3. Operation of Each Business Unit

Petrochemicals 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 Olefins capacity is 1,200,000 tons per year, 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 main product of the Company with the country’s 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. It is
    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. It is proper for industrial
    and agricultural films such as plastic rice bags, etc.

4)  Low Density Polyethylene – LDPE Outstanding features are clearness
    and high stiffness. It is 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. It is 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. In 2004, CCC Polyolefins Co.,Ltd. and Siam Mitsui PTA
  Co.,Ltd. received Deming Application Prize from the Union of Japanese
  Scientists and Engineers (JUSE). This prize is mainly given to a
  company with well practise of TQM. Moreover, the business 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.
  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 57% film, 19% injection
  molding, 9% monofilament & yarn, 8% blow molding, and 7% 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 62% domestic sales and 38% exports in 2004.

-   Domestic Sales

  There are two types of customers. 70% are domestic customers and 30%
  are re-exporters. For the former, 40% is direct sales while the rest
  (60%) 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 6 representative
  offices in Myanmar, Vietnam, the Philippines, China (Shanghai and
  Guangzhou), and Japan. The proportion is Europe/U.S.A./Africa (34%),
  Southeast Asia (31%), East Asia (21%), South Asia (8%), and others
  (6%).

  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 3.1 million tons per year
  while country demand in 2004 was 1.9 million tons. Hence, 40% were
  exported. Import tariff for the polyelefins has been reduced according
  to AFTA and WTO, causing high competition. However, when comparing
  with local producers, the Company has the highest polyolefins capacity
  in the country (about 35%). 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

  National Petrochemical (NPC) 250      -        -        -        250

  Bangkok Polyethylene (BPE)   200      -        -        -        200

  Total Capacity               1,150    400      250      1,250    3,050
  ---------------------------- -------- -------- -------- -------- --------

  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 2004, Polyolefins demand in Asia equaled 38 million tons with China
  as the biggest importer. Major exporters are The Middle East, Korea,
  and Singapore.

Olefins and Polyolefins Market in 2004 and Trend in 2005.

  In 2004, the increase in price of Olefins and Polyolefins is the
  result of increased global demand and limited new production capacity.
  The year saw highly volatile naphtha prices, along with crude oil
  prices, trading as low as $308/ton in Q1/04, but rallied to a peak
  $486/ton in Q4/04 due to price speculation (on high winter demand).
  Similarly, Naphtha cracker by-products such as Benzene and Toluene
  also saw increased pricing, rising to the annual high of $1,235/ton
  and $850/ton, respectively. Polyolefins export sales volume accounted
  for 38% of the total sales volume.

  In H1/05, prices of olefins/Polyolefins remain high along with crude
  oil price volatility. However, in H2/05, prices are expected to
  decline as a result of new production capacities from China and Middle
  East.

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, packaging 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 types of containers and
  labels.

2.  Packaging Paper Business

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

3.  Containers Business

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

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 2004, Thai Paper Co.,Ltd, the major printing and
writing paper producer, promoted marketing campaign by launching green
read paper targeting to book readers. The special features of green read
paper benefiting to the readers besides its light weight is to reduce
light reflection from the book.

Since corrugated paper box is widely used as containers to prevent
transportation damages for general products, the producer has developed
printing technology to be used on the box representing more attractive
box characteristic. In 2004, paper containers business succeeded in
developing gold and silver ink for printing paper containers. For
printing corrugated paper box, the business adopted Flexography System
by using environmental friendly material. This not only increased
product attractiveness, but also added value to product inside the
containers.

In addition, producers of paper containers are aware of safety and
occupational health concerned. In 2004, 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. In 2004, as a result of this strict GMP implementation in all
production procedures, Thai Containers Songkla (1994) Co., Ltd. and Thai
Containers V&S Co., Ltd. acquired prestigious certifications of
standardized production process from BVQI, a world-class institute.

  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.

Packaging 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 and
  exported to Indonesia and Malaysia.

  Coated White Paper Box Sold to domestic customers.

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 products), 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

Packaging Paper Business

  Strengths:

-   Integrated business

-   Highest capacity

-   Market leader

-   Eight machines available to respond to market needs

-   Long and good relationship with customers

-   Member of prestigious and well known Siam Cement Group

-   Capable and experienced employees

-   Management by TQM, ISO 9000, ISO 14000, and TIS 18000

  Weaknesses:

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

Container Business

  Strengths:

-   Market leader with the highest market share.

-   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 9000, ISO 14000, and TIS 18000

  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 31

  - Direct 54

Exports

  - Distributor 15

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.

