Future plans

The integrated resort concept of Laguna Phuket has proved a winning
formula since the resort’s inception over a decade ago. The dynamic
development over the last 15 years has created the mature resort which
is evident today.

  Nevertheless there continues to be opportunity to improve
  profitability and expand the existing facilities, particularly in
  light of the ongoing high demand for Phuket in terms of both hotel and
  residential accommodation and a hotel supply which is not expanding
  very quickly.

  Laguna Phuket is effectively its own macro-market within the broader
  Phuket market and dominates the upper-tier rooms supply of the island.
  In terms of four and five star properties, the only real competition
  comes from the Meridien group (Le Meridien and Le Meridien Yacht
  Club), The Amanpuri, the JW Marriott on Mai Khao Beach which opened at
  the end of 2001, the recently opened Trisara Resort and the renovated
  Phuket Arcadia.

Future Expansion

  The ability within the resort to add rooms supply without additional
  expenditure on infrastructure is a feature of the projects at Laguna
  Phuket. At Banyan Tree Phuket the present public areas will
  comfortably support considerably more rooms than we currently have.
  The new Spa Pool Villas have been well received, and there are plans
  to add 50 higher end Water Villa’s of which phase I of 22 villas have
  commenced construction in 2004. Phase I is expected to be completed in
  early 2006. Fourteen additional 2 bedroom pool villas have commenced
  construction which will be sold to the public. These will be completed
  in the second half of 2005.

  At the Sheraton Grande Laguna Phuket 45 additional rooms are under
  construction to be available for opening in the high season at the end
  of 2005.

  In 2002, the Company acquired the assets of Laguna Development Company
  Limited (the Company was previously a 30% partner in this company)
  which has provided a further 1,146 Rai of contiguous land to Laguna
  Phuket. An integrated residential community to be called Laguna
  Village has been planned for this site and construction is expected to
  commence in late 2005/2006.

  The Company will continue to look for opportunities to diversify its
  operations outside of Phuket and the construction of Banyan Tree
  Lijiang, which will open in 2006 is the first stage in the
  implementation of this strategy.

Property Sales

  One of the hallmarks of Laguna Phuket has been its ongoing ability to
  attract investors to buy from a varied inventory of resort
  accommodation. Activity in this area has changed as a result of the
  economic and market conditions and we continue to see a significant
  interest in our products where we deliver a turnkey property to the
  consumer together with many of the advantages of a Laguna Phuket
  address.

  In particular the Laguna Residence and Laguna Townhome products have
  proved to be extremely popular to the extent that all four projects
  developed to date have been fully sold out. In order for us to keep
  pace with the strong demand, a number of other project sites have been
  identified and are in the process of design and obtaining government
  approvals so that they can be developed. This a very strong area of
  growth potential for the group.

  Laguna Holiday Club

  In response to the changes in the Property Sales market, we launched
  our own vacation club in 1998. This product is a variation on the
  theme of timeshare. We are conscious of the somewhat difficult
  reputation of this industry, and we are determined to provide a
  service which reflects the high standards and culture of the resort.
  The Laguna Holiday Club is popular with the Laguna Phuket guests, and
  provides an important dynamic for the resort. It is a highly
  profitable industry, although we anticipate continuing with our sales
  efforts at a slightly slower pace than timeshare industry norms,
  protecting our guests from the traditional sales pressure, but
  nevertheless making the product available to our own captive audience.

  The Bangkok office which opened in mid 2000 is now performing very
  well, and we plan to regionalise the Laguna Holiday Club with another
  sales office in Bintan, Indonesia and a wider inventory of product
  including the Angsana Resort & Spa Bintan. A number of additional
  locations within the region will be considered in 2005 and we believe
  that with the quality of infrastructure now in place in Phuket that we
  have the foundation to expand this operation internationally. In
  Phuket construction has commenced on the Laguna Holiday Club hotel.
  This will provide a separate property dedicated to the members of the
  Laguna Holiday Club and phase I of 60 units is expected to be
  completed in the second half of 2006.

Laguna Service Company Limited

  Laguna Service Company Limited is the central services arm of Laguna
  Phuket. It performs a variety of tasks including inter-hotel
  transportation, central laundry, landscaping of common areas, beach
  clean-up, lagoon maintenance, water supply, computer training
  facilities and staff transportation in addition to providing a
  response team to deal with a variety of emergencies within the resort.
  LSC is governed by its own Council which is comprised of the Hotel
  General Managers. No significant future developments are planned for
  this company at present.

  Marketing Laguna Phuket

In addition to the hotels’ own marketing efforts, which accounts for the majority of expenditure in Advertising and Promotion, there is a central fund derived from a 1% levy on the hotels’ revenue. There is a full programme marketing Laguna Phuket as a destination which includes advertising, public relations, and some direct selling activities. 

Our very successful programme called “Laguna Phuket Plus” with selected agents in key feeder markets, is now being promoted year-round, and is expected to be a key feature of Laguna Phuket’s co-operative sales efforts.

Laguna Tours

  Laguna Tours, our centralised tour company is directed at capturing
  the commissions generated by our existing guests when they avail
  themselves of the many activities available on the island. This also
  provides us with the opportunity to exercise some quality control over
  the tours offered to our guests.

Other Business Units

  The other business units at Laguna Phuket continue to thrive. Canal
  Village remains fully booked, and in 2003 we have built separate
  offices for the Laguna Holiday Club, which occupies eight shop spaces,
  to make room for the waiting list of potential tenants. Within Canal
  Village, we are also building a Wedding Chapel with the intent to
  penetrate the lucrative weddings market, particularly from Japan. This
  was completed in late 2004 and is now open to receive weddings.

  Quest Laguna Phuket Adventure continues to provide important support
  for our corporate meetings market, and an additional leisure feature
  for our guests.

  The Laguna Phuket Golf Club is an important amenity for Laguna Phuket.
  The name was changed from Banyan Tree Golf Club in 2003 to help
  identify this facility with all the hotels of Laguna Phuket and the
  condition of the golf course continues to be enhanced.

  Banyan Tree Gallery captures valuable retail spending by our guests
  for the Company, and provides a consistent product in logo-wear
  throughout the resort. Additional outlets in a number of countries
  continue to be opened as a Banyan Tree Gallery is always included in a
  newly opened Banyan Tree or Angsana resort or spa.

  LRH Cashflow

  Strong cash generation by the hotel and property sales operations over
  recent years has enabled LRH to generate significant cash from its
  operations. Given the significant margins between the loan and deposit
  interest rates we have largely used the cash generated to make debt
  repayments. At 31 December 2004 this has resulted in LRH having a
  particularly manageable level of bank loans, and accordingly a very
  strong balance sheet. As we go forward, this cash rich position and
  our ability to obtain external finance due to our strong balance
  sheet, will enable us to take advantage of opportunities and
  developments in order that the Company continues to increase the
  return to its shareholders.