Waugh's business empire slips into red

The group, which incorporates Festival Inns and Morrisons Bookmakers, posted a pre-tax loss of just over 2 million for the 11 months to July 31, according to its maiden set of results filed with Companies House.

But the company claimed its underlying trading position is healthier than it first appears - saying that it owns the freehold of all but one of its properties - adding that the freeholds had "increased in value greatly over the years".

At bookmaker Morrisons, which operates 49 units across Scotland, pre-tax profits were up 23 per cent to 1.73 million in the full year to July 31, according to accounts filed separately.

Over the same period, Festival Inns - whose portfolio boasts pubs The Three Sisters, the new Cargo Bar at Fountainbridge and upmarket wine bar the Hudson as well as a chain of hotels including the Royal Ettrick - saw its pre-tax loss widen to 1.3 million from 821,000 in the previous year, its separate accounts showed. Turnover at the pubs and hotels chain soared six-fold to 12.5m.

Director Richard Spanner said trading was going well in the current year.

He was reported as saying: "The group is currently performing well and new units such as the Hudson Hotel in Edinburgh have added great value to the group. Like- for-like sales are three per cent up and growing steadily."

The company said in the statement that the directors believed it was "too early" to assess the full impact of the smoking ban, which was brought in four months before the end of Festival's financial year - but added its investment in the lead-up to the ban had had a "positive impact".

The group, which employs a total of 900 people, including 461 at its Festival Inns arm, clocked up a wage bill of 4.87m over the 11-month period. The directors were paid 185,655 over the period.

Turnover for the whole group hit 50.4m for the group, with the majority - 37.5m - generated by its bookmaking arm, while 10.6m came from the operation of hotels and public houses, which as well as Festival Inns, includes Raeburn House Hotel and a number of other subsidiary companies named in the accounts, including Festival Bars and Festival Nightclubs. A further 2.3m was brought in from rental income.

Administrative expenses, including a one-off exceptional charge of 1.6m, totalled 13.5m.

The company warned in the statement that the introduction of the Gambling Act in 2007 had led to some "uncertainties" with regard to acquiring further businesses and licensing requirements - which it estimated would cost the group up to 350,000 in the current financial year.

Festival Inns was launched in 1997, by Mr Waugh junior, who learned his trade from his father, Kenny Waugh senior, the owner of a number of bars in Edinburgh.

He later formed Thistle Inns, which was sold to brewing giant Scottish & Newcastle in 1997 and subsequently set up Festival Inns, backed by Clydesdale Bank and brewer Carlsberg.