Festival Inns, the Edinburgh-based leisure empire owned by entrepreneur Kenneth Waugh, has posted a second successive annual loss. However, it says the pub smoking ban has been "on the whole positive".

Waugh set the company up in 1997 with backing from Clydesdale Bank and Carlsberg after netting £20m from the sale of Thistle Inns to Scottish Brewers.

It now owns nine bars in Edinburgh, including Cargo at Fountainbridge, Three Sisters in the Cowgate and Biblos in Chambers Street, and nine hotels, among them the Hudson at the west end, the Bank Hotel at the Tron, and the Murrayfield.

On the company's website, which also refers to bars, clubs and hotels in Bridge of Allan, St Andrews and Aberdeen, Waugh says the strategy is to cater for niche markets, adding: "I firmly believe the success of the business is due to the fact that each outlet we have opened has been carefully designed to have its own identity rather than being part of an obvious chain'."

According to the latest figures posted at Companies House, turnover was up from £12.6m to £17.9m, as part of a group restructuring exercise involving Festival Inn Properties, which saw employees rise from 461 to 576 and staff costs jump from £4.2m to £6m.

The group turned a £1m operating profit in 2005, but the following year slipped to an operating loss of £1.1m, which last year widened to a £1.5m deficit at both operating and pre-tax level, from a £1.36m pre-tax loss in 2006.

The last four years' accounts show aggregate pre-tax losses of around £7m, and debt rose last year from £22m to £23.8m.

The shareholder deficit almost doubled to £3.1m The loss before interest, tax, depreciation and amortisation was £1.15m, around four times the previous year's loss, which the directors say was "in the main due to finance fees relating to the formation of the (new) group". They admit that "continuation of bank facilities is related to the achievement of financial covenants".

On the pub smoking ban, they say it is too early to gauge the impact on the industry but one year on, the effect seems to be positive.