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
115 exclusive villas, 44 with jacuzzis and 71 of which have their own
swimming pools. This unique resort is further enhanced by the Banyan
Tree Spa offering massage, body and beauty treatments. The Banyan Tree
Phuket opened in May 1995 and is managed by Banyan Tree Hotels & Resorts
Pte. Ltd. The 14 Spa Pool Villas were completed and became available for
use during December 2001 and January 2002. The resort is positioned as
being one of the premier resort and Spa destinations in the Asia
Pacific.

  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. Dusit targets the
independent traveler segment from Europe in the high season and the
local regional market in the low season.

  Laguna Beach Resort

Laguna Beach Resort offers deluxe accommodation in 254 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. The resort targets the high end, family orientated market.

  Sheraton Grande Laguna Phuket

The Sheraton Grande Laguna Phuket is a 70 acre complex. The resort
opened in 1992 and offers 335 rooms and suites. It is a member of the
Starwood Luxury Collection, which comprises Sheraton’s most prestigious
hotels in the world. The Angsana Spa operates a facility within this
hotel. The resort targets families and independent travelers during its
high season and the corporate meetings customer segment and the regional
market during the low season.

  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.
The hotel targets the four star family market and tour operators.

  Laguna Phuket Facilities

  Laguna Phuket 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 Hotels &
Resorts Pte 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 managed by Sheraton
  Overseas Management Corporation.

  Canal Village

  Canal Village is a 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 over 40 outlets worldwide, thirteen of
  which are located within the Laguna Phuket hotels and Canal Village
  shopping center.

  Laguna Holiday Club

  Laguna Holiday Club (formerly known as 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, Sheraton
  Golf Villas and the Angsana Resort & Spa Bintan. Members also have
  access to some 3,600 resorts in 90 countries through a reciprocal
  arrangement with RCI.

  Laguna Property Sales

Laguna Property Sales currently offers for sale condominiums within the
Allamanda Laguna Phuket, Banyan Tree two-bedroom pool villas, and the
house and land packages of Laguna Residences and Laguna Townhomes. The
Group owns significant land both within and adjacent to Laguna Phuket
upon which it plans to construct future property developments. Investors
in the Allamanda Laguna Phuket, Banyan Tree Phuket, Laguna Residences
and Laguna Townhomes have the option to receive a return on their
investment by joining the hotel management scheme and renting their
properties to guests.

  Laguna Service Company Limited

Laguna Service Company Limited (“LSC”) is 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. In 2002, seven air-conditioned coaches were purchased
and operated by LSC to provide transportation for all Laguna Phuket
employees to and from work.

Laguna Chiang Rai 

  Located in the Mae Chan district of Chiang Rai province, northern
  Thailand, Laguna Chiang Rai is a land bank of 1,090 Rai. This project
  has been suspended.

Overseas Investment in Hotels and Resorts

LRH invests overseas through Tropical Resorts Limited (“TRL”) and TRL
Investment Limited (“TRLI”) which operates luxury resorts largely
throughout the Pacific Rim area and the 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 a concession granted by the Maldives Government.
  The hotel is 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 beachfront or garden villas, each with terrace and
  private garden.

  Maldives Angsana Resort and Spa

Maldives Angsana Resort & Spa is situated on the picturesque getaway
island of Ihuru, located at the North Male’ Atoll, a 20 minute speedboat
ride from the airport.

An existing hotel on this island was acquired in September 2000. It
operated under the existing premises 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 have 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. The resorts facilities include a spa,
swimming pools and a restaurant. Most of the rooms have been sold to the
public during 2003 and 2004.

  Banyan Tree Bintan, Indonesia

Banyan Tree Bintan is located at Tanjong Said on a secluded bay on the
north western tip of Bintan Island, Indonesia. 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 & 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, 3
restaurants and a spa operation.

Banyan Tree Resorts, Seychelles

A piece of land totaling 1,167,658 square meters located on Intendance
Beach on Mahe Island in Seychelles was purchased 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. 47 villas
have now been completed under Phase I and Phase II of the development.

