IN spite of difficult markets, Rolls-Royce was able to raise its

profits by #9m in the first half of this year to #40m before tax helped

by increased efficiency.

Sales were #250m lower at #1500m. The aerospace market continues to be

sluggish although Rolls is winning its fair share of what small amount

of business there is around. Ninety per cent of the Boeing 757s

delivered this year and next contain Rolls' RB211-535 engines.

Rolls-Royce's current market share in civilian aircraft is around 18%

and it hopes to raise this closer to 30% with the help of its new

products. Interest has been expressed in its aeroengines by Saudi

Arabia, South Korea and Singapore.

Although passenger miles were up about 5% last year the airlines are

still mostly unprofitable and so are still not spending on new aircraft

and the spares market remains flat.

Demand on the military side continues to be weak but Rolls-Royce has

scaled down its operations to take account of the halving in the market

since the late 1980s.

Within the industrial division the company is seeing growing demand

for its low NOx burners in the US and has won its first power station

order, in Indonesia, for a new type of combined cycle gas turbine the

RB211. Further orders in South-east Asia are expected. This division is

seen as a steady and reliable profit contributor.

All three of Rolls' divisions were said by chairman Sir Ralph Robins

to be difficult, however there are some encouraging prospects for the

future. Good progress has been made with the Trent aeroengine. The Trent

700 engine will be in action at next week's Farnborough airshow.

Rolls-Royce also has many collaborative contracts around the world

such as its involvement with American manufacturers in developing a

replacement for the Harrier jump jet. It has also had a successful run

in the UK with its WR-21 marine engine, developed jointly with

Westinghouse, and destined for the US Navy.

Sir Ralph believes that the company's collaborations provide it with

''a very competitive platform'' for the second half of this decade. He

foresees a worldwide market for civilian aeroengines of around $300

billion and a military aeroengine market of $100 billion in the next 10

years.

The benefits of its three-year restructuring programme, which will see

a 6500 reduction in the workforce by next year, have yet to feed through

to the bottom line. Annualised cost savings of #100m-#150m are envisaged

eventually.

The balance sheet remains strong and the board has decided to maintain

the interim dividend at 2.0p. The profits were in line with City

expectations but even so the shares dropped 8p

to 180p, reflecting the company's cautious short-term outlook.