1 Risk factors

CURRENCY FLUCTUATION

  Currency fluctuation has been the focus of our attention in recent
  years with all of the hotels in Laguna Phuket converting contract
  prices for room revenue to hard currency wherever possible. We
  successfully converted the majority of contracts by late 1998 and with
  over 80% of our rooms’ revenues now in hard currency, 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 2001, well before the tragic events of the 11^(th) September, we
began to track a negative occupancy trend throughout the resort.
However, as a result of a substantial increase in Average Rate, partly
fueled by continuing currency fluctuation in our favour, we have still
recorded increased revenues over the prior year.

Subsequent to the events in the US on 11^(th) September, the initial
signals in late September and early October were alarming, with huge
cancellations across the resort. However, Phuket is once again
demonstrating its resilience to international problems as we see a
gradual return to former business levels, with some adjustment for the
global recession, which we expect to continue into 2002.

  Competition

Destination

Indonesia has continuing stability problems, which have a direct impact
on tourism. This affects Bali, which is a direct competitor to Phuket.
However, Bali continues to assert its competitiveness by 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, considering the buoyant
  market, announced or under construction. Only two new projects would
  be considered to be in our competitive set. These are the new JW
  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 not yet announced) just north of Bang Tao Bay. One other
  project, approximately one kilometre north of Laguna Phuket on 139 Rai
  of land on Bang Tao 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. The hotels in Laguna
  Phuket 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 be further enhanced during 2002.

Technology

We are gradually replacing the technology across the resort. We are taking the opportunity to instill some conformity to an agreed standard. All of the hotels have now installed updated “Fidelio” brand front office systems, and back office “Accpac” systems are being rolled out over a two year period. The resort has been wired with fibre optic cables by the telephone authorities, and we are 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 we aspire to
  repeat in 2002.