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 and Carabao
XO for Carabao Tawandang Co., Ltd.

In November 2005, the Company was appointed a distributor of “Oishi”
ready to drink green tea for Oishi Trading Co., Ltd. In December 2005,
the Company was appointed by Pepsi Lipton International Ltd. as sole
distributor of Lipton ready to drink tea in cans and PET bottles. In
July 2006, the Company was appointed a sole distributor of Tropicana
Twister ready to drink fruit juice, orange and tropical fruits 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
manufactured by Serm Suk Public Co., Ltd. under co-packing agreement
since February 2006.

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, soft drinks business also
supports a variety of small businesses in the form of push-carts,
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 variety of new products available in the market and
the change of consumer behavior towards healthy drink products, 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.

The intensity of competition in the soft drink industry, therefore,
demands continual improvement as each company strives to keep abreast of
trends. There are only a few companies in this sector. New entrants into
the soft drinks industry must invest very large sums in building
distribution systems, hiring personnel, and achieving recognition for
their products. The bargaining power of buyers depends upon the quantity
of their purchase or the extent of the agreements between them.

In 2006, a new operator has entered the soft drinks market with a
product under “Big Cola” brand, emphasizing on its bigger volume and
cheaper price compared to products in the market. The entrance of this
operator has not taken away the Company’s share in the cola segment, as
the Company still grew in this segment consistently with close follow-up
on market movement and continuing effort to protect and increase market
share for the Company’s products.

Crystal Drinking Water

The marketing promotion strategy used for Crystal drinking water is to
emphasize on its quality and service to the customers. This method is
chosen in view of 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 over the past year
with 45 percent increase of its sales volume.

The success of Crystal is attributed to its high quality standards with
a certification from NFS International, an international audit agency
who inspects and certifies quality standards of the bottled drinking
water. Crystal is the only Thailand drinking bottled water to receive
this certificate. In addition, from the recent consumer survey in 2006,
Crystal won increasing votes in several aspects from the previous survey
in 2003.

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 bottles was introduced to the market.
The bottling of the product is done by Serm Suk Beverage Co., Ltd., a
subsidiary company of Serm Suk while distribution is still by Serm Suk
Public Co. Ltd., as with other Lipton products. In addition, in order to
align the manufacturing and distribution set up for the production after
the introduction of new Lipton PET, the agreement for the manufacturing
of Lipton cans has been amended to a co-packing agreement by Serm Suk
Public Co. Ltd. as a co-packer and distributor of the product. The
manufacturing and distribution of Lipton in returnable bottles is still
under the unchanged original agreement.

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. The products are in 2 flavors, orange and tropical
fruits, in 250 ml. non-returnable glass bottles and 350 ml. PET bottles.
The introduction of Tropicana Twister provides another alternative for
the consumers to fulfill their needs towards healthy products.

Red Carabao

After returning the distribution right of M products to Osotsapa Co.
Ltd. in September 2002, the Company signed a contract with Carabao
Tawandang Co., Ltd. for the distribution of a new energy drink “Red
Carabao”. This was first launched in October 2002 with Serm Suk’s
efficient distribution network and 17 years of experience in energy
drinks, as well as the strength of the “Red Carabao” brand.

In 2005, Carabao Tawandang Co., Ltd. introduced “Carabao XO”, an energy
drink with whisky flavor, having Serm Suk as distributor.

Oishi Green Tea

With the growing trend towards green tea consumption in the past 3-4
years, Serm Suk has entered into an agreement with Oishi Trading Co.,
Ltd. to distribute “Oishi” ready to drink green tea. With its long years
experience and capability, the distribution was awarded to the Company
for 3 years starting from November 2005 onwards for traditional trade
channel.

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 by Pepsi-Cola (Thai) Trading Co.,
Ltd.

Concentrates of Lipton, peach and lemon are sourced by Pepsi-Cola (Thai)
Trading Co., Ltd.

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

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

  ------------------------------------------ ---------- --------- ---------
                                             2006       2005      2004

  Full Capacity (Unit: bottle per hour)                           

  Soft drinks                                560,041    575,510   583,186

  Actual Production Volume (Unit: bottle per                      
  hour)                                                           

  Soft drinks                                533,475    514,710   503,101

  Utilization (%)                            95.3%      89.4%     86.3%

  Increase/(decrease) (%)                    +5.9%      +3.1%     -0.1%
  ------------------------------------------ ---------- --------- ---------

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 –