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., Tropicana Twister in returnable bottles for
Pepsi-Cola (Thai) Trading Co., 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, in non-returnable bottles 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 business 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, packaging design, 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, emphasizing on bigger volume and cheaper
price compared to products in the market. The Company has to change its
marketing and 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. Today, besides the Company’s Crystal drinking water and the
products of other major players, there is a tendency that the hotels,
restaurants, and other food and beverage chains prefer to have bottled
drinking water under their own names and logos. Such private brand
drinking water has a great effect on sales of the drinking water
business. Despite strong competition in the drinking water business,
sales of Crystal drinking water continued to show very strong growth
with 24 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.

Lipton Ice Tea is available in the 10 oz. and 15 oz. returnable bottles
and 450 ml. and 500 ml. PET bottles. The bottling of the product is done
by Serm Suk Beverage Co., Ltd., a subsidiary company of Serm Suk while
the distribution is still by Serm Suk Public Co. Ltd.

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 number one 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 has two flavors, lemon
and grape, distributed in 400 ml and 250 ml non-returnable glass bottles
and 500 ml PET bottles.

Tropicana Twister Fruit Juice

Another step towards being a total beverage company was the launch of
14% fruit juice under Tropicana Twister brand. The product is
manufactured by Serm Suk Beverage Co., Ltd. and distributed by Serm Suk
Public Co., Ltd. Tropicana Twister, orange flavor, is available in new
250 ml. returnable bottles as well as 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.

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 26 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 concentrates which are supplied by the brand owners, the Company
sources other raw materials and packing materials from 3-4 suppliers in
order to ensure the continued supply of raw materials and packing
materials at reasonable price.

  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

  ------------------------------------------ ---------- --------- ---------
                                             2008       2007      2006

  Full Capacity (Unit: bottle per hour)                           

  Soft drinks                                594,350    584,816   560,041

  Actual Production Volume (Unit: bottle per                      
  hour)                                                           

  Soft drinks                                489,640    490,756   533,475

  Utilization (%)                            82.4%      83.9%     95.3%

  Increase/(decrease) (%)                    -1.5%      -11.4%    +5.9%
  ------------------------------------------ ---------- --------- ---------

Actual production volume in 2007 and 2008 declined due to the increased
production volume of the higher volume-content products. The production
of higher volume-content products delivers lower volume per hour
compared to the production of the lower volume-content products.

Environmental Impacts

Wastewater Treatment

With over 55 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
  ---------- --------- -------- -------- -------- -------- -------- --------

The Company monitors the waste water treatment system 24 hours a day and analyzes the water quality before the treatment process as well as before the water is released. The treated water discharged from the plants contains less than 5mg/l BOD (Biochemical Oxygen Demand) which is 4 times lower than the requirement of the Department of Industrial Works and Pollution Control Department. In 2006, the Company invested over Baht 10 million to install the HACH BOD examination system in its 5 plants. The system helps ensure the water quality data is monitored 24 hours a day and sent directly to the Department of Industrial Works via satellite to facilitate effective real-time water management.

In addition to the investment on equipment, the Company focuses on the
development of people’s knowledge and capabilities on the environmental
issues by nominating its staff to attend both internal and external
waste water treatment training and water conservation programs organized
by various institutions in order to enhance their knowledge and
experience which can be applied for use in the Company.

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. Moreover, in
2008, the Company started using sea transport for the finished products
from Patumthani plant and Chonburi plant to the southern areas instead
of transporting by trucks. River and sea transportation is not only for
cost saving purpose but it also helps reducing pollution and traffic
problem and promotes energy preservation for the nation.

Natural Resource Protection

The Company conducted a natural resource protection program to promote
the efficient use of natural resources and minimize waste. The projects
that the Company has undertaken include:

-   Water Saving Project: The project is run in conjunction with the
    Metropolitan Waterworks Authority and the Water Technology Office,
    the Department of Industrial Works. The initiative transfers
    knowledge and technology to reduce the amount of water used and
    waste water generated by the Company. Over more than 3 years, the
    amount of water used and waste water generated at the Company’s
    production plants has declined by over 60,000 cubic metres annually.

-   The Use of Methane Gas as a Replacement for Bunker Oil: The Company
    has deployed methane gas which is a bio fuel generated from the
    digestion of the microbes process of the waste water treatment
    system. The use of methane gas to replace bunker oil in the boiler
    system leads to the reduction of over 200,000 litres of bunker oil
    annually which helps reducing the nation’s dependence on foreign
    energy as well as the global warming issue.

-   Reuse of Treated Waste Water / The Use of Effective Microbes in
    Fertilizer Production: The Company has incorporated treated water
    from its plants in the recycling process. The clean treated waste
    water is reused in small parks, lawns, and trees at the factories.
    The water treatment using biological processes has naturally creates
    large amounts of activated microbial sludge from the digestion of
    water contaminants. The sludge is used to fertilize the green space
    at the Company’s facilities.

-   Cooperative Efforts with the Government on Natural Resource
    Protection Scheme: In 2007, Serm Suk joined the Ministry of
    Industry’s “Love Chao Phraya River” program and the Bangkok
    Metropolitan Administration (BMA)’s “We Love Chao Phraya”
    initiative. In 2008, Serm Suk participated in the “Love Mother,
    Protect Environment” program run by the Ministry of Industry to
    conserve and rehabilitate the Chao Phraya River.

-   Scholarship Program: The Company and the Song Bulsook Foundation
    have continued the support to the students through annual
    scholarship awards with intention to develop the youth’s potential
    and education, as well as to encourage the young generation to
    demonstrate their power of creativity in regards to environmental
    protection for the benefit of Thai communities and society. In 2007,
    the Song Bulsook Foundation presented 125 scholarships worth Baht 1
    million to students who won the contest on the environmental
    projects based on the “Protect the Environment with the Power of
    Creativity” concept. In 2008, 179 scholarships worth over Baht 1
    million were awarded to the students who won the contest on the
    green environmental projects.

4.  Undelivered Project

  - None –