RUSSIA’S growing thirst for lager helped Scottish & Newcastle, Britain’s biggest brewer, to overcome lacklustre conditions in Western Europe and book an 8.7 per cent rise in interim pre-tax profits to £163 million.

Strong growth in sales of Baltika, Europe’s second-largest beer brand behind Heineken, resulted in a sharp rise in profits at Baltic Beverages Holding (BBH), S&N’s Russian joint venture with Carlsberg of Denmark. Operating profits for the first half of the year at BBH increased by 32 per cent to £49 million as sales jumped by 24 per cent to £280 million.

Tony Froggatt, S&N’s chief executive, said that the performance of Baltika had been “nothing short of fantastic” in Russia, where drinkers are switching in droves from vodka to less alcoholic drinks.

The increase in sales at BBH lifted S&N’s turnover by 3.4 per cent to £1.88 billion in the first half, even as Western European beer volumes suffered a 1.9 per cent decline. The interim pre-tax profits did not include exceptional restructuring charges of £29 million but were adjusted to account for acquisitions and disposals.

S&N’s UK division increased operating profits by 11.1 per cent to £70 million, boosted by growth among brands such as Foster’s and Strongbow cider, but poor economic conditions and smoking bans in bars hit demand across the Continent.

Didier Lefèvre, the head of S&N’s Kronenbourg business, which has a 38 per cent share of the French beer market, said that it had been a “challenging first half in a difficult market”. The news helped to send S&N shares down 8½p to 459¼p.

M Lefèvre added that the outlook remained muted because of the difficulty in predicting an upswing in consumer spending. Volumes of Kronenbourg and Kanterbrau beers fell by 8.1 per cent and 11.7 per cent, respectively.

The flat conditions are forcing S&N to head east in search of growth. In addition to BBH, which paid a €100 million (£69 million) dividend to S&N and Carlsberg this year, the company owns major stakes in India’s United Breweries and the Chonqing Beer Company in China.

“The BBH business [in Russia] remains a key growth driver for Scottish & Newcastle,” Michael Bleakley, an analyst at Credit Suisse First Boston, said. Analysts at Merrill Lynch estimate that BBH may account for up to 21 per cent of S&N’s profits this year.

Growth at BBH has been marred by a row between the brewer and minority shareholders in four Russian breweries. S&N and Carlsberg plan to consolidate the majority stakes in the breweries but some investors are seeking to block them.

S&N said it was confident of meeting its goals for the full year, despite expectations that conditions in Western Europe would remain “challenging”.

THERE FOR THE BEER

34 per cent of all deaths in Russia over the past decade were alcohol related, according to the Russian Health Ministry. In the US in 1996 it was 3.2 per cent

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