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The Business Trends for Thailand in 2008 and SCG’s Response to Thailand’s economic challenges The Business Trends for Thailand in 2008 and SCG’s Response to Thailand’s economic challenges 15 February 2008 Kan Trakulhoon Revision 6: February 15, 2008 @ 2008 SCG 1

Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of SCG § Looking Forward / SCG Vision § Key Challenges and SCG Strategies in 2008 @ 2008 SCG 2

Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of SCG § Looking Forward / SCG Vision § Key Challenges and SCG Strategies in 2008 @ 2008 SCG 3

Contribution to World Growth 3. 7 3. 2 Middle East Latin Ame Asia & Contribution to World Growth 3. 7 3. 2 Middle East Latin Ame Asia & Aus EU USA In 2007: US 16%, Eu 24%, Asia+Aus 43%, Others 16% Decreasing US portion… while Asia increases. @ 2008 SCG 4

Sub-Prime § Securitization of low quality mortgages sold to investors. § Sub-prime assets are Sub-Prime § Securitization of low quality mortgages sold to investors. § Sub-prime assets are widely held, but their ownership is not transparent. § Sub-prime mortgage defaults have placed serious pressure on financial institutions. § Banks and other financial institutions have become overly cautious about their new loans. @ 2008 SCG 5

World Economy - Slowdown Source: The Economist Intelligence Unit (EIU) @ 2008 SCG 6 World Economy - Slowdown Source: The Economist Intelligence Unit (EIU) @ 2008 SCG 6

US Economy § Recent Fed rate cuts will result in further weakening of the US Economy § Recent Fed rate cuts will result in further weakening of the US$. § Falling interest rates and lower financial costs may help, but the EIU predicts that US has a 30 -40% chance of entering a recession. § Fed rate cuts will put pressure on the Bo. T to cut rates to stimulate the economy. But will this help, as business sentiment remains largely negative? With expected higher inflation, the Bo. T may necessarily increase rates again. § A sharp decrease in US private consumption would have negative global impact through the trade channel. @ 2008 SCG 7

The rest of the world Europe § Slow growth, caused by the strong currency The rest of the world Europe § Slow growth, caused by the strong currency which has deteriorated the export sector and decreased consumer confidence. Asia § Deceleration of growth, and rise in energy costs. § Effected by the US economic slowdown. § Japan’s economy remains stagnant. Others § Geo-political risks in the Middle East. § Global inflationary pressure (oil and food). § Using lower interest rates to stimulate economic growth may prove difficult. @ 2008 SCG 8

Crude Oil Price – Increasing Trend USD/Barrel Source: EIA @ 2008 SCG 9 Crude Oil Price – Increasing Trend USD/Barrel Source: EIA @ 2008 SCG 9

Global Oil Demand Still in High Level @ 2008 SCG 10 Global Oil Demand Still in High Level @ 2008 SCG 10

Coal Price – Rising Trend USD/Ton Source: Globalcoal @ 2008 SCG 11 Coal Price – Rising Trend USD/Ton Source: Globalcoal @ 2008 SCG 11

Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of SCG § Looking Forward / SCG Vision § Key Challenges and SCG Strategies in 2008 @ 2008 SCG 12

Macro Economic Overview Growth (%) 2007 E 2008 F Real GDP 4. 5 4. Macro Economic Overview Growth (%) 2007 E 2008 F Real GDP 4. 5 4. 0 -4. 5 Investment §Private §Public 1. 3 0. 3 4. 5 5. 8 4. 0 8. 0 Consumption §Private §Public 3. 1 1. 9 10. 2 4. 5 3. 5 10. 0 Export ($ Terms) 16. 0 10. 0 Import ($ Terms) 10. 0 12. 5 Inflation 2. 3 3. 0 -3. 5 Source: NESDB, BOT @ 2008 SCG 13

Current Business Sentiment Source : BOT, CEBF § There are negative risks from the Current Business Sentiment Source : BOT, CEBF § There are negative risks from the increase in price and cost of living § The business sector will face the slow down in export market, the increase in raw material prices and baht appreciation @ 2008 SCG 14

Current Export and Domestic Demand Private Consumption Index Private Investment Index Export Value in Current Export and Domestic Demand Private Consumption Index Private Investment Index Export Value in USD Term Import Value in USD Term Balance of Trade (Mil USD) Balance of payment (Mil USD) Source: BOT § Private sector was cautious about consumption and investment spending § Export in December is slowing down, but still in a high growth level @ 2008 SCG 15

Current Producer Price Index Source: KBANK § Other than energy price, raw materials in Current Producer Price Index Source: KBANK § Other than energy price, raw materials in the agricultural, food, plastics and metal sectors are also increasing as well. @ 2008 SCG 16

Oil and Us Economy Dependence Source: KBANK @ 2008 SCG 17 Oil and Us Economy Dependence Source: KBANK @ 2008 SCG 17

