3 Operation of each product or service

3.1 Nature of products and services

  Banyan Tree Phuket

This award winning resort offers a unique holiday experience, featuring
121 exclusive villas, 50 with jacuzzis and 71 of which have their own
swimming pools. This unique resort is further enhanced by the Banyan
Tree Spa offering massage, body and beauty treatments. The Banyan Tree
Phuket opened in May 1995 and is managed by Banyan Tree Hotels and
Resorts Pte. Ltd. The 14 Spa Pool Villas were completed and became
available for use during December 2001 and January 2002. The resort is
positioned as being one of the premier resort and Spa destinations in
the Asia Pacific.

  Dusit Laguna Resort

The first hotel to open at Laguna Phuket, in November 1987, offering
beachfront accommodation in 224 rooms and suites. The resort is managed
by Dusit Hotels and Resorts Co., Ltd. To add to the resort’s facilities
and services, the Angsana Spa, managed by Banyan Tree Spa Co., Ltd.,
opened within the Dusit’s grounds in December 1999. Dusit targets the
independent traveler segment from Europe in the high season and the
local regional market in the low season.

  Laguna Beach Resort

Laguna Beach Resort offers deluxe accommodation in 254 superior rooms
and suites. The resort opened in November 1991, under the management of
the Pacific Islands Club Group, but has been owner operated since 1994.
In September 2001, the LBR Angsana Spa opened adjacent to Laguna Beach
Resort. The resort targets the high end, family orientated market.

  Sheraton Grande Laguna Phuket

The Sheraton Grande Laguna Phuket is a 70 acre complex. The resort
opened in 1992 and offers 335 rooms and suites. It is a member of the
Sheraton Luxury Collection, which comprises Sheraton’s most prestigious
hotels in the world. The Angsana Spa operates a facility within this
hotel. The resort targets families and independent travelers during its
high season and the corporate meetings customer segment and the regional
market during the low season.

  Allamanda Laguna Phuket

An apartment-style resort, offering one and two bedroom suites and
duplexes with lagoon, pool or golf course views. The resort, managed by
Banyan Tree Hotels and Resorts Pte. Ltd. opened in 1993. The units in
this resort have been sold to the public and Laguna Resorts & Hotels
Public Company Limited no longer owns this resort. The hotel targets the
four star family market and tour operators.

  Laguna Phuket Facilities

  Laguna Phuket Golf Club

This resort-style, 18-hole golf course has been open to members, guests
and the public since August 1992. It is managed by Banyan Tree Golf Club
Limited.

  Quest Laguna Phuket Adventure

  Quest is a corporate training facility providing management groups
  with programs tailored to suit individual company goals. Common focus
  areas include problem solving, team cohesion, leadership and effective
  communication. Quest also operates recreational programs for resort
  guests and children. It opened in 1994 and is operated by Sheraton
  Overseas Management Corporation.

  Canal Village

  Canal Village is a shopping center with 59 outlets for lease,
  centrally located on 10 Rai of land within Laguna Phuket. Canal
  Village officially opened in 1994 and is owner operated.

  Banyan Tree Gallery

  This chain of retail outlets specialises in indigenous artifacts and
  handicrafts. The chain has a total of 40 outlets worldwide, twelve of
  which are located within the Laguna Phuket hotels and Canal Village
  shopping center.

  Allamanda Vacation Club

  The Allamanda Vacation Club opened in 1998 selling memberships that
  entitle participants to annual vacations, for at least one week, at
  the participating member resorts of Allamanda Laguna Phuket, Sheraton
  Grande Laguna Phuket, Laguna Townhomes and the Angsana Resort & Spa
  Bintan. Members also have access to some 3,600 resorts in 90 countries
  through a reciprocal arrangement with RCI.

  Laguna Property Sales

Laguna Property Sales currently offers for sale condominiums within the
Allamanda Laguna Phuket, Banyan Tree two-bedroom pool villas, and the
house and land packages of Laguna Residences and Laguna Townhomes. The
Group owns significant land both within and adjacent to Laguna Phuket
upon which it plans to construct future property developments. Investors
in the Allamanda Laguna Phuket, Banyan Tree Phuket, Laguna Residences
and Laguna Townhomes have the option to receive a return on their
investment by joining the hotel management scheme and renting their
properties to guests.