Packaging 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 2004, 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 2004, supply of short-fibred pulp grew 10% to 1,090,000 tons per year
as a result of machine modification to increase production efficiency.

Pulp world price in 2004 greatly fluctuated. During H1/04, pulp price
continuously increased as a result of limited supply and higher demand
from China. However, price lowered during Q3/04 - early Q4/04 from
reduced world demand as a result of slow-down economic policy of China.
This delayed pulp producers and customers in completing the orders.
Though, the price rallied up again in late Q4/04 as producers purchased
pulp for keeping in stocks for early 2005.

Pulp industrial structure can be described below:

1.  A 6% growth of domestic short-fibred pulp is projected due to
    increasing demand in packaging 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 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 2004 increased 11% to 523,000 tons per year as
    a result of growing local economy that enhanced printing
    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 2004,
    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 Packaging Paper Business

In 2004, local demand increased 11%, benefiting from healthy of Thai
economy, especially in quarter 1 and 3 together with an export growth.
However, the competition was more intense since producers expanded their
capacities both domestic and overseas.

Industry structure of packaging paper business are narrated below:

1.  In 2004, local producers raised their capacity, causing excess
    supply. In 2005, local demand will increase 7 – 8 %, 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.

-   Increasing energy costs.

-   Increasing freight and limited shipping line.

-   Trend of paper world price.

-   Increasing regional capacity.

3.  Entry Barrier. Medium possibility due to more minor machine
    producers in the market thus lowering new investment. Raw material
    scarcity and volatile prices may be an obstacle for management.

4.  Product Substitute. Medium possibility.

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

6.  Local Competition and Markets. Year 2004 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 2004, corrugated paper box demand increased 12.5% from export growth
and government spending policy which supported several industries such
as electrical appliances, food/ beverage industry and consumer products.
Japan was the target market which emphasized on green products.

The business has adopted Total Productive Management (TPM) concept to
increase efficiency in overall management starting from production unit,
sales, and innovation. This also includes environmental protection and
safety awareness at workplace.

In addition, as a result of having developed both designs and container
production to meet an international standard, the business received
several container design awards from local, regional and global.

Industry Structure of container business are described below:

1.  In 2004, major container producers expanded capacities causing
    excess supply. In 2005, expected demand of corrugated paper box will
    increase approximately 8% due to expanded export market, supported
    government and private policies.

2.  External Factors

    1.  Trend of paper price

    2.  Increasing regional capacity

3.  Entry Barrier. High possibility due to low investment.

4.  Product Substitute. High possibility

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

6.  Local Competition and Markets. Year 2004 was a year of medium
    competition since rivals used price as a main strategy in gaining
    market share.

7.  Number of domestic competitors both major and minor are 400.

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 4 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.

Packaging 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 57 foreign
    vendors.

-   Bleached short-fibred pulp from 4 domestic suppliers.

-   Unbleached short-fibred pulp from 2 domestic suppliers.

-   Bleached and unbleached long-fibred pulp from 11 overseas vendors.

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

  Obstacles:

 Unbleached long-fibred pulp is all imported which takes 30-45 days. Bleached and unbleached short-fibred pulp are 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 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, odor, and waste caused by 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 environmental 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 environmental management policy was documented and submitted to
every level of employees for their understanding and preservation.

Environmental 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.

3.3 Major Award received

 In 2004, Thai Containers Co. Ltd. and Thai Containers Ratchaburi (1989) Co., Ltd. were the country’s first two corrugated paper box producers who officially achieved award for TPM Excellence – First Category 2004 from Japan Institute of Plant Maintenance (JIPM) as a result of improving their organizational management which increased production, manufacturing efficiency as well as better services. As the improvement satisfied customer needs, this continuously increasing profits.

4.  Undelivered Projects or High-Valued Purchase Agreements

None

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)                              |
+--------------------------------+-------------------------------------+
| SCI Plant Services Co., Ltd.   | - Industrial machine design, build, |
|                                | installation, improvement and       |
|                                | maintenance                         |
+--------------------------------+-------------------------------------+

