13.1 Report of Independent Auditor

To the Shareholders of Thai Carbon Black Public Company Limited

I have audited the accompanying consolidated balance sheet of Thai
Carbon Black Public Company Limited and its subsidiaries as at 31
December 2007 and 2006, the related consolidated statements of income,
changes in shareholders’ equity and cash flows for the years then ended,
and the separate financial statements of Thai Carbon Black Public
Company Limited for the same periods. These financial statements are the
responsibility of the Company’s management as to their correctness and
completeness of the presentation. My responsibility is to express an
opinion on these financial statements based on my audits. The financial
statements as at 31 December 2007 and 2006 and for the years then ended
of one overseas subsidiary were audited by another auditor, whose report
has been furnished to me. My opinion on the consolidated and the
separate financial statements, insofar as they relate to the amounts
included for this subsidiary, is based solely on the report of that
other auditor. The financial statements of such subsidiary reflect total
assets as at 31 December 2007 of Baht 1,009 million (2006: Baht 1,185
million), total revenues for the year then ended of Baht 479 million
(2006: Baht 492 million) and net loss for the year then ended of Baht 81
million (2006: Baht 166 million). The Company’s separate financial
statements reflect the investment in this subsidiary accounted for under
the equity method, amounting to Baht 333 million as at 31 December 2007
(2006: Baht 258 million) and its share of loss from such investment for
the year then ended amounting to Baht 72 million (2006: Baht 128
million).

I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my audits
and the report of the other auditor referred to in the second paragraph
provide a reasonable basis for my opinion.

In my opinion, based on my audits and the report of the other auditor,
the financial statements referred to above present fairly, in all
material respects, the financial position of Thai Carbon Black Public
Company Limited and its subsidiaries and of Thai Carbon Black Public
Company Limited as at 31 December 2007 and 2006, the results of their
operations, and cash flows for the years then ended in accordance with
generally accepted accounting principles.

Without qualifying my opinion on the above financial statements, I draw
attention to the matter as discussed in Note 4 to the financial
statements whereby, effective 1 January 2007, the Company changed its
accounting policy for recording investments in subsidiary and associated
companies in the separate financial statements from the equity method to
the cost method. The Company has thus restated the separate financial
statements as at 31 December 2006 and for the year then ended to reflect
this accounting change.

Narong Puntawong

Certified Public Accountant (Thailand) No. 3315

Ernst & Young Office Limited

Bangkok: 27 February 2008

Financial Statement

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13.3 Ratio Analysis

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13.4 Management Discussions & Analysis (Company only)

Production

The plant continued to operate at full production capacity during the
year. The company has also undertaken the upgradation of one of its
production line to have improved productivity and to have better profits

The production of various grades of Carbon Black during the year was
higher by 4% compared to last year. This has been possible mainly due to
optimization of production process by way of debottlenecking and
improvement in the production process and upgradation of one of its
production line. The production level has reached to 221,000 Mt against
213,000 Mt last year.

During the year the Company has also decided to expand its production
capacity by another 75,000-80,000 MT/year approximately due to growth in
domestic automobile industry and export potential. The expansion project
is under implementation and expected to commence production by early
2009.

Sales Revenue

The Sales volume registered an increase of 6% whereas sales revenue
registered growth of 3% from Baht 6,595 million to Baht 6,802 million
despite stronger Thai Baht which was mainly possible due to increased
sales volume, better operational efficiency, higher productivity, better
product mix and lower cost of sales

The ratio of export to local sales for the year 2007 has changed from
49:51 to 46:54. It is Company’s strategy to strive the optimum product
and customer mix to enhance the contribution margin and sales volume.

Other Income

The dividend income of Baht 29 million from related and associated
companies is lower against Baht 46 million last year mainly due to one
time dividend payment of Baht 41 million received in 2006 from one
related company namely Thai Epoxy & Allied Products Co., Ltd due to its
plan to sale its entire business to another Associated company namely
Aditya Birla Chemicals (Thailand) Ltd. (ABCT).

Our Interest income of Baht 38 million is higher compared to 2006 of
Baht 21 million. Similarly we have recorded Export Incentive income of
Baht 11 million compared to Baht 12 million in 2006.

Cost and Expenses

The cost of sales was lower by 2.2% to Baht 5,088 million in 2007
against Baht 5,203 million in 2006 due to slight reduction in raw
material price because of stronger Thai Baht and better operational
efficiency.

However, your company would continue to strive for better energy
efficiency, improved productivity, cost outs, better product mix and to
upgrade its production facilities.

There is a Loss on exchange of Baht 42 million against loss of Baht 75
million last year mainly due to stronger Thai Baht which has impacted
export sales realization in Thai Baht.

