3. Operation of Each Business Unit

SCG Chemicals

1.  Product or Service Features

1.1 Olefins

  Olefins are the primary petrochemical product comprising of Ethylene
  and Propylene which are the main raw materials for downstream
  Polyolefin plastics and related products such as Polyvinyl Chloride
  and Styrene Monomer. The business’s current Olefins capacity is
  1,200,000 tons per year and is the largest single site production in
  Thailand. By-products from the olefins plant such as Mix-C4, Benzene
  and Toluene are mainly consumed within the business’s and/or SCG
  subsidiaries’ downstream plants.

2.  Polyolefins

  Polyolefins are the business’s main products. The business is the
  largest producer in Thailand with total polyolefins capacity of
  1,080,000 tons per year, covering a wide range of applications as
  follows:

1)  High Density Polyethylene – HDPE Outstanding features are good flow
    ability, easy formation, and good chemical resistance. It is
    normally used as the main raw material for the production of plastic
    shopping bags, milk bottles, shampoo and cosmetics bottles,
    lubricant containers, bottle crates, fruit crates, trash bins,
    ropes, fishnets, ring-nets, water pipes, electric power cord
    insulators, and etc.

2)  Medium Density Polyethylene – MDPE Outstanding features are high
    dart impact strength, stable formation, and low temperature
    resistance. It is normally used as the main raw material for the
    production of coolers, water tanks, water treatment tanks, traffic
    cones, and etc.

3)  Linear Low Density Polyethylene – LLDPE Outstanding features are
    high stiffness and high tensal strength. It is normally used as the
    main raw material for the production of industrial and agricultural
    films, plastic rice bags, and etc.

4)  Low Density Polyethylene – LDPE Outstanding features are clarity and
    high stiffness. It is normally used as the main raw material for the
    production of cold food bags, food preservation films, lids, plastic
    boxes, surface coatings, and etc.

5)  Polypropylene – PP Outstanding features are high dart impact
    strength and high heat resistance. It is normally used as the main
    raw material for the production of hot food bags, general wrapping
    films, woven bags, household utensils, battery shells, electrical
    appliance parts, car components, and etc.

  1.3 Polyvinyl Chloride (PVC)

  PVC products from Thai Plastics and Chemicals Public Company Limited,
  the largest PVC producer in Thailand and ASEAN with total production
  capacity of 828,000 tons per year, can be divided into two main
  categories:

1)  PVC Resin – a type of thermoplastic in pure powder form which can
    withstand heat and pressure without changing its original structure
    and can be reused in different productions. However, it cannot be
    directly formed into finished goods, thus needs various additives to
    adjust its properties according to customers’ specifications.

2)  PVC Compound – normally in powder or pellet form which has already
    been dry-blended with various additives such as additives to
    increase impact strength, additives to help the forming process,
    additives to increase heat resistance capability without changing
    its form, and etc. Due to its many outstanding features such as
    weather resistance, fire retardant, light weight, and rust-free
    material, it can be used as insulator, sheath for electrical wire,
    telephone cable, pipes, and etc.

  1.4 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, and etc. At
  present, the Company owns two jetties with a capacity of 100,000 and
  20,000 dead weight tons.

2.  Market and Competition

  2.1 Policy and Market Features of Main Products and Services

  Polyolefins are a commodity product with a fairly volatile price
  cycle.

1) Competitive Strategy

-   High Value-Added Products

  In the past 4-5 years, the business has planned and developed high
  value-added products in order to improve product quality and respond
  to customer needs. In response to this strategy, the business has
  invested in the enhancement of research and development capability and
  efficiency. At present, sales of high value-added products accounts
  for 24% of total sales of downstream products. High value-added
  products are namely:

-   Pipe: PE 100 water pipe, gas pipe

-   Rotomolding: “Elixir” water storage, outdoor furniture

-   Wire and Cable: sheath for electrical wire, fiber optic cable,
    telephone cable

-   PE Wax: processing aid, dispersant

-   Propylene compound and Propylene co-polymer: compounds for
    automotive parts

-   Other specialties: construction materials

  The business aimed to further increase sales portion of high
  value-added products to reduce impact of business volatility in the
  down cycle while enhancing overall competitiveness of the business.

-   Price and Cost

  Both domestic and export prices of Polyolefins are closely correlated
  to the global market prices. The business manages to create a price
  premium by offering high quality products and differentiated
  value-added services to its customers. The business implemented Total
  Quality Management (TQM) concepts which emphasizes on customer and
  quality, and was awarded with the Deming Application Prize. In terms
  of cost management, the business gives priorities to maintaining
  competitive cost position by investing in proven-technologies,
  world-scale plants and constantly de-bottlenecking the plant
  capacities to achieve economy of scale with lowest investment cost per
  ton. In addition, as a fully integrated player, the business also
  utilizes Total Productivity Management (TPM) concepts which emphasizes
  on equipment maintenance, production efficiency, and cost reduction.
  By following TPM concepts, the business was awarded with the TPM
  Excellence Award (1^(st) category) for its achievement in production
  efficiency enhancement, energy conservation as well as accident and
  environmental impact reduction, leading to improvement in employee
  morale and capabilities. The business has also invested in advanced IT
  and e-Business systems, such as e-Supply Chain, e-Ordering, Advanced
  Process Control and CRM Portal to achieve best-in-class efficiency and
  customer satisfaction.

-   Product Quality Management

  One of the business’s main policies is to produce high quality
  products without any effects on the environment and communities. In
  addition, the business also gives great importance to occupational
  health and safety management systems, therefore, it integrated ISO
  system with TQM and TPM to come under one quality management until
  being certified by the international quality system, namely ISO 9001,
  ISO 14001, and TIS 18001. In addition, the business also applied for
  ISO17025 which is related to laboratory management since the business
  invests in research and development to constantly improve its product
  quality to meet changing customer expectations.

-   Service

  The business recognizes that “service is the heart of selling”.
  Therefore, it has developed Customer Relationship Management system by
  applying IT technology to gather customer requirement and analysis so
  that it can accurately and timely responds to customer needs leading
  to sustainable customer relationship. Moreover, the business provides
  technical assistance in Polyolefins conversion and emphasizes on fast
  and accurate delivery. It continously engages in plans to develop and
  increase service efficiency to a better level of service standard and
  hence, ability to satisfy the needs of different target customers.

-   Management

  In the Polyolefins business, product demands and prices change
  rapidly, an excellent management with accurate and rapid decisions is
  very important. Therefore, the business has implemented Supply Chain
  Management system which consists of order forecasts, sales, delivery,
  production, raw material procurement, and inventory management through
  computerized system linking between departmental functions to achieve
  speed and accuracy in business operation. This will enable the
  business to better satisfy customer needs and respond to changes in
  the industry. Moreover, the business is using new technologies to
  continuously improve its Supply Chain Management system including
  implementing Vender Management Inventory (VMI) system to reduce the
  amount of inventory in stock, setting up Hub and Spoke warehouses both
  domestically and internationally to reduce delivery time and create
  new transportation routes such as train and ship. Also, it is using
  Radio Frequency Identification (RFID) to increase efficiency of
  feedstock management, and using Warehouse Management Operation
  Excellence (WOEX) and Global Positioning System (GPS) to enhance
  real-time inventory and product delivery management.

2) Customer Features and Target Groups

  Target groups are Polyolefins converters which are classified based on
  formation types such as film, injection molding, monofilament & yarn,
  blow molding, and others which are lamination, extrusion, and piping.
  For PVC business, target groups are plastic converters, using PVC as
  raw materials.

