4. 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 the brand names of Pepsi, Pepsi Max, Pepsi
Twist, Mirinda, Seven-Up, Mountain Dew, and Club as well as concentrate,
under the 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 Crystal brand name, 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 orange flavored fruit juice, 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.

4.2 Marketing and Competition

  Soft Drinks

The production and distribution of soft drinks is a major industry
requiring modern machinery for production and quality control, and large
numbers of personnel for transport and delivery of products to
customers. The business is important in supporting businesses throughout
an extensive value chain including those that produce sugar, glass
bottles, plastic bottles, plastic cases and bottle caps.

Competition is a year-round factor in the carbonated soft drinks
industry, but growth in this product category is not as high as other
beverages due to new entrants in the market and changes in consumer
behavior in favor of drinking water, fruit juices, mineral water and
milk products. These products are now competing directly with carbonated
soft drinks.

The keys to success in the soft drinks industry are the ability to offer
products manufactured to high-quality standards, providing good service
and responsiveness to consumer demands. Opportunity in the beverages
industry depends on the increase in distribution channels and expansion
in the business of established customers, such as large wholesale and
retail outlets, supermarkets, convenience stores and quick serve food
outlets. Ultimately, the growth rate in the industry is largely
determined by the economic fundamentals of the country in which that
industry operates.

The prospects for the growth and development of an individual soft drink
enterprise are impacted by its ability to execute marketing activities,
including advertising, sales promotions, packaging design and the
introduction of new flavors/variants that attract consumers. All of
these efforts can contribute to the expansion in the business.

As mentioned, competition in soft drink business has become fiercer with
the entry of new players, emphasizing higher volume and lower prices
compared to existing products in the market. The Company has had to
alter its marketing and distribution strategies and employ a range of
measures to protect and increase the market share of the Company’s
products. In 2009 Serm Suk introduced several new non-returnable package
sizes including 460 ml, 480 ml, 1.2 litre and 1.5 litre and combined
them with an aggressive pricing plan. This move was well received by the
market.

  Crystal Drinking Water

The success factors of Crystal drinking water are product quality,
customer service and engaging marketing activations. These factors are
critical in the drinking water market, where a plethora of producers
compete with no price differentiation. Today, in addition to the
Company’s Crystal drinking water and the products of other major
players, there are an increasing number of entrants to the market
leading to consumer confusion and a cluttered retail environment. This
profusion of new brands in the market has had a significant impact on
sales of drinking water. Despite strong competition in the drinking
water business, sales of Crystal drinking water continued to show very
strong growth with 16 percent increase of its sales volume last year.

The success of Crystal is attributed to its high quality including
certification from NSF International, an international audit agency that
inspects and certifies quality standards of bottled drinking waters.
Crystal is the only bottled drinking water in Thailand to have received
this certification.

  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 chose to employ 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 beverage
company in Thailand. Various promotional activities were organized
jointly by Unilever and Serm Suk resulting in the rapid growth in Lipton
Ice Tea 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 10 oz. and 15 oz. returnable bottles and
350 ml. and 450 ml. PET bottles, during 2009 Lipton grew by a strong
19%. The bottling of this product is done by Serm Suk Beverage Co.,
Ltd., a subsidiary company of Serm Suk, while the distribution continues
to be handled 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’s number one sport drink. Gatorade is a highly recognized and
popular sports drink brand. Gatorade is scientifically formulated to
offer excellent absorption without carbonation and good taste, which
makes it ideal for athletes and anyone who loses fluids through
perspiration. Gatorade currently has two flavors, lemon and grape and is
distributed in a new 350 ml and the

500 ml PET bottles.

  Tropicana Twister Fruit Juice

Another step towards being a total beverage company was the launch of
14% fruit juice under the Tropicana Twister brand. This product is
manufactured by Serm Suk Beverage Co., Ltd. and distributed by Serm Suk
Public Co., Ltd. Tropicana Twister, orange flavor, is available in 250
ml. returnable bottles as well as 250 ml. non-returnable glass bottles
and 350 ml. PET bottles. In 2009, Serm Suk successful introduced
Tropicana Twister with pulp to extend the brand franchise. Tropicana
Twister is another alternative for consumers who wish to purchase
refreshing and healthy products.

  Red Carabao

In October 2002, the Company was appointed the distributor of the Red
Carabao energy drink by Carabao Tawandang Co., Ltd. In 2009, sales of
Red Carabao slowed as a result of the economic contraction in Thailand’s
manufacturing sector, which significantly impacted the purchasing power
of the brand’s primary consumer base.

  Oishi Green Tea

With the growing popularity of green tea, the Company was appointed the
distributor of Oishi green tea for Oishi Trading Co., Ltd. beginning in
November 2005, for traditional trade channel. Over the course of 2009
sales of Oishi increased 6% in the face of increasing competition.

4.3 Products and Services Sourcing

Sources of key materials are as follows:

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

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

Concentrates for 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 product owners.

Other materials for production such as sugar, CO₂, various chemicals,
bottles, crown seals, plastic cases, PET bottles, cans, shrink film, and
cardboard trays and boxes are sourced locally.

