2. Risk Factors

There are many factors which directly or indirectly impact the Company’s
business such as the price of petrol on transportation and distribution
costs, fluctuations in material costs, particularly sugar, wages, and
the excise tax on production costs. Other factors such as economic and
political instability, low consumer confidence and reduced discretionary
spending, can also adversely impact the Company’s sales and operations.
The key risk factors are summarized as follows:

Business Operation Risks: There are several risk factors to business
growth and sustainable profitability.

Sugar, one of key ingredients of the Company products, is agriculture
goods controlled and regulated by the Government. The sugar price with
the increase of Baht 5 per kilogram, locally, since May 2008 of which
was higher than global market had a significant impact on product costs
and the Company’s operating results. In opposite, global price has gone
up even more during 2009 due to tight sugar supply. Consequently, it led
to concern of possible supply shortage if the global situation
continues.

Diesel is another external risk factor of which price has been
fluctuated following global market. This directly impacts transportation
and distribution costs and indirectly influence on other material price
such as PET, bottles, cans, and crown caps. To minimize the risk,
reduction of Diesel usage has been set as key performance indicator and
other alternatives has been closely followed up by dedicated team.

The adjustment of employees’ cost of living according to the minimum
wage increase announced by the government, also led to higher production
and operating costs for the Company.

The change of consumers’ behavior towards non-carbonated soft drinks and
juices, the Company has to respond to the change with new products and
innovations, as well as the introduction of new packaging designs to
keep the appearance in trend with the desire of the market such as the
launch of new packaging design, the launch of new soft drinks such as
Pepsi Green, Mirinda Super Lemon, Mirinda Sky Berry and the launch of
new package sizes such as 460 ml, 480 ml, 1.2 litre and 1.5 litre.

In addition to the above factors, the change of governmental policies
for tax collection, price control, business laws and industrial
regulations also lead to uncertainty and risks to the Company’s
operating and investment decisions. To soften negative impact, the
Company has emphasized on cost saving and expense control, revisiting
and improving working procedures to generate greater efficiency and
productivity in all working units.

Production Risks: Due to the heavy investment in plant and machinery in
the beverage industry, the Company depends on production with mass
volume and high efficiency to break-even.

The seasonality of the business, with its peak period in the summer,
also adds complexity to the planning of production schedules and
investment so as to avoid under-capacity during peak season and
over-capacity for the rest of the year.

In addition, the sharp increase in demand for Crystal drinking water has
led to the need to invest in additional drinking water lines. During
past 5 years, the Company has invested in 2 new CSD returnable bottle
filling lines and 2 PET drinking water filling lines at the Chonburi
plant and Surat Thani plants.

Management and Administration Risks: The distribution of soft drinks and
beverages still relies heavily on direct sales to customers, requiring
the ability to provide fast and reliable service and high returns. To
operate the business, the Company closely followed the movement of its
competitors and adapted itself to changes in the market by maintaining
an effective distribution network and qualified personnel. To retain and
motivate good employees is another challenge for the Company.

In addition, the Company needs to maintain a well-defined operational
plan and accurate and updated information to be used as management tools
for decision-making. Investment in IT systems and qualified employees to
implement and maintain these systems is needed.

  Financial Risks

Credit Control and Collection: The global economic crisis, which hit the
economies of many countries, including Thailand, resulted in declining
profits or losses of many businesses. Some companies have had to lay off
employees or close their facilities to prevent bankruptcy. In the
current economic situation, the Company has to exercise tight control
over collections and credit while constantly following-up on debts via
the credit department and the management.

Currency and Exchange Risks: Currency and exchange risks have a certain
impact to the Company’s operating costs. The Company has foreign
currency liabilities and commitments that are limited to the import of
new machines, equipment and spare parts. The majority of the Company’s
spending is transacted in the local currency.

Risk from non-compliance to agreements by counterpart: Most of the
agreements entered into by the Company are related to the production and
distribution of products. During the course of business operations, the
Company did not experience any major violation of its agreements.
Regarding marketing support agreements with key customers, the
management has carefully reviewed the content, terms and conditions in
the agreements before signing. The sales administration team also
closely monitors compliance with these agreements throughout the
contract periods. For purchase or service contracts, the Company would
make settlement when payments become due, or only after the receipt of
goods or the rendering of services. For construction or installation
agreements, final payment would be made only after receiving bank
guarantees to safeguard the Company from any damages after the end of
contracts. With such measures, the Company is well protected against
risks from non-compliance to agreement by counterparts.

Interest Rate Risk: Currently, the Company and its subsidiaries operate
as debt-free entities. In the future, if loans are required for business
expansion, interest rate movements may be a risk factor which the
Company will need to consider and evaluate in order to minimize the cost
of funds before making any investment decision.