  The business’s customers are mostly small and fragmented and it aims
  to diversify the customer base into diverse segment and region. Hence,
  the Company is risk adverse as it is not dependent on one customer.

3) Channel of Distribution

  In 2008, domestic and export sales of Polyolefins are 57 percent and
  43 percent respectively.

-   Domestic

  There are two types of customers of which 82 percent are domestic
  customers and 18 percent are re-exporters. For the former, 49 percent
  is through direct sales by the business while the rest (51 percent) is
  sold through agents who manage financial risks and distribution of
  products to Polyolefins converters. For re-exporters customers, goods
  are sold mostly through direct sales by the business.

-   Exports

  The business mainly exports to the Asia-Pacific region. Products are
  distributed directly to end-users or local distributors so that
  customer needs are satisfied efficiently. At present, the business has
  7 representative companies internationally which are located in
  Myanmar, Vietnam, Philippines, Indonesia, China (Shanghai and
  Guangzhou) and Japan. The proportion for the export market is 30
  percent in Southeast Asia, 21 percent in East Asia, 7 percent in South
  Asia, and 42 percent in other regions.

  As the business internationally exports around 460,000 tons per year
  without concentrating in one particular country, it is able to avoid
  direct confrontation with multinational players and diversify
  political or economical risks. In addition, by having global based
  customers, the business is able to manage export products quantities
  for profit optimization as prices may differ depending on market
  conditions of each country.

  In 2008, Domestic and export sales of PVC through Thai Plastic and
  Chemicals Public Company Limited are 47 percent and 53 percent
  respectively.

-   Domestic

  In respect of local distribution, the Company emphasizes on direct
  selling to plastic manufacturers in various industries. The objectives
  are to know the real customer demand and to be able to promptly
  provide technical assistances to the customers.

-   Exports

  The Company exported 74 percent, in volume, through agents and 26
  percent directly to customers. Main export areas are Turkey, Eastern
  Europe, Southeast Asian countries, South Asia, Middle East and Africa.
  To sell through agents, the Company has selected only capable
  companies in distribution of plastic products and chemicals with the
  addition of good relationships with customers. They are also capable
  of negotiations, co-ordination and providing assistances to customers
  in all areas.

  2.2 Competition and Capacity

-   Domestic

  Thailand has Polyolefins capacity of approximately 3.12 million tons
  per year while the country’s demand in 2008 was approximately 2.4
  million tons. Therefore, 23 percent of products have to be exported.
  Import tariff for Polyolefins has been reduced according to AFTA and
  WTO, causing higher competition. However, when comparing with local
  producers, the business has the largest Polyolefins capacity in the
  country –about 35 percent of total domestic capacity. Details are
  shown as below:

Unit: thousand tons/year

  ----------------------------- -------- -------- -------- -------- --------
  Company                       HDPE     LLDPE    LDPE     PP       Total

  SCG Chemicals                 560      100      100      320      1,080

  Integrated Refinery and       152      -        -        475      627
  Petrochemical (IRPC)                                              

  TPI Polene (TPIPL)            -        -        158      -        158

  HMC Polymers (HMC)            -        -        -        455      455

  Siam Polyethylene (SPE) *     -        300      -        -        300

  PTT Chemical (PTTCH)          250      -        -        -        250

  Bangkok Polyethylene (BPE)    250      -        -        -        250

  Total Capacity                1,212    400      258      1,250    3,115
  ----------------------------- -------- -------- -------- -------- --------

  Remark: * A joint venture between SCG Chemicals and The Dow Chemical
  Company of the U.S.A. (50 percent shareholding)

Source: SCG Chemicals Co., Ltd. and Petroleum Institute of Thailand.

  Thailand has total PVC production capacity of 950,000 tons per year.
  Thai Plastic and Chemicals Public Company Limited is the largest
  producer, accounting for 60 percent of total domestic capacity.
  Details are shown as below:

Unit: thousand tons/year

  ------------------------------------- ----------- ----------- -----------
  Company                               PVC         VCM         EDC

  Thai Plastic and Chemicals (TPC)      570         500         520

  Vinythai (VNT)                        280         400         640

  Apex Plastic (APEX)                   100         -           -

  Total Capacity                        950         900         1,160
  ------------------------------------- ----------- ----------- -----------

  Source: Thai Plastic and Chemicals Public Company Limited

-   Foreign

  In 2008, Polyolefins demand in Asia equaled 50 million tons with China
  as the largest importer. Major exporters are producers in the Middle
  East, USA, Korea, and Singapore. For PVC, demand growth was mainly
  driven by China which is the largest importer in Asia.

  Olefins and Polyolefins Market in 2008 and Trend in 2009

  Olefins and Polyolefins prices in 2008 were higher but more volatile
  than those in 2007. In 2008, the prices of the main raw material
  (Naphtha) and Polyolefins continuously increased from last year due to
  increased demand from world economy growth, delays in additional
  Olefins and Polyolefins capacity from the Middle East, and rise in oil
  prices. Naphtha and Polyolefins price peaked at USD 1,246 per ton and
  USD 1,825 per ton respectively in July 2008. However, the financial
  crisis starting in September 2008 and global economic recession,
  triggered by the subprime mortgage crisis in USA, sharply drove down
  the demand of petroleum and petrochemical products. This resulted in
  the softening of Naphtha and Polyolefins prices. Naphtha and
  Polyolefins prices respectively fell to the lowest point at USD 311
  per ton and USD 750 per ton in the fourth quarter. On average, naphtha
  price in 2008 was USD 827 per ton, up by 19.2 percent from last year
  while Polyolefins price was USD 1,476 per ton, up by 9.2 percent from
  last year. The feed-to-product margin remained approximately the same
  as last year at USD 650 per ton.

  In 2009, Polyolefins prices are expected to lower than that of 2008 in
  light of weak demand due to the ongoing economic slowdown together
  with supply additions from the Middle East and Chinese producers.
  Naphtha price is expected to slightly increase due to Olefins capacity
  expansion in 2009. As a result, the feed-to-product margin is likely
  to decline.

  Like Olefins and Polyolefins, PVC price improved from last year with
  high fluctuation. PVC price reached its peak in August at USD 1,275
  per ton and fell to the bottom in December at USD 568 per ton. On
  average, PVC price in 2008 was USD 1,039 per ton, up by 11 percent
  from last year. Due to lower average price of EDC and ethylene when
  compared to last year, the feed-to-product margin in 2008 went up USD
  140 per ton from last year.

  In 2009, PVC price is expected to lower than 2008 average price in
  light of economic recession. Also, the prices of raw materials for PVC
  production will decrease in line with low oil price. The
  feed-to-product margin in 2009 is likely to decline. Demand for PVC in
  2009 will continue to increase especially in Asia which has been less
  affected by the financial crisis than other regions.

