3. Business Operations

3.1. Background

Establishment: The Company was established with Baht 8 million initial
registered capital and commenced its operation in April 1952. Pepsi was
first produced in the Silom plant and introduced to the market on March
18, 1953.

Invested Capital: From the initial start up capital in 1952 until now,
the Company has had the following capital increases:

1952 Registered capital Baht 8,000,000

1953 Registered capital increased to Baht 15,000,000

1966 Registered capital increased to Baht 30,000,000

1969 Registered capital increased to Baht 45,000,000

1986 Registered capital increased to Baht 105,000,000

  Pepsi-Cola International Ltd. purchased 300,000 of the Company shares
  representing 28.57 percent.

1991. Par value of the Company’s shares reduced from Baht 100 to Baht 10
      per share

1994 Registered capital increased to Baht 260,000,000

  Pepsi-Cola International Ltd. increased its shares from 28.57 percent
  to 42.49 percent.

  The Company has registered its changed status from a company limited
  to a public company limited.

  1999 Registered capital increased to Baht 265,000,000

  To support the exercise of warrants under the Employee Stock Ownership
  Program

    Set up a subsidiary company - Serm Suk YHS Beverage Co. Ltd. as a
    joint venture business with YHS Singapore Pte. Ltd., to manufacture
    and distribute soy milk products and fruit juice, with Registered
    Capital of Baht 439,586,150 of which 51% was held by Serm Suk.

  2001 Registered capital increased to Baht 267,957,660 to support the
  exercise of rights to purchase the Company’s securities under the
  Employee Stock Incentive Plan.

  2003 Par value of the Company’s shares reduced from Baht 10 to Baht 1
  per share.

2004 Acquired all shares in the subsidiary from the Singaporean partner,
resulting in the Company holding the total shares in subsidiary with the
name changed from Serm Suk YHS Beverage Co., Ltd. to Serm Suk Beverage
Co., Ltd.

2006 Increased registered and fully paid capital of Serm Suk Beverage
Co., Ltd. by Baht 250 million

Set up a new subsidiary company, Serm Suk Holdings Co., Ltd., with the
objective to hold shares and manage investments in Serm Suk Group with
registered capital of Baht 500 million, Baht 350 million paid-up.

Sold and transferred all shares held in Serm Suk Beverage Co., Ltd. to
Serm Suk Holdings Co., Ltd.

2007. Sold shares in Lao Soft Drink Co., Ltd. of which the Company held
      10% of the share capital.

2008. Increased investment in Bangkok Glass Co., Ltd. with the purchase
      of 41,625 newly issued shares at Baht 450 per share for total
      amount of Baht 18.7 million. First payment for the subscription of
      these new shares of Baht 9.4 million was made in December 2008.

2009. Registered to decrease authorized share capital from 267,957,660
      to 265,900,484, which is the same as issued and paid-up share
      capital in April 2009. The Company completed payments for
      subscription of new shares in Bangkok Glass Co., Ltd. of Baht 4.7
      million each in March and May 2009

Business Expansion

1952. Constructed and commenced operations at the Silom Plant

1967. Commenced operations at the Bang Khaen Plant on a 15 rai property
      by transferring machinery and equipment from the Silom Plant

1968. Opened the Nakorn Ratchasima Plant on a 30 rai property; sold the
        property at Silom as it was no longer suitable for manufacturing
        activities

1973. Opened the Nakorn Sawan Plant on a 29 rai property

1975 Listed on the Stock Exchange of Thailand

1978 Opened the Pathumthani Plant on a 160 rai property

1985 Appointed as the sole distributor of M-100 and M-150 by Osotspa
Co., Ltd.

1992 Added the distribution of M Sport and M Coffee for Osotspa Co., Ltd

1993 Appointed as the sole distributor of Volvic mineral water by BSN
Group of France

Commenced production of Crystal drinking water

1997. Appointed as the sole manufacturer and distributor of Lipton Iced
        Tea for Unilever Thai Holdings Co., Ltd.

  Commenced production of a PET filling line at Pathumthani plant

1998 Opened the Surat Thani Plant on a 70 rai property

1999. Appointed as the sole distributor of Yeo branded products for Serm
      Suk YHS Beverage Co., Ltd

2002. Commenced operation of the Chonburi Plant on a 42 rai property

Cancellation of distribution contract for M products and appointed as
the sole distributor of Red Carabao by Carabao Tawandang Co., Ltd.