Government Expenditure Outlook Source: KBANK § The government is expected to proceed in fiscal Government Expenditure Outlook Source: KBANK § The government is expected to proceed in fiscal policy to stimulate the economy § The relax in monetary policy will have limitation from the pressure of inflation @ 2008 SCG 18

Export Sector Outlook Source: KBANK § Export is slowing down due to the US Export Sector Outlook Source: KBANK § Export is slowing down due to the US economy slowdown and Baht Appreciation § Balance of payment surplus is in a high level, but less than 2007 @ 2008 SCG 19

Export to New Markets Source: KBANK § Growth of export to new market is Export to New Markets Source: KBANK § Growth of export to new market is 26% while the export to main market growth is 11% @ 2008 SCG 20

Baht Continues to Appreciate Baht/USD Source: BOT; Average Buy TT and selling @ 2008 Baht Continues to Appreciate Baht/USD Source: BOT; Average Buy TT and selling @ 2008 SCG 21

Baht appreciation affects labor and wages not just headline export growth @ 2008 SCG Baht appreciation affects labor and wages not just headline export growth @ 2008 SCG 22

Politics @ 2008 SCG 23 Politics @ 2008 SCG 23

Source: Power People Party @ 2008 SCG 24 Source: Power People Party @ 2008 SCG 24

Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of SCG § Looking Forward / SCG Vision § Key Challenges and SCG Strategies in 2008 @ 2008 SCG 25

SCG Background § Established in 1913 by King Rama VI. § Registered to The SCG Background § Established in 1913 by King Rama VI. § Registered to The Stock Exchange of Thailand since 1975 At present, the Crown Property Bureau holds 30% shares in the company. § Employs 25, 000 people, and comprises of 100 subsidiary companies in 5 business units: chemicals, paper and packaging, cement, building materials and distribution. § Total assets of 250 Billion Baht § An ASEAN conglomerate, with 30 non-Thai companies operating within the region. § Market Capitalization of US$ 8 Bil (70% float) @ 2008 SCG 26

Consolidated Sales Milion Baht +3. 7% y-o-y MB @ 2008 SCG 27 Consolidated Sales Milion Baht +3. 7% y-o-y MB @ 2008 SCG 27

Consolidated EBITDA Milion Baht MB 54, 626 53, 507 EBITDA -12. 5 %y-o-y 57, Consolidated EBITDA Milion Baht MB 54, 626 53, 507 EBITDA -12. 5 %y-o-y 57, 151 50, 008 Dividend Received 37, 188 30, 418 EBITDA from Operations -12. 4 %y-o-y Note: EBITDA = EBITDA from Operations + Dividend from Associates @ 2008 SCG 28

FCF, CAPEX, and Investments for FY 2007 Free Cash Flow MB FY 2006 CAPEX FCF, CAPEX, and Investments for FY 2007 Free Cash Flow MB FY 2006 CAPEX & Investments FY 2007 MB FY 2006 FY 2007 -1 5. 1 % + 15. 2 % 27, 160 23, 574 Investments CAPEX Note: - Free Cash Flow = EBITDA (including dividends) - Interest Expense and Tax Paid. - CAPEX includes debottlenecking and expansion projects. - Investments are acquisitions and purchase of shares. - Maintenance CAPEX spending is expensed and is included in EBITDA figure (as per Thai-GAAP). @ 2008 SCG 29

Sales and Profit breakdown 2007 Sales 267 Billion Baht Net Profit Without Non-recurring Items Sales and Profit breakdown 2007 Sales 267 Billion Baht Net Profit Without Non-recurring Items 25. 8 Billion Baht @ 2008 SCG 30

Net Debt Billion Baht Net Debt/EBITDA 5. 8 5. 1 4. 1 (If not Net Debt Billion Baht Net Debt/EBITDA 5. 8 5. 1 4. 1 (If not include debt in projects under construction) 3. 1 De-leveraging phase @ 2008 SCG 1. 8 1. 9 1. 8 1. 65 Investment phase 31 2. 0 1. 7

Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of SCG § Looking Forward / SCG Vision § Key Challenges and SCG Strategies in 2008 @ 2008 SCG 32

Key Challenges Aim to § Slow domestic growth § Maintain market leadership in domestic Key Challenges Aim to § Slow domestic growth § Maintain market leadership in domestic market § Competition shifts from domestic to regional or § Develop regional businesses global platform § Higher Energy Costs § Move toward high-value products & services § Commoditization of products @ 2008 SCG 33

SCG Historical Growth Phases Thailand’s Economic Crisis Go Regional + High-Value Products & Services SCG Historical Growth Phases Thailand’s Economic Crisis Go Regional + High-Value Products & Services Restructuring JVs 1990 @ 2008 SCG 1996 1997 2004 34

Why ASEAN? § Market size § Population of 550 Mil (China 1, 300 Mil, Why ASEAN? § Market size § Population of 550 Mil (China 1, 300 Mil, India 1, 100 Mil). § Low consumption per capita of basic products. § Economy is growing at an average of 5 -6%. § ASEAN is SCG’s familiar market, due to our long historical experiences. § Unique investment potential has largely been overlooked by multinationals in the rush to set up operations in China and India. § Lowering of ASEAN import tariffs (AFTA) will create a more integrated market and increase intra-regional trade activity. @ 2008 SCG 35

