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
122 exclusive villas, 29 with private gardens, 24 with jacuzzis and 69
villas have their own swimming pools. This unique resort is further
enhanced by the Banyan Tree Spa offering massage, body and beauty
treatments. Banyan Tree Phuket opened in May 1995 and is managed by
Banyan Tree Hotels & Resorts Pte Ltd. An additional 14 Spa Pool Villas
have recently been completed and became available for use during
December 2001 and January 2002.

  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.

  Laguna Beach Resort

Laguna Beach Resort offers deluxe accommodation in 252 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.

  Sheraton Grande Laguna Phuket

The Sheraton Grande Laguna Phuket is a 70 acre complex. The resort
opened in 1992 with 327 superbly appointed rooms, suites and villas. The
resort now has 343 rooms and suites and is a member of the Sheraton
Luxury Collection, which comprises 45 of the Sheraton’s most prestigious
hotels in the world. The Angsana Spa operates a facility within this
hotel.

  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 & Resorts Pte Ltd., opened in 1993. The units in this
resort have been sold to the public and LRH no longer owns this resort.

  Laguna Phuket Facilities

  Banyan Tree 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 owner operated.

  Canal Village

  Canal Village is 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 27 outlets, eleven are located
  within the Laguna Phuket hotels and Canal Village shopping center. In
  addition there are three outlets at the Westin Banyan Tree hotel in
  Bangkok and one at Panwaburi.

  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 and Angsana Bintan. Members also have access to
  some 3,500 resorts in 90 countries through a reciprocal arrangement
  with RCI.

  Laguna Property Sales

Laguna Property Sales offers condominiums within the Allamanda Laguna
Phuket, Banyan Tree two-bedroom pool villas, Laguna Home plots and Golf
Villas for sale. Laguna Homes is a land sub division project, comprising
74 housing plots, adjacent to the Banyan Tree golf course. 20 of these
land plots have been reserved for the sale of Golf Villas which is a
“house and land” package that was introduced during 2001. Condominium
and villa investors have the option to receive a return on their
investment by joining the hotel management scheme and renting their
units to guests.

  Laguna Service Company Limited

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.

Overseas Investment in Hotels and Resorts

Laguna Resorts & Hotels Public Company Limited invests overseas through
Tropical Resorts Limited (“TRL”) which operates luxury resorts
throughout the Pacific Rim area. Laguna’s 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 concession granted from the Maldives Government.
  The hotel 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 elegant 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 premise 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 come with 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. Angsana Resorts & Spa Cairns’
facilities include spa, swimming pools, restaurant, bar, shop, gardens,
car parks, etc.

  Banyan Tree Bintan, Indonesia

The project includes luxury apartments and an 18-hole golf course and
clubhouse designed by the Australian golfer Greg Norman. Tropical Bintan
has its own investment in the land on which a resort hotel, Banyan Tree
Bintan, and resort condominiums for sale, Angsana Resort & Spa Bintan,
are located.

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 for
groups of up to 100 people, 3 restaurants and a spa operation.

Banyan Tree Resorts, Seychelles

TRL has also 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 are expected to be completed in early 2002 under the Phase I
program.

3.2 Marketing and Competition

3.2.1 Marketing

Review of the Sales and Marketing Plans

All of the Laguna Phuket Hotels & Resorts Plc. 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 the hotel’s plans
to achieve the budgeted levels of income. The plans all include
statistics showing month-by-month comparisons to prior year and a market
segmentation analysis. A summary of the various plans is as follows:

-   All of the hotels plan for continued growth in 2002.

-   We have been tracking negative occupancy trends throughout the year,
    with a substantial fall-off noted in the low season, long before the
    events of 11^(th) September. The reduction has been offset by an
    increase in average room rate of 20% across the resort. Sharp
    reductions in occupancy during a time of rate growth may not be
    coincidental, and we are working with each of the hotels to ensure
    that their sales and marketing positions are optimized.

-   The 2002 budgets have been set at a currency exchange level of Baht
    45 to US$1.

-   Approximately 80 percent of our room revenue is now settled in hard
    currency.