Profits

The company has been able to record impressive net profits of Baht 1,083
million for the year 2007 compared to Baht 798 million in the previous
year thereby registered a growth of 36% despite continued very high raw
material prices and stronger Thai Baht. The increase in profit was
mainly due to increased sales volume, better operational efficiency,
higher productivity, better product mix and lower cost of sales

The share of profit from investment in associated companies is Baht 291
million in 2007 as compared to Baht 264 million in 2006 mainly due to
improvement in profit by Indonesian, associated company

The share of loss from investment in subsidiary companies is Baht 77
million as compared to Baht 129 million in 2006 mainly due to
improvement in performance of subsidiary company in China

Financial Position (Company only)

Assets

The total assets as at 31^(st) Dec 2007 amounted to Baht 6,896 million
compared to Baht 5,956 million for the previous year, an increase of
16%. Details of major assets are as follow

-   Cash

  The cash and cash equivalents and funds placed with financial
  institutions were higher at Baht 1,122 million compared to Baht 824
  million for 2006 mainly due to improved cash profit in 2007.

-   Trade Accounts Receivable

  At the year end Trade Accounts Receivables are slightly higher at Baht
  1,175 million compared to Baht 1,149 million for 2006. This is mainly
  due to increased sales.

-   Inventory

  At the year end the inventory was higher at Baht 984 million compared
  to Baht 841 million for the previous year. This is mainly due to
  higher raw material and finished goods inventory at year end. The raw
  material inventory is higher due to higher raw material cost whereas
  increase in finished goods inventory is due to some increase in
  inventory level in the normal course of business

-   Investment

  Investment in subsidiary companies at cost has increased from Baht 485
  million to Baht 668 million due to subscription in the increased
  capital by Baht 178 million in Liaoning Birla Carbon Co.,Ltd, China
  and Baht 5 million in Birla Carbon Mexico, S.A. DE C.V.,Maxico

  Investment in associated companies at cost was decreased from Baht 973
  million to Baht 707 million ie by Baht 266 million due to
  reclassification of investment in Alexandria Fiber S.A.E. from
  associated company to related company as the company’s shareholding in
  this company has been reduced from 27.5% to 14.4%

  Investment in related parties at cost was increased from Baht 255
  million to Baht 501 million due to reclassification of investment of
  Baht 266 million in Alexandria Fiber S.A.E. from associated company to
  related company and sales of its entire investment of Baht 20 million
  in Pan Century Oleochemicals Sdn. Bhd.

Liabilities and Shareholders Equity

The total liabilities for the year ended amounted to Baht 427 million,
an decrease of Baht 67 million. Like last year the company has made
provision of severance pay amounting Baht 4.8 million for Local staff.
The provision will be paid to eligible employees upon their retirement
and was determined in accordance with length of service of employees at
certain specified rates by reference to labour laws and based upon the
probability that employees will work until reaching their retirement
age.

Trade Accounts payable have slightly decreased mainly from Baht 83
million to Baht 79 million in the normal course of business.

The shareholders equity at the year-end was higher by Baht 873 million,
an increase of 15.6% mainly on account of profit for the year

Earning per share

The earning per share was Baht 3.61 in 2007 compared to Baht 2.66 in
2006 due to higher profit for 2007.

Book value per share

The book value per share increased to Baht 21.56 in 2007 against Baht
18.65 due to profit during the year.

Analysis of Financial Ratios (Company only)

Liquidity

The company’s current ratio at 9.51 reflects Company’s very strong and
comfortable liquidity and cashflow position. The current assets
increased by 17% mainly due to increase in inventory in the normal
course business and surplus funds due to improved performance.

Equity

The company has historically maintained very low debt to equity ratio.
At the year end, company did not have any long term and short term
borrowings except very minor overdrawn balance. The debt to equity ratio
is 0.07:1

Profitability

The gross profit margin of the company increased to 25% as compared to
21% in 2006.The net profit margin also increased to 15.7% compared to
11.95% in 2006 mainly due to improved performance by way of increased
sales volume, better operational efficiency, higher productivity, better
product mix and lower cost of sales. The return on average shareholders
equity based on total profit after tax is 17.95% compared to 14.73% last
year.

Efficiency

The return on fixed assets is improved from 77 % to 86 % due to improved
profitability. The inventory turnover ratio is reduced from 7.1 to 5.6
in 2007 due to increase in inventory

Return on total assets was improved from 13.5 % to 16.4 %.

Remuneration to Auditors

1.  Audit fee

  Company and subsidiary paid audit fee for year 2007 as per details
  given below

+-----------------------+------------------------+--------------------+
| Company name          | Audit firm             | Audit fee          |
+-----------------------+------------------------+--------------------+
| Thai Carbon Black Pcl | Ernst & Young Office   | Baht 730,000-      |
|                       | Limited                |                    |
+-----------------------+------------------------+--------------------+
| Liaoning Birla Carbon | Beijing Jingdu         | RMB 120,000-       |
| Co.,ltd               | Certified Accountants  |                    |
|                       | Co.,Ltd                | (Approx. = Baht    |
|                       |                        | 570,636)           |
+-----------------------+------------------------+--------------------+

Other fee - Nil