3. Product or Service Procurement

3.1 Product Procurement Feature

1) Production

The business has 1 Olefins plant and 7 Polyolefins plants located in Map
Ta Phut Industrial Estate, Rayong Province. Nameplate capacities are
displayed below:

+--------------------+------------------+---------+-------+----------+
| Company            | Product/Service  | C       | Year  | %        |
|                    |                  | apacity | First | Shar     |
|                    |                  | (To     | Ope   | eholding |
|                    |                  | n/Year) | rated |          |
+====================+==================+=========+=======+==========+
| Rayong Olefins     | Ethylene         | 800,000 | 1999  | 63       |
|                    |                  |         |       |          |
|                    | Propylene        | 400,000 |       |          |
+--------------------+------------------+---------+-------+----------+
| Thai Polyethylene  | HDPE 1           | 140,000 | 1989  | 100      |
|                    |                  |         |       |          |
| Thai Polyethylene  | HDPE 2           | 180,000 | 1997  |          |
| (1993)             |                  |         |       |          |
|                    | HDPE 3           | 240,000 | 2001  |          |
|                    |                  |         |       |          |
|                    | LLDPE            | 100,000 | 1990  |          |
|                    |                  |         |       |          |
|                    | LDPE             | 100,000 | 1995  |          |
+--------------------+------------------+---------+-------+----------+
| Thai Polypropylene | PP 1             | 140,000 | 1993  | 100      |
|                    |                  |         |       |          |
| Thai Polypropylene | PP 2             | 180,000 | 1997  |          |
| (1994)             |                  |         |       |          |
+--------------------+------------------+---------+-------+----------+
| Thai Plastics and  | PVC Resin        | 570,000 | 1971  | 45       |
| Chemicals          |                  |         |       |          |
|                    | PVC Compound     | 55,000  |       |          |
+--------------------+------------------+---------+-------+----------+
| TPC Paste Resin    | PVC Paste Resin  | 38,000  | 1993  | 100      |
+--------------------+------------------+---------+-------+----------+
| PT. TPC Indo       | PVC Resin        | 120,000 | 1996  | 78       |
| Plastic &          |                  |         |       |          |
| Chemicals          |                  |         |       |          |
+--------------------+------------------+---------+-------+----------+
| TPC Vina Plastic   | PVC Resin        | 100,000 | 1995  | 32       |
| and Chemicals      |                  |         |       |          |
+--------------------+------------------+---------+-------+----------+
| Viet Thai          | PVC Compound     | 13,500  | 1994  | 32       |
| Plastchem          |                  |         |       |          |
+--------------------+------------------+---------+-------+----------+
| Map Ta Phut Tank   | Jetty and Tank   | -       | 1998  | 81       |
| Terminal           | Terminal         |         |       |          |
+--------------------+------------------+---------+-------+----------+
| Rayong Pipeline    | Pipe             | -       | 1998  | 91       |
|                    | Transportation   |         |       |          |
+--------------------+------------------+---------+-------+----------+
| Rayong Engineering | Engineering and  | -       | 2001  | 100      |
| and Plant Service  | Plant Service    |         |       |          |
+--------------------+------------------+---------+-------+----------+

2) Raw Material Procurement

-   Olefins Production

  The key raw material in Olefins production is Naphtha in which 70
  percent of total consumption comes from local oil refineries and the
  other 30 percent is imported from the Middle East and Indonesia. In
  addition, the plant has been designed to use alternative raw materials
  such as LPG, raffinate, and condensate in the production if Naphtha
  price is higher than other raw materials.

-   Polyolefins Production

  The business has long-term Olefins purchase contracts with PTT
  Chemicals PLC (PTTCH) at a total of 325,000 tons per year where price
  formula is referenced against the World market price. In addition, 52
  percent of the total Olefins production or 619,000 tons per year is
  supplied to Polyolefins plants within the Group. The rest is sold to
  external customers who are the business’s olefins plant shareholders.
  Moreover, the business is also able to procure more Olefins from PTTCH
  or import in case of Olefins shortages.

-   PVC Production

  The key raw material for PVC production is Vinyl Chloride Monomer
  (VCM) in which more than 60 percent is self-contained. The rest is
  domestically supplied and imported from overseas. The raw material for
  VCM production is ethylene dichloride (EDC) and ethylene. TPC produces
  65 percent of EDC demand in Rayong province and purchases the rest
  quantity through agents such as Mitsui, Mitsubishi, and Arkema. For
  ethylene, the business holds share in Rayong Olefins Co., Ltd. and
  PTTCH, and has ethylene purchasing contracts with both companies.

3.2 Environmental Impact

  One of the SCG’s Philosophies is “Concern for Social Responsibility”
  which includes the environment conservation. Therefore, the business
  has chosen “Clean Technology” which is up-to-date, efficient, energy
  saving and environmental friendly technology – in the production
  process. The business has implemented the Environmental Management
  Best Practices by using 3Rs (Reduce, Reuse/recycle, and Replenish) and
  eco-efficiency concepts together with Best Available Control
  Technology which are one of the business’ commitment to protect the
  environment and operate its business on sustainability concept.

  Moreover, the business has applied and certified with ISO 14001
  Environmental Management Standard as well as examined the
  Environmental Performance Assessment Program (EPAP) by external
  institutions which are internationally accredited.

4. Undelivered Projects or High-Valued Purchase Agreements

None

SCG Paper

1.  Product or Service Features

SCG Paper is the country’s leading manufacturer of pulp, paper, and corrugated containers. The business is the only integrated producer in Thailand with production process starting from pulp preparation to manufacture of printing and writing paper, packaging paper, and corrugated containers. Being in such position allows it to appropriately allocate the production capacity, efficiently control the costs, make it relatively less vulnerable to external changes, and add value to its products. There are two major groups of business as follows:

1.  Pulp and Printing & Writing Paper Business

  The main products are eucalyptus pulp and printing & writing paper.
  Pulp is used as raw material for kraft paper and printing & writing
  paper. Printing & writing paper is used for magazines, notebooks,
  textbooks, photocopy paper, and certain types of containers and
  labels.

2.  Packaging Paper & Corrugated Containers Business

  The major products comprise of kraft paper for the manufacture of
  corrugated containers, extensible sacks, kraft bags, core paper,
  gypsum linerboard, coated duplex board, and various types of
  corrugated containers packaging.

2.  Market and Competition

  2.1) Marketing

  2.1.1 Marketing Strategy

Due to intense competition, SCG Paper continues to develop quality
products and services as well as the introduction of new innovation to
achieve the highest level of customer satisfaction. Such means allow it
to create image of trendy products. Nowadays, containers play an
important role in the customers’ buying decision. Therefore, the
corrugated containers business has continuously developed the production
process and packaging design to better serve its customers. Moreover,
the business had launched innovative products, such as scented carton,
“Rajavidhi SCG Paper Splint” – a lightweight first-aid medical
equipment, as well as the development of brown and white anti-skid paper
for beverage containers which can partially substitute imported paper.

In addition, the corrugated containers business continues to develop new
services, especially graphic and structural design services. The
business possessed expertise in designing corrugated containers and in
the past year has expanded its design capabilities to other related
products ranging from various types of paper packaging and paper-made
furniture which focused on design and innovation. It also designs and
organizes booth which display the strength and the
environmentally-friendly elements of corrugated containers products.

In terms of services development, the business invested and implemented
in the Supply Chain Management System to connect the customer orders
with the production plan. This had resulted in improved accuracy and
timely response to customers, as well as the ability to perform
effective real-time monitoring and follow-up action.

As for Printing and Writing Paper Business, it has developed “Green
Read” paper for reader’s eye care which is suitable for colorful
pocket-book printing. The “Green Read” ’s outstanding properties include
reduced light reflection, light weight, and long keeping. The business
recently developed the A4 size of “Green Read” paper for copying and
printing at its workplace.

Moreover, the business had developed new products with special attribute
such as offset paper – emboss for premium printed matter. It also
launched “I-Note” paper - high smoothness and ink absorption paper for
notebook.

The business also introduced environmentally friendly “Idea Green”
office paper as a response to the global trend of increasing
environmental awareness. “Idea Green”, produced from EcoFiber (a
high-quality environmentally friendly fiber obtained from waste and
post-consumed materials collected outside the mill), consumed less
farmed trees than normal paper while offers high whiteness, premium
quality.