-   There are three market segments (geographic), which do not currently
    settle in hard currency. These are Thailand, Australia, and Japan.

-   We had planned to try to convert Australia to hard currency in 2001
    but market conditions were not conducive. It is expected that these
    three markets will remain in Baht for the time being.

-   The Sheraton and the Dusit completed the balance of their room
    upgrade in 2001. LBR has 60 more rooms to complete which will be
    completed in 2002.

-   Both the Sheraton and the Dusit appear to have suffered by trying to
    reduce their reliance on wholesale operators in favour of higher
    rated FIT business. Their marketing plans for 2002 address this
    issue, and revert to a firm relationship with wholesale tour
    operators as their core business, with MICE (Meeting, Incentive,
    Convention and Exhibition) as an important low season segment.

-   The very successful “Laguna Plus” low season campaign (selected
    agents in key feeder markets) will be continued and spread even
    further in 2002. This program is managed centrally but directed by
    the directors of sales.

-   The destination marketing budget is put together by the directors of
    sales and marketing together with the destination marketing staff to
    promote Laguna Phuket as a destination.

-   We are addressing a new threat to our rate integrity as we go
    forward. Discounted rates are appearing on the internet for all of
    our hotels, often lower than our own website rates. Our Destination
    Marketing division is now tracking these, and issues a report to the
    hotels monthly. The culprits appear to be inbound tour operators
    selling on their rates to hotel booking sites. In most cases this is
    contractually forbidden, but hotels have turned a blind eye in order
    to book the business. We see this as a short-sighted approach and
    plan to curtail the practice as a joint effort.

  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 market – 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 and effective advertising campaign to develop the market
    segments targeted.

-   Establishing close relationship with various government
    organizations and bodies.

-   Implement a customize 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 where the
  organizers normally deal directly with the hotels.

  Source of Bookings

  Local Travel Agency & Tour Operators 10%

  Domestic Wholesalers 15%

International Wholesalers 45%

Airlines 20%

  Corporate accounts & governments 5%

  Direct Bookings 3%

  Overseas Travel Agencies 2%

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 18%

  Hong Kong 8%

  Korea 8%

  Taiwan 4%

  Southeast Asia

  Thailand 12%

  Singapore 6%

  Malaysia 2%

  Other Asia 3%

Europe

  UK 8%

  Switzerland 6%

  Germany 8%

  Italy 2%

  France 1%

  Australia/New Zealand 6%

  USA/ Canada 5%

The following table shows the nationality of the major countries for
tourist arrivals in Phuket.

  TAT Statistics: Guest Arrivals at Accommodation
  Establishments in Phuket for the nine months ended 30 September 2001

  -------------------------- ------------------------- ------------------
  Nationality                Total                     %

  Thai                       712,324                   25

  Taiwan                     321,412                   12

  UK                         185,495                   7

  Germany                    159,342                   6

  Sweden                     132,154                   5

  Japan                      118,971                   4

  Malaysia                   92,130                    3

  Italy                      84,631                    3

  Australia                  82,441                    3
  -------------------------- ------------------------- ------------------

  The difference between the tourist arrivals in Phuket and the
  geographical origin of guests staying at Laguna Phuket reflects the
  micro-market of Laguna Phuket which attracts guests from the more
  affluent markets due to its five star product.