  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    | Ex   |
| ssionaire | ocation | Mineral | umber | of    | r | emai | piry |
|           | (Pr     |         | of    | Area  | e | ning | Year |
|           | ovince) |         | Conce |       | a | Y    |      |
|           |         |         | ssion |       | ( | ears |      |
|           |         |         | (Co   |       | R | of   |      |
|           |         |         | pies) |       | a | Co   |      |
|           |         |         |       |       | i | nces |      |
|           |         |         |       |       | ) | sion |      |
+===========+=========+=========+=======+=======+===+======+======+
| The Siam  | S       | 1.      | 16    | Owned | 4 | 14   | 2018 |
| Cement    | araburi | Li      |       | by    | , |      |      |
| Public    |         | mestone | 1     | Royal | 5 | 24   | 2028 |
| Company   |         | for     |       | F     | 8 |      |      |
| Limited   |         | cement  |       | orest | 0 |      |      |
|           |         | i       |       | Depar |   |      |      |
|           |         | ndustry |       | tment | 9 |      |      |
|           |         |         |       | (RFD) | 4 |      |      |
|           |         | 2.      |       |       |   |      |      |
|           |         | Pyrop   |       | RFD   |   |      |      |
|           |         | hyllite |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Pijit   | Gypsum  | 1     | RFD   | 2 | 7    | 2012 |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 8 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Nakorn  | Gypsum  | 3     | RFD   | 8 | 6    | 2010 |
|           | Sawan   |         |       |       | 5 |      |      |
|           |         |         |       |       | 6 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lopburi | Iron    | 1     | RFD   | 1 | 6    | 2010 |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 3 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Nakorn  | 1.  Li  | 19    | RFD   | 5 | 6    | 2010 |
|           | Sri     | mestone |       |       | , |      |      |
|           | Th      |     for | 1     | Owned | 0 | 11   | 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 | 1    | 2005 |
|           |         |         |       | by    | 8 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lampang | Kaolin, | 5     | RFD   | 9 | 1 -  | 2    |
|           |         | L       |       |       | 5 | 10   | 005- |
|           |         | ignite, |       |       | 4 |      | 2014 |
|           |         | Ball    |       |       |   |      |      |
|           |         | Clay    |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Sur     | Gypsum  | 1     | Owned | 7 | 8    | 2012 |
|           | atthani |         |       | by    | 8 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| Siam      | Lampoon | Lignite | 1     | Owned | 2 | 11   | 2015 |
| Cement    |         |         |       | by    | 2 |      |      |
| Industry  |         |         |       | the   | 8 |      |      |
| Co., Ltd. |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Sur     | Gypsum  | 1     | Owned | 3 | 5    | 2009 |
|           | atthani |         |       | by    | 9 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | Lampang | 1.      | 17    | RFD   | 4 | 14   | 2018 |
| Cement    |         | Li      |       |       | , |      |      |
| (Lampang) |         | mestone | 5     | RFD   | 9 | 7 –  | 20   |
| Co., Ltd. |         | for     |       |       | 8 | 14   | 11 - |
|           |         | cement  |       |       | 7 |      | 2018 |
|           |         | i       |       |       |   |      |      |
|           |         | ndustry |       |       | 1 |      |      |
|           |         |         |       |       | , |      |      |
|           |         | 2.      |       |       | 4 |      |      |
|           |         | Shale   |       |       | 4 |      |      |
|           |         | for     |       |       | 1 |      |      |
|           |         | cement  |       |       |   |      |      |
|           |         | i       |       |       |   |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | S       | 1.      | 10    | RFD   | 2 | 23   | 2027 |
| Cement    | araburi | Li      |       |       | , |      |      |
| (Kaeng    |         | mestone | 3     | Owned | 5 | 23   | 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  | S       | Li      | 5     | RFD   | 9 | 25   | 2030 |
| Cement    | araburi | mestone |       |       | 5 |      |      |
| (Ta       |         | for     |       |       | 4 |      |      |
| Luang)    |         | cement  |       |       |   |      |      |
| Co., Ltd. |         | 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 educational activities including
  Elephant Concrete Fair, a project which increased knowledge and
  developed concrete technological skill. It also provided grey cement
  for educational purpose to universities and vocational schools.
  Moreover, the company supported sport activity including Tiger Cement
  Thai Boxing and other public welfare such as blankets for poor,
  supported college student volunteer camps nationwide as well as built
  permanent structure with department of skill development, etc.

