Hello, and welcome to this Rolls-Royce Holdings PLC 2015 half year results fixed income conference call. Throughout this call, all participants will be in listen-only mode, and afterwards, there will be a question and answer session. Just a reminder, this session is being recorded. I'll now hand you over to the Group Chief Financial Officer, David Smith. Please begin.
Good afternoon or good morning. Let me just give you a summary of some of the key highlights, I think, of our presentation this morning. We did have a more difficult first half. It was a slower start, I think, as we'd indