantation, pulp production, and paper production.
Computerized evaluation result showing environmental impact caused by
current production process will prepare the Company to counter with the
increasingly important ecological trading barriers.

3.4 Environmental Impact

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

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

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

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

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

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

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

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

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

1. Treatment of Waste Water from Production Process

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

2. Treatment of Air from Energy Production

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

3. Treatment of Production Scraps

There are two types of production scraps as described below:

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

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

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

3.5 Major Award received

 In 2003, Thai Paper Co. Ltd., a subsidiary in the Paper Business, achieved the Deming Application Prize, the world-class award for Total Quality Management (TQM), from the Union of Japanese Scientists and Engineers (JUSE). TQM results in continuous business growth and domestic market leadership.

4.  Undelivered Projects or High-Valued Purchase Agreements

None

Building Products Business

1.  Product or Service Features

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

2.  Ceramic wall and floor tile

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

4.  Others, e.g. insulation sheet

2.  Market and Competition

2.1 Competition Strategy

Avoid price war but emphasize on product development to serve customer
needs with quality control and compliance to international standards and
environment protection measures. This strategy reflects in the
acquisition of ISO 9002 and ISO 14001 certifications.

2.2 Target Groups

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

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

-   Ceramic products can be classified as follows:

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

  COTTO                   Middle to high class    Medium to high

  SOSUCO                  Middle to low class     Medium and medium plan
  ----------------------- ----------------------- -----------------------

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

2.3 Channel of Distribution

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

-   Roof and concrete products are 93% domestic sales and 7% foreign
    sales. Most exports are for Indochina and Myanmar.

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

2.4 Management

The Company started continuous organization development for its
flexibility along the current line of business operation. E-HR was also
initiated to increase HR management efficiency.

2.5 Competition

An intensely growing demand for domestic building products in 2003 has
led to weak price competition. Nevertheless, the Company adheres to the
policy to increase sales via better product and service development. It
also regularly launches new products for more customer choices.

-   Major Competitors in Roof Products:

1.  Mahaphant Group

2.  Diamond Roofing Tile Co., Ltd.

3.  Oran Group

-   Major Competitors in Ceramic Tile Products:

1.  Thai-German Ceramic Industry Pcl.

2.  Dynasty Ceramic Pcl.

3.  The Union Mosaic Industry Pcl.

4.  The Royal Ceramic Industry Pcl.

-   Major Competitors in Concrete Products:

1.  Chonburi Concrete Products Co., ltd.

2.  Southern Concrete Block Co., Ltd.

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

2.  Raw Material Procurement

There are two main raw materials:

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

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

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

About environmental impact, the Company has a strict policy to oversee
safety and the environment that might be affected by production process
and raw material or service procurement. Pollution control devices were
installed. At present, most companies obtained ISO certifications and
expect to acquire ISO 14001 certifications.

3.  Undelivered Projects or High-Valued Purchase Agreements

None

Distribution Business

1 Product or Service Feature

  The Distribution Business provides selling, logistics, distribution,
  and warehouse management for affiliates. Cementhai Distribution Co.,
  Ltd. is the holding company with the following subsidiaries.

1.  Cementhai Sales and Marketing Co., Ltd., sells domestic building
    products and home mart products.

2.  Cementhai Logistics Co., Ltd., oversees domestic logistics and
    distribution center management.

3.  SCT. Co., Ltd., manages imports and exports as well as foreign
    distribution.

4.  Cementhai Retail Co., Ltd., responsible for home mart products
    retailing via Cementhai Home Mart network.

2 Markets and Competition

  Market Policy and Features

  The Distribution Business aims to build values for customers, business
  alliances, and entrepreneurs by developing a standard logistics system
  for building products and home mart products to efficiently and highly
  meet customer needs in the region. In addition, it stresses management
  potential to coordinate for high quality integrated service in every
  company.

Cementhai Sales and Marketing Co., Ltd.

  Competition Strategy

  Management and Service

  The Company provides a strong distribution network to cover the
  country and respond to every segment of customers.

