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 2005 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 2006.

  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.

- 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.

  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% 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 2006 and any
  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 54% 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.

  In 2003 the company has formed Joint Venture (JV) company with Private
  Chinese Enterprise in China with the share holding of 77% and this
  will help company to establish strong production and customer base in
  China and will leverage upon the various requirements of the customer
  either from plant in Thailand or from the subsidiary company in China.
  The subsidiary in China has expanded its capacity as per plan in
  4^(th) quarter of 2005 and this will further strengthen its position
  in China.

  - 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

After hitting unprecedented bottom, interest rates have just started
inching upwards. Since the company has large cash position, this upward
trend is positive for the company. However, the yields on deposits
already placed will always lag behind yield on fresh deposits. 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% 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

  With the liberalization in global trade breaking down barriers and
  shrinking the world into one big market place, no country or region
  can remain insulated from the global economic trends. Increasing trend
  of natural disaster, calamities in different part of the world and
  change in climate due to global warming is having an adverse impact on
  all countries. Recession in USA or Europe, or a demand drop or pick-up
  in China, or oil price change plays havoc with the commodity price
  cycles and demand patterns 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 geopolitical events like terrorism and Middle East situation
  coupled with epidemics like bird flue etc have casted their
  repercussions worldwide, increasing costs and risk of business and
  impacting supply and demand cycles. The tension in South in Thailand
  has added another risk dimension to the business domestically. These
  risks have increased substantially in past few years for which company
  uses proactive financial and market risk anticipation and analysis
  coupled with increased global awareness.