Heineken, the big Dutch brewing group, yesterday said first-half profit increased by 35% to �407m (about £325m) as the purchase of Scottish & Newcastle fueled growth amid tough trading conditions.

Heineken, the big Dutch brewing group, yesterday said first-half profit increased by 35% to 407m (about £325m) as the purchase of Scottish & Newcastle fueled growth amid tough trading conditions.

The company, which is the biggest brewer in The Netherlands, also said key brands inherited with the £7.8bn takeover of S&N had outperformed rivals in a weakening UK beer market. The S&N assets, which were divided between Heineken and Denmark's Carlsberg this spring, were included in Heineken's results from May 1.

Heineken said two of S&N's key brands, Kronenbourg 1664 and John Smith's, gained market share despite a 2.5% fall in the wider domestic market.The firm has faced increases in alcohol duty, rising costs for raw materials such as grains and hops and a weaker economy, but a strong performance in the UK and Switzerland offset declines in Italy, Spain and Holland.

Volumes of Heineken lager, the group's premium brand, rose 2.5% to 390 million litres, driven by France and the UK.

"We have maintained the momentum of our top-line growth and again ensured that the Heineken brand outperforms the market and increases its share of the international premium segment," Heineken's chief executive, Jean-Francois van Boxmeer, told The Herald in an interview from Amsterdam.

Rene Hooft Graafland, the beer group's chief financial officer, said the impact of the Scottish & Newcastle brands on Heineken's overall performance is "still small" but is expected to grow in the future. "We are progressing rapidly with the integration (of S&N)," he stated.

Graafland also said the group, which has about 4500 employees in the UK, is promoting S&N's Newcastle Brown Ale in the US, where it has carved out a section of the "craft beer" market.

Heineken also plans to sell Edinburgh-brewed Deuchers IPA in the Dutch market and promote Foster's, the Australian beer made under licence, in Europe. Graafland added that cider brands Strongbow and Bulmers showed "sustained growth" in the UK after continued spending on advertising and sales.

Heineken has cut 85 jobs from S&N's former Edinburgh corporate headquarters since the deal, with a further 38 staff working in interim posts.

The firm said input costs had risen by around 15% per 100 litres in the first half and are expected to remain at that level for the rest of the year - costs which it will continue to pass on to the consumer.

Heineken has employed hedges to compensate this year's raw material and packaging costs and has in place 50% of what is needed for next year, when it expects prices to rise by another 8%. "Heineken is managing to pass on raw material costs, which is important," said Nico van Geest, an analyst at Keijser Securities in Amsterdam. "Companies can raise prices, but the question remains what it does to volume. In Heineken's case, it is not too bad."

The company, whose other brands include Amstel and Tiger lagers, said overall beer volumes increased by 15% to 5.86 billion litres, driven by higher-growth markets in Africa, central and eastern Europe, and Asia.

The company announced it is going to pay a dividend of 0.28 a share, up 17% from last year.