Highlights of the year

First run of the TP400 engine for the Airbus A400M

Following a successful concept-demonstrator phase, the JSF F136 System Development and Demonstration contract was awarded

Successful Trent 1000 fan rig test for the Boeing 787

First flight of the Trent 900 in the Airbus A380 aircraft achieved in April

Two new University Technology Centres opened in Norway and Germany

Completion of the ANTLE (Advanced Near-Term Low Emissions) demonstrator

Record number of 306 patents filed

The ability to innovate is at the heart of our business and is the means by which we maintain our world-class position. We continue to invest significant amounts in research and development. These deliver new and improved technology, lower costs and better aftermarket services, on new and existing products across their lifecycle.

In 2005 we invested £663 million (gross) in research and development, an increase of 10 per cent on 2004. The net charge to the income statement was £282 million.

The markets in which we operate are exceptionally challenging. Customer expectations are increasing, which combined with growing environmental pressures, causes us to drive our technology forward.

In 2005 we made significant technological strides towards meeting the environmental challenge. One example is the completion of a 30-hour test programme in May for the ANTLE engine, successfully demonstrating a number of environmentally friendly technologies in a European collaborative project. The demonstrated technologies from ANTLE will be rolled out across our products in the coming years.

We have continued the product development of the high efficiency solid-oxide fuel cell programme for the energy business, with a number of successful rig tests forming the building blocks for sub-assembly demonstration in 2006.

For some years our University Technology Centre network has been key to our research work. In 2005 we further strengthened this global network by opening two new centres - one in Cottbus, Germany, researching structural mechanics and vibration, and the other in Trondheim, Norway, covering ship performance.

Amongst our many research achievements, we filed a record 306 patent applications.

We have continued to develop our engineering tools for use on all our projects. One key aspect to this work has been the progressive rollout of Product Lifecycle Management (PLM), a computer-system tool that significantly increases our design capabilities and then enables us to manage data cost effectively throughout the product lifecycle.

We have continued to build on the success of the Trent family. The Trent 900 is gaining maturity during the intensive Airbus A380 flight-test period and the Trent 1000 for the Boeing 787 is progressing towards its engine-test programme.

Our marine business saw the Trent 800-derived MT30 running in the land-based DD(X) demonstrator and a novel 50kW rim-driven tunnel thruster, which we believe will have a major impact on marine propulsion systems.

In the defence aerospace sector, the multi-partner TP400 engine for the Airbus A400M made a successful first run in October. Excellent progress continues to be made on our Joint Strike Fighter (JSF) programmes with the LiftFan® being developed to support the first STOVL aircraft flight in 2007 and the completion of the successful F136 concept-demonstrator phase leading to the award in August of the System Development and Demonstration contract worth around US$1 billion to Rolls-Royce.

In 2006, we will continue to build on our proven strategy of 'invest once and use many times' at both the technology and product level.