3. Business Operations by Product

1.  Products and Services

Manufacturing and Distribution The Company has been appointed by
Pepsi-Cola International Ltd., New York to manufacture and distribute
carbonated soft drinks under brand names of Pepsi, Pepsi Max, Pepsi
Twist, Mirinda, Seven-Up, Mountain Dew, and Club as well as concentrate
under brand names of Pepsi, Mirinda, and Seven-Up. The exclusive
bottling agreement does not specify an expiry date and includes a
significant condition that the Company must procure the supply of
concentrate solely from Pepsi-Cola (Thai) Trading Company Limited or its
subsidiaries. The Company is also required to maintain product quality
according to Pepsi standards. In addition, the right to manufacture and
distribute is exclusive and non-transferable. The Company is also the
manufacturer and distributor of drinking water and soda water under its
own brand name “Crystal”, Lipton Ice Tea in returnable bottles for Pepsi
Lipton International Ltd., and Gatorade Sport Drink under license from
Strokely-Van Camp Inc. USA.

Distribution: The Company is the distributor of Red Carabao for Carabao
Tawandang Co., Ltd.,a distributor of “Oishi” ready to drink green tea
for Oishi Trading Co., Ltd., a sole distributor of Lipton ready to drink
tea in cans and PET bottles, and a sole distributor of Tropicana Twister
ready to drink fruit juice, orange flavor, for Pepsi-Cola (Thai) Trading
Co., Ltd. Both Lipton in PET bottles and Tropicana Twister are bottled
by Serm Suk Beverage Co., Ltd. under co-packing agreements from both
licensors while Lipton cans are co-packed by Serm Suk Public Co., Ltd.

3.2 Marketing and Competition

Soft Drinks

The production and distribution of soft drinks is a large industry
requiring modern machinery for production and quality control, and large
numbers of personnel for transport and delivery of products to
consumers. The soft drinks industry promotes economic growth and
employment in the areas where the plants are located. Besides the
distribution to retailers and wholesalers, distribution of soft drinks
also covered a variety of small businesses such as push-carts, beverage
stands, and shops selling drinks. It also helps sustaining industries
that produce sugar, glass bottles, plastic bottles, plastic cases, and
bottle caps.

Competition is a constant factor throughout the year in the soft drinks
industry. However, growth in this industry is not very high as other
beverages due to the new entrants into the market and the change of
consumer behavior towards other drinks and juices, such as drinking
water, fruit juices, mineral water and milk products competing with soft
drinks to a large extent.

The requisite to success in the soft drinks industry is having products
manufactured to high-quality standards, good service, and timely
responsiveness to consumer demand. Opportunity in the beverages industry
depends on the increase in distribution channels and expansion in the
business of established customers, such as big wholesale and retail
outlets, supermarkets, convenience stores, and fast food outlets. The
growth rate in the industry is largely determined by the economic
fundamentals of the country in which that industry operates.

The prospects for growth and development in the soft drink industry
depends mainly upon marketing activities, including advertising, sales
promotion, use of new forms of packaging, and the introduction of new
flavors that can attract consumers. All these efforts contribute to
expansion in the industry.

As mentioned, the competition in soft drink business becomes fiercer
with the entry of new players. In 2006, a new operator has entered the
soft drinks market in the North and North East regions with a product
under “Big Cola” brand, emphasizing on its bigger volume and cheaper
price compared to products in the market. In 2007, new cola drinks under
brand name “Colala” and the one imported from Malaysia under brand name
“Mecca Cola” have entered the market with lower retail prices. With the
entrance of these new operators, the Company has to change its
distribution strategies and employ every measure to protect and increase
market share of the Company’s products.

