The Business Trends for Thailand in 2008 and SCG’s Response to Thailand’s economic challenges

1. 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

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

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

4. 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.

5. 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 theirnew loans.

6. World Economy - Slowdown Source: The Economist Intelligence Unit (EIU)

7. 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 BoT to cut rates to stimulate the economy. But will this help, as business sentiment remains largely negative? With expected higher inflation, the BoT may necessarily increase rates again. • A sharp decrease in US private consumption would have negative global impact through the trade channel.

8. 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.

9. Crude Oil Price – Increasing Trend USD/Barrel Source: EIA

10. Global Oil Demand Still in High Level

11. Coal Price – Rising Trend USD/Ton Source: Globalcoal

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

13. Macro Economic Overview Source: NESDB, BOT

14. 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

15. 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 Current Export and Domestic Demand • Private sector was cautious about consumption and investment spending • Export in December is slowing down, but still in a high growth level

16. 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.

17. Oil and Us Economy Dependence Source: KBANK

18. 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

19. 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

20. Source: KBANK Export to New Markets • Growth of export to new market is 26% while the export to main market growth is 11%

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

22. Baht appreciation affects labor and wages not just headline export growth

23. Politics

24. Source: Power People Party

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

26. 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 materialsand 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)

27. Consolidated Sales Milion Baht +3.7%y-o-y MB

28. Consolidated EBITDA Milion Baht MB EBITDA 57,151 -12.5% y-o-y 54,626 53,507 50,008 Dividend Received 37,188 30,418 EBITDA from Operations -12.4% y-o-y Note: EBITDA = EBITDA from Operations + Dividend from Associates

29. FCF, CAPEX, and Investments for FY2007 Free Cash Flow CAPEX & Investments MB FY2006 FY2007 MB FY2006 FY2007 -15.1% +15.2% 27,160 Investments 23,574 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).

30. Sales and Profit breakdown 2007 Sales 267 Billion Baht Net Profit Without Non-recurring Items 25.8 Billion Baht

31. Net Debt Billion Baht Net Debt/EBITDA 5.8 5.1 4.1 3.1 1.8 1.9 1.8 2.0 (If not include debt in projects under construction) 1.65 1.7 De-leveraging phase Investment phase

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

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

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

35. 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.

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

37. 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”

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

39. SCG Vision Statement

40. 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

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

42. 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

43. 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 FY2008. • 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.

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

45. 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.

46. 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

47. SCG Strategies • 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.

48. SCG Training & Development Program AMP Adv Mgt Prog. EDP Exec.. Dev .Prog. General Management Executive LeadershipNegotiationProblem Solving &Decision Making Business Knowledge MDP Mgt. Dev .Prog. LDP 3 Facilitative Leadership Leadership Skill Manager LDP 2 Leading the Team CommunicationPresentationSupervisionTeam Building BCD Bus Concept Dev. Supervisor ABC Abridge Bus.Concept. LDP 1 Leading Yourself English proficiencyTeamwork Operator SCG Value – CG – Ethics Competency Development TRM -Functional Training Rev Mar 2007 TQM-Operational Excellence Safety and Environment

49. Q&A