  2.1.2 Customer Features and Channel of Distribution

  Pulp and Printing & Writing Paper Business

  Pulp

  Channel : Directly sold to affiliates in the Paper Business and
  external customers.

  Printing & Writing Paper

  Channel : 72 percent of sales is to domestic customers through its
  dealers or direct sales including printing houses and converting
  plants while the remaining 28 percent is exported to Hong Kong,
  U.S.A., Singapore, Malaysia, and Vietnam etc.

Packaging Paper & Containers Business

  Channel : Directly sold to affiliates in Paper Business and external
  customers. Products sold comprise of big rolls for converting plants
  and converted products such as sheetboard, paper bags, ream paper,
  small rolls and corrugated containers for assorted packaging and
  containers. The others are exported to Malaysia, Indonesia, Hong Kong,
  Singapore, Vietnam and China etc.

  2.2) Industry, Competition, and Trend

1) Pulp and Printing & Writing Paper Business

  In 2008, the world demand of bleached chemical pulp slightly increased
  1 percent from last year. Demand in the first half of 2008 was flat
  when compared with the second half of 2007 though price increased 7
  percent to USD 52 from last year due to high energy and wood costs
  globally.

  In the second half of 2008, the world demand of bleached chemical pulp
  dramatically dropped due to subprime mortgage crisis in USA, which
  caused the price dropped by approximately 21 percent to USD 129 from
  the first half of 2008. Moreover, the average inventory level at the
  end of 2008 significantly increased to 5.1 million tons, up by 54
  percent from last year. In terms of capacity expansion, regional pulp
  manufacturers have postponed their investment plan until market
  situation recovers to normal condition.

  During global economic recession, the domestic pulp manufacturers have
  attempted to limit market supply by temporarily halting their
  production line, especially in the fourth quarter of 2008. In 2008,
  the amount of imported bleached chemical pulp in Thailand increased 6
  percent from the previous year.

  Domestic consumption of printing and writing paper in 2008 grew 4
  percent from the previous year. In the first half of 2008, domestic
  demand increased 8 percent from last year, even though energy and raw
  material costs were high. Nevertheless, domestic demand in the second
  half of 2008 declined by 1 percent from last year mainly due to global
  economic crisis, political uncertainty and fierce competition.
  Confidence of both private and consumer sectors were adversely
  affected especially in the fourth quarter when domestic consumption
  dropped 8 percent from the past year. As such, domestic manufacturers
  had to push for more exports in order to maintain appropriate
  inventory level and capacity utilization. Meanwhile, regional paper
  manufacturers were as well affected and pushed for more export at low
  price in order to keep their inventory at suitable level.

2) Packaging Paper & Corrugated Container Business

  In 2008, packaging paper demand was stable although sale volumes
  decreased by 9 percent comparing to 2007. In the first half of 2008,
  demand grew healthily by about 8 percent from the previous year in
  contrast to plunging demand in the second half. The fall in demand was
  due to the global economic crisis, especially the Hamburger crisis in
  the US which drastically reduced export volumes; the unsolved domestic
  political problem; and the airport seizure which froze business
  activities. Consumers hence, began to cut down unnecessary spending
  and save more, causing major producers to reduce their production and
  thus, lowering box and paper demand. Meanwhile, prices of pulp and
  wastepaper, key raw materials, were as well impacted as they
  fluctuated massively throughout 2008. Price of imported wastepaper
  (reference: Southeast Asia and China markets) had been rising steadily
  between end of 2007 till mid of 2008 before starting to fall
  tremendously in second half of 2008.

  Due to all these factors, all packaging paper producers make certain
  adjustments to their production plan. They took market-related
  downtime in order to maintain appropriate inventory level. Besides,
  some capacity expansion plans of major Asian producers were cancelled
  or postponed without further notice.

  As for the corrugated containers industry, sales volume decreased 2
  percent due to increasing raw material (kraft paper) and energy costs
  during the first half of 2008. Export for end-users industries sales
  were also affected from the sluggish global economy, which
  consequently impacted customers’ domestic consumption in the forth
  quarter.

  Notwithstanding, Thailand’s packaging industry has benefited from the
  shift of manufacturing based from overseas, especially in consumer
  product industry.

  The duplex board industry grew by 4 percent compared with last year
  although demand was significantly affected in the fourth quarter of
  2008 due to global market slowdown. Major growth sectors were in the
  food and beverage industry, electronic products, and consumer
  products. The main drivers for such growth were partly due to the
  adjustment of the market and the increasing role of packaging as a
  mean of effective marketing and product protection.

  There was also growth in plasterboard liner industry as local
  manufacturers focused on both domestic and export sales. Domestically,
  real estate market remained weak whereas developing regions such as
  those of the Middle East and India continued to attract huge
  investment in the property sector. Hence, the business can further
  pushed forward the sales of Plasterboard liner to such markets.

3.  Product or Service Procurement

3.1 Raw Material and Suppliers

Pulp and Printing & Writing Paper

  Pulp

Raw Material Type: Eucalyptus logs and chips

  Source: Eucalyptus log and chips are bought mainly from open market
  and contract farming.

  Printing & Writing Paper

  Raw Material Type: Bleached long fibre pulp, bleached short fibre
  pulp, and chemicals.

  Source:

-   Bleached long fibre pulp from import.

-   Bleached short fibre pulp from local vendors.

-   Chemicals, synthetic latex, kaolin powder, calcium carbonate, and
    others from local and import.

  Obstacles: Bleached long fibre pulp is entirely imported with 30-45
  days lead-time.

Packaging Paper & Containers Business 

  Packaging Paper

  Raw Material Type: Wastepaper, bleached and unbleached short fibre
  pulp, bleached and unbleached long fibre pulp, and chemicals.

  Source:

-   66 percent wastepaper from local vendors and 34 percent from import.

-   Bleached short fibre pulp from local vendors.

-   Unbleached short fibre pulp from local and import. Bleached and
    unbleached long fibre pulp from import.

-   Main chemicals such as starch, sizing agent, color, and others from
    local and import.

  Obstacles: Unbleached long fibre pulp is entirely imported with 30-45
  days lead-time. Bleached and unbleached short fibre pulps are procured
  domestically. The purchase of unbleached long fibre pulp is depended
  on few suppliers due to its limited supply. The domestic supply of
  wastepaper is also limited with high competition in the market.

  Corrugated Containers

  Raw Material Type: Kraft paper.

  Source: From Siam Kraft Industry Co., Ltd., a subsidiary of SCG Paper.
  (supply over 50 percent of raw material throughout the past 3 years)

  Obstacles: No obstacle due to plentiful supply and controllable
  quality. Selling price is set by referring to current market price to
  optimize fair and competitive cost

3.2 Environmental Impact

  The business intends to build awareness in environmental importance
  for every level and department. 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 measurements are shown below:

1.  Minimize pollution that contaminates quality of water, air, soil,
    plants, and animals in the ecosystem. Pollution emitted must meet or
    not exceed the government standards.

2.  Make sure that waste or water treatment must be done with safety and
    responsibility. Finding ways to recycle such waste and water
    entirely or as much as possible.

3.  Implement emergency plans with modern technology and methods as well
    as regular training for all-time preparation in case of accidents or
    emergency affecting the environment, occupational health, and
    employee and communal safety.

4.  Formulate and review objectives and targets in environmental
    management to achieve systematic and consistent improvement.

