1 RISK FACTOR

CURRENCY FLUCTUATION

Although the value of Baht has been relatively stable over recent years,
currency fluctuation continues to be an area of exposure with all of the
hotels in Laguna Phuket contracting prices for rooms’ revenue in hard
currency wherever possible. With over 80% of our rooms’ revenues now in
hard currency we consider that we are financially well poised for the
future. The Allamanda Vacation Club also prices its property in hard
currency.

ECONOMY AND TOURISM IN THAILAND

  During 2002, well before the tragic Bali bombing, the slow down in the
  world economy and other factors such as the World Cup being hosted in
  Asia continued to adversely impact tourism in Thailand which flowed
  onto lower occupancies being experienced throughout the resort.

  After the Bali bombing in October and the subsequent travel advisories
  by a number of governments warning against traveling to Thailand, and
  specifically Phuket, we saw a number of cancellations across the
  resort. Phuket has demonstrated its resilience with a gradual return
  to former business levels, although the potential of a war with Iraq
  is expected to affect the tourist arrivals in the first half of 2003.

  Competition

Destination

Indonesia has continuing stability problems, which have a direct impact
on tourism. This affects Bali, which is a direct competitor to Phuket.
Subsequent to the October bombings Bali has been marketing itself with
aggressive rates worldwide. Fortunately Bali’s and Phuket’s High and Low
seasons are out of phase with one another, and our rate strategies are
not greatly affected by Bali’s discounting.

Other than this, we remain optimistic that Phuket as a destination will
bounce back ahead of international trends.

Hotels

There are relatively few hotel projects announced or under construction.
Only two new projects would be considered to be in our competitive set.
These are the new Marriott at Mai Kow Beach, north of the airport, (270
rooms which opened in late 2001) and the Trisara hotel and villas (60
rooms, opening likely at the end of 2003) just north of Bangtao Bay. One
other project, approximately one kilometre north of Laguna Phuket on 139
rai of land on Bangtao Bay, has been delayed and we can consider any
completion there to be some two to three years away.

Low Season

  Low season in Phuket is from May until October and the hotels normally
  run at low occupancies with reduced room rates. With the global
  economic environment impacting the meetings and incentive business and
  the re-emergence of Bali (prior to the Bali bombing) the lower
  occupancies experienced in the low season has been particularly marked
  in recent years. The hotels in Laguna Phuket have joined forces and
  launched a promotional campaign targeting the regional market, as well
  as the meetings and incentives business. The “Laguna Plus” campaign
  has been a marked success in Laguna Phuket’s competitive advantage,
  and will continue to be further enhanced.

Technology

We are gradually replacing the technology across the resort. We are continuing with our programme to instill conformity to an agreed standard whereby all of the hotels have now installed updated “Fidelio” brand front office systems, and back office “Accpac” systems will be fully rolled out by the end of the year. The resort has been wired with fibre optic cables by the telephone authorities, and we are continually examining ways to take advantage of this.

Environment 

  The tourism and hotel industries are sensitive to the local and global
  environment. Laguna Phuket is concerned about its impact on the
  environment and natural surroundings. Various environmental projects
  to protect and preserve nature continue to be conducted with
  remarkable success with our efforts being recognized by the Tourism
  Authority of Thailand’s Sustainable Tourism Award which was won for a
  second time in 2002.