  To increase service potential for suppliers and customers,
  sophisticated computerized network links the Company, the
  manufacturers, and all agents to efficiently coordinate through the
  Business-to-Business e-Commerce, which can rapidly extend product
  distribution ranges.

  Channel of Distribution

  Building Products and home mart products are locally distributed
  through over 500 agents, 330 of which are Cementhai Home Marts. The
  Company market share is about 20% of the construction market that
  comprises building products, decorative products, and home mart
  products. Its distribution coverage is 75% of the building product
  channels in the country.

Cementhai Logistics Co., Ltd.

  Logistics market has a high potential growth while several companies
  tend to outsource more on logistics. This is an opportunity for the
  Company.

  Competition Strategy

  Management and Service

  The Company intends to provide a modern, accurate, and prompt loading
  service, delivery service and warehouse management with transportation
  contractor network, route management, warehouses, and systematic
  distribution. Modern information technology links all operations to
  timely and correctly distribute products to every segment of
  retailers, wholesalers, factories, and projects throughout the country
  and along the borders. The Company emphasizes on transportation
  efficiency to reduce costs and improve services for internal and
  external customers.

  The Company has developed logistics management for external customers
  via Web Application to heighten service level standard. Besides, it
  applied the system altogether with the GPS (Global Positioning System)
  to track the trucks on a real-time basis. Customers hence monitor
  current truck location as well as Estimated Time Arrival via the
  www.ctlnetwork.com.

SCT Co., Ltd.

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

  Channel of Distribution

  The Company has 11 branches in various countries, i.e. Cambodia,
  Vietnam, Myanmar, Malaysia, the Philippines, Singapore, Hong Kong, The
  United Arab Emirates, Australia, and the U.S.A. Products are
  categorized into 12 groups, that is, cement, iron steel, building
  products, decorative products, general products, special products,
  industrial-agricultural products, plastic & chemicals, aluminum
  products, pulp and paper products, mineral & spare parts, and energy.
  Proportion of export to import is 60:40. Main countries concerned are
  Indochina, the U.S.A., ASEAN, Asia, Europe, and South Asia,
  respectively.

  In addition, the Company places significance on value-added services,
  especially energy products, which can reduce fuel costs and raw
  material costs for factories within and outside the Group.

Cementhai Retail Co., Ltd.

  Competition Strategy

  Management and Service

  The Company has supported and developed the network to serve end-user
  needs. It is also a retailer for home mart, decorative, building
  products, and related services. Two categories of stores prevail. The
  first is the Cementhai Home Mart Max, which is a new network for
  homeowners. It is a modern trade selling building, decorative, home
  mart products, and being a service solution provider. The second is
  Cementhai Home Mart Builder that mainly serves craftsmen and
  contractors. This type of store stresses tidy layout and fast service
  for the target groups.

  Channel of Distribution

  Selling home improvement and home mart products through Cementhai Home
  Mart stores.

Business Policy of Cementhai Distribution Co., Ltd.

The business has a strong ambition to create value for customers and
trade partners by building the most accurate and fastest selling and
distribution systems of building and home mart products in ASEAN.

Information and Technology

The Company is seriously adapting to e-Commerce. For example, SAP, which
is one of the most sophisticated Enterprise Resource Planning Systems in
the world, is employed to increase operation efficiency. Information
technology is importantly engaged to equip each company’s capability.
More examples are Call Center to serve domestic customers and trade
partners, Warehouse Management System (WMS), Transportation Management
System (TMS), and Electronic Data Interchange (EDI) for customs
clearance serving customers in international trading.

The Company has brought in e-Commerce to timely respond to changing
customer needs. This was done in the B2B e-Commerce system via
e-Ordering from agents to enhance more convenient and faster ordering.

Supply Chain Management

The Company has a policy to manage the Supply Chain to increase selling
and distribution efficiency and add value to related parties. Each
department coordinates with information technology as a tool. Therefore,
customers get a complete and accurate reaction as well as more
satisfaction from better service. Managers can also make a decision to
reduce manufacturing cost and inventory space.

Customer Relationship management

The Company also emphasizes on Partner Relationship Management by
classifying trade partners and studying their needs and their potential
in order to faster and more efficiently serve each group.