Crystal Drinking Water

The success factors of Crystal drinking water are quality and service to
the customers. These factors are critical in the drinking water market,
in which a plethora of producers compete with no difference in price
among them. Beside the Company’s Crystal drinking water, other major
players with the large market segment are Singha Drinking water, Pure
Life, and Nam Thip. Despite the competitors’ strong efforts to push
their products into the market through the available distribution
channels, sales of Crystal drinking water continued to show very strong
growth with 25 percent increase of its sales volume last year.

The success of Crystal is attributed to its high quality standards with
a certification from NSF International, an international audit agency
who inspects and certifies quality standards of the bottled drinking
water. Crystal is the only drinking bottled water in Thailand to receive
this certificate.

Lipton Ice Tea

When Unilever Thai Holdings Co., Ltd., one of Thailand’s largest
producers and distributors of consumer products, entered the
ready-to-drink tea market in Thailand with its Lipton Ice Tea, in both
cans and bottles, it wished to use Serm Suk’s expertise in the soft
drinks industry as both a producer and nation-wide distributor. Serm Suk
was appointed as the licensed manufacturer and sole distributor of
Lipton Ice Tea. This made Serm Suk the first truly integrated beverages
company in Thailand. Various promotional activities were organized
jointly by Unilever and Serm Suk resulting in rapid growth in sales.

In 2004 PepsiCo and Unilever entered into a global joint venture, Pepsi
Lipton International Ltd., to promote the sale of Lipton Ice Tea
primarily through the Pepsi bottling system. Serm Suk continues to
manufacture and distribute Lipton Ice Tea in returnable bottles and cans
but does so now under the authority of Pepsi Lipton International Ltd.
This is another step forward in Serm Suk's relations with PepsiCo
to co-operate and develop opportunities connected to non carbonated
beverages.

In 2006, Lipton tea in 500 ml. PET bottle was introduced to the market.
In 2007, a new 450 ml. PET bottles were introduced. The bottling of the
product is done by Serm Suk Beverage Co., Ltd., subsidiary company of
Serm Suk while distribution is still by Serm Suk Public Co. Ltd., as
with other Lipton products.

Gatorade Sport Drink

The Company has been appointed by Strokely-Van Camp Inc. as its sole
manufacturer and distributor in Thailand for Gatorade Sport Drink, the
world no. 1 sport drink. Gatorade is a recognized and favorite sport
drink with its better performance than the other sport drinks. Gatorade
is also scientifically formulated to have the right taste and good
absorption without carbonation, which is good for athletes and anyone
who loses liquid by perspiration. Gatorade is distributed in 400 ml and
250 ml glass bottles and has two flavors, lemon and grape. Major
competitors are Sponsor Sport Drink and M Sport.

Tropicana Twister Fruit Juice

Another step towards being a total beverage company was the launch of
10% fruit juice under “Tropicana Twister” brand. The products are
manufactured by Serm Suk Beverage Co., Ltd. and distributed by Serm Suk
Public Co., Ltd. Tropicana Twister, orange flavor, is available in 250
ml. non-returnable glass bottles and 350 ml. PET bottles. Tropicana
Twister is another alternative for the consumers to fulfill their needs
towards healthy products.

Red Carabao

The Company was appointed the distributor of an energy drink “Red
Carabao” for Carabao Tawandang Co., Ltd. since October 2002. With Serm
Suk’s efficient distribution network and over 20 years of experience in
energy drinks as well as the strength of the “Red Carabao” brand, sales
of Red Carabao continue to grow every year. The growth in 2007
registered at 28 percent.

Oishi Green Tea

With the growing trend towards green tea, the Company was appointed the
distributor of “Oishi” green tea for Oishi Trading Co., Ltd. since
November 2005 onwards for traditional trade channel. The growth of Oishi
distributed by the Company was over 50 percent last year.

3.3 Products and Services Sourcing

Sources of key materials are as follows:

Concentrates of Pepsi, Pepsi Max, Pepsi Twist, Mirinda, Seven-Up,
Mountain Dew, and Club are sourced from Pepsi-Cola (Thai) Trading Co.,
Ltd.

