2. Nature of the Business

  2.1 Company History

  Laguna Resorts & Hotels Public Company Limited (“The Company”) was
  formerly named Thai Wah Resorts Development Company Limited and
  founded in 1983. It shortly thereafter acquired a large parcel of land
  on the site of an abandoned tin mine at Bangtao Bay, Phuket, Thailand
  which was later developed to become the Laguna Phuket integrated
  resort complex.

  Milestones

  1987 Dusit Thani Laguna Phuket (formerly known as Dusit Laguna Resort)
  opened.

  1991 Laguna Beach Resort opened.

  1992 Sheraton Grande Laguna Phuket and the Laguna Phuket Golf Club
  opened.

  1993 The Company listed on Stock Exchange of Thailand. Property Sales
  operations commenced with the Allamanda condominium units.

  1995 The resort’s flagship hotel, Banyan Tree Phuket opened.

  1998 Laguna Holiday Club commenced operations.

  2002 The Company acquired a large parcel of land adjacent to Laguna
  Phuket for future development opportunities.

  2005 The Company acquired Thai Wah Plaza Limited which houses Banyan
  Tree Bangkok and commercial offices.

2006. Banyan Tree Lijiang, People’s Republic of China and Laguna Holiday
      Club Phuket Resort opened.

2008. The Company entered into an agreement to acquire additional land
      adjacent to Laguna Phuket for future development.

  2009 The Company invested in the Banyan Tree Indochina Hospitality
  Fund which will be developing an integrated resort in Hue, Vietnam.

  Outrigger Laguna Phuket Resort & Villas commenced operations in
  December.

  2.2 Type of Businesses and Income Structure

  2.2.1 Type of Businesses

The key businesses of the Company are hotels, property development and office rental. The Company’s major business investment largely revolves around the operation and management of the integrated resort of Laguna Phuket, located on the island of Phuket in Thailand, as well as its Banyan Tree hotel and office tower located in Bangkok.

  Segment information

  The companies engaged in each of the key business segments are set out
  below.

  2.2.2 Income Structure

  The percentage of income generated by each individual line of business
  is detailed as follows:

  (Unit: Thousand Baht)

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

                                                                          

  Revenue from Hotels 3,300,147   73.6    3,954,452   57.2    4,124,291   57.8

  Revenue from        1,015,720   22.7    2,488,769   36.0    2,808,487   39.4
  Property                                                                
  Development                                                             

  Revenue from Office 58,938      1.3     66,024      1.0     67,558      0.9
  Rental                                                                  

  Other income        108,060     2.4     403,072     5.8     136,845     1.9

  Total revenue       4,482,865   100.0   6,912,317   100.0   7,137,181   100.0
  ------------------- ----------- ------- ----------- ------- ----------- -------

  The most significant lines of business of the Group are hotels and
  property development operations for which further details are provided
  below. Note 30 to the financial statements of the Company for the year
  ended 31 December 2009 (note 32 and 31 for the year ended 31 December
  2008 and 2007 respectively) discloses the operating results by
  business segment in accordance with accounting standards and
  principles.

  Hotel Operations – Overall

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

  Occupancy (%)                                               

  Banyan Tree Phuket                 65           62          66

  Dusit Thani Laguna Phuket          56           64          76

  Laguna Beach Resort                57           60          69

  Sheraton Grande Laguna Phuket      57           64          71

  Laguna Phuket Hotels - Average     58           63          71

  Banyan Tree Bangkok                49           57          67

  Occupancy - Average                56           62          70

                                                              

  Average Rate (Baht)                                         

  Banyan Tree Phuket                 14,758       18,582      18,450

  Dusit Thani Laguna Phuket          6,213        5,631       5,012

  Laguna Beach Resort                3,800        4,597       4,227

  Sheraton Grande Laguna Phuket      4,048        5,588       5,614

  Laguna Phuket Hotels - Average     6,332        7,314       6,952

  Banyan Tree Bangkok                4,667        5,266       5,177

  Average Rate - Average             6,047        6,970       6,649

                                                              

  Room Revenue per Available Room                             
  (Baht)                                                      

