I am delighted to be able to report that Rolls-Royce performed strongly in 2006, despite the challenging business environment.

+19%
£705m

Underlying profit before taxation

+22%
29.81p

Underlying earnings per ordinary share

I am delighted to be able to report that Rolls-Royce performed strongly in 2006, despite the challenging business environment. I believe this proved once again the resilience of our business model and the effectiveness of our strategy.

The Group increased underlying profit before tax by 19 per cent and generated £491 million of cash whilst investing more in new markets, technologies, products and capabilities. As a result of this performance we are proposing to increase the payment to shareholders by ten per cent.

Our performance was achieved despite the continued weakness of the US dollar against sterling and in the face of significant raw material price inflation.

We are continuing to benefit from our pursuit of a consistent strategy over many years. Our businesses operate on long cycles and therefore generate returns over many decades, as evidenced by the sustained growth of our aftermarket services revenues. As a result, the Group is achieving a better balance between the investments required for future growth and the returns secured from past investments.

Rolls-Royce is committed to play an important and positive role with respect to climate change. Our gas turbines and diesels, whether used for aviation, marine or energy purposes, do, of course, produce carbon dioxide and other emissions. However, they also improve the quality of life enjoyed by people all over the world. The challenge for the industry and for Rolls-Royce is to ensure that society can continue to enjoy these benefits on a sustainable and environmentally friendly basis. Rolls-Royce has a strong reputation for engineering excellence as demonstrated by the continuing improvements in the efficiency of our engines and the resulting reduction in their environmental impact over the years. We therefore believe that we are particularly well placed to make a major contribution in this area.

There have been a number of Board changes over the year. Two of our non-executive directors, Amy Bondurant and Carl-Peter Forster, retired and I am very grateful to them for the outstanding contribution they have made to the success of the Group. Sir John Taylor will be retiring in May 2007 and I would like to thank him also for his advice and support over the period he has served on the Board. We expect to make additional appointments to the Board before the 2007 Annual General Meeting. In line with previous plans, Peter Byrom will, in 2007 stand down as the Group's Senior Independent Director and as Chairman of the audit committee but will remain on the Board. The Board is indebted to him for his very considerable contribution in both these roles.

I would like to thank the management and all our employees very much for another successful year. Their commitment has been outstanding. I should also pay tribute to my fellow directors for the support they have given to me personally and for their wider contribution to the Group.

Our business has been built on strong foundations: world-leading technologies; a competitive portfolio of businesses and products; and a dedicated and committed workforce. In 2006, we demonstrated again our resilience and I look forward to further success as we work to improve our positions in the long-term growth markets we serve.