Thwaites, the Lancashire-based pub operator, has reported a “challenging” first half of the year as the National Living Wage and Brexit hit profits.

Turnover on continuing operations for the six months to 30 September was up 5% to £44m with operating profit of £7.4m up 6%. The company recorded a total pre-tax loss of £300,000 compared to a profit of £5.7m the year before.

Chairman Ann Yerburgh said that while the Brexit vote had not had any adverse impact on trading performance to date, the subsequent reduction in bank base rate to 0.25% and the market expectation of a prolonged period of low interest rates has had an adverse impact on the fair value of its interest rate swaps, requiring an extra £5.7m at the half year.

The group’s net debt also grew – to £34.9m, up from £29.1m last year) as a result of an increase in investment projects.

Yerburgh said returns on investments made last year, in particular the additional 30 bedrooms at Cottons Hotel & Spa in Knutsford, had helped to mitigate headwinds.

Sales growth in the pub estate was 5% in the first half of the year, with operating profits up by 4%. Yerburgh said the focus for pubs continued to be on improving the scale of food sales within the estate, adding letting bedrooms where possible and attracting quality tenants.

Eight pubs were sold as well as a piece of land for £1.4m, at valuations broadly in line with their net book values.

The group spent £2.3m on pub investment projects in the period, including extending and refurbishing The Bonny Inn, at Salesbury near Blackburn, together with major refurbishments at The George at Torrisholme, near Morecambe, and The White Boar, in Bury.

Thwaites is currently refurbishing The Royal, in Heysham on the Lancashire coast, adding 11 letting bedrooms and a large outdoor trading area. As previously reported, the company is also developing a new concept – Grill & Grain – at the former Boatyard Inn, near Blackburn, and undertaking a full-scale refurbishment of the Boot and Shoe, to the south of Lancaster.

Across its inns portfolio, sales were up 5%, aided by major refurbishment schemes at The Lion at Settle and The Toll House, Lancaster, which were completed in the second half of last year.

The group is currently converting a derelict property close to The Lister Arms, Malham, which it bought last year. It is being converted into The Lister Barn with an additional eight letting bedrooms, a communal area for families and large groups, and some staff accommodation, with an opening due this month.

The Crown Inn, Pooley Bridge, was also acquired last year and is currently under development to add 18 letting bedrooms, a riverside dining room and a roof terrace overlooking Ullswater.

Plans have been submitted for the complete renovation of The Beverley Arms, Beverley, with an opening due for late summer of 2017.

In the past month Thwaites has been named by Chester Council as the preferred partner to redevelop Dee House, a Grade II listed Georgian building which overlooks the amphitheatre in Chester.

In the Hotels & Spas division sales were up 7%. Operating profits grew 2% due to the impact of implementing the National Living Wage.

In August the building work started on a new 54 bedroom lodge, which is on part of the site at The Solent Hotel & Spa, Fareham. It is scheduled to open in time for Easter 2017.

The company said it had continued its accelerated programme to refurbish its bedrooms, completing 37 bedrooms in the half year.

Due to the impact of the interest rate swaps, the group reported a basic loss per share of 0.5p per share (2015: 7.2p).

Yerburgh said: “The first half of the financial year has provided us with good underlying growth in all areas of the business. During this period we have started work on a number of development projects that, once completed, should help the company continue to grow.

“Whilst the decision to leave the European Union has created some uncertainty in the financial markets, particularly around inflation and interest rates, we have a well invested business that is in a strong position to weather any further economic or political storms and take advantage of opportunities as they arise.

“We continue to develop a pipeline of potential freehold properties to acquire and hope to be able to add further properties to our portfolio in the second half of the year.”