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
121 exclusive villas, 50 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 Hotelbrands Management 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 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
Hotelbrands Management Pte. Ltd. (formerly Banyan Tree Hotels and
Resorts Pte. Limited), opened in 1993. The units in this resort have
been sold to the public and Laguna Resorts & Hotels plc. no longer owns
this resort.

  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 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 34 outlets worldwide, twelve are
  located within the Laguna Phuket hotels and Canal Village shopping
  center. In addition there are three outlets at the Banyan Tree hotel
  in Bangkok and one at the Panwaburi resort in Phuket.

  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 the Angsana Resort & Spa 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
Laguna Residences 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 Laguna Residences
which is a “house and land” package that was introduced during 2001.
Laguna Townhomes, a new development was introduced in the last quarter
of 2002. This is a development of approximately 40 Townhomes adjacent to
the golf course. Condominium and villa investors in the Allamanda and
Banyan Tree Phuket 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

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.

Overseas Investment in Hotels and Resorts

Laguna Resorts & Hotels Public Company Limited invests overseas through
Tropical Resorts Limited (“TRL”) which operates luxury resorts largely
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 a concession granted by 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 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 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 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
were completed in early 2002 under the Phase I program and opened in
February 2002.

3.2 Marketing and Competition

3.2.1 Marketing

Review of the Sales and Marketing Plans

All of the Laguna Phuket Hotels 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 provide
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 :-

-   We have generally been observing negative occupancy trends
    throughout the year. Unlike the previous year, the hotels have
    reacted swiftly to changing market conditions, and have not set
    Average Rate targets which show huge increases on prior year.

-   All budgets were set at a currency exchange level of 43 baht to 1
    dollar.

-   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.

-   The room product is in exceptional condition. We await an
    improvement in overall performance of the hotel to upgrade the
    lagoon villas at Sheraton, which remain the only product currently
    in need of some investment.

-   We continue to assert to the individual hotels’ management that we
    should concentrate on our core business of wholesale leisure. We
    have seen the negative effects of veering from this course in the
    past, and we are happy to report that both Dusit and Sheraton have
    reacted to this in their plans.

-   The very successful “Laguna Phuket Plus” low season campaign will be
    continued and spread even further in 2003. 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 .

  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 9%

  Domestic Wholesalers 1%

International Wholesalers 65%

  Corporate accounts & governments 13%

  Direct Bookings 11%

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 11%

  Hong Kong 10%

  Korea 88%

  Taiwan 5%

  China 2%

  Russia 2%

  Southeast Asia

  Thailand 4%

  Singapore 3%

  Other Asia 3%

Europe

  UK 13%

  Switzerland 4%

  Germany 5%

  Italy 2%

  France 1%

  Australia/New Zealand 8%

  USA/ Canada 6%

Others 13%

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 |
|             |        |        |        |        |        |        |
|             | 1997   | 1998   | 1999   | 2000   | 2001   | 2002   |
+-------------+--------+--------+--------+--------+--------+--------+
| Occupancy   | 71     | 81     | 75     | 79     | 69     | 64     |
| (%)         |        |        |        |        |        |        |
+-------------+--------+--------+--------+--------+--------+--------+
| Average     | 3,506  | 4,159  | 4,801  | 5,811  | 6,972  | 6,831  |
| Room        |        |        |        |        |        |        |
+-------------+--------+--------+--------+--------+--------+--------+
| Room        | 7      | 1,0    | 1,0    | 1,4    | 1,5    | 1,4    |
| Revenue*    | 50,373 | 07,643 | 99,115 | 13,317 | 14,935 | 17,589 |
+-------------+--------+--------+--------+--------+--------+--------+
| F&B         | 4      | 7      | 6      | 7      | 7      | 6      |
| Revenue*    | 90,051 | 09,389 | 78,736 | 78,704 | 29,040 | 55,805 |
+-------------+--------+--------+--------+--------+--------+--------+
| Total       | 1,3    | 1,8    | 1,9    | 2,3    | 2,3    | 2,1    |
| Revenue*    | 02,477 | 35,370 | 38,169 | 28,378 | 75,774 | 86,328 |
+-------------+--------+--------+--------+--------+--------+--------+
| GOP*        | 5      | 9      | 9      | 1,2    | 1,2    | 1,1    |
|             | 46,854 | 34,357 | 81,131 | 40,601 | 73,730 | 09,644 |
+-------------+--------+--------+--------+--------+--------+--------+
| GOP (%)     | 42     | 51     | 51     | 53     | 54     | 51     |
+-------------+--------+--------+--------+--------+--------+--------+

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.

Speculation continues on the provision of a Convention Centre for
Phuket, and the Government has announced a series of far-reaching
proposals to invest in the potential of Phuket as a foreign currency
earner. Phuket continued to see some growth in tourist arrivals although
the island statistics have little bearing upon the specialised market of
Laguna Phuket.

In the main, government in Phuket remains stable, and the infrastructure of the island continues to improve. Tourist organizations point to the lack of seats available on airlines, particularly on the longer haul markets to and from Europe as an area in need of attention, and this has been brought to the attention of the Tourism Association of Thailand and Thai Airways.

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 new Marriott opened in 2002 on Mai Khao beach.
  Trisara has seen further delays, although there is continuing
  construction activity : partial completion is expected by the end of
  2003.

  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. A new resort has been announced
  at Mai Khao by Asia Properties Inc., but this does not appear to be an
  internationally branded property.

  There is a lot more single home property development in the Laguna
  environs, as we continue to enjoy good sales in this sector.

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

  ---------------------- ------- -------- -------- -------- --------- --------
                         1997    1998     1999     2000     2001      2002

  Average Room Rate      3,506   4,159    4,801    5,811    6,972     6,831
  (Baht)                                                              

  Annualised Exchange    31      41       38       41       45        43
  Rate. Baht : US$                                                    

  US$, or ‘High Street’  113     101      126      142      155       159
  price                                                               
  ---------------------- ------- -------- -------- -------- --------- --------

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

  ------------- -------- ------- ------- -------- -------- -------- -------- -------- --------
                         1997    1998    1999     2000     2001     2002     5 year   3 year
                                                                             growth   growth

  Banyan Tree   ADR      6,971   9,761   10,956   13,452   16,279   17,585   152%     61%
  Phuket                                                                              

                Revpar   5,003   7,525   8,643    10,613   11,960   11,912   138%     38%

  Sheraton      ADR      3,665   4,472   4,754    5,701    6,422    5,600    53%      18%
  Grande Laguna                                                                       
  Phuket                                                                              

                Revpar   2,965   3,674   3,702    4,674    4,368    3,581    21%      -3%

  Dusit Laguna  ADR      2,569   2,774   3,555    4,506    5,251    4,912    91%      38%
  Resort                                                                              

                Revpar   1,724   2,320   2,623    3,395    3,395    3,093    79%      18%

  Laguna Beach  ADR      2,669   3,027   3,521    3,797    4,765    4,507    69%      28%
  Resort                                                                              

                Revpar   1,731   2,290   2,449    3,088    3,299    2,894    67%      18%

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

  ADR = Average room rate

  Revpar = Revenue per available room

Three Year Outlook

Unquestionably the coming year will be a difficult one for Laguna Phuket. The global tourism situation is going through is hardest time in decades. However, your management team is prepared, and poised to react to circumstances as they evolve.

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