5.  Monitor, audit, and evaluate the environmental management to comply
    with government regulations and environmental management system.

6.  Cooperate with governmental agencies and private organizations by
    publicizing its environmental management.

7.  Document and circulate the environmental management policy to every
    level of employees for their understanding and preservation.

8.  Manage environment in Ban Pong’s plant at Ratchaburi Province and
    Wang Sala District, Amphur Ta Muang, Kanchanaburi Province. The
    waste management system can be categorized into three aspects as
    follows:

  8.1) Treatment of Waste Water from Production Process

  Through Waste Minimization method, installs equipment that captures
  fibres loss from production process and reuse them. The clear water is
  reused in applicable areas, and then treated in The Activated Sludge
  Treatment with the first high treatment efficiency technology of Jet
  Aeration in Thailand. This technology can reduce energy consumption
  and maintenance much better than The Surface Aerator (Jet Aeration is
  the U.S.A. technology and is widely used in the U.S.A., Canada, and
  the EU). In addition, around 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 artesian wells.

8.2) Treatment of Air from Energy Production

  The business currently uses Circulating-Fluidized-Beds steam boilers
  which are capable of burning scraps, e.g. sugarcane pith, bark, and
  sludge from wastewater treatment system, combining with coal.
  Moreover, Electrostatic Precipitators with 99.9 percent efficiency as
  well as sulphur dioxide treatment systems with limestone entrapping
  and burning temperature controls are used to limit nitrogen dioxide
  quantity.

  8.3) Treatment of Production Scraps

There are two types of production scraps as described below:

-   Reusable Scraps For example; sugarcane pith, bark, and sludge from
    wastewater treatment can be used as fuels to partly replace coal in
    steam boilers.

-   Non-reusable Scraps For example; fly ash will be arranged to collect
    as ready-mixed concrete ingredient, whereas bottom ash will be
    land-filled in the factory area.

  In summary, both Ban Pong plants and Wang Sala Plants are in
  compliance with the regulation of The Department of Industrial Works,
  The Ministry of Industry, to control wastewater treatment, air
  emission, and occupational health concerns.

4.  Undelivered Projects or High-Valued Purchase Agreements

None

SCG Cement

1.  Types of Products and Services

1.1 Products and Services

  Products and services in cement business are primarily classified
  according to their manufacturers as follows:

+--------------------------------+-------------------------------------+
| Company                        | Products and Services               |
+--------------------------------+-------------------------------------+
| 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     |
|                                | Super Cement Brand)                 |
|                                |                                     |
|                                | - Precast Cement (Elephant Brand)   |
+--------------------------------+-------------------------------------+
| The Siam Cement (Kaeng Khoi)   |                                     |
| Co., Ltd.                      |                                     |
+--------------------------------+-------------------------------------+
| The Siam Cement (Thung Song)   |                                     |
| Co., Ltd.                      |                                     |
+--------------------------------+-------------------------------------+
| The Siam Cement (Lampang) Co., |                                     |
| Ltd.                           |                                     |
+--------------------------------+-------------------------------------+
| The Kampot Cement Co.,Ltd.     |                                     |
|                                |                                     |
| (Incorporated in Cambodia)     |                                     |
+--------------------------------+-------------------------------------+
| The Concrete Products and      | Concrete Products                   |
| Aggregate Co., Ltd.            |                                     |
|                                | - Ready-mixed Concrete (CPAC Brand) |
|                                |                                     |
|                                | - Precast Concrete Products (CPAC   |
|                                | Brand)                              |
|                                |                                     |
|                                | - Post-Tension Concrete (CPAC       |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| The Siam White Cement Co.,     | - Portland White Cement (White      |
| Ltd.                           | Elephant Cement Brand)              |
|                                |                                     |
|                                | - Mixed White Cement (White Tiger   |
|                                | Cement Brand)                       |
+--------------------------------+-------------------------------------+
| Siam Mortar Co., Ltd.          | - Dry Mortar (Tigers Mortar Brand)  |
|                                |                                     |
|                                | - Tile Adhesive (Tigers Mortar      |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| The Siam Refractory Industry   | - Fireclay Bricks (Elephant Brand)  |
| Co., Ltd.                      |                                     |
|                                | - Special Refractory (Elephant      |
|                                | Brand)                              |
+--------------------------------+-------------------------------------+
| SCI Plant Services Co., Ltd.   | - Engineering Design, Building,     |
|                                | Construction, Installation,         |
|                                | Improvement ,and Maintenance        |
+--------------------------------+-------------------------------------+
| SCI Eco Services Co., Ltd.     | - Disposal of Industrial Waste      |
+--------------------------------+-------------------------------------+

  Grey cement, ready-mixed concrete, precast concrete products,
  post-tension concrete and white cement are typically used for building
  houses, factories, office buildings, including large infrastructures
  of the country such as roads, bridges. Customers, thus, range from
  small-sized end users to large contractors. Traditionally, products
  and services are sold through: 1) dealer network nationwide under the
  SCG 2) direct sale to large construction contractors.

  1.2 Factors affecting opportunities or constraints in business
  operations: Concession and its conditions

  (Companies in SCG Cement are not in the scope of BOI promoted
  industries; therefore they do not earn the privileges.)

  Cement manufacturing process needs key raw materials such as
  limestone, shale, and gypsum. The business consequently assures its
  raw material sources by purchasing some sources and request for
  long-term concessions from the government.

Details of Currently Utilized Concessions of The Siam Cement Public
Company Limited and Companies under SCG Cement