With the exception of 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 a continual supply of raw
materials and packing materials at reasonable prices.

  Currently production is being conducted in 5 plants

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

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 District, Nakorn Sawan Province

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

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

 Production Capacity and Production Volume 

  ------------------------------------------ ---------- --------- ---------
                                             2009       2008      2007

  Full Capacity (Unit: bottle per hour)                           

  Soft drinks                                585,202    594,350   584,816

  Actual Production Volume (Unit: bottle per                      
  hour)                                                           

  Soft drinks                                483,155    489,640   490,756

  Utilization (%)                            82.6%      82.4%     83.9%

  Increase/(decrease) (%)                    +0.2%      -1.5%     -11.4%
  ------------------------------------------ ---------- --------- ---------

Actual soft drink production volume in 2008 and 2009 declined due to
increased production volume of products in larger package sizes which
generate lower volume per hour compared to smaller package sizes.

 Environmental-Protection

  Serm Suk has focused on environmental protection by mandating strict
  environmental policies and operation guidelines to minimize the
  Company’s environmental impact. The company has operated under the 5
  Serm Suk Green Dimensions which are water, packaging, energy,
  environment and human resources.

First Dimension: Water

Wastewater Treatment

Serm Suk was one of the first companies in Thailand to introduce an
effective wastewater treatment system in its waste elimination process.
Currently, it is used as a showcase for students and other business
operators seeking knowledge on effective waste elimination and
management.

The Company has continued to invest in its wastewater treatment system
according to governmental regulations in all of its production
facilities.

In particular, at the Pathumthani plant which is located on the bank of
the Chao Phraya River, Thailand’s most important river, the Company has
invested close to Baht 50 million to construct a powerful wastewater
treatment system before releasing water into the river. This system is
in full compliance with the standards set by the Ministry of Industry
and Ministry of Transportation which are 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 its waste water treatment system 24 hours a day and analyzes water quality before the treatment process as well as prior to release. The treated water discharged from the plants contains less than 5mg/l BOD (Biochemical Oxygen Demand) which is 5 times cleaner than the requirement of the Department of Industrial Works and Pollution Control Department and 50 times cleaner than waste water discharged from residential households. In 2006, the Company invested over Baht 10 million to install the HACH BOD examination system in its 5 plants. The system helps ensure round the clock water quality monitoring with data sent directly to the Department of Industrial Works via satellite to facilitate effective real-time water management.

Natural Resource Protection

The Company conducted a water 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 the past few 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.

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

Second Dimension: Packaging

Serm Suk has targeted to minimize waste associated with packaging by
applying the 3R concept: Reduce; Reuse; and Recycle as follows:

-   1. Reduce packaging materials used by developing a lighter PET
    bottle, using just the right amount of plastic resulting in a
    reduction in plastic use of 1,000 tons per year. The company also
    plans to reduce paper used in product trays so that fewer forest
    resources will be used.

-   2. Reuse packaging by promoting the use of returnable bottles

-   3. Recycle by sorting materials that can no longer be used and
    sending them to recycling facilities.

Moreover, Serm Suk also joined with 20 leading companies and 5 major
industrial groups to establish the Packaging Management Institute in
2006. The Institute is under the supervision of the Federation of Thai
Industries and has the objective to manage the country’s used packaging
materials properly and sustainably so as not to cause an environmental
impact.

Third Dimension: Energy

River Transportation System for Better Pollution Control

The Company has utilized a river transportation system since 1980.
Currently, the Company has 3 engine boats and 4 barges in operation.
Each of the tuck boats has a capacity of 8,640 cases of beverage, which
is equivalent to the capacity of 20 transportation trucks. With this
method of transportation, it can reduce 240,000 liters of oil and
relieves traffic congestion. River transportation is highly cost
efficient while it also helps reduce pollution and traffic problems and
promotes energy conservation.

The Use of Methane Gas as a Replacement for Bunker Oil and alternative
energy

The Company has deployed methane gas which is a bio fuel generated as a
by-product from 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. Moreover, the company also
facilitated the use of alternative energy such as NGV, LPG or diesel B5
in its entire fleet of vehicles which both help reduce the nation’s
dependence on foreign energy and lowers the Company’s carbon footprint.

Fourth and Fifth Dimension: Environment and Human Resource

Human Resources are a key element in the success of environmental
sustainability programs. To be a best practice company, it needs drive
from employees who genuinely care about the environment. Serm Suk has
appointed a team of over 30 environmental crews, certified by the
Department of Industrial Works and the Thailand Environment Institute,
to handle environmental issues and the waste water treatment system. The
company also provided enhanced environmental knowledge for employees in
the environmental protection area by facilitating continuing education
with internal and external organizations.

Additionally, Serm Suk provides an opportunity for the public, including
academics and students to visit and observe its waste water treatment
system. The program welcomes more than 1,000 visitors annually. Serm Suk
has offered instruction on waste water management to many organizations.

4.  Undelivered Project

  - None –