FAMILY-owned McMillan Hotels has remained in profit in spite of a dip in turnover amid challenging trading conditions.

Accounts filed at Companies House show the business, which runs hotels including the Peebles Hydro and Glenapp Castle in Ayrshire, reported a pre-tax profit of £29,212 in the 12 months to May 31, 2012.

That was down on the £1.25 million recorded the previous year although that figure included a £1.2m gain on the sale of surplus land.

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In the accounts the directors said: "Profitable performance is a noteworthy achievement given the exceptionally competitive market and the continued economic downturn."

In the most recent financial year, turnover dipped to £9.7m from £9.9m as overall customer numbers fell "slightly" with occupancy down 2.6%.

However, the business, based in Stranraer, Wigtownshire, said gross margins had held steady while there had been a 0.5% increase in how much each customer spent.

Douglas McMillan, director, said: "Margins were maintained, and costs reduced in line with the slight fall in revenue. Efficient management of the business saw the group record profits for the third year, despite the tough times being encountered throughout the sector.

"We have also been successful in reducing net debt, and we continue to look at ways of improving the business."

During the year there was a "significant refurbishment" of the ballroom at the 132-bedroom Peebles Hydro which followed on from a revamp of the public areas the previous year.

Those improvements are said to have boosted wedding, conference and events bookings, with the full benefits likely to be seen in the current trading period.

The company said it reduced long-term debt by £1.3m in the financial year while net debt was cut by almost £500,000 to £6.6m. Interest payments rose from £251,160 to £335,987.

The directors said: "Bank of Scotland continues to provide solid support to the business and has agreed banking facilities through to June 2013 on the strength of recent and projected performance."

Overall directors' emoluments fell from £250,910 to £245,498 although the highest paid saw their benefits rise from £88,301 to £92,126. Average employee numbers were down from 338 to 334 with staff costs dipping from £4.31m to £4.29m.

McMillan Hotels was founded when Hammy McMillan returned home to Stranraer from running his building business in Canada to open the North West Castle Hotel in 1962. In 1970 Mr Hamilton, a keen curler, made the North West the first hotel in the world to have an indoor curling rink.

The Cally Palace, in Gatehouse of Fleet, Dumfries and Galloway, was bought in 1981 and a golf course was added.

In the 1990s the business snapped up the Kirroughtree Country House Hotel in Newton Stewart, Glenapp Castle and Fernhill in Portpatrick.

In November 2004 there was expansion outside the south- west of Scotland heartlands when the Peebles Hydro and its sister hotel, The Park, were snapped up.