Risk Factors

As The Siam Cement Public Company Limited is a holding company, its revenue and risks depend on affiliates’ business risks.

The Group’s better performance partly stemmed from internal business
efficiency improvement correlated with the changing environment.
Examples were improvement of production efficiency, services, marketing,
selling, and logistics systems to increase sales well as reducing
service costs, administration, interest, and financial expenses. This
led to total advantage for the Group. Nevertheless, business is not able
to escape from various business risks that impact both opportunities and
threats. Such risks are classified hereunder:

Business Risk

  Product and raw material prices in the Group’s Petrochemical, and
  Paper and Packaging Businesses are correlated with world prices. This
  might affect the business in both raw material cost and selling
  prices. Even if this specific character is generally accepted by the
  industry, the Group uses its relentless effort to lessen risk from
  volatile world prices. Instruments are advance raw material
  procurement to prevent price changes, raw material substitute from
  local sources, price adjustments to meet changing production cost and
  world price as well as other production cost reduction. All are
  intended to create balance with other risks and competitive capability
  both short term and long term.

Raw Material Procurement Risk

  Quantity and price of raw material are major risk factors concerned
  for industrial entrepreneurs. This is not an exception for The Siam
  Cement Group. Nevertheless, the Group’s production of cement, building
  products, ceramics, and paper mostly utilize local raw materials. The
  Group prepares advance raw material procurement plan such as buying
  raw material sources, securing long-termed concession, establishing a
  specific unit to explore sources, and consistently researching and
  developing on raw material and its substitute, to ensure the security
  of quantity, quality, and cost of raw materials in the long run. The
  plan includes purchasing agreements with several local suppliers to
  balance the quantity and encourage price bargaining power in due
  course.

  About imported raw material, e.g. naphtha, which is a key input for
  petrochemical upstream products, the Group has entered into
  long-termed buying contracts with overseas manufacturer and
  distributors and set up a trading office in Singapore to buy naphtha.
  A company in the Distribution Business, with its branches in major
  cities all over the world, acts as an importer of raw materials for
  all affiliates. Therefore, the Group can find reasonable sources with
  good quality and fair price, reducing most production risks.

Management Risk

  The Company is listed in the Stock Exchange of Thailand while none of
  shareholders or any group of shareholders holds more than 50%. Neither
  major shareholders nor any management has a conflict of interest with
  the Company. In addition, the Board of Directors conforms to the Code
  of Best Practices regulated by the SET. The Group strictly and
  concretely adheres to the Good Corporate Governance, employing
  business ethics, transparency and disclosure in every level of the
  organization. Each business unit has its own management team with the
  President or the Vice President responsible as the chairman. The
  Group’s Management Committee and the Board of Directors supervise
  business unit management, encouraging systematic and professional
  management, hence reducing most management risk.

Financial Management Risk

  This risk can be divided into

1.  Interest Rate Risk

  Fluctuation of interest rate normally affects business performance,
  nevertheless, current low interest rate and its low trend does not
  heighten the risk in the short run.

  In the long run, interest rate risk still prevails, therefore, the
  Group has managed this risk by seeking domestic and overseas lenders,
  optimizing capital structure to be in line with use of funds, e.g.
  long-termed loan matches capital expenditure, long-termed investment
  and expanding projects whereas the short-termed one, with lower
  interest rate, is being used as working capital. Furthermore, interest
  rate SWAP is another instrument to prevent interest rate risk.

  As at December 31, 2003, the Group issued domestic debentures for Baht
  90,500 million, with the redemption period during 2004-2007. The Group
  has fixed the coupon rate for over 94% of all debentures to lessen
  interest rate risk. Besides, the time issuance and payment date are in
  ten series to be in-line with cash flow from operation and debt
  coverage of the Group.

2.  Foreign Exchange Rate Risk

  The Company has reduced the foreign exchange rate risk by employing
  domestic debentures accompanied with SWAP and forward to change
  foreign loan commitments into Thai Baht. As a result, foreign loans
  represents only 1% of outstanding loans as at December 31, 2003, hence
  rarely been affected by fluctuations of foreign exchange rate. In
  addition, export in overseas currency or natural hedge helps reduce
  the remaining risk.