Concentrates of Lipton are sourced from Pepsi-Cola (Thai) Trading Co.,
Ltd.

Concentrates of Tropicana Twister fruit juice and Gatorade are sourced
from Pepsi- Cola (Thai) Trading Co., Ltd. by the co-packers.

Distributed goods such as Red Carabao and Oishi Green Tea are sourced
directly from the manufacturers and the product owners.

Other materials for production such as sugar, hi-fructose 55%, CO2,
chemicals, bottles, crown seals, plastic cases, PET bottles, can, and
paper boxes are locally sourced.

Except concentrate, no material sourced from a single supplier
represents more than 30% of total purchasing value.

  Currently production has been run in 5 plants

1) Pathumthani Plant Located at 63 Nonthaburi-Pathumthani Road, Tambol
Kayang, Muang District, Pathumthani Provinces

2) Nakornratchasima Plant Located at 211 Moo 4,
Nakornratchasima-Kabinburi Road, Muang District, Nakornratchasima
Province

3) Nakornsawan Plant Located at 72 Paholyothin Road, Tambol Nakornsawan
Oak,

Muang Distric, Nakornsawan Province

4) Suratthani Plant Located at 11 Moo 5, Asia 41 Road, Tambol
Tarongchang, Pun Pin District, Suratthani Province

5) Chonburi Plant Located at 700/369 Moo 6, Tambol Nong Mai Daeng,
Chonburi District, Chonburi Province

Production Capacity and Production Volume

  ------------------------------------------ ---------- --------- ---------
                                             2007       2006      2005

  Full Capacity (Unit: bottle per hour)                           

  Soft drinks                                584,816    560,041   575,510

  Actual Production Volume (Unit: bottle per                      
  hour)                                                           

  Soft drinks                                490,756    533,475   514,710

  Utilization (%)                            83.9%      95.3%     89.4%

  Increase/(decrease) (%)                    -11,4%     +5.9%     +3.1%
  ------------------------------------------ ---------- --------- ---------

In 2006, the production of soft drink in 10 oz. size continued
decreasing while 15 oz size showed an increase. Proportion of 10 oz. vs.
15 oz. production was 40:60 in 2005 and 35:65 in 2006. This caused the
reduction of total production capacity per hour.

Environmental Impacts

Wastewater Treatment

With over 50 years of operations, Serm Suk Public Company Limited has
realized the importance of environmental issue. It is one of the pioneer
companies who introduced the high standard wastewater treatment system
to its waste elimination process. Currently it has been used as a
showcase for students and other business operators pursuing knowledge
and experience in waste elimination management.

With high regard of social responsibilities and environmental
protection, the Company has invested in the standard wastewater
treatment according to the governmental regulations in every plant set
up in the provincial areas.

In particular, at Pathumthani plant which locates on the bank of Chao
Phraya River, Thailand’s most important river, the Company has invested
close to Baht 50 million to construct a powerful system for wastewater
treatment before draining down into the river in accordance with the
standard set by the Ministry of Industry and Ministry of Transportation
which is as follows:

  ---------- --------- -------- -------- -------- -------- -------- --------
             PH        BOD      COD      TSS      TDS      TKN      Grease &
                       (ppm)    (ppm)    (ppm)    (ppm)    (ppm)    Oil

  Standard   5.5-9.0   < 20     < 120    < 50     < 3000   < 100    < 5
  ---------- --------- -------- -------- -------- -------- -------- --------

River Transportation System for Better Pollution Control

The Company is the first who introduced river transportation system
since 1980. With continuing development, currently the Company has 3
engine boats and 4 tuck boats in operation. Each of these tuck boats has
a capacity to transport up to 8,640 cases of beverage, which is
equivalent to the capacity of 10 transportation trucks. River
transportation is not only for cost saving purpose but it also helps
reducing pollution and traffic problem and promotes energy preservation
for the nation.

4.  Undelivered Project

  - None –