1 Risk relating to Revenues and Profits

- Risk of fluctuation in raw material prices

  The primary raw material for manufacturing carbon black is carbon
  black feed stock oil, which is mostly imported and constitutes about
  90-95% of the total raw material cost and about 85-90% of cost of
  production. The prices of carbon black feed stock oil are closely
  related to crude oil and fuel oil prices internationally. During the
  year the increase in crude oil prices remained unabated which was ever
  highest in 2006 and resulted in steep increase in raw material cost of
  the company. If the oil prices continue to remain high and any further
  volatility and change in demand / supply situation in the world oil
  market may further affect the prices of company’s raw material and its
  profitability in the year 2007. Going forward oil prices are expected
  to gradually decline in 2007.

  The company always exercise prudent judgment in covering and buying
  the larger quantities of oil when the oil prices are low for
  requirement for future periods by constant monitoring of world oil
  price and having regular discussions with energy specialist and by
  this company gets ample time to monitor oil prices closely and tries
  to buy again when oil prices are low. To reduce the overall cost of
  raw material, the company tries to buy’s large volumes and in full
  vessel loads to optimize procurement cost.

- Risk from carbon black selling prices

  The prices of company’s product “Carbon Black” of various grades is
  generally governed by demand & supply situation in the world market,
  international price trend, oil prices in world market, industry
  situation, situation of auto industry and specific features of the
  product etc. The company has the policy of fixing the price with major
  customers on 3-6 months basis to provide stability in the prices. Also
  the company started having formula based selling prices with major
  customers to reduce price volatility.

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

- Exchange rate risk on Forex flows

  The company exports almost 45-50% of its production. The domestic
  sales prices are also indirectly influenced by exchange rates as the
  major raw material is imported. The company does not have any dollar
  denominated borrowings. As currently the raw material prices are high
  the company expect to have net deficit of US dollar in 2007. Thai Baht
  is continuously getting stronger and any further strengthening of Thai
  Baht will help company in buying the US dollar at lower rates thus
  will benefit the company, however at the same time the weaker Thai
  Baht does benefit the company for its export and domestic sales and
  any appreciation in the value of Thai Baht may impact company’s
  revenues and profits as it also affects the export competitiveness of
  the local automobile & tire industry and therefore may impact our
  domestic sales volume & pricing. This carries risk as well as provide
  opportunities and it is a normal business situation under which the
  company is operating.

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

2.Risk from operations

- Risk from manufacturing operations

The company has an exhaustive preventive and predictive maintenance system to ensure good health of all its manufacturing equipments. It also has a regulated system of operating equipments after designed life. The company is highly committed to safety. Besides a very high level of safety consciousness amongst all employees, generated through rigorous training and investment in all necessary safety equipment, the company conducts mock drills, emergency plan simulation etc. to ensure highest standard of alertness. The company also have emergency contingency plan in place.

- Risk related to environmental 

  Generally our production process is environmental friendly and does
  not generate any solid wastes. The liquid waste which is a process
  water is discharged only after proper treatment. The waste gas (flue
  gas) is combusted in dryer and boiler and flue gas is combusted
  through the stacks. Flue gas samples are collected and tested
  regularly which are within the maximum standard limits set by the
  government. In fact our company is the first Asian Carbon Black
  manufacturing plant to receive ISO 14001 certificate for ensuring the
  highest standards of environment cleanliness and company continuously
  monitors its pollution control system to adhere to the standards
  prescribed by authorities like ministry of industry. The actual levels
  are routinely monitored by the company and government and any
  situation of improper treatment carries environmental and political
  risk. The company assigns highest priority to remain well within the
  maximum allowable limit and has made substantial investment in the
  necessary equipments over the year for treatment of wastes. The
  company have plan of further investment in equipments to have improved
  environment control systems.

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

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

  Despite above the company perceives the risk of any accidental
  disturbance to environment to be high

  - Risk from storage and handling

  The company transport and store its raw material carbon black feed
  stock oil which is highly viscous and have permissible sulphur
  contents and also its finished product carbon black which is in the
  form of small colloidal particles. The company follows all
  international standards stipulated for their safe transportation and
  storage. Though there has never been any major accident relating to
  these products. the company perceives the risk of accident or
  misoperation.

3.Risks relating to marketing

 - Competitive Environment

  Thai Carbon Black is one of the largest producers of Carbon Black in
  the world. Due to its excellent quality and customer services together
  with its low cost of production, Thai Carbon Black is competitively
  placed in the world market. In addition, due to company’s capabilities
  to develop Carbon Black grades as per the customers’ requirement, it
  is able to meet important customer needs which give the company more
  competitive advantage.

  Domestically company is market leader and commands 48% market share.
  There are 2 other carbon black producers in Thailand. Any capacity
  expansion by other 2 producers of carbon black may change the market
  share and may impact the company’s profitability and product pricing.
  Any cheaper imports from China & other Asian countries may also impact
  our market share though with better quality we would be able to serve
  market better.

  - Risk from Product Substitute

  Silica is being developed as a probable product substitute. However,
  it is not a commercially developed product and it will be a long time
  before silica will become commercially viable and it may replace
  carbon black partially. Also its cost of production is much higher
  than carbon black. At present there is no threat from silica to carbon
  black industry.

4.Risk relating to financial management 

-   Interest rate and foreign exchange risk on loans

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

-   Interest rate and credit risk on Short Term Investments

Interest rates continued to move upwards during the year on account of
increase in rates by US. Since the company has large cash position, this
upward trend is positive for the company. The company makes every effort
to exercise significant prudence in selecting only healthy financial
institutions and fixing maximum exposure limit for each institution with
varying tenors, up to a maximum tenor of one year, for such investments.

-   Exchange risk on forex flows

  The company exports almost 45-50% of its production and at the same
  time the major raw material is 100% imported. Both exports and imports
  are dollar denominated.

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

5.External Risks

-   Global Economy

  Under post WTO Scenario, the manufacturing industry in particular has
  been facing fierce competition. Higher oil prices poses biggest threat
  to control production cost and any further volatility in oil prices
  may adversely affect the growth of automobile industry and in turn
  carbon black in industry. The business cycles across all commodities
  have become shorter and volatile thereby raising risk of sharp
  fluctuation in business volumes and profitability margins. The
  company’s product is well established in the international market,
  which will help consistent salability during the period of economic
  recession and volatility.

-   Geo Political risk

  The geo political events like terrorism cast their repercussions
  worldwide, increasing costs and risk of business and impacting supply
  and demand cycles. The political tension in south of Thailand is a
  cause of concern to domestic business community. The company expects
  that the recent peaceful political changes in the country will not
  have any adverse impact on its business.