Morrison Bowmore Distillers enjoyed rocketing profits last year as it moved away from low-margin blended whisky business and focused more on its single malts.

The leap in pre-tax profits, to £2.65m in 2006 from just £154,415 in the prior 12 months, was also aided by a one-off gain of £1.39m arising from the closure of its final salary pension scheme to future accruals.

The buoyant earnings picture is in stark contrast to Morrison Bowmore's losses in 2002 and 2003, which prompted job cuts. The profit leap comes at a time when the Scotch whisky sector has been enjoying a strong run, with particular buoyancy in malts.

In spite of the boost to 2006 profits from the pension fund issue, a leap in the net deficit in the Glasgow-based company's final salary scheme from £7.13m to £15.35m during the year weighed heavily on the balance sheet.

Morrison Bowmore, known best for its eponymous Islay malt, closed its generous, non-contributory final salary pension scheme to new entrants on January 1, 2002. Its latest accounts, which have just become available from Companies House, report that the scheme was closed to "future accrual benefits" from September 30 last year.

The distiller, which was bought by Suntory of Japan in 1994, reports in its accounts that a full actuarial valuation of its pension scheme had been carried out at January 1 last year and had been updated to December 31 by a qualified independent actuary.

Morrison Bowmore says it was agreed that the ongoing contribution to fund the pension deficit would be assessed on a "solvency basis", placing a higher value on the liabilities than the "corporate bond basis" applied in its 2005 accounts.

It adds: "To reflect the ongoing funding of the scheme, and on grounds of prudence, the solvency basis has been adopted to assess the scheme deficit under FRS (Financial Reporting Standard) 17 at 31 December 2006. This reflects the agreement reached between the trustees and the company to wind the scheme up either within 10 years or over a reasonable period."

The accounts refer to "actuarial losses" of £15.88m relating to the pension scheme. These figure in its statement of total recognised gains and losses and, mitigated by a deferred tax asset of £4.76m, play the major part in driving the profit and loss account reserve in its balance sheet from a £31.5m to a £41.2m deficit during 2006 in spite of Morrison Bowmore's healthy earnings.

Explaining the one-off boost of £1.39m to 2006 profits arising from the pension scheme issue, Morrison Bowmore says: "At the end of 2005, the company was still providing a defined-benefit pension scheme and was therefore accruing for this future benefit within the FRS17 pension deficit. Now that the scheme has closed, these future benefit accruals have been reversed as a pension-scheme curtailment credit to the profit- and-loss account."

Setting aside this one-off gain, Morrison Bowmore, which enjoyed a 6% rise in group turnover to £31.6m while reducing its cost of sales from £17.59m to £17.46m, emphasises the significant improvement in its underlying performance.

It says: "Even without this non-recurring income, profit before tax is showing an improvement of £1.1m against 2005. The improvement in profitability is down to the firm's focus on moving away from low-margin blend business and concentrating on building our single malt brands. This is reflected in the performance of Bowmore, whose sales in 2006 continued to grow."

The distiller has made a significant strategic shift.

Chief executive Mike Keiller had, in the darker days of 2003, emphasised the company would not be reining back on the likes of supermarket own-label business. He told The Herald in December 2003: "We are going to try and focus and develop more business in that area. Essentially we have got, through our own and our parent company, surplus stocks of whisky for sale. We want to focus in on that area, to liquidate that, and turn it into good cash and, at the same time, develop some of our own blends as a by-product of that."

Morrison Bowmore subsequently exited an unprofitable supply contract with Safeway, now owned by Wm Morrison.

As well as Bowmore, the distiller's malts include the lowland Auchentoshan and the highland Glen Garioch. The company also produces the Rob Roy blend.

The accounts state the average number of employees in 2006 was 170, up from 164 in 2005. Aggregate payroll costs rose from £5.47m to £5.71m.

Directors' remuneration rose from £493,336 to £513,420, excluding compensation for loss of office paid in 2005. The emoluments of the highest-paid director rose from £286,371 to £295,985.

Net debt rose from £25m to £27m during 2006. Keiller was unavailable to comment on the results.