A disappointing performance on the pub side had a bigger effect upon City sentiment towards Vaux than the positive outcome at Swallow Hotels.

The Sunderland-based company is in the throes of choosing a chief executive, with chairman Sir Paul Nicholson seeking to give up his day-to-day control of the business some time this summer.

In the half year to March 21, pre-tax profits were ahead by 8% to #16.6m, excluding the losses on the disposal of poorly performing pubs amounting to over #700,000.

Swallow was the star performer, with like-for-like profits ahead 14% to #12.2m and the 32-strong chain winning high marks in quality and customer surveys.

There are four Swallow hotels in Scotland - in Inverness, Glasgow, Dundee and Edinburgh.

Divisional director Peter Catesby said he reckoned that the hotel cycle had another 18 months to run before turning down - he added that he would not look at any of the 30 hotels Thistle has put on the market.

Last month, Swallow completed the #20m acquisition of the Manor Hotel to give it three properties in East Anglia, and these will cover its financing costs in the remainder of this year.

Sir Paul's younger brother, Frank, who is being passed over for promotion because of the family connection, said he was disappointed by the performance of the 180 managed pubs. These are facing increased competition in the North of England from Scottish & Newcastle and Bass, as well as from new entrants such as JD Wetherspoon, in a market that is showing little real growth.

Vaux is trying new concepts in its retailing such as Barcentro, which is aiming for business and shopping trade at lunchtime and a younger clientele in the evening.

The downturn in the return from the tenanted estate has now ceased. Meanwhile, the brewing and wholesaling side brought in just 7% of operating profits.

The interim dividend has been raised marginally to 3.85p

The shares eased 3p to 267.5p

See Comment