+-----------+---------+---------+-------+-------+---+------+------+
| 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 |      |      |
|           |         |         | ssion |       | ( | Y    |      |
|           |         |         | (Co   |       | R | ears |      |
|           |         |         | pies) |       | a | of   |      |
|           |         |         |       |       | i | Co   |      |
|           |         |         |       |       | ) | nces |      |
|           |         |         |       |       |   | sion |      |
+===========+=========+=========+=======+=======+===+======+======+
| The Siam  | S       | Li      | 16    | Owned | 4 | 10   | 2018 |
| Cement    | araburi | mestone |       | by    | , |      |      |
| Public    |         | for     |       | Royal | 5 |      |      |
| Company   |         | cement  |       | F     | 8 |      |      |
| Limited   |         | i       |       | orest | 0 |      |      |
|           |         | ndustry |       | Depar |   |      |      |
|           |         |         |       | tment |   |      |      |
|           |         |         |       | (RFD) |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           |         | Pyrop   | 1     | RFD   | 9 | 20   | 2028 |
|           |         | hyllite |       |       | 4 |      |      |
|           |         |         | 2     | RFD   |   | 24   | 2032 |
|           |         |         |       |       | 1 |      |      |
|           |         |         |       |       | 8 |      |      |
|           |         |         |       |       | 2 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Pijit   | Gypsum  | 1     | RFD   | 2 | 4    | 2012 |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 8 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Nakorn  | Gypsum  | 3     | RFD   | 8 | 2    | 2010 |
|           | Sawan   |         |       |       | 5 |      |      |
|           |         |         | 1     | RFD   | 6 | 23   | 2031 |
|           |         |         |       |       |   |      |      |
|           |         |         |       |       | 2 |      |      |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 7 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lopburi | Iron    | 1     | RFD   | 1 | 2    | 2010 |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 3 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Nakorn  | Li      | 19    | RFD   | 5 | 2    | 2010 |
|           | Sri     | mestone |       |       | , |      |      |
|           | Th      | for     |       |       | 0 |      |      |
|           | ammarat | cement  |       |       | 0 |      |      |
|           |         | i       |       |       | 7 |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           |         | Shale   | 1     | Owned | 1 | 7    | 2015 |
|           |         | for     |       | by    | 5 |      |      |
|           |         | cement  |       | the   | 0 |      |      |
|           |         | i       |       | Co    |   |      |      |
|           |         | ndustry |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lampang | Kaolin, | 2     | RFD   | 3 | 3    | 2011 |
|           |         | L       |       |       | 6 |      |      |
|           |         | ignite, | 1     | RFD   | 1 | 6    | 2014 |
|           |         | Ball    |       |       |   |      |      |
|           |         | Clay    |       |       | 2 |      |      |
|           |         |         |       |       | 9 |      |      |
|           |         |         |       |       | 7 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Sur     | Gypsum  | 1     | Owned | 7 | 4    | 2012 |
|           | atthani |         |       | by    | 8 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| SCG       | Lampoon | Lignite | 1     | Owned | 2 | 7    | 2015 |
| Cement    |         |         |       | by    | 2 |      |      |
| Co., Ltd. |         |         |       | the   | 8 |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Sur     | Gypsum  | 1     | Owned | 3 | 1    | 2009 |
|           | atthani |         |       | by    | 9 |      |      |
|           |         |         |       | the   |   |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         |         |       | mpany |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           | Lampang | Lignite | 1     | RFD   | 2 | 24   | 2032 |
|           |         |         |       |       | 0 |      |      |
|           |         |         |       |       | 9 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | Lampang | Li      | 17    | RFD   | 4 | 10   | 2018 |
| Cement    |         | mestone |       |       | , |      |      |
| (Lampang) |         | for     |       |       | 9 |      |      |
| Co., Ltd. |         | cement  |       |       | 8 |      |      |
|           |         | i       |       |       | 7 |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           |         | Shale   | 3     | RFD   | 8 | 3    | 2011 |
|           |         | for     |       |       | 4 |      |      |
|           |         | cement  | 2     | RFD   | 4 | 10   | 2018 |
|           |         |         |       |       |   |      |      |
|           |         | i       |       |       | 5 |      |      |
|           |         | ndustry |       |       | 9 |      |      |
|           |         |         |       |       | 7 |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | S       | Li      | 10    | RFD   | 2 | 19   | 2027 |
| Cement    | araburi | mestone |       |       | , |      |      |
| (Kaeng    |         | for     |       |       | 5 |      |      |
| Khoi)     |         | cement  |       |       | 7 |      |      |
|           |         | i       |       |       | 5 |      |      |
| Co., Ltd. |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
|           |         | Shale   | 3     | Owned | 8 | 19   | 2027 |
|           |         | for     |       | by    | 7 |      |      |
|           |         | cement  |       | the   | 4 |      |      |
|           |         |         |       | Co    |   |      |      |
|           |         | i       |       | mpany |   |      |      |
|           |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+
| The Siam  | S       | Li      | 5     | RFD   | 9 | 22   | 2030 |
| Cement    | araburi | mestone |       |       | 5 |      |      |
|           |         | for     |       |       | 4 |      |      |
| (Ta       |         | cement  |       |       |   |      |      |
| Luang)    |         | i       |       |       |   |      |      |
| Co., Ltd. |         | ndustry |       |       |   |      |      |
+-----------+---------+---------+-------+-------+---+------+------+

  The concessionaires shall operate within the conditions of the laws
  regarding the concessions as follows:

  1) Conditions under Mineral Laws

1.  Pay special benefits 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 mined areas into safety conditions.

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 ten 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, and then annually report the result to The Office of Natural
    Resources and Environment Policy and Planning to ensure that the
    quality conforms to the government standards.

4.  Present the EIA report on potential utilization of the area to both
    The Mining Expert Committee and 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, SCG Cement has five grey cement plants in Thailand, namely
  as follows:

  1) Ta Luang Cement Plant (Saraburi) 2) Khao Wong Cement Plant
  (Saraburi) 3) Kaeng Khoi Cement Plant (Saraburi) 4) Thung Song Cement
  Plant (Nakorn Sri Thammarat) 5) Lampang Cement Plant (Lampang), and
  one overseas cement plant, namely “Kampot Cement Company Limited”, in
  Cambodia. With the market share of approximately 42 percent, SCG
  Cement is the largest cement producer in the country.

  The business invariably places its value on creating products and
  services that timely respond to customers’ needs and meet customer
  satisfactions with state of the art of modern manufacturing technology
  and quality control system. Altogether with its 95 years manufacturing
  experiences, these ensure that its products and services contain
  higher quality than normal standards and competitors’ products.
  Furthermore, SCG Cement is the only Thai Cement Company that owns a
  research and development unit. As a result, SCG Cement is the first
  and the only cement producer in Thailand that coated the plastic layer
  in cement bags to keep the product fresh and prevent breakages. With a
  corporate commitment to continually respond to customers’ needs, the
  business has launched an innovative product under “Super Cement” brand
  since late 2008. This product is widely perceived as good quality with
  economic price. The business also provides technical service teams to
  recommend about production process, quality control, and cost
  reduction as well as provide advising and solve any related problems.
  Therefore, customers can promptly notify their problems via the
  business’s Customer Complaint Call Center.

  The business has supported assorted marketing and public welfare
  activities. For example, it annually performs educational activities
  including Elephant Concrete Fair, a project with its main purpose of
  enhancing knowledge and developing concrete technological skills. It
  also provides grey cement for educational purpose to universities and
  vocational schools. Moreover, the business supports sports activities,
  i.e. Tiger Cement Thai Boxing, and other public welfare such as
  building small check dams nationwide under the royal initiative
  project, donating blankets for the poor, supporting college student
  volunteer camp campaigns nationwide as well as building permanently
  residential structures with Department of Skill Development, etc.

  For the proportion of the business’s sale market in 2008, it comprises
  56 percent and 44 percent of domestic sale and export sale
  respectively. Key channels of domestic distribution are through: 1)
  the Group’s dealer network, 2) subsidiaries that produce related
  products such as ready-mixed concrete, roof tiles, and precast
  concrete slabs, etc., and 3) a direct sale to concrete product
  manufacturers and large contractors.

  About an overseas sale, the business has assigned SCT Co., Ltd., a
  trading agent company under the SCG group, as its representative to
  export clinker for foreign cement producers and bulk cement for
  general cement users. Nowadays, major export markets are in America,
  South Asia, Southeast Asia, and Africa, all of which have a
  continuously increasing demand both in forms of clinker and bulk
  cement. Apart from its low manufacturing cost leadership in the
  region, the business gains more advantage over its competitors in
  other regions in low shipping cost for the South Asia and the
  Southeast Asia.

2.2 Competition and Capacity

  In 2008, the domestic cement demand was adversely affected by various
  negative factors, i.e. political volatility, fluctuation on fuel and
  raw material prices and U.S. financial crisis. As a consequence,
  consumers’ confidence has undermined and project investments from
  private sector have further slowed down. Furthermore, lower export
  volume of cement due to world economy slow down has inevitably caused
  an intense competition within the country. To cope with cyclical
  economic downturn and avoid price competition, the business has
  exerted more emphasis on key strategies to maintain its leadership in
  the marketplace through research and development of new products and
  services, customers’ relationship and cost reduction program. The
  business has also implemented distribution network expansion, and
  channel improvement nationwide, with an utmost aim to strengthen the
  business’s competitive edge in the long term and to enhance customer
  satisfaction through convenience in purchasing of products and
  services.