  Laguna Service Company Limited

Laguna Service Company Limited (“LSC”) is a non-profit, joint venture
company established in April 1991, to provide essential services to the
hotels, such as laundry, water supply, inter-resort transportation,
landscaping, common area maintenance, marquee facilities, a gas station
and centralized destination marketing. During 2001 a computer school was
constructed and opened to provide computer training for all Laguna
Phuket employees. In 2002, seven air-conditioned coaches were purchased
and operated by LSC to provide transportation for all Laguna Phuket
employees to and from work.

Laguna Chiang Rai 

  Located in the Mae Chan district of Chiang Rai province, northern
  Thailand, Laguna Chiang Rai is a land bank of 1,090 Rai. This project
  has been suspended.

Overseas Investment in Hotels and Resorts

Laguna Resorts & Hotels Public Company Limited invests overseas through
Tropical Resorts Limited (“TRL”) which operates luxury resorts largely
throughout the Pacific Rim area and the investments in hotels and
resorts overseas include:

  Banyan Tree Maldives Vabbinfaru, The Maldives

  Banyan Tree Maldives Hotel is a luxurious 5-star hotel located on an
  entire island under a concession granted by the Maldives Government.
  The hotel is located in the middle of the Indian Ocean, and is just 20
  minutes by speedboat from the airport at Male’. Guests are
  accommodated in 48 beachfront or garden villas, each with terrace and
  private garden.

  Maldives Angsana Resort and Spa

Maldives Angsana Resort and Spa is situated on the picturesque getaway
island of Ihuru, located at the North Male’ Atoll, a 20 minute speedboat
ride from the airport.

TRL acquired an existing hotel on this island in September 2000. It
operated under the existing premises from September 2000 to May 2001 and
closed for extensive renovations in June 2001. The resort re-opened in
October 2001. Guests are accommodated in 45 luxurious beachfront villas
which have thatched roofs, private gardens and access to the beach.

  Angsana Resort & Spa Cairns, Australia

The resort was formerly known as the “Jewel of the Reef”. After the
acquisition of the property by Tropical Resorts Limited in 1994, the
resort was renamed the Allamanda Palm Cove and has since been renamed
Angsana Resort & Spa Cairns. This beachfront resort provides luxurious
and spacious suites accommodation. The resorts facilities include a spa,
swimming pools and a restaurant. A number of rooms were sold to the
public during 2003.

  Banyan Tree Bintan, Indonesia

Banyan Tree Bintan is located at Tanjong Said on a secluded bay on the
north western tip of Bintan Island, Indonesia. Just 45 minutes from
Singapore by high-speed catamaran and a 10-minute drive to the resort.
The resort has a total of 72 luxuriously appointed villas, two tennis
courts, 2 swimming pools, meeting facilities, 3 restaurants and a spa
operation.

Angsana Resort and Spa Bintan was officially opened on 1 June 2000. It
is located adjacent to the Banyan Tree Bintan. The resort features 135
rooms and suites, swimming pool, 2 tennis courts, meeting facilities, 3
restaurants and a spa operation.

Banyan Tree Resorts, Seychelles

TRL invested in a piece of land totaling 1,167,658 square meters located
on Intendance Beach on Mahe Island in Seychelles in early 2001. The land
will be developed into an integrated destination resort similar to
Laguna Phuket, with 3 hotels totaling 540 rooms or villas. 32 villas
were completed in early 2002 under the Phase I program and opened in
February 2002.

3.2 Marketing and Competition

3.2.1 Marketing

Review of Sales and Marketing Plans

All of the Laguna Phuket Hotels and Business Units are required to
provide a Sales and Marketing Plan as part of their budget presentation.
These vary in style and content but all include a summary of their plans
to provide the budgeted levels of income. For the hotels, the plans all
include statistics showing month-by-month comparisons to prior year and
a market segmentation analysis.

For the 2004 Budget, all budgets assume a conversion rate of 40 Baht to
1 US dollar. Approximately 70% to 80% of our rooms revenue is contracted
in US Dollars. A sensitivity analysis was included as part of the budget
process providing various scenarios in the event the US dollar weakens
further.

