SCOTTISH & Newcastle has seen its decision to concentrate on the brewing side of its business vindicated after posting an eight per cent rise in half-year profits.

Growth in all its key beer brands over the hot summer helped the group, based in Edinburgh, to increase its turnover in the brewing sector by 21 per cent to £2.5bn.

S&N is also poised to gain a greater presence in the emerging markets of Eastern Europe after unveiling plans to sell premium lagers Kronenbourg and Foster's to drinkers in Russia.

Chief executive Tony Froggatt said disruptions in the supply chain that hit profits last year had been ironed out and the company was planning to cut its £180m operating costs by 25 per cent within three years.

S&N posted pre-tax profits of £316.3m in the six months to October 26, with a 17 per cent increase in turnover to £3.03bn.

Although the £2.5bn sale of S&N's 1,400 pubs, restaurants and lodges to venture capital-backed Spirit has yet to arrive on the balance sheet, the company said it had already taken steps to cut debt, which stood at £4.17bn at the half-year stage.

Mr Froggatt said trading for the eight months to December was in line with expectations.

He said: "In 2004, we anticipate reasonable market conditions, although consumer confidence remains fragile, and the summer season in Western Europe is unlikely to be as buoyant as this year."

Sales of Foster's were ahead nine per cent in the period, while Newcastle Brown volumes rose 12 per cent and there was ten per cent growth in sales of Strongbow, which it purchased in August as part of a takeover of cider maker Bulmer.

l Shareholders at Punch Taverns have finalised a near £1.2bn deal for rival Pubmaster.

The company yesterday assured staff and licensees that it was business as usual, but everyone will be watching how the two firms work together.

Punch's £1.193bn move for the Hartlepool-based tenanted group will create a company with an estimated 7,700 outlets.

Giles Thorley, chief executive of Punch, has written to staff asking them to remain focused on the business during the forthcoming festive period.

Up to £15m has been earmarked for investment in the Pubmaster estate