1 Risk relating to Revenues and Profits

- Risk of fluctuation in raw material prices

  The primary raw material for manufacturing carbon black is carbon
  black feed stock oil, which is mostly imported and constitutes about
  90-95% of the total raw material cost and about 85-90% of cost of
  production. The prices of carbon black feed stock oil are closely
  related to fuel oil prices internationally. During the year the
  increase in crude oil prices remained unabated which was ever highest
  in 2004 and resulted in steep increase in raw material cost of the
  company. 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 2005.

  The company always exercise prudent judgment in covering the larger
  quantities of oil when the oil prices are low for requirement of
  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 low.

- 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 and specific
  features of the product. The company has the policy of fixing the
  price with major customers on 3-6 months basis to provide stability in
  the prices.

  Any increase in oil prices, adverse world economic situation due to
  any uncertainty in US economy due to huge trade and budget deficit
  slow, recovery of Japanese economy and its impact on economies of
  various countries, reduction in consumption and impact on Automobile
  Industry will affect the company’s profit margins. The ability to pass
  on the full impact of increased cost of raw material through higher
  selling prices of carbon black is limited due to competitive market
  condition of carbon black industry and the company may be able to pass
  on the impact of increase cost only partially.

- Exchange rate risk on Forex flows

  The company exports almost 45% of its production. The domestic sales
  prices are also indirectly influenced by exchange rates as the major
  raw material is imported. The company does not have any dollar
  denominated borrowings. As currently the raw material prices are high
  the company expect to have net deficit of US dollar in 2005 and any
  strengthening of Thai Baht will help company in buying the US dollar
  at lower rates thus will benefit the company, however at the same time
  the weaker Thai Baht does benefit the company for its export and
  domestic sales and any appreciation in the value of Thai Baht may
  impact company’s revenues and profits as it also affects the export
  competitiveness of the local automobile & tire industry and therefore
  may impact our domestic sales volume & pricing. This carries risk as
  well as provide opportunities.

  Thai Baht has shown continuous strengthening trend during the current
  year and it is expected that the strengthening trend will continue in
  the next year.

2.Risk from operations

- Risk from manufacturing operations

The company has an exhaustive preventive and predictive maintenance system to ensure good health of all its manufacturing equipments. It also has a regulated system of 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.

- 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 government and any situation of
  improper treatment carries environmental and political 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.

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

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

  - 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. 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 53% market share.
  There are 2 other carbon black producers in Thailand. During the year
  2004 new Carbon Black plant of Bridgestone in Thailand has started
  operations but company understands that the new plant will be
  manufacturing certain speciality grades for specific requirements for
  their captive consumption overseas and it will not affect company’s
  competitive position both in domestic and international market.In 2003
  the company has formed Joint Venture (JV) company with Private Chinese
  Enterprise in China with the share holding of 77% and this will help
  company to establish strong production and customer base in China and
  will leverage upon the various requirements of the customer either
  from plant in Thailand or from the subsidiary company in China.
  Currently the subsidiary in China is expanding its capacity as per
  plan and the expanded capacity will be operational in 3^(rd) quarter
  of 2005 and this will further strengthen its position in China.

4.Risk relating to financial management 

-   Interest rate and foreign exchange risk on loans

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

-   Interest rate and credit risk on Short Term Investments

Interest rates have seen a continuous decline over last 2 years. Amidst
such declining trend, the short terms investments are exposed to risks
of lower yields. After hitting unprecedented bottom, interest rates have
just started inching upwards. Since the company has cash position, this
upward trend is positive for the company. However, the yields on
deposits already placed will always lag behind yield on fresh deposits.
The company makes every effort to exercise significant prudence in
selecting only healthy financial institutions and fixing maximum
exposure limit for each institution with varying tenors, upto a maximum
tenor of one years, for such investments.

-   Exchange risk on forex flows

  The company exports almost 46% of its production and at the same time
  the major raw material is 100% imported. Both exports and imports are
  dollar denominated.

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

  - 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.

5.External Risks

-   Global Economy

  With the liberalization of market based economies and global trade,
  breaking down barriers and shrinking the world into on big market
  place, no country or region can remain immune from the global economic
  trends. Any recession and uncertainty in major economies like USA,
  Japan and Europe , slow down in China and further volatility in oil
  prices may adversely affect the growth of automobile industry and in
  turn carbon black industry. The business cycles across all commodities
  have become shorter and volatile thereby raising risk of sharp
  fluctuation in business volumes and profitability margins The
  company’s product is well established in the international market,
  which will help consistent salability during the period of economic
  recession and volatility.

-   Geo Political risk

  The geopolitical events like terrorism and Middle East situation
  coupled with epidemics like bird flue etc have casted their
  repercussions worldwide, increasing costs and risk of business and
  impacting supply and demand cycles. The tension in South in Thailand
  has added another risk dimension to the business domestically. These
  risks have increased substantially in past few years for which company
  uses proactive financial and market risk anticipation and analysis
  coupled with increased global awareness.