SCOTTISH & Newcastle is beginning to see the benefits of the Courage acquisition - thanks to the strength of the brands purchased - with

Foster's in particular driving forward profits.

In the half-year to end October, group pre-tax profits were up 15% to #225m and chairman Sir Alistair Grant said the

Scottish Courage subsidiary now has a position of real strength in the key products sectors of the beer market.

The one serious disappointment was the near #7m drop in the contribution from the Center Parcs holiday centres to #32m. However, that presented a sharply contrasting picture, with the UK ahead by 10% and occupancy rates of 93% while those in Europe, and in

particular France, retreated.

Chief executive Brian Stewart said that the renovated villages in Benelux were showing substantial improvement and added that Europe sees Center Parcs as a huge success. However, the figures were also depressed by currency factors.

S&N is investing about #150m this year developing its 1900 managed pub and restaurant estate. That is despite its having some trepidation that the High Street may become over-invested with excess capacity, although the losers will be the weaker players such as the regional brewers.

The pubs increased their profits by almost a sixth at #87m - helped by the buoyant south of England.

S&N is in the enviable position of having more pubs within the M25 than any other brewer - more than 800 outlets - and will find it easier to cover the costs of any national minimum wage than its competitors in lower wage areas.

The Scottish Courage brewing operations saw profits surge ahead by 29% to #115m with its margins precisely twice those at Whitbread which is showing the biggest market share growth to its current 15.6% compared with the 28% at S&N.

Whitbread is refusing to comment on whether brewing director Miles Templeton may lead a management buy-out of an asset which is worth perhaps #550m and sits uneasily within the increasingly retail oriented group.

S&N's Brian Stewart is concentrating the business ever more on his big six brands - led by Foster's - which account for 60% of total volume. Foster's increased by 18% and will benefit from the expected 25% rise in value of draught lager ales expected by 2002/2003.

However, the serious money will be in the premium draught lager sector where Whitbread is estimating a 69% leap in industry turnover and where selling prices are on average 15% higher than on the standard

product.

While the overall outlook for cask ale is dismal, with a fall of a sixth projected, the Scottish Courage John Smiths brand is gaining volume as the industry leader. S&N is combining the strengths of its beer brands with the branded managed houses such as Chef & Brewer, the Barras, Rat & Parrot and Tanners - with other new concepts being tried.

The tenanted estate will be reduced in size over the next few years from 700 to perhaps 350, and there should be no great difficulty in accomplishing this as the properties are of above average quality as S&N had to sell about 1250 pubs over the years to meet regulatory

requirements.

The Pontins holiday camp business saw a profits decline of almost half to just over #3m caused in part by the expense of upgrading and marketing. Five camps are being sold to leave 14.

Debt is continuing to fall with gearing at half time down 5% at 32.6% which gives S&N

substantial scope for acquisition - probably in Europe.

The dividend is being raised 10% to 7.93p. The shares rose 19.5p to 714.5p.

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