Rolls-Royce shares soared by over 10 percent after the company said it saw a gradual recovery in the civil aerospace market on the horizon after another dismal year for the airline industry, rocked by the war in Iraq and SARS virus outbreak.

Pre-tax profits rose by 71 percent to 180 million pounds (266 million euros, 340 million dollars) last year, the company said in a statement.

Underlying profits rose by 12 percent to 285 million pounds, boosted by cost cuts. But revenue dropped by 2.5 percent to 5.65 billion pounds.

Rolls-Royce shares surged 12.1 percent to 207.75 pence as investors responded positively to the results.

"Overall, this is a commendable performance from Rolls-Royce in a very difficult year," said analysts at Barclays Stockbrokers.

Rolls-Royce said it had reduced the impact on its business of a "recession" in the civil aviation industry by boosting revenues from post-sale services, which are now on a par with equipment sales.

Civil engine deliveries slumped by another 13 percent in 2003, having almost halved from a peak of 1,362 in 2001. They now represent only about 20 percent of the company's total sales.

Increased deliveries of military engines meant that deliveries across the group dropped by a more modest eight percent last year.

The value of the group's order book increased by 7.4 percent to 17.4 billion pounds.

"We have competed effectively in all our market sectors and the strong international market positions we have established have enabled us to maintain a substantial order book and continue to expand our service activities," said chief executive John Rose.

The company had also taken steps to cut costs and working capital, he said.

"In 2004 we expect increased profits and a further reduction in average net debt," Rose predicted.

The group said that "over time" it was optimistic of achieving a 10 percent return on sales.

"In civil aerospace the long-term trends for growth in air travel remain favourable," it forecast.

"Over the next 20 years we foresee a total market opportunity for new engines worth more than 500 billion dollars (390 billion euros), with a gradual recovery from the current depressed market starting over the next two years."

The results mark a strong turnaround for the 97-year-old firm, which no longer makes Rolls-Royce cars, now produced by BMW.

The aerospace giant saw pre-tax profits slump by 45 percent in 2002 as it felt the effects of the post-September 11 downturn in the civil aviation industry.

SPACE.WIRE