3.2 Marketing and Competition

3.2.1 Marketing

Review of Sales and Marketing Plans

All of the Laguna Phuket hotels and business units 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 their plans
to provide the budgeted levels of income. For the hotels, the plans all
include statistics showing month-by-month comparisons to prior year and
a market segmentation analysis.

For the 2005 Budget, all budgets assume a conversion rate of 40 Baht to
1 US Dollar. Approximately 80% of our rooms revenue is in US Dollars. A
sensitivity analysis has been provided to show various scenarios in the
event the US Dollar exchange rate changes.

A summary of the hotel plans is as follows:-

a)  Hotel occupancies and average room rates, together with the
    resulting revenue per available room, are analyzed during the budget
    reviews on a month-by-month basis. Comparisons are carried out over
    the past five years, and in several cases this has meant substantial
    changes to the originally submitted budgets.

b)  We believe it is important to consider several years to provide a
    normalized comparison in the light of events in recent years such as
    Bird Flu, SARS, the Bali bombing etc.

c)  The hotels continue a high level of communication and cohesion in
    their Sales and Marketing approach. This has led to excellent
    flexibility and different reactions to changing market conditions.
    They continue to work together, but at the same time carve out new
    market segments. For example, Laguna Beach Resort has found a
    higher-end Korean group market which provides higher-yielding room
    and food and beverage revenue.

d)  The very successful Laguna Phuket Plus campaign can now be switched
    on and off in reaction to market conditions and provides an
    important delivery from regional markets in the low season.

e)  The Laguna Phuket centralized Destination Marketing meetings
    provides a platform for inter-hotel discussion and the formation of
    resort wide programmes. This year we held the first of what are
    planned to be annual awards in Bangkok for our major industry
    partners. It was well attended and enjoyed by the attendees whose
    support for Laguna Phuket was acknowledged during the event.

f)  The focus in 2005 will continue to be on the average room rate. The
    market has strengthened after years of crises, and we have the
    opportunity to move the rates back up. This longer term strategy has
    been adversely affected by the impact of the tsunami on travel to
    Phuket in the first half of 2005, but the underlying dynamics of
    Phuket as a holiday destination will enable us to deliver higher
    room rates in the longer term.

g)  There continue to be three markets which settle in Baht, namely,
    Japan, Australia, and Thailand.

h)  The lagunaphuket.com website has a ‘new look’ and we plan continued
    enhancements in 2005.

  Additionally, we have seen very strong performance from the Property
  Sales sector. We have enjoyed excellent demand in 2004, and current
  market conditions suggest that this is set to continue into the next
  year at least. We have diversified our product range to include Banyan
  Tree Two Bedroom Pool Villas and the soon-to-be-announced Grande
  Residences. Despite the excellent results, this sector is not without
  its challenges, and we will stay very close to market forces to ensure
  that we continue our leadership position.

i)  
j)  
k)  
l)  
m)  
n)  
o)  
p)  

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 markets – 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 an effective advertising campaign to develop the market
    segments targeted.

-   Establishing close relationship with various government
    organizations and bodies.

-   Implement a customized 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 by direct booking
through the internet.

  Laguna Phuket hotels are also very popular for MICE (Meetings,
  Incentives, Conferences and Exhibitions) where the organizers normally
  deal directly with the hotels.

  Source of Bookings

  Local Travel Agency & Tour Operators 58%

  Domestic Wholesalers 11%

International Wholesalers 9%

  Corporate accounts & governments 1%

  Direct Bookings 21%

Type of Customers

Leisure 90%

Meeting and conference 10%

  Geographic origin:

  Major markets of the hotels in Laguna Phuket are as follows: -

  North Asia

  Japan 7%

  Hong Kong 10%

  Korea 11%

  Taiwan 6%

  China 3%

  Russia 5%

  Southeast Asia

  Thailand 3%

  Singapore 3%

  Other Asia 2%

Europe

  UK 13%

  Switzerland 4%

  Germany 6%

  Spain 2%

  Europe other 2%

  Australia/New Zealand 4%

  USA/ Canada 4%

  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 |
|              |        |        |        |        |        |        |
|              | 1999   | 2000   | 2001   | 2002   | 2003   | 2004   |
+--------------+--------+--------+--------+--------+--------+--------+
| Occupancy    | 75     | 79     | 69     | 64     | 70     | 77     |
| (%)          |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Average Room | 4,801  | 5,811  | 6,972  | 6,831  | 5,748  | 6,036  |
| Rate         |        |        |        |        |        |        |
+--------------+--------+--------+--------+--------+--------+--------+
| Room         | 1,0    | 1,4    | 1,5    | 1,4    | 1,3    | 1,5    |
| Revenue*     | 99,115 | 13,317 | 14,935 | 17,589 | 03,004 | 05,789 |
+--------------+--------+--------+--------+--------+--------+--------+
| F&B Revenue* | 6      | 7      | 7      | 6      | 6      | 7      |
|              | 78,736 | 78,704 | 29,040 | 55,805 | 46,147 | 55,519 |
+--------------+--------+--------+--------+--------+--------+--------+
| Total        | 1,9    | 2,3    | 2,3    | 2,1    | 2,0    | 2,3    |
| Revenue*     | 38,169 | 28,378 | 75,774 | 86,328 | 57,718 | 82,227 |
+--------------+--------+--------+--------+--------+--------+--------+
| GOP*         | 9      | 1,2    | 1,2    | 1,1    | 1,0    | 1,2    |
|              | 81,131 | 40,601 | 73,730 | 09,644 | 15,911 | 05,583 |
+--------------+--------+--------+--------+--------+--------+--------+
| GOP (%)      | 51     | 53     | 54     | 51     | 49     | 51     |
+--------------+--------+--------+--------+--------+--------+--------+

 

The Phuket Situation

  Phuket continued to see some growth in tourist arrivals although the
  island statistics have little bearing upon the specialised market of
  Laguna Phuket. The improvements at the airport and the infrastructure
  of the road networks in Phuket are nearing completion, but as there
  are more and more cars on the island, there is already a further need
  for upgrade in many areas.

  At the airport, the advent of so many low cost airlines, Orient Thai,
  Air Asia, Nok Air, and Tiger Air has made the airport considerably
  busier, and can be credited with some of the extra arrivals during
  this year’s low season. During 2005, the runway extension should be
  completed, enabling direct access to flights to and from Europe.

  During 2004, Central Festival Shopping Mall opened offering a new
  level of shopping experience for our guests, and in 2005 JungCeylon
  will open its doors in Patong promising a similar environment.

  There has been some further talk about Phuket becoming a major IT
  centre or “Cyberport”. The subject of a Provincial Convention Centre
  is still under consideration, this time with a site on an island off
  Sapan Hin : however, we note that this is the fourth confirmed
  location for this project in the past few years, so we must await
  clarification, if any.

  The impact of the Tsunami on the 26^(th) December 2004 has had a
  dramatic impact, significantly reducing tourist arrivals to Phuket in
  the first quarter of 2005. We estimate that this will be short-lived
  with a return to normal business levels during the second half of
  2005.

Competition

  There has been some activity in the competitive set. The much-delayed
  Trisara Resort is now open, the Phuket Arcadia now flies a Hilton
  flag, but the Panwaburi upgrade to a Conrad is delayed and is now
  scheduled to re-open during 2005.

  Four Seasons are still in discussion, Intercontinental has earmarked a
  site in Patong, and other international brands visit the island
  regularly. There has been some further discussion about a large site
  close to Laguna Phuket: it has apparently been sold, but it is said
  that the buyer plans homes rather than a hotel.

  In Property, we continue to see a large number of smaller
  developments, the only single development of significant size being
  Gulu Lalvani’s Royal Phuket Marina. This is probably an effect of the
  legislation governing Development Licences and Environmental Impact
  Studies, the applications for which are far less onerous for smaller
  developments. Thus Laguna Property continues to occupy a niche, but we
  are aware that the market is becoming more price-competitive and we
  will constantly review our property prices.

