BREWER Scottish & Newcastle is expecting to raise a glass to improved annual profits at its UK business - helped by better than expected market conditions in the pub trade.

S&N said it expected this year's operating profits in its UK beer division to be slightly ahead of last year's £148m.

It said conditions in the first half - covering the six months to June 30 - had been slightly better than anticipated, although pricing pressures in the off-licence trade were continuing.

The group, which recently announced the closure of its Fountainbridge and Tyne breweries, in Edinburgh and Newcastle, with the loss of nearly 300 jobs, said that faster than expected efficiency improvements had also helped.

S&N has seen its UK brands business enjoy good trading conditions since January, led by upbeat performances from Foster's and Kronenbourg 1664 lagers.

It said overall trading in the first six months of the year in all its key businesses had been better than the same period last time, when sales were affected by the impact of the Iraq war on consumer confidence.

"We are well positioned for further growth in 2005," the group said in a trading update. It did not provide details of the impact of the Euro 2004 football tournament on sales.

S&N is now focused on its brewing in the UK and continental Europe following the sale of its managed pubs for £2.5bn.

As well as its UK operations, the group has market-leading positions in 12 other European countries and an interest in 50 breweries around the world.

It said the Scottish Courage supply chain performance had greatly improved against the same period last year. Volumes and market share benefited from increased marketing and sales support on key brands.

S&N expects cost savings in the order of £60m a year from the UK business by 2006 as a result of its restructuring measures, compared with previous estimates of £45m.

Will Maydon, assistant director at Wise Speke, attributed much of S&N's success to the wide-ranging changes implemented by chief executive Tony Froggatt.

Mr Maydon said: "He is not going to be able to turn this company around in five minutes, but he is making some major changes and some major board alterations.

"My feeling is that this guy is really getting hold of the business - everything seems to be on track at this stage."