MURRAY International Holdings plunged into the red in its last financial year because of (pounds) 12m of writedowns relating to its interest in Rangers Football Club - even though the David Murray metals-to-mining empire increased underlying profits by 86%.

Included within the write-downs, revealed yesterday in MIH's annual report for the 12 months to January 31, is a (pounds) 4.22m impairment of an effective equity stake of just 5% in Rangers which was bought in 2000 for (pounds) 9.3m. This points to a huge diminution in the value of David Murray's much greater personal holding in Rangers, and of the club as a whole, since 2000.

MIH also wrote down a soft loan to Murray Sports, which owns about 66% of Rangers and is also controlled by David Murray, by (pounds) 7.64m to about (pounds) 53m.

The writedowns pushed MIH to a (pounds) 2.38m pre-tax loss in the year to January - from a (pounds) 5.06m profit in the prior 12 months. Most of David Murray's holding in Rangers is through his 68% stake in Murray Sports, rather than MIH.

The accounts state the writedown of the value of MIH's 7.2% holding in Murray Sports, through which its effective 5% stake in Rangers is held, was determined in accordance with financial reporting standard 11. This requires assets to be stated at no more than their recoverable amounts, being the higher of net realisable value and value in use. Value in use has been chosen.

David Murray blamed the writedowns on ''the current downturn in the football market''. However, he added: ''It is my opinion that football sector values have been adversely affected on a number of fronts in recent years, but we are beginning to see a stabilisation not only in the finances at the club (Rangers), but also in the market in general.''

David Murray, chairman and an 82%-shareholder of Edinburgh-based MIH including family interests, enjoyed a whacking increase in salary from (pounds) 878,000 to (pounds) 2.6m during the year to January, assuming he is the highest-paid director.

MIH, which is involved in metals, property, mining, waste management, and private equity as well as in football, announced a 29% rise in operating profits to (pounds) 20.2m before exceptionals. Turnover from continuing and acquired operations was up 20% at (pounds) 266m.

A dip in borrowing costs, partly because of lower interest rates, enabled an 86% leap in underlying pre-tax profits to (pounds) 9.5m. However, MIH's overdraft jumped from (pounds) 52m to (pounds) 83m.

David Murray said progress had been made across the group, and expressed confidence this would continue during the current financial year.

He added that it was the fourth consecutive year in which there had been a ''substantial increase'' in MIH's operating performance.

Donald Wilson, finance director, said: ''We really are on a growth phase just now.''

Murray took the opportunity in his chairman's statement to express concerns that ''certain aspects of the operating environment within Scotland do not always lend themselves to supporting an enterprise culture.''

Murray, who is understood to be frustrated by red-tape including the planning process, was upbeat about Scotland having the basis to create a vibrant economy.

However, he added: ''While Scottish-based companies should not necessarily expect hand-outs or preference, they should at least receive equality of treatment to that afforded to inward investors.''

Noble Grossart owns 5.5% of MIH, and the merchant bank's owner, Sir Angus Grossart, sits on the MIH board.

MIH employs about 1900 people.

The leap in Murray's remuneration resulted mainly from a jump in pension scheme contributions from (pounds) 95,000 to (pounds) 1.82m. His pay and other benefits slipped from (pounds) 783,000 to (pounds) 776,000.