  Banyan Tree Phuket                 9,577        11,485      12,168

  Dusit Thani Laguna Phuket          3,479        3,612       3,801

  Laguna Beach Resort                2,149        2,780       2,929

  Sheraton Grande Laguna Phuket      2,316        3,584       3,983

  Laguna Phuket Hotels - Average     3,666        4,596       4,928

  Banyan Tree Bangkok                2,287        3,019       3,461

  Room Revenue per Available Room –  3,395        4,310       4,665
  Average                                                     

                                                              

  Total Revenue (Thousand Baht)                               

  Banyan Tree Phuket                 798,717      947,882     970,850

  Dusit Thani Laguna Phuket          473,941      488,263     513,726

  Laguna Beach Resort                308,804      388,526     422,217

  Sheraton Grande Laguna Phuket      550,356      748,239     887,633

  Banyan Tree Bangkok                589,439      675,592     705,017

  Total                              2,721,257    3,248,502   3,499,443

  Other                              182,901      174,169     167,418

  Total Revenue of Hotel Business    2,904,158    3,422,671   3,666,861

  Other Hotel-related operations     395,989      531,781     457,430

  Total Revenue of Hotel Operations  3,300,147    3,954,452   4,124,291
  ---------------------------------- ------------ ----------- -----------

Hotel Operations

  The hotel operations continued to be adversely impacted in 2009 mainly
  due to the global economic downturn which resulted in cut-backs in
  leisure and corporate travel. The carry over of the airport blockades
  in 2008 and the swine flu outbreak also impacted the high season
  business in the early part of the year. As a result, there was
  significant downward pressure on hotel room rates and reduced demand
  was also reflected by lower occupancies.

  Banyan Tree Phuket

  Revenue was below the prior year mainly due to the lower room rates
  offered to drive business which was reflected in the higher hotel
  occupancy levels as compared to 2008.

  Dusit Thani Laguna Phuket

  Revenue was slightly below the prior year reflecting lower occupancy
  levels due to reduced demand. However, this was partially offset by
  higher average room rates generated from a full year of operations of
  the high-end Dusit Thani Pool Villas.

 

  Laguna Beach Resort

  Revenue was below the prior year due to both lower room rates coupled
  with lower occupancy levels. The hotel is also reliant upon group and
  corporate business which was very limited during 2009 due to lower
  corporate spending from the continuing impact of the global economic
  downturn.

  Sheraton Grande Laguna Phuket

  The largest of the Laguna Phuket hotels, was also impacted the most
  during 2009 with significantly lower room rates required to generate
  business. However, despite the heavy discounts on offer, the hotel
  occupancy levels were lower than the prior year. The hotel is heavily
  reliant upon group and corporate business due its large size. However,
  business levels were well down due to lower corporate spending from
  the continuing impact of the global economic downturn.

  The Banyan Tree Bangkok

  Despite the addition of new rooms and renovated facilities at the
  hotel, the new supply of hotels and serviced apartments in Bangkok
  resulted in a highly competitive market forcing the hotel to discount
  room rates to generate business. In addition, the hotel was impacted
  by the reduced level of business and leisure travelers due to the
  continuing impact of the global economic downturn resulting in lower
  occupancy levels.

 Property Development Operations

(Unit: Thousand Baht)

+-------------------+---------+------+---------+-----+--------+-----+
|                   | 2009    | %    | 2008    | %   | 2007   | %   |
+-------------------+---------+------+---------+-----+--------+-----+
| Property Sales    | 696,369 | 68.6 | 2,      | 8   | 2,3    | 8   |
| business          |         |      | 129,126 | 5.6 | 35,305 | 3.2 |
+-------------------+---------+------+---------+-----+--------+-----+
| Holiday Club      | 319,351 | 31.4 | 359,643 | 1   | 4      | 1   |
| business          |         |      |         | 4.4 | 73,182 | 6.8 |
+-------------------+---------+------+---------+-----+--------+-----+
| Total Revenue     | 1,      | 1    | 2,      | 10  | 2,8    | 10  |
|  – Property Devel | 015,720 | 00.0 | 488,769 | 0.0 | 08,487 | 0.0 |
| opment Operations |         |      |         |     |        |     |
+-------------------+---------+------+---------+-----+--------+-----+

  Property Sales

  The global economic downturn and local political instability resulted
  in a significant slowdown in sales during 2009 with limited demand.
  Buyers, many of which are foreign, have seen their personal wealth
  decline due to a decrease in asset and equity prices. In addition,
  several sales which had been previously recognized in prior years were
  reversed as buyers could not complete their purchase due to the impact
  of the global financial crisis.