  Regarding distribution, the Company commands 63% domestic sales and
  37% 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 2004, it
  increased to 26.2 million tons with an export of 11 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. 8.9 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. 0.1 Million Ton/Year

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

  Total Country Capacity 54.5 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          |
|          |     | external           |         | contracts 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.         |
+----------+-----+--------------------+---------+--------------------+
| P        | 3   | Long-term          | 0% /    | Buy 1 from         |
| etroleum |     | contracts with     | 100%    | affiliate and 2    |
| Coke     |     | suppliers and      |         | from external      |
|          |     | occasional buying. |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| Lignite  | 4   | Long-term          | 0% /    | Buy from 1         |
|          |     | contracts with     | 100%    | affiliate and from |
|          |     | suppliers and      |         | 3 external         |
|          |     | occasional buying. |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| Bunker   | 4   | Occasional buying. | 100% /  |                    |
| Oil      |     |                    | 0%      |                    |
+----------+-----+--------------------+---------+--------------------+
| Biomass  | 21  | Long-term          | 100% /  | Buy 1 from         |
| e.g.     |     | contracts with     | 0%      | affiliate and 20   |
| husk,    |     | suppliers and      |         | from external      |
| palm     |     | occasional buying. |         | suppliers.         |
| 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.  Green and clean plant: The company set a policy by requiring all
        cement plants develop their own green and clean plant area and
        mine. This reduced scattering dust which protected surrounded
        local communities.

    2.  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 dispersion while transporting, water is also sprayed
        on raw materials and roads. For previously mined area, the
        company revived the area back to its original nature by planting
        big tree and suitable ground cover.

    3.  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.

    4.  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.

    5.  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 and 72,000 trees
        project for the Queen, 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 2004, the
  Company utilized over 186,000 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 620,000 tons of pulverized
  fuel ash. Nowadays, about 700 factories have contacted the Company to
  treat their scraps and industrial waste.

  2.2) Clean Fuel Usage: The company has used biomass such as husk, saw
  dust and bark to replace fossil fuel type. In 2004, the company used
  biomass 300,000 tons which used up investment approximately 35 million
  baht for related machine installation. For example, machine for
  feeding husk to Pre-Calciner of the burner, wood grinding machine for
  the burner.

  2.3) Energy Usage: The company has regularly monitored energy usage of
  each plant in order to improve machine efficiency. This has reduced
  energy consumption either electricity or heat in production process.

3) Sustainable Development

  3.1) Communal and Social Support: Apart from strictly conserving the
  environment, the Company has generated regular community relation
  activities by exploring need and satisfaction of local community
  toward the company. It 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. Different
  dimensions prevail such as sport activity including boxing,
  educational activity including providing cement for educational
  purpose for department of vocational education and various
  universities nationwide. In addition, the company supported social
  activity such as providing cement for rebuilding school, giving cement
  to college student volunteer camps, etc.

  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. Moreover, the company joined with Thailand Environment
  Institute (TEI) to set up a prototype project namely “Greening the
  supply Chain” to help, develop and improve small to medium suppliers
  to environmental friendly operate the business and this should not
  increase operational costs. Another project was assessing the effect
  of Cement Life Cycle in order to statistically keep fundamental data
  of Thailand for future reference.

  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

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 Deming Application Prize from the Union of Japanese
Scientists and Engineers (JUSE) of Thai Ceramic Co., Ltd.

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

  SGI                     Middle to low class     Medium
  ----------------------- ----------------------- -----------------------

-   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 95% domestic sales and 5% 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. For example,
future leader development project which prepare every level of
management to be ready for future expansion. The company also adopted
“Change Management” concept in performing new project. This helps the
organization in dealing with dynamic environment and forceful
competition.

2.5 Competition

An intensely growing demand for domestic building products in the past
4-5 years, 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.

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.

  In addition, the Company adopted Customer Relationship Management
  (CRM) concept to access and able to manage customer relationship.
  Moreover, it installed SAP CRM as a tool to facilitate the collection
  of marketing, analyzing and planning data. This enhanced the
  coordination between every business.

  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 replaced the barcode system by adopting Radio Frequency
  Identification (RFID) to track the trucks on a real-time basis besides
  the current GPS (Global Positioning System). RFID system was more
  convenient because it could reduce working procedures and unnecessary
  documents.

  In addition, the company used Software Transportation Modeler, a
  Logistics Planning Simulation Software, to support the current
  operation. This saved distribution costs and increased
  truck/distribution centre utilization.

SCT Co., Ltd.

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

  Channel of Distribution

  The Company has 14 branches in various countries, i.e. Cambodia,
  Vietnam (2 branches), Myanmar, Malaysia, the Philippines, Singapore,
  Hong Kong, Bangladesh, The United Arab Emirates, Australia, Laos,
  China, 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. Currently, there are 200 new style Cementhai
  Home Mart stores.

  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 operational 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 Radio Frequency Identification (RFID) to track the
truck. Besides, Electronic Data Interchange (EDI) is used 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.