A summary of the hotel plans is as follows :-

a)  Hotel occupancies and average rates, together with the resulting
    revenue per available room, are analyzed during the budget reviews
    on a month-by-month basis. Comparisons are carried out over the past
    five years, and in several cases this has meant substantial review
    to the originally submitted budgets.

b)  We have taken the general view that comparisons to 2003 and 2002 are
    not as meaningful as comparisons to previous years, in particular
    because of the disastrous second quarters brought about by the Iraq
    War and the SARS crisis in 2003 and the soccer World Cup and the
    Bali bombing in 2002.

c)  Wholesale contracting now recognizes the month of April as low
    season, and as a result, the average rates are lower than
    previously, but we expect improved occupancy from the lower rates.

d)  The hotels have an unprecedented level of communication and cohesion
    in their Sales and Marketing approach. This has led to excellent
    flexibility and reaction to a very difficult market in 2003 and we
    expect this to continue in 2004.

e)  In particular, the very successful Laguna Phuket Plus campaign can
    now be switched on and off in reaction to market conditions and
    provides an important delivery from regional markets in the low
    season.

f)  The focus in 2004 will be on the average room rate. The hotels have
    bounced back strongly from the SARS period, and it must be noted
    that Laguna Phuket has generally out-performed the market in this
    respect. However, we have seen a dilution of the average room rate.
    This is partially due to discounting, but a longer term issue is the
    changing market mix, with more of our business now coming from
    lower-yield markets.

g)  There continue to be three markets which settle in Baht, namely,
    Japan, Australia, and Thailand.

h)  The lagunaphuket.com website has delivered very poorly and
    management of this site has been moved to Phuket under Destination
    Marketing.

  Additionally, we have seen very strong performance from the Property
  Sales sector. In 2002, our own residence and townhome products came on
  line and were very well received in the market place. The first phases
  have now sold out, and the Property Development team has been enhanced
  with a brief to develop and sell residences and townhomes using
  existing Laguna Phuket land, and then on to the additional land
  acquired in 2002. Our target, which we feel is sustainable for the
  foreseeable future assuming current profit margins, is 50 homes per
  annum, being a blend of detached residences, semi-detached townhomes
  and condominium apartments.

Targeted Markets

-   Leisure FITs

-   Leisure Group

-   MICE group (Meeting, Incentive, Convention and Exhibition)

-   Government and Embassies

-   Airline programs

  Sales & Marketing Tactics:

-   Build and manage customer database

-   Develop sales and promotion collateral to the highest standard

-   Develop and upgrade electronic marketing – Website, E-mail, CD ROM,
    etc.

-   Participate in major travel trade shows such as ATF in January, PATA
    travel mart in March, ITB in March, EIBTM in May, IT& CMA in October
    and WTM in November.

-   Develop direct mail campaigns for MICE market

-   Sales Calls to corporate accounts in key markets – Bangkok, Hong
    Kong, Singapore, Taiwan and Japan.

-   Sales visits to major wholesalers in UK, Germany, Switzerland,
    France, Italy and Scandinavia.

-   Create awareness through advertising in the regional leisure and
    consumer magazines.

-   Organize a familiarization trip by inviting more clients from
    Europe, Asia and North America, including selected Bangkok based
    meeting organizers.

-   Create an effective advertising campaign to develop the market
    segments targeted.

-   Establishing close relationship with various government
    organizations and bodies.

-   Implement a customized process which involves database analysis,
    behavior segmentation, brand contact and net work.

-   To work closely with the TAT, TG and TICA.

-   Further emphasis on public relations.

-   Participate in various Frequency Marketing Programs, being a member
    of Airlines mileage program, credit card companies, etc.

-   Develop special summer package for low season.

-   Tie in with the major airlines that fly into Phuket to develop a
    promotional package.

-   Organize Thai Airways Laguna Phuket triathlon to gain media coverage
    and positioning.

Distribution Channels

As more than 80% of our guests are traveling for leisure purposes, the
majority of our clients book through their travel agencies. The hotels
therefore, work very closely with them and offer contracts that are
normally signed on a one year basis so that these travel agencies or
wholesalers will promote the hotels to the consumers. Also, many guests
have started to book directly with the hotel through the hotels
worldwide reservation system of each hotel chain and in the past year by
direct booking through the internet.