  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 |
|             |        |        |        |        |        |        |
|             | 1996   | 1997   | 1998   | 1999   | 2000   | 2001   |
+-------------+--------+--------+--------+--------+--------+--------+
| Occupancy   | 72     | 71     | 81     | 75     | 79     | 69     |
| (%)         |        |        |        |        |        |        |
+-------------+--------+--------+--------+--------+--------+--------+
| Average     | 3,162  | 3,506  | 4,159  | 4,801  | 5,811  | 6,972  |
| Room        |        |        |        |        |        |        |
+-------------+--------+--------+--------+--------+--------+--------+
| Room        | 6      | 7      | 1,0    | 1,0    | 1,4    | 1,5    |
| Revenue*    | 78,513 | 50,373 | 07,643 | 99,115 | 13,317 | 14,935 |
+-------------+--------+--------+--------+--------+--------+--------+
| F&B         | 4      | 4      | 7      | 6      | 7      | 7      |
| Revenue*    | 50,301 | 90,051 | 09,389 | 78,736 | 78,704 | 29,040 |
+-------------+--------+--------+--------+--------+--------+--------+
| Total       | 1,2    | 1,3    | 1,8    | 1,9    | 2,3    | 2,3    |
| Revenue*    | 46,631 | 02,477 | 35,370 | 38,169 | 28,378 | 75,774 |
+-------------+--------+--------+--------+--------+--------+--------+
| GOP*        | 5      | 5      | 9      | 9      | 1,2    | 1,2    |
|             | 29,090 | 46,854 | 34,357 | 81,131 | 40,601 | 73,730 |
+-------------+--------+--------+--------+--------+--------+--------+
| GOP (%)     | 42     | 42     | 51     | 51     | 53     | 54     |
+-------------+--------+--------+--------+--------+--------+--------+

The Phuket Situation

  The situation in Phuket as a whole must always be viewed in the light
  of the differences between Phuket’s overall market and the Laguna
  Phuket competitive set. The statistics below from the Tourism
  Association of Thailand, however, provide an overall perspective:

TAT Statistics: Phuket historical Supply and Demand

  ------------- ----------- ----------- ----------- ----------- ----------- -----------
                1995        1996        1997        1998        1999        2000

  ARRIVALS                                                                  

  No. of        2,031,730   2,005,485   2,401,631   2,660,420   3,083,208   3,459,573
  Arrivals                                                                  

  Growth %      11%         (1.2%)      4.8%        10.8%       15.9%       12.21%

                                                                            

  INDUSTRY                                                                  

  Room                                                                      
  Inventory                                                                 

  Room Supply   18,454      18,902      18,959      17,952      20,150      19,574

  Room Nights   6,754,164   6,899,230   6,938,994   6,570,432   7,374,900   7,164,084

  Growth #      375,220     145,066     39,764      (368,562)   804,468     (210,816)

  Growth %      6%          2.2%        0.6%        (5.3%)      12.2%       (2.9%)

  Room Demand                                                               

  Room Nights   4,172,772   3,805,615   3,747,057   3,868,013   4,675,687   4,809,966

  Growth #      738,107     (367,157)   (58,559)    120,957     807,673     134,279

  Growth %      11.7%       (8.8%)      (1.5%)      3.2%        20.9%       2.9%

                                                                            

  Occupancy     61.95%      55.16%      54.00%      58.87%      63.40%      67.14%
  ------------- ----------- ----------- ----------- ----------- ----------- -----------

Source: TAT Region 4

  TAT Statistic Department

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, and Laguna Phuket now has its own Hospitality
Lounge at the airport, which is gradually becoming an important
reception center for our guests.

  ------------------------------- ------------------- ------------- ------------
  TAT Statistics : Domestic                                         
  Tourism in Phuket                                                 

  Type of Data                    January-September                 

                                  2001                2000          Variance

  Visitor                         1,946,807           1,782,413     9.22

  Thai                            535,351             479,068       11.75

  Foreigners                      1,411,456           1,303,345     8.29

  Tourist                         1,880,743           1,719,800     9.36

  Thai                            503,928             449,157       12.19

  Foreigners                      1,376,815           1,270,643     8.36

  Excursionist                    66,064              62,613        5.51

  Thai                            31,423              29,911        5.05

  Foreigners                      34,641              32,702        5.93

  Average Length of Stay (Day)    5.07                4.93          -

  Thai                            4.13                3.99          -

  Foreigners                      5.41                5.26          -

  Average Expenditure                                               
  (Baht/Person/Day)                                                 

  Visitor                         3,477               3,409         1.99

  Thai                            2,350               2,348         0.07

  Foreigners                      3,904               3,799         2.77

  Tourist                         3,548               3,481         1.92

  Thai                            2,428               2,431         (0.15)

  Foreigners                      3,957               3,851         2.75

  Excursionist                    1,458               1,579         (7.63)