SCG Current Overseas Expansion Vietnam - Paper : Kraft Paper - Chemicals - Building SCG Current Overseas Expansion Vietnam - Paper : Kraft Paper - Chemicals - Building Materials : Concrete Roof Tile Cambodia & Laos - Distribution - Cement - Building Products Philippines - Paper - Building Materials Malaysia & Singapore Indonesia - Packaging Paper - Chemicals - Building Materials @ 2008 SCG 36

Innovation for Sustainability How can we sustain our earning growth while our core products Innovation for Sustainability How can we sustain our earning growth while our core products are commodity in nature? Continuous improvement in production cost and product quality is no longer enough … everybody does it today “Innovation” @ 2008 SCG 37

Innovative Culture – Building block for the new growth “High-value” added products comes from Innovative Culture – Building block for the new growth “High-value” added products comes from innovative culture as the fundamental stage…… Culture R&D § Open Minded § Thinking out of the Box § Assertive § Risking taking + Continuous Improvement § Our own technology Products/ § Own IP (Intellectual Property) § Eager to learn @ 2008 SCG High Value 38 Services

SCG Vision Statement @ 2008 SCG 39 SCG Vision Statement @ 2008 SCG 39

Agenda § Trend and Challenges in 2008 § § § Global Domestic Overview of Agenda § Trend and Challenges in 2008 § § § Global Domestic Overview of SCG Looking Forward / SCG Vision Key Challenges and SCG Strategies in 2008 § § @ 2008 SCG Closely manage our costs and build strong growth platform for our business Maintain our spirit and nurture our people 40

SCG Strategies § Closely manage our costs & build strong growth platform for our SCG Strategies § Closely manage our costs & build strong growth platform for our business. § Innovation and operational excellent § Go regional § SD & CSR @ 2008 SCG 41

SCG Strategies § Innovation and operational excellent § TQM + innovation § R&D § SCG Strategies § Innovation and operational excellent § TQM + innovation § R&D § Go regional § To effectively manage overseas investment project & technology transfers to ensure successful execution § SD & CSR § To be leading role in sustainable development by incorporating environment, and social responsibility into our business practices @ 2008 SCG 42

Higher Energy Price – Higher Cost of Operation • Short term strategy of coal Higher Energy Price – Higher Cost of Operation • Short term strategy of coal is to lock in FOB prices and freight, however, cost escalation is a certainty for FY 2008. • Medium term strategy of coal is hedging for reduced volatility and increased predictability, and securing long term supply contracts. • Installation of a total of 5, 850 MB in waste-heat generators for the cement business. @ 2008 SCG 43

Wastepaper Cost on the Rise USD/ton 440 465 Wastepaper (raw material) 240 220 2002 Wastepaper Cost on the Rise USD/ton 440 465 Wastepaper (raw material) 240 220 2002 @ 2008 SCG 2003 2004 2005 44 2006 2007

Baht Appreciation FX (US$) Exposure • Closing of FX position upon completion of sales Baht Appreciation FX (US$) Exposure • Closing of FX position upon completion of sales transaction, and matching of export and import transactions. • Sell forwards $ positions to reduce FX fluctuation, from the net export in $ terms. @ 2008 SCG 45

Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of Agenda § Trend and Challenges in 2008 § Global § Domestic § Overview of SCG § Looking Forward / SCG Vision § Key Challenges and SCG Strategies in 2008 § Closely manage our costs and build strong growth platform for our business § Maintain our spirit and nurture our people @ 2008 SCG 46

SCG Strategies § § @ 2008 SCG Set proper expectation & being proactive to SCG Strategies § § @ 2008 SCG Set proper expectation & being proactive to manage labor relations. Fostering an “inno-culture” environments & engaging people. § New comers “Orientation Program” Role model on ethical practices. Stay healthy… taking care of yourselves. 47

SCG Training & Development Program AMP Adv Mgt Prog. EDP Exec. . Dev. Prog. SCG Training & Development Program AMP Adv Mgt Prog. EDP Exec. . Dev. Prog. le d ge General Management ss ne Facilitative Leadership Sk Bu si LDP 3 ip sh & Decision Making er MDP Mgt. Dev. Prog. ad Kn ow Leadership Negotiation Problem Solving Le Executive ill Manager Communication Presentation Supervision Team Building BCD Bus Concept Dev. Supervisor ABC Operator LDP 2 Leading the Team LDP 1 English proficiency Teamwork Abridge Bus. Concept. Leading Yourself SCG Value – CG – Ethics Competency Development Rev Mar 2007 @ 2008 SCG TQM-Operational Excellence TRM -Functional Training Safety and Environment 48

Q&A @ 2008 SCG 49 Q&A @ 2008 SCG 49