Owners statement

Dear Customer,

We are writing to you as the founders and still sole owners of LAC, s.r.o. In these hard times we feel the need to inform you about the impact of the world economic depression on our company.

From the very beginning of our business, we have based our activities on two fundamental pillars. That is the production of technological units designed mostly for all types of heat treatment of materials from temperatures of 50°C to 1900°C and the manufacture of refractory blocks, at first intended mostly for the lining of walls exposed to excessive mechanical and heat stresses.

The economic depression has had its impact on the Technological Units Department in a dramatic slump of orders, roughly by 50 % compared with the similar period last year. This slump has had an adverse affect on all manufacturers and it can be envisaged that other competition with less globally-oriented and a smaller growing distribution network (we acquired 10 new distributors in 7 new markets last year) as well as competition dealing virtually in the home markets, must have been hit much harder. We are involved in the manufacture of complete industrial plants and, considering one’s own anti-depression measures taken, any halting or limitation in the purchase of complete industrial plants has been,, undoubtedly, the first and foremost thing to do.

Therefore it is more than certain that manufacturers of technologies of investment nature, most often procured for reasons of increasing production capacity, are the fist to bear the brunt, because there are very few companies and market sectors today that have not been affected by the depression. Consequently, it follows from this that most manufacturers of complete industrial plants are struggling and will continue to struggle with considerable problems. Many of them will have to shut down their businesses, either gradually or due to unexpected bankruptcy.

Customers of such "bankrupt” companies will be faced with the following significant problems:

• Servicing of existing equipment will be very problematic
• Also, there will be no one to repair equipment still under warranty.
• And the worst scenario is the imminent loss of finances and, maybe, the loss of orders due to missing technology in the case that such a company is faced with bankruptcy and insolvency proceedings before production has been finished and the commissioned equipment supplied.

How can you hope that the above-mentioned scenario doesn’t happen if you place an order with our company?

Considering the fact that we are the first two employees of the company, for a long time the two of us manufactured furnaces only “in the garden shed” and we have an almost "fatherly" feeling for this production. This is certainly a quite different relationship than so-called financial investors have for their companies, who only expect short-term profits in the form of substantial gains from their investments and, the moment they have a hunch that an investment is not lucrative, they get rid of it at all cost even if they should lose.

We, unlike such owners, are prepared to finance eventual losses as a result of such business. By no means do we intend to dismiss experienced colleagues who, during all the past years have been gaining knowledge and experience that cannot be gained otherwise than working in this field. Other manufacturers are and will be compelled to make radical personnel cuts, which will cause a palpable and irreplaceable “brain drain". Our branch of business is very specific and there are practically no skilled people in this market niche. They must be brought up. The moment the crises ends, many “surviving” competitors will have to start almost from scratch.

We are using the momentary drop in demand and any spared free capacity of our technicians for innovations to the best selling product type series, for improvement of production organization and complementation of technological nodes by new machines in such a manner to be able to offer to you products that attain the best technical parameters, that are better serviceable, and with terms of delivery that are as short as possible and will better meet your requirements.

From the second half of 2008 we have been working on innovation of the existing product series. By the end of 2009 we plan to finish 10, which is more than 300 types of equipment. Also, there will be at least 3 totally new type series.

We have been further working hard on the extension of our commercial and service network abroad, mostly in West Europe and in our China branch (www.lacchina.cn) where we plan to operate a network of fifteen distributors by the end of 2009.

Of course one question arises: AND WHERE SHALL WE GET THE RESOURCES FOR ALL THAT?

The answer is a simple one. At the beginning we suggested that our business (unlike any other competitors) rests on two pillars.

In the REFRACTORY CONCRETE Department we have been working hard for approx. 15 years on obtaining references on the biomass heating market. More than 85% of blocks manufactured by us are located just within this segment. You too must contemplate at this time of crisis how to save costs, not only in the company, but in your private life as well. If you own a house, then you surely know that heating costs represent a large burden both to your company and family budget. Heating with wood, pellets, chips, grain and other energy crops 'saves tens of percent! of expenses compared with gas or electric heating. Another factor which keeps this segment growing was the “gas crisis" at the turn of this year.

For these reasons, the market in boilers of all sizes has experienced a great boom since about halfway through last year. Thanks to this fact, we have become known as a "high quality and most reliable" supplier in the market amongst producers of such equipment, and we are absolutely overburdened with orders to deliver complex lining of these boilers. The volume of orders has risen by almost 100% in year-to-year terms!

We are prepared to meet this growth head-on! The last constraint, the firing capacity, was eliminated by the installation of a new tunnel furnace 38 meters long, (our second already).

In the overall plan of the company's sales, despite an envisaged significant drop in sales of technological plants, we are expecting, based on the above information, a growth of approx. 10% compared with 2008. Subject to the above reasons, we also have no problems with communication with banks; we have actually not yet drawn the approved and provided credit lines. Consequently, we can implement all investment projects without any larger problems.

Dear customer, the aim of this message of ours was not to smear our competition in your mind. We only wanted to introduce our personal opinions as regards the present situation and to assure you that if you opt for a purchase of equipment produced by us, you will not face the risks we have tried to describe in this personal letter of ours.

We are looking forward to our mutual cooperation and we are ready to respond to your questions or comments on the above-mentioned facts.

Jiří Crhák
Ing. Radim Ledl