  Laguna Phuket hotels are also very popular for MICE (Meetings,
  Incentives, Conferences and Exhibitions) where the organizers normally
  deal directly with the hotels.

  Source of Bookings

  Local Travel Agency & Tour Operators 9%

  Domestic Wholesalers 2%

International Wholesalers 65%

  Corporate accounts & governments 13%

  Direct Bookings 11%

Type of Customers

Leisure 85%

Meeting and conference 15%

  Geographic origin:

  Major markets of the hotels in Laguna Phuket are as follows: -

  North Asia

  Japan 11%

  Hong Kong 10%

  Korea 8%

  Taiwan 5%

  China 2%

  Russia 2%

  Southeast Asia

  Thailand 4%

  Singapore 3%

  Other Asia 3%

Europe

  UK 13%

  Switzerland 4%

  Germany 5%

  Italy 2%

  France 1%

  Australia/New Zealand 8%

  USA/ Canada 6%

  Historical Overview

The following chart shows a statistical record of the hotels in Laguna
Phuket over the past six years.

LRH Laguna Phuket

+---------------+--------+--------+--------+--------+--------+--------+
| (* 000’s)     | For    | For    | For    | For    | For    | For    |
|               | the    | the    | the    | the    | the    | the    |
|               | year   | year   | year   | year   | year   | year   |
|               | ended  | ended  | ended  | ended  | ended  | ended  |
|               | 31     | 31     | 31     | 31     | 31     | 31     |
|               | De     | De     | De     | De     | De     | De     |
|               | cember | cember | cember | cember | cember | cember |
|               |        |        |        |        |        |        |
|               | 1998   | 1999   | 2000   | 2001   | 2002   | 2003   |
+---------------+--------+--------+--------+--------+--------+--------+
| Occupancy (%) | 81     | 75     | 79     | 69     | 64     | 70     |
+---------------+--------+--------+--------+--------+--------+--------+
| Average Room  | 4,159  | 4,801  | 5,811  | 6,972  | 6,831  | 5,748  |
| Rate          |        |        |        |        |        |        |
+---------------+--------+--------+--------+--------+--------+--------+
| Room Revenue* | 1,0    | 1,0    | 1,4    | 1,5    | 1,4    | 1,3    |
|               | 07,643 | 99,115 | 13,317 | 14,935 | 17,589 | 03,004 |
+---------------+--------+--------+--------+--------+--------+--------+
| F&B Revenue*  | 7      | 6      | 7      | 7      | 6      | 6      |
|               | 09,389 | 78,736 | 78,704 | 29,040 | 55,805 | 46,147 |
+---------------+--------+--------+--------+--------+--------+--------+
| Total         | 1,8    | 1,9    | 2,3    | 2,3    | 2,1    | 2,0    |
| Revenue*      | 35,370 | 38,169 | 28,378 | 75,774 | 86,328 | 57,718 |
+---------------+--------+--------+--------+--------+--------+--------+
| GOP*          | 9      | 9      | 1,2    | 1,2    | 1,1    | 1,0    |
|               | 34,357 | 81,131 | 40,601 | 73,730 | 09,644 | 15,911 |
+---------------+--------+--------+--------+--------+--------+--------+
| GOP (%)       | 51     | 51     | 53     | 54     | 51     | 49     |
+---------------+--------+--------+--------+--------+--------+--------+

 

The Phuket Situation

  Phuket continued to see some growth in tourist arrivals although the
  island statistics have little bearing upon the specialised market of
  Laguna Phuket. The Tourist Authority of Thailand has considerably
  downgraded their earlier rather optimistic predictions which supported
  the Government’s campaign to increase foreign earnings. The
  improvements at the airport and the infrastructure of the road
  networks in Phuket have been completed, including expansion of our
  Hospitality Lounge at the airport, which has become an important
  reception center for our guests.

  We are taking a leading role in discussions with Thai Airways to try
  to create a direct flight route from London (and possibly then some
  other European centres) to Phuket, in the wake of the new routes from
  Australia and Japan.

  There has been some further talk about Phuket becoming a major IT
  centre or “Cyberport”. The subject of a Provincial Convention Centre
  appears to have been resolved with the final site being announced as
  Sapan Hin, near Phuket Town. The main purpose of this Convention
  Centre is to present Phuket as competitor to the likes of Pattaya for
  lower-rated regional Government and NGO meetings, rather than a first
  class international convention destination.

