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 18 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, the Trisara
  Resort and the renovated Hilton Arcadia.

Future Expansion of Hotels in Laguna Phuket 

  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 22 higher end Double Pool Villas that were completed in 2006
  have been well received, and there are plans to add a further 12
  Double Pool Villas in the next phase that will commence construction
  in the first half of 2007. All of the Double Pool villas are being
  sold to the public. Twenty two additional 2 bedroom pool villas will
  also commence construction in the first half of 2007 and these will be
  sold to the public.

  At the Dusit Laguna Resort 28 pool villas will be built during 2007
  and 2008 to provide a high end product for this hotel. These villas
  will be sold to the public.

  The design of a 7^(th) resort in Laguna Phuket on the last remaining
  beach site is being drawn up. This will be branded Angsana Phuket, and
  it is planned to commence construction in late 2007.

  Many of the hotel rooms have been renovated in 2006, with plans in
  2007 to complete the room renovation at the Laguna Beach Resort and
  commence the renovation of the rooms at the Dusit Laguna Resort to be
  completed in 2007 and 2008.

Future Expansion of Hotels outside Laguna Phuket 

  The Company will continue to look for opportunities to diversify its
  operations outside of Phuket and the purchase of the Banyan Tree
  Bangkok in 2005 and the investment in Banyan Tree Lijiang, which
  opened in 2006 and consists of 55 villa’s, is the first stage in the
  implementation of this strategy.

  The potential of expanding the Banyan Tree Bangkok has been started by
  adding a Japanese and Seafood restaurant which opened in 2006. Further
  expansion is currently underway by renovating existing office space
  into additional hotel suites and constructing a ballroom with
  additional meeting facilities. These projects will be completed
  throughout 2007 and into 2008.

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
  proven to be extremely popular to the extent that all projects
  developed to date have been largely 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 is a very strong area of
  growth potential for the group.

  In 2002, the Company acquired the assets of Laguna Development Company
  Limited (the Company was previously a 30 percent partner in this
  company) which has provided a further 1,146 Rai of contiguous land to
  Laguna Phuket. An integrated residential community called Laguna
  Village has been planned for this site and construction commenced the
  first half of 2006. Phase I of Laguna Village comprises of 49 Laguna
  Residences, 56 Laguna Townhomes and 36 Villas (a new product) and
  based on the current pace of sales phase I is expected to be sold out
  by the middle of 2007.

  In addition, we have two further “resort property sales” projects
  released in 2006 of the Double Pool Villas at the Banyan Tree Phuket
  (now completed) and the Pool villas at the Dusit Laguna Resort
  scheduled for completion in mid 2008. We will continue to identify
  further resort property sales projects given the popularity of this
  type of lifestyle product that also provides a good investment return.

  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 continues to perform very
  well, and we have regionalised the Laguna Holiday Club with another
  sales office in Bintan, Indonesia which opened in November 2005
  selling product in the Angsana Resort & Spa Bintan. A number of
  additional locations within the region will be considered in 2007 as
  we believe that with the quality of management and staff now in place
  that we have the foundation to expand this operation internationally.
  Additional sales offices in Chiang Mai and Cha Am will be opened in
  the first quarter of 2007, with the Pattaya sales office slated to
  open mid 2007. A sales office in Hong Kong later in 2007 will be the
  start of the planned international expansion which is expected to
  develop into People Republic of China in the next 2 to 3 years

  In Phuket, construction the 79 unit Laguna Holiday Club Phuket Resort
  was completed in 2006 and the resort opened in October. This resort
  provides a separate property dedicated to the members of the Laguna
  Holiday Club.

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. The future development for this company will be
  linked to providing estate management services to the growing number
  of residential property owners in Laguna Phuket.

  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 percent 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

  Canal Village remains fully occupied, 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 have built a Wedding Chapel in order to
  penetrate the lucrative weddings market, particularly from Japan. This
  was completed in late 2004 and commenced operations in early 2005.

  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 facility for Laguna
  Phuket. The name was changed from Banyan Tree Golf Club in 2003 to
  help identify the golf clubs 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

  In the last 5 years 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. This situation has changed since
  2005 whereby the Company has utilised its strong balance sheet to
  obtain debt to finance its purchase of Thai Wah Plaza Limited (Banyan
  Tree Bangkok) and the expansion projects within Laguna Phuket and
  Lijiang, People Republic of China. The cash generated by operations
  will be used to make the debt repayments.