2003 Appointed as the sole manufacturer and distributor of Gatorade
Sport Drink by Strokely Van Camp Inc. USA.

2004 Ceased sales and distribution of Yeo soy milk.

2005 Appointed as a distributor of Oishi green tea for Oishi Trading
Co., Ltd.

2006 Appointed as sole distributor of Tropicana Twister fruit juice for
Pepsi Cola (Thai) Trading Co., Ltd.

3.2. Overview of Company’s Operations

The Company operates the beverage business, both as a manufacturer and
distributor, and has an indirect subsidiary company, Serm Suk Beverage
Co., Ltd., which manufactures and co-packs Lipton Ice Tea Gatorade, and
Tropicana Twister fruit juice and sells directly to the Company or
through Pepsi-Cola (Thai) Trading Co., Ltd who sells the products to the
Company for distribution. Currently, 99.99 percent of Serm Suk Beverage
Co., Ltd. shares are held by Serm Suk Holdings Co., Ltd., a direct
subsidiary company established on November 23, 2006 with the main
objective being to hold shares and manage investment in Serm Suk
subsidiaries.

The Company holds 40 percent of the equity in Petform (Thailand) Ltd., a
manufacturer and distributor of PET polymers, PET bottles, and plastic
closures.

3.  Income Structure

  3.3.1 Structure of Sales Income

+----------------------------+-----+-----+----+-----+----+-----+----+
| Baht: Million              | %   | 2   |    | 2   |    | 2   |    |
|                            | Equ | 009 |    | 008 |    | 007 |    |
|                            | ity |     |    |     |    |     |    |
|                            |     |     |    |     |    |     |    |
|                            | H   |     |    |     |    |     |    |
|                            | old |     |    |     |    |     |    |
|                            | ing |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
|                            |     | Inc | %  | Inc | %  | Inc | %  |
|                            |     | ome |    | ome |    | ome |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Manufacturing and          | 10  | 19, | 92 | 19, | 92 | 18, | 93 |
| Distribution of Beverage   | 0.0 | 738 | .6 | 356 | .9 | 717 | .8 |
|                            |     |     |    |     |    |     |    |
| Operated by: Serm Suk PCL  |     |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Manufacturing and          | 9   | 558 | 2  | 439 | 2  | 284 | 1  |
| Distribution of Beverage   | 9.9 |     | .6 |     | .1 |     | .4 |
|                            |     |     |    |     |    |     |    |
| Operated by: Serm Suk      |     |     |    |     |    |     |    |
| Beverage Co., Ltd.         |     |     |    |     |    |     |    |
|                            |     |     |    |     |    |     |    |
| (Previously Serm Suk YHS   |     |     |    |     |    |     |    |
| Beverage Co., Ltd.)        |     |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Manufacturing and          | 4   | 1,  | 4  | 1,  | 5  | 952 | 4  |
| Distribution of PET        | 0.0 | 028 | .8 | 050 | .0 |     | .8 |
| polymers                   |     |     |    |     |    |     |    |
|                            |     |     |    |     |    |     |    |
| Operated by: Petform       |     |     |    |     |    |     |    |
| (Thailand) Co., Ltd.       |     |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
|                            |     | 21, | 1  | 20, | 1  | 19, | 1  |
|                            |     | 324 | 00 | 845 | 00 | 953 | 00 |
|                            |     |     | .0 |     | .0 |     | .0 |
+----------------------------+-----+-----+----+-----+----+-----+----+

* Shares held by Serm Suk Holdings Co., Ltd., a wholly owned (99.99
percent) subsidiary of Serm Suk Plc.

Income of Serm Suk Beverage Co., Ltd. is mainly derived from the sales
of its products to Serm Suk Public Co., Ltd. or from co-packing fees
from Pepsi-Cola (Thai) Trading Co., Ltd. for products that are resold to
Serm Suk Public Co., Ltd. for distribution. The costs of products
purchased from Serm Suk Beverage Co., Ltd. or Pepsi-Cola (Thai) Trading
Co., Ltd. are categorized as cost of sales for Serm Suk Public Co., Ltd.

Part of the revenues of Petform (Thailand) Co., Ltd. represents the sale
of PET bottles and pre-forms to Serm Suk Public Co., Ltd., and this is
categorized as product cost for Serm Suk Public Co., Ltd.