  Grey cement manufacturers in Thailand are currently comprised of:

  Million tons per year

  1) SCG Cement Co., Ltd. 23.2

  2) The Siam City Cement PLC 14.5

  3) TPI Polene PLC 9.0

  4) Asia Cement PLC 4.8

  5) Jalaprathan Cement PLC 2.3

  6) Thai Pride Cement Co., Ltd. 0.9

  7) Cemex (Thailand) Co., Ltd. 0.7

  8) Thai Satapana Co., Ltd. 0.1

  9) Samakki Cement Co., Ltd. 0.1

  Total Country Capacity 55.6

3. Products and Services 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% /  | Own supply sources |
| imestone |     |                    | 0%      | and self-operate.  |
+----------+-----+--------------------+---------+--------------------+
| Shale    | -   | Long-term          | 100% /  | Own supply         |
|          |     | contracts with     | 0%      | sources. Long-term |
|          |     | external           |         | contracts with     |
|          |     | contractors.       |         | contractors.       |
+----------+-----+--------------------+---------+--------------------+
| Sand     | Ab  | Occasional         | 100% /  | Own supply sources |
|          | out | purchase from      | 0%      | kept as reserve.   |
|          | 3   | long-timed         |         | Currently buy from |
|          |     | sellers.           |         | external sellers.  |
+----------+-----+--------------------+---------+--------------------+
| Clay     | Ab  | Long-term          | 100% /  | Own supply         |
|          | out | contracts with     | 0%      | sources. Currently |
|          | 3   | external           |         | have               |
|          |     | contractors.       |         |                    |
|          |     |                    |         | long-term          |
|          |     |                    |         | contracts with     |
|          |     |                    |         | contractors and    |
|          |     |                    |         | partly buy from    |
|          |     |                    |         | external           |
|          |     |                    |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| Laterite | Ab  | Occasional         | 100% /  | Own supply sources |
|          | out | purchase from      | 0%      | kept as reserve.   |
|          | 4   | 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 sources.  |
|          |     | from own sources.  |         |                    |
+----------+-----+--------------------+---------+--------------------+
| Kraft    | 2   | Buy from           | 90% /   | Currently buy from |
| Paper    |     | affiliates.        | 10%     | SCT                |
+----------+-----+--------------------+---------+--------------------+
| Fuels    |     |                    |         |                    |
+----------+-----+--------------------+---------+--------------------+
| Lignite  | Ab  | Long-term          | 100% /  | Self-operate from  |
|          | out | contracts with     | 0%      | its supply sources |
|          | 3   | suppliers          |         | and buy from       |
|          |     |                    |         | external           |
|          |     |                    |         | suppliers.         |
+----------+-----+--------------------+---------+--------------------+
| P        | 1   | Long-term          | 0% /    | Buy from SCT       |
| etroleum |     | contracts with     | 100%    |                    |
| Coke     |     | suppliers          |         |                    |
+----------+-----+--------------------+---------+--------------------+
| Lignite  | 5   | Long-term          | 0% /    | Buy from SCT and   |
|          |     | contracts with     | 100%    | external           |
|          |     | suppliers and      |         | suppliers.         |
|          |     | occasional buying. |         |                    |
+----------+-----+--------------------+---------+--------------------+
| Bunker   | 4   | Occasional buying. | 100% /  |                    |
| Oil      |     |                    | 0%      |                    |
+----------+-----+--------------------+---------+--------------------+
| Biomass  | 18  | Long-term          | 100% /  | Buy from external  |
| e.g.     |     | contracts with     | 0%      | suppliers.         |
| husk,    |     | suppliers and      |         |                    |
| palm     |     | occasional buying. |         |                    |
| shell,   |     |                    |         |                    |
| s        |     |                    |         |                    |
| aw-dust, |     |                    |         |                    |
| etc.     |     |                    |         |                    |
+----------+-----+--------------------+---------+--------------------+

3.2 Environmental Protection

SCG Cement has pursued environmental plans as follows:

1.  1) Environmental Protection

    1.  Green and Clean Plant: The business sets an environmental policy
        by requiring all cement plants and their surrounding areas to be
        “Green and Clean Plants. This helps reduce scattering dust as
        well as protect surrounded local communities and environments.
        Additionally, to promote environmental concerns among employees,
        the business has initiated and implemented environmental caring
        campaigns of which are named “Do It Clean” and “Do It Green”
        since 2004 and 2005 respectively and continued to launch these
        campaigns ever since.

    2.  Dust Control: The business has installed electrostatic
        precipitators, the most efficient machines, and bag filer
        machines to collect dust in every manufacturing process that
        causes dust. 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 and
        environmentally-friendly 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. It can dwindle the unsightly scenery and
        also prevent noise and dust from scatterings. 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 the previous mining areas, the business embarked on an
        environmental plan so as to revive mining areas to its original
        nature by recovering surface and planting local trees.

    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 environmental quality
        in manufacturing process to meet or exceed government standards,
        the business also regularly measures the quality of air from
        factory stacks, in the community around the factories, and in
        the offices accordingly to the environmental impact analysis
        report. Moreover, the business has installed the automatic
        system known as “The Continuous Emission Monitoring Systems
        (CEMS)” by completing the installment at every kiln stack
        within 2009. In addition, there are mobile vans to monitor air
        quality and environmental laboratories to prevent environmental
        impact probably caused by business operations.

    5.  Water Conservation: The business has further taken on HM the
        king’s initiative in conserving the sources of water by
        supporting nearby communities to build check dams in the
        deforestation areas nearby cement plants. All of them are built
        to reduce the speed of water flows in rainy season, increase
        moisture to soils, prevent wildfire, and can be used as water
        reservoirs during a severe drought.

2) Natural Resources Conservation

  2.1) Raw Materials and Fuel Substitutes: The business has reused
  scraps and industrial waste as raw materials and fuel substitutes in
  cement production without any impact on product quality and
  environment. Not only does this reduce natural resources consumption,
  but also helps the country eradicate industrial waste. Currently,
  every SCG Cement plants has been received Total Waste Quality
  Adjustment Permit (Number 101); the Company is the first to be awarded
  such permit. In 2008, the plants under SCG could replace approximately
  2 percent of fossil fuels used in cement burners with scraps and
  industrial waste. In addition, The Concrete Products and Aggregate
  Co., Ltd. could replace some of its raw materials with 680,000 tons of
  pulverized fuel ash (PFA). Up to now, about 700 factories have
  contacted the company under SCG Cement to treat their scraps and
  industrial waste.

  2.2) Clean Fuel Usage: The business has used biomass such as husk, saw
  dust, bark, corncob and palm shell to replace fossil fuel types. In
  2008, the business used total amount of biomass approximately 13
  percent. Also, it invested approximately Baht 35 million 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 business has regularly monitors energy usage of
  each plant in order to continuously improve machine efficiency. This
  has reduced energy consumption either in forms of electricity or fuel
  in production process. The amount of energy consumption is also
  determined as an indicator of cement production efficiency.

  2.4) Electricity Generator Fueled by Waste Heat: The business has
  progressively been in the process of installing small electricity
  generators, fueled by waste heat energy recovered from cement
  production process, at every cement plant. In 2008, 3 of the total 7
  projects of Waste Heat Power Generators (WHG) have been completed and
  could reduce approximately 6 percent of electricity usage, while the
  remaining projects are under construction. Total investment is
  estimated at Baht 5,850 million and shall contribute to Baht 1,500
  million per year cost saving upon the project completion. In addition,
  it is estimated that 100,000 tons per annum of carbon dioxide (CO₂)
  shall be reduced through such projects.

