1.  Risk Factors

There are many factors which could directly or indirectly impact on the
Company’s business such as impact of oil price on our transportation and
distribution cost, impacts of material costs, particularly sugar, wages,
and excise tax on our production costs. Other factors such as the
unstable economy, lack of consumers’ confidence, and the terrorism
activities in the southern provinces, also adversely impact the
Company’s sales and operations which can be summarized as follows:

Business Operation Risks: Impact from diesel price which fluctuates
according to global trend, leads to an increase in transportation and
distribution cost, and has an influence on the increase in other
material prices such as PET bottles, cans, and crown caps. Moreover,
price increases for other main production raw materials, particularly
sugar which took effect since early last year, the adjustment of
calculation base for higher excise tax since last mid-year, cost of
living adjustment to the employees according to the increase of minimum
wages announced by the government, have all led to higher production and
operating costs for the Company, and could not be offset by additional
revenues from price increases since last year. Moreover, with the
entrants of new cola drinks in the market and the change of consumers’
behavior towards other drinks and juices, the Company has to respond to
the need of the consumers by introducing new products into the market
such as Pepsi Max which is the sugar-free and no calorie soft drink. In
addition, the Company has emphasized cost cutting and expense control,
adjusting working procedures to gain more efficiency and productivity in
all working units.

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.

Production Risks: Due to the heavy investment in plant and machinery in
the beverage business, the Company has to depend on high production
volume to break-even. The seasonality of the business, which has a peak
season in summer, also adds to the complexity for the management in
planning its production schedule and investment budget to avoid the
under-capacity during peak season and over-capacity for the rest of the
year.

One other factor that has a direct impact on the production planning
schedule and investment decision has been the change of consumers’
demand in soft drinks from the returnable bottles to the non-returnable
bottles, as well as the changing trend towards bigger package sizes
demanded by the consumers for 15 oz. returnable bottles and 1.25 litre
PET bottles during the recent years. This change occurred simultaneously
with the expansion and development of the modern wholesale and retail
outlets and the change in consumers’ behavior from soft drinks
consumption in restaurants and food shops towards home consumption. Such
changing trends resulted in a rapid growth of soft drinks in
non-returnable packages and bigger size packages, and reduced the
capacity of the filling machines with the production of bigger size
packages. In addition, with the sharp demand of Crystal drinking water,
there was also a need to invest in drinking water line. During past 4
years, the Company has invested in 2 new returnable bottle filling lines
and one PET drink water line at Chonburi plant.

Management and Administration Risks The distribution of soft drinks and
beverages still relies heavily on direct sales to the customers,
requiring the ability to provide fast and reliable service and high
returns to the customers. To operate the business, the Company needs to
have 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 operations
plan and accurate and updated information to be used as management tools
for decision making. Investment in IT system and qualified employees to
implement and maintain the system is needed.

  Financial Risks

Credit Control and Collection Although the Company has employed a very
efficient credit control system with a satisfactory level of debt
collection, in the current economic situation, the Company is still
exposed to certain credit control and collection risks. The Company has
minimized the risk by tightening its credit control policy and
constantly following-up on debts by both the credit department and the
management.

Currency and Exchange Risks Currency and exchange risks have a certain
impact to the Company’s operating costs. However, since the Company does
not have any foreign currency loan and most of the spending and
purchases are transacted in local currency, the currency and exchange
risks are limited only to those related to the import transactions of
equipment and spare parts.

Risk from non-compliance to agreement by counterpart: Most of the
agreements entered into by the Company are related to the production and
distribution of products which are well known products. During the
course of business operations, the Company did not experience any major
violation of the agreements. Regarding marketing support agreements with
key customers, the management has carefully reviewed the contents and
conditions in the agreements before signing. Sales administrative team
also closely monitors the compliance to these agreements throughout the
contract periods. For purchasing or servicing contracts, the Company
would made settlement when the payments become due, or only after the
receipt of goods or the render of services. For construction or
installation agreements, final payment would be made only after getting
bank guarantees to safeguard the Company from any damages after the end
of contracts. With such measures, the Company is well protected against
the risk 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 is a risk factor which the Company needs to
consider and evaluate in order to minimize cost of fund before making
any investment decision.