Pricing Strategy

The Laguna Phuket hotels are working together better than ever on price structuring. The discussions inevitably follow the normal course of competitors, and we will need to maintain vigilance as we go forward to ensure maximum average room rates. The following chart shows the average room rate movements over the past 7 years:- 

Laguna Phuket

  ------------------- ------- ------- ------- ------- ------- ------- -------
                      1998    1999    2000    2001    2002    2003    2004

  Average Room Rate   4,159   4,801   5,811   6,972   6,831   5,748   6,036
  (Baht)                                                              

  Average Exchange    41.0    38.1    40.6    44.6    43.1    41.6    40.4
  Rate. Baht : US$                                                    

  Average Room Rate   101     126     143     156     158     138     149
  (US$)                                                               
  ------------------- ------- ------- ------- ------- ------- ------- -------

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

  ------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
                         1999     2000     2001     2002     2003     2004     5 year   3 year
                                                                               growth   growth

  Banyan Tree   ARR      10,956   13,452   16,279   17,585   17,639   18,368   68%      13%
  Phuket                                                                                

                Revpar   8,643    10,613   11,960   11,912   11,767   12,941   50%      8%

  Sheraton      ARR      4,754    5,701    6,422    5,600    4,393    5,164    9%       (20%)
  Grande Laguna                                                                         
  Phuket                                                                                

                Revpar   3,702    4,674    4,368    3,581    3,214    3,877    5%       (11%)

  Dusit Laguna  ARR      3,555    4,506    5,251    4,912    3,755    3,883    9%       (26%)
  Resort                                                                                

                Revpar   2,623    3,395    3,395    3,093    2,561    3,019    15%      (11%)

  Laguna Beach  ARR      3,521    3,797    4,765    4,507    3,653    3,710    5%       (22%)
  Resort                                                                                

                Revpar   2,449    3,088    3,299    2,894    2,534    3,007    23%      (9%)

                                                                                        
  ------------- -------- -------- -------- -------- -------- -------- -------- -------- --------

  ARR = Average room rate

  Revpar = Revenue per available room

Three Year Outlook

  After the 1997 economic crisis we have weathered the storms of the
  terrorist attacks on the USA and Bali, the Iraq War, the SARS crisis
  and Bird Flu and we are in the process of recovering from the damage,
  both physical and market-related, of the Tsunami which hit Phuket on
  26^(th) December 2004. As we plan for the future, we hope for the
  best, but must also plan for the worst, since it is reasonable to
  assume that there may be some more crises ahead.

  We estimate that we should be able to recover from the effects of the
  Tsunami in the second half of 2005 when we should see a good business
  climate in the hotels, and continuing good performance in other
  business units, particularly Property Sales and Laguna Holiday Club.

  For the hotels, we are seeing a gradual shift back to our traditional
  European season from December to March. There is a downturn in German
  arrivals, but a considerable upturn in Russian traffic. During the
  ‘low’ season, the hotels remain busy, but at a lower average rate.
  This is where the opportunity lies in the coming years. As mentioned
  earlier, one of the hotels has discovered a market in Korea which is
  not so rate sensitive. Such markets will be pursued by a growing
  supply in the Phuket market, but we are optimistic that Laguna
  Phuket’s brand awareness in the market will keep us ahead of the
  competition.

  In Property Sales, we have discussed the future in more detail in the
  Property Sales budget. Clearly this is a market which we view with
  care, and we must be vigilant for signs that demand has gone off the
  boil. For now, however, we can certainly continue through 2005 at
  similar levels to 2004, despite the Tsunami, and there is currently no
  reason to suppose that there will be any downturn in the following
  year, and we believe our prediction of a continuation of current
  levels during the next three years is supportable.

Rights and constraints in Business

BOI Priviledges – None

Other Priviledges – None

Constraints in Business – None