  Thai                            1,097               1,095         0.18

  Foreigners                      1,786               1,750         2.06

  Revenue (Million Baht)                                            

  Visitor                         34,630              30,192        14.70

  Thai                            5,088               4,391         15.87

  Foreigners                      29,542              25,801        14.50

  Accommodation Establishments                                      

  Establishments                  510                 344           48.26

  Rooms                           26,759              20,158        32.75

  Occupancy Rate (%)              60.19               63.72         (3.53)

  Average Length of Stay (Day)    3.67                3.31          0.36

  Number of Guest Arrivals        1,589,451           1,431,815     11.01

  Thai                            347,581             308,234       12.77

  Foreigners                      1,241,870           1,123,581     10.53
  ------------------------------- ------------------- ------------- ------------

  A significant threat to Phuket would be the reduction in the direct
  flights, which we have seen build up over the past few years. We have
  so far learned of a reduction in some schedules as temporary measures,
  but we will need to be alert to changes in the worldwide airline
  industry and its consequent affect on us. So far, the message that
  Phuket is still a viable route in favour of others seems to be
  prevailing.

  The provision of a new level of government in Phuket known as Or Bor
  Jor entitled to levy its own taxes has taken place. These taxes have
  created the usual flurry of furor with our travel partners. Our
  contracts all allow for the imposition of local taxes and the hotels
  need to handle this with care. We need to support the local industry
  associations to ensure that these taxes are wisely spent to benefit
  tourism.

  There has been little further talk about Phuket becoming a major IT
  centre or “Cyberport”. The subject of a Provincial Convention Centre
  is aired more regularly with the latest situation at Mai Khao being
  considered. However this is unlikely to be a viable location.

Competition

  There continues to be plenty of discussion about hotel activity in our
  market segment. The only sure thing is the new JW Marriott which
  opened at the end of this year. Trisara has seen further delays,
  although there has been some construction activity again recently.
  However, completion would be well over twelve months away.

  Four Seasons and Intercontinental are reasonably serious suitors, with
  sites under negotiation. There has been no further activity that we
  are aware of regarding the Peninsula site which was previously
  scheduled to be bought by Shangri-La.

  There has been a lot of activity in the three star sector with many
  new hotel rooms (estimated at 1700 for 2001), both as additions to
  existing facilities and new builds. Most of these are south of Patong,
  but their presence in the market place influences the overall
  perception of the island.

Pricing Strategy

  The Laguna Phuket hotels continue to work together on pricing. There
  are healthy discussions between hotels on rate advantage, but results
  seem to bear out the fact that our pricing tiers are being maintained
  and we are able to grow our rates in the overall marketplace. The
  situation over the past five years is as follows:

Laguna Phuket

  ---------------------- -------- -------- ------- -------- -------- --------
                         1996     1997     1998    1999     2000     2001

  Average Room Rate      3,162    3,506    4,159   4,801    5,811    6,972
  (Baht)                                                             

  Annualised Exchange    25       31       41      38       41       45
  Rate. Baht : US$                                                   

  US$, or ‘High Street’  127      113      101     126      133      155
  price                                                              
  ---------------------- -------- -------- ------- -------- -------- --------

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

[TABLE]

  ADR = Average room rate

  Revpar = Revenue per available room

Three Year Outlook

  Unquestionably the coming high season (December 2001 to March 2002)
  will be a critical one for Laguna Phuket. Our earlier concerns in
  regard to the fall off in occupancies may not have been borne out, but
  there remains considerable risk until we have secured a healthy
  extended period of good business. Our feeling at the moment is that
  revenues in 2002 could be at the 2001 level, but there is ample
  opportunity for a major rebound in 2003.

  With limited extra supply planned in our competitive set for Phuket in
  the near future, we could anticipate that barring further external
  problems we should continue to enjoy good business in the coming three
  years.

  Thailand will continue to be seen as good value for money and we
  should continue to expect good business levels once the world
  situation returns to normal.

Rights and constraints in Business

BOI Priviledges – None

Other Priviledges – None

Constraints in Business – None