Risk Factors

In the year 2009, business operations have risks from external factors
i.e. political turmoil in Thailand, Southern unrest, border issues and
diplomatic disputes with neighboring countries, and the court trial on
Map Ta Phut case, resulted in the halt of growth and slow progress of
Thai economy, as well as the government spending. Key risks are listed
as follows:

1. The court trial on Map Ta Phut case The Central Administration Court
has ordered the government agencies to temporarily halt 65 projects in
Map Ta Phut and neighboring areas, 18 of which belong to SCG which most
of these are joint-venture projects with the total value of
approximately 57,500 million Baht. Such temporary halt caused the
financial impact, comprising expenses from removal of constructors out
of the sites, additional costs to preserve the construction conditions
to ensure safety and workability without damages, the cost of loss of
opportunity, agreement cancellation expenses, interest, wages and
expenses from loss of business operation, depending on the phrases and
steps of construction. SCG is working closely with related government
agencies and parties concerned to determine the total losses of each
project in order to ensure minimum impact to all stakeholders.

2. Two business units have been affected by the decrease of demand which
are:

  2.1 SCG Distribution Due to the political factors and economic
  downturn resulted in the decline in sales of SCG Distribution,
  responsible to distribute SCG products, by 15.6 percent whilst the
  domestic demands for grey cement remained close to last year’s record.
  SCG strived to maintain the leading position in the market and to
  increase its competitive advantage through development of high
  value-added products and services to satisfy the various needs of
  customers and promotion of the eco-friendly products by the launch of
  SCG eco value label. In addition, the Group expands the markets and
  investments in regional markets in order to match with the future
  market growth in ASEAN.

  2.2 SCG Paper Due to domestic and regional economic slowdown
  manifested a higher competition risk in both local and regional
  markets. SCG Paper has adjusted the action plans to reduce
  manufacturing costs, control fixed administrative expenses, develop
  new export channels, and reduce and control the level of working
  capital in order to enhance the capability to adjust itself when raw
  material prices fluctuate.

3. Fluctuation of product prices and raw materials referred to the
global market prices affect to the businesses as follows:

  3.1 SCG Chemicals The price of goods and raw materials of SCG
  Chemicals fluctuate according to the global price. In 2009, the
  Naphtha price decreased at an average of 274 USD/ton while the price
  of plastic resin decreased at an average of 342 USD/ton. SCG attempts
  to maintain its share in its strategic markets, driving sales in the
  markets which give better yields and expedites forward-selling to
  enhance its selling opportunity.

  3.2 SCG Cement Coal is a primary source of energy and its price
  follows the global oil price which tends to increase because of rising
  demands from global economic recovery. As a result, the cement
  manufacturing costs were higher than the projection. SCG solved the
  certain problems by leveraging use of alternative energy, exploring
  new source of energy, entering into long-term sales and purchase
  agreement of coal, and investing in the projects associated with
  efficient energy generation and consumption. For instance, the waste
  heat power generator project.

  3.3 SCG Building Materials In 2009, the price of natural gas had an
  upward trend and increased by 23 percent from the beginning of the
  year. The rising price affected the business operations of SCG
  Building Materials by causing the higher manufacturing costs. SCG has
  enhanced the production efficiency and boosted utilization rate of
  alternative energy in order to mitigate the certain risk and to
  increase its competitive advantage through development of high
  value-added products and services to satisfy the various needs of
  customers and promotion of the eco-friendly products by the launch of
  SCG eco value label.

4.  Foreign exchange risk fluctuation affects many of SCG business units
    which involve import and export. Most of the risks can be mitigated
    through the natural hedges and other financial instruments such as
    Forward. In addition, as at the end of 2009, SCG had loans nominated
    in foreign currencies at 12 percent out of the total loans. The loan
    facilities have been utilized for SCG investment projects, which
    most of them have been generating income nominated in foreign
    currencies. Hence, the risk from foreign exchange rate fluctuation
    was primarily mitigated.