Competition

  The competitive set to the hotels in Laguna Phuket continues to
  comprise of the Marriott, Le Meridien Phuket Beach Resort, Le Royal
  Meridien Phuket Yacht Club and to a lesser extent the Amanpuri. The
  newly opened Marriott continues to compete aggressively on rates but
  generally all the hotels in the competitive set have followed the same
  trends in recent years with no one hotel particularly out performing
  the market. There will be some activity in the competitive set with
  the much-delayed Trisara now scheduled for opening in the third
  quarter of 2004. Additionally the Arcadia will be rebranded to a
  Hilton flag from next year, and the Panwaburi to a Conrad flag.

  Four Seasons and Intercontinental are still in discussions, and other
  international brands visit the island regularly. There has been no
  further activity that we are aware regarding the site which was
  previously to be bought by Shangri-La.

Pricing Strategy

The Laguna Phuket hotels are working together better than ever on price
structuring. The discussions inevitably follow the normal course of
competitors, and we will need to maintain vigilance as we go forward to
ensure maximum average room rate. There follows a chart showing the
average room rate movements over the past five years:-

Laguna Phuket

  ------------------- ------- ------- ------- ------- ------- ------- -------
                      1997    1998    1999    2000    2001    2002    2003

  Average Room Rate   3,506   4,159   4,801   5,811   6,972   6,831   5,748
  (Baht)                                                              

  Average Exchange    32.3    41.0    38.1    40.6    44.6    43.1    41.6
  Rate. Baht : US$                                                    

  Average Room Rate   109     101     126     143     156     158     138
  (US$)                                                               
  ------------------- ------- ------- ------- ------- ------- ------- -------

A look at the historical growth of rates across Laguna Phuket by hotel
shows the following:

  ------------- -------- ------- -------- -------- -------- -------- -------- -------- --------
                         1998    1999     2000     2001     2002     2003     5 year   3 year
                                                                              growth   growth

  Banyan Tree   ARR      9,761   10,956   13,452   16,279   17,585   17,639   81%      31%
  Phuket                                                                               

                Revpar   7,525   8,643    10,613   11,960   11,912   11,767   56%      11%

  Sheraton      ARR      4,472   4,754    5,701    6,422    5,600    4,393    (2%)     (23%)
  Grande Laguna                                                                        
  Phuket                                                                               

                Revpar   3,674   3,702    4,674    4,368    3,581    3,214    (13%)    (31%)

  Dusit Laguna  ARR      2,774   3,555    4,506    5,251    4,912    3,755    35%      (17%)
  Resort                                                                               

                Revpar   2,320   2,623    3,395    3,395    3,093    2,561    10%      (25%)

  Laguna Beach  ARR      3,027   3,521    3,797    4,765    4,507    3,653    21%      (4%)
  Resort                                                                               

                Revpar   2,290   2,449    3,088    3,299    2,894    2,534    11%      (18%)

                                                                                       
  ------------- -------- ------- -------- -------- -------- -------- -------- -------- --------

  ARR = Average room rate

  Revpar = Revenue per available room

Three Year Outlook

  We are observing a change in the business climate and consequent
  delivery levels in our traditional markets. The past several years
  have not been stable enough to provide an adequate guide to the
  future. After the 1997 economic crisis we have weathered the storms of
  the terrorist attacks on the USA and Bali, the Iraq war, and this year
  the worst downturn of all as a result of the SARS crisis.

  The sentiment at the recent World Travel Market in London was good and
  we expect to see a return to good business levels from Europe in the
  coming high season. Whether or not we will see the ‘low season’
  European traffic come back is not so sure. This is where the hotels
  have done well to shift to shorter term regional markets to fill the
  gap, and we can be confident that they will be able to do so again.

  If the world economy continues to improve into 2004 this will have a
  positive impact on the tourism industry into the next few years. So
  for the coming three year period, barring any major catastrophe, we
  should see a good business climate in the hotels, and continuing good
  performance in other business units, particularly Property Sales and
  Allamanda Vacation Club.

Rights and constraints in Business

BOI Priviledges – None

Other Priviledges – None

Constraints in Business – None