3) Sustainable Development

  3.1) Communal and Social Support: Apart from strictly conserving the
  environment, the business has regularly generated social activities to
  strengthen relationship with communities by exploring needs and
  satisfaction of local communities toward the Company. It also strongly
  intends to develop local communities with creativity and participation
  in assorted activities to improve the quality of life for the
  surrounding people and societies. Different dimensions prevail such as
  community activities including One Cell One Project (OCOP),
  educational activities including providing cement for educational
  purpose for department of vocational education and various
  universities nationwide. In addition, the business has contributed to
  social activities such as providing cement for rebuilding school,
  giving cement to college student volunteer camps, sports activities
  including boxing etc.

  3.2) Employee Support: The business 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 business provides working environment improvement,
  knowledge and understanding development, as well as safety awareness
  for their workforce with strong intentions to prevent 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 with 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 who receive every certification in management
  system, namely, ISO 9001, ISO 14001, and TIS 18001. Nowadays, every
  grey cement plant of the Group has already received all of the above
  certifications. Moreover, the business 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
  collect fundamental data of Thailand for future reference.

  3.4) Awards: The business places an importance on the quality
  management of organization, 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 receive the 2002 Deming
  Application Prize from the Union of Japanese Scientists and Engineers
  (JUSE). This is the most 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 of them have expressed the business’s
  ambitions to develop and make a stride of progress toward every
  management aspect so as to achieve the highest level of efficiency.

4. Undelivered Projects or High-Valued Purchase Agreements

  None

  SCG Building Materials

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. Ceiling and wall products

4. Concrete products such as paving blocks, and concrete floor tile

5. Others e.g. insulation product

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 receiving
of Deming Application Prize from the Union of Japanese Scientists and
Engineers (JUSE) of Thai Ceramic Co., Ltd. Besides, the business
developed distribution channels for roofing products and ceramic tiles
in the form of Roofing Center and COTTO Tiles Studio, respectively, with
concept of One-Stop Shop, One-Stop Service to respond to customers’
lifestyle.

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,     | Medium to high        |
|                      |                      |                       |
|                      | Owner-built houses   |                       |
+----------------------+----------------------+-----------------------+
| Ceramic Roof Tile    | Owner-built houses   | High                  |
+----------------------+----------------------+-----------------------+

-   Ceramic products can be classified as follows:

  ----------------------- ----------------------- -----------------------
  Product                 Target                  Price
                          Group/Application       

  COTTO                   Medium to high income   Medium to high
                          segment                 

  SGI Tiles and CAMPANA   Medium to low income    Medium
                          segment                 
  ----------------------- ----------------------- -----------------------

-   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 percent domestic sales and 5
    percent export sales. Mainly exports to Indochina and Myanmar.

-   Ceramic tiles are 70 percent domestic sales and 30 percent foreign
    sales. Most exports are to the U.S.A., Australia, Europe, and ASEAN
    countries.

2.4 Management

  The business started continuous organization development for achieving
  sustainable growth along the current line of business operation. For
  example, future leader development project which prepare every level
  of management to be ready for future business plan.

2.5 Competition

  Due to an intensely growing demand for domestic building products in
  the past 4-5 years, the business 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 PLC

3.  Oran Group

-   Major Competitors in Ceramic Tile Products:

1.  Dynasty Ceramic PLC

2.  The Union Mosaic Industry PLC

3.  The Royal Ceramic Industry PLC

-   Major Competitors in Ceiling and Wall Products:

1.  Mahaphant Group

2.  Diamond Roofing Tile PLC

3.  Conwood Co., Ltd.

-   Major Competitors in Concrete Products:

1.  Chonburi Concrete Products Co., Ltd.

2.  Southern Concrete Block Co., Ltd.

  The business has the highest market share and capacity share in
  roofing tiles, ceramic tile, and concrete product markets.

3. 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
    SCG Cement has the largest cement capacity.

-   Ceramic tile and ceramic roof tile use clay as their raw materials.
    The business buys clay from several domestic suppliers. In addition,
    the business and the Group own some sources that can last for over
    ten years.

Regarding other raw materials, the business secures long-term contracts
with local and foreign suppliers without profoundly depending on any
specific supplier to ensure the sufficiency.

About environmental impact, the business has a strict policy to treat
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 accredited ISO certifications.

4. Undelivered Projects or High-Valued Purchase Agreements

None

SCG Distribution

1. Product or Service Feature

The SCG Distribution is responsible for both domestic and international
trading and providing logistic services for a number of SCG’s affiliates
and outside customers. SCG Distribution Co., Ltd. is the Holding company
with the following key subsidiaries.

  1. SCG Network Management Co., Ltd. is responsible for domestic
  distribution of building materials and home improvement products
  through network of authorized dealers and Home Mart stores nationwide.

  2. SCG Logistics Management Co., Ltd. provides logistics services in
  both domestic and ASEAN countries in order to build strong logistic
  network in neighbor countries including coastal logistics.

  3. SCT Co., Ltd. is responsible for international trading including
  imports and exports as well as offshore trade.

2. Markets and Competition

Market Policy and Features

The SCG Distribution mainly focuses on creating values for customers and
business partners. This can be done by continuous development of
standard distribution system for various building materials and home
improvement to efficiently achieve customer responses, and by
synergizing all companies to offer a full range of services for
customers.

SCG Network Management Co., Ltd.

  Competition Strategy

  Management and Service

  The business provides strong domestic distribution network through
  dealers and company-owned outlets with an aim to timely respond to all
  type of customer’s needs.

  To increase service potential for suppliers and customers, the
  business developed IT network which links the company, the
  manufacturers, and all dealers to efficiently coordinate through the
  Business-to-Business e-Commerce.

  In addition, the Company adopted Customer Relationship Management
  (CRM) concept to manage customer relationship through 3 channels,
  which are wholesaling, retailing and project channels. Moreover,
  SAP-CRM software has been installed as a tool to enhance the
  collecting and analyzing of data.

  Channel of Distribution

  Building materials and home improvement products are locally
  distributed through over 500 dealers, 300 of which are Home Mart
  stores. 290 of them are in new Home Mart style shops.

SCG Logistics Management Co., Ltd.

  Competition Strategy

  Management and Service

  The Company provides modern, accurate, and prompt transportation
  services and warehouse management through a transportation contractor
  network. 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 across
  the borders. The Company emphasizes on transportation efficiency to
  reduce costs and improve services for internal and external customers
  with concerns for environment and safety.

SCT Co., Ltd.

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

  Competition Strategy

  The Company focuses significantly on value-added services, especially
  for energy products and raw material to match certain requirements of
  customers which are factories inside and outside the Group.

  Channel of Distribution

  The Company has 31 branches in various countries, i.e. Cambodia,
  Vietnam, Myanmar, Malaysia, the Philippines, Singapore, Hong Kong,
  India, Bangladesh, The United Arab Emirates, Jordan, Australia, Laos,
  China, Taiwan, Indonesia, Canada, Tanzania and the U.S.A. Products are
  categorized into 5 main categories, which are cement products,
  building material products, energy and industrial products, recycling
  products, import-export, including freight and logistics service for
  overseas.

Tendency of SCG Distribution

The business tends to create value to customers and partners by creating
accurate and the most rapid distribution system in the region. The
business has implemented modern Information Technologies which are
Enterprise Resource Planning (ERP), Supply Chain Management (SCM) and
Customer Relation Management (CRM).