2.  Distribution of Profit/(Loss) of Investment

+----------------------------+-----+-----+----+-----+----+-----+----+
| Baht: Million              | %   | 2   |    | 2   |    | 2   |    |
|                            | Equ | 009 |    | 008 |    | 007 |    |
|                            | ity |     |    |     |    |     |    |
|                            | H   |     |    |     |    |     |    |
|                            | old |     |    |     |    |     |    |
|                            | ing |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
|                            |     | D   | %  | D   | %  | D   | %  |
|                            |     | ist |    | ist |    | ist |    |
|                            |     | ri. |    | ri. |    | ri. |    |
|                            |     | Of  |    | Of  |    | Of  |    |
|                            |     | I   |    | I   |    | I   |    |
|                            |     | nco |    | nco |    | nco |    |
|                            |     | me/ |    | me/ |    | me/ |    |
|                            |     |     |    |     |    |     |    |
|                            |     | (Lo |    | (Lo |    | (Lo |    |
|                            |     | ss) |    | ss) |    | ss) |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Manufacturing and          | 10  | 28  | 80 | 11  | 82 | 31  | 95 |
| Distribution of Beverage   | 0.0 | 6.2 | .9 | 3.4 | .2 | 4.5 | .1 |
|                            |     |     |    |     |    |     |    |
| Operated by: Serm Suk PCL  |     |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Manufacturing and          | 9   | 5.5 | 1  | (16 | (1 | (27 | (  |
| Distribution of Beverage   | 9.9 |     | .6 | .8) | 2. | .6) | 8. |
|                            |     |     |    |     | 8) |     | 3) |
| Operated by: Serm Suk      |     |     |    |     |    |     |    |
| Beverage Co., Ltd.         |     |     |    |     |    |     |    |
|                            |     |     |    |     |    |     |    |
| (previously Serm Suk YHS   |     |     |    |     |    |     |    |
| Beverage Co., Ltd.)        |     |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Investment Management:     | 9   | 0.1 | 0  | 0.2 | (  | (0  | (0 |
| Serm Suk Holdings Co.,     | 9.9 |     | .0 |     | 0. | .1) | .0 |
| Ltd.                       |     |     |    |     | 1) |     | 3) |
+----------------------------+-----+-----+----+-----+----+-----+----+
| Manufacturing and          | 4   | 6   | 17 | 4   | 30 | 4   | 13 |
| Distribution of PET        | 0.0 | 1.9 | .5 | 2.8 | .7 | 3.9 | .3 |
| polymers                   |     |     |    |     |    |     |    |
|                            |     |     |    |     |    |     |    |
| Operated by: Petform       |     |     |    |     |    |     |    |
| (Thailand) Co., Ltd.       |     |     |    |     |    |     |    |
+----------------------------+-----+-----+----+-----+----+-----+----+
|                            |     | 35  | 1  | 13  | 1  | 33  | 1  |
|                            |     | 3.7 | 00 | 9.6 | 00 | 0.7 | 00 |
|                            |     |     | .0 |     | .0 |     | .0 |
+----------------------------+-----+-----+----+-----+----+-----+----+

* Shares held by Serm Suk Holdings Co., Ltd., a wholly owned (99.99
percent) subsidiary of Serm Suk Plc.

3.4. Business Objectives

  The Company sets the following business objectives:

1.  Volume and Market Share Growth

To set the Company’s annual growth target for volume and market share,
several factors have been considered, for example the general economic
situation, changes in consumer tastes and behavior, market competition,
competitor’s strengths and weakness, competitor’s past activities, and
other relevant factors. The Company’s target setting is based on the
analysis of market trends and future projections including the
assessment of the Company’s strengths and weaknesses in order that the
planned activities including the introduction of new products will
support the achievement of sales and market share targets.

  3.4.2 Profit Maximization

In addition to sales growth, which results in increased profit, the
Company also emphasizes efficiency and cost control. Key Performance
Indices (KPIs) have been set for each business unit as measurers of
performance and efficiency.

3.  People Development

The Company has set clear objectives in people development. Each year,
budget has been set aside for training and development to ensure that
the employees will be equipped with new skills and shown new techniques
to enhance their efficiency and performance.

4.  Maximizing Returns to Shareholders

The Company has a policy to maximize returns to shareholders in the form
of consistent dividend payments, at a reasonable rate corresponding to
the annual operating results. This is achieved through the activation of
effective marketing campaigns that create demand for the Company’s
products and drive production volume and sales thus generating returns
on investment for investors and shareholders.

3.4.5 Social Responsibility

The Company has set a goal to enhance its social responsibility along
with other operating objectives. The Company refreshes Thai people with
a range of quality beverages while conducting its business in a fair and
transparent manner.

Young people are a key focus area of the Company’s. Serm Suk and the
Song Bulsook Foundation have provided scholarships for needy students to
enhance their potential and support their education since 1990. In 2009,
the Company encouraged Thai young people to demonstrate their creativity
under the “New Gen for a Stronger Thailand” concept by submitting
project entries related to community sustainability to win scholarships
worth 1 million baht in total. The initiative was intended to boost the
awareness of environmental and social responsibility among young people.

With regards environmental stewardship, in 2009, the Company’s two
plants in Pathumthani and Nakhon Sawan, both of which are located on the
banks of the Chao Phraya River, were granted the “Rak Mae, Rak Maenam”
award from the Ministry of Industry in recognition of their excellence
in Chao Phraya River conservation and rehabilitation in honor of Her
Majesty Queen Sirikit.

In 2009, the Company’s Pathumthani plant and Chonburi plant were awarded
the 2009 CSR – DIW certifications by the Department of Industrial Works
(DIW), Ministry of Industry and the Management System Certification
Institute, in recognition of their excellence in compliance with the CSR
– DIW standards.