  Holiday Club operations

  The decrease in revenue as compared to prior years was due to the
  global economic downturn which impacted consumer discretionary
  spending.

Other income

(Unit: Thousand Baht)

+------------------------------+------------+------------+------------+
|                              | 2009       | 2008       | 2007       |
+------------------------------+------------+------------+------------+
| Interest income              | 62,083     | 90,241     | 65,388     |
+------------------------------+------------+------------+------------+
| Foreign exchange gain        | 5,063      | -          | 9,227      |
+------------------------------+------------+------------+------------+
| Insurance settlement         | 23,360     | 226,111    | -          |
+------------------------------+------------+------------+------------+
| Gain on capital reduction    | -          | 71,816     | -          |
+------------------------------+------------+------------+------------+
| Amortisation of negative     | -          | -          | 26,596     |
| goodwill                     |            |            |            |
+------------------------------+------------+------------+------------+
| Reversal of prior period     | -          | -          | 22,541     |
| devaluation                  |            |            |            |
+------------------------------+------------+------------+------------+
| Others                       | 17,554     | 14,904     | 13,093     |
+------------------------------+------------+------------+------------+
| Total other income           | 108,060    | 403,072    | 136,845    |
+------------------------------+------------+------------+------------+

  Other income in 2009 mainly comprised an insurance settlement relating
  to business interruption arising from an illegal blockade of Laguna
  Phuket in February 2009 and interest income on installment plans of
  property buyers and Laguna Holiday Club memberships.

  Other income in 2008 mainly comprised an insurance settlement relating
  to damages and business interruption arising from the 2004 tsunami, a
  gain on capital reduction in the Company’s investment in Tropical
  Resorts Limited and interest income on the insurance settlement and
  installment plans of property buyers and Laguna Holiday Club
  memberships.

  Amortisation of negative goodwill in 2007 related to the discount on
  acquisition of investments where the fair value exceeded the purchase
  price and was being amortised over a period of 20 years. However, from
  1 January 2008, negative goodwill was no longer amortised due to a
  revision in the Thai Accounting Standard.

  Reversal of prior period devaluation in 2007 related to the
  revaluation increment of certain land which had previously been
  written to below cost when previously revalued.

[]

  -------------------- --------------------------------------------------
  Abbreviation         Company Name in Full

  AVCI                 PT. AVC Indonesia

  BGL                  Bangtao Grande Limited

  BI                   Bibace Investments Ltd

  BT1                  Bangtao (1) Limited

  BT2                  Bangtao (2) Limited

  BT3                  Bangtao (3) Limited

  BT4                  Bangtao (4) Limited

  BTD                  Bangtao Development Limited

  BTG(S)               Banyan Tree Gallery (Singapore) Pte Ltd

  BTG(T)               Banyan Tree Gallery (Thailand) Limited

  CGL                  Cheer Golden Limited

  HHBR                 Hua Hin Beach Resorts Company Limited

  L1                   Laguna (1) Limited

  L3                   Laguna (3) Limited

  LBC                  Laguna Beach Club Limited

  LBTG                 Lijiang Banyan Tree Gallery Trading Company
                       Limited

  LBTH                 Lijiang Banyan Tree Hotel Company Limited

  LBTL                 Laguna Banyan Tree Limited

  LCL                  Laguna Central Limited

  LEL                  Laguna Excursions Limited

  LGL                  Laguna Grande Limited

  LHC                  Laguna Holiday Club Limited

  LLL                  Laguna Lakes Limited

  LRH                  Laguna Resorts & Hotels Public Company Limited

  LSC                  Laguna Service Company Limited

  LVL                  Laguna Village Limited

  MCP                  Mae Chan Property Company Limited

  OPS                  Ownrep Project Services Pte Ltd

  PKRD                 Phuket Resort Development Limited

  PSD                  Pai Samart Development Company Limited

  TLDC                 Talang Development Company Limited

  TRL                  Tropical Resorts Limited

  TWDC                 Twin Waters Development Company Limited

  TWPL                 Thai Wah Plaza Limited

  TWRH                 TWR-Holdings Limited

  TWT                  Thai Wah Tower Company Limited

  TWT2                 Thai Wah Tower (2) Company Limited

  USC                  Universal Starch Public Company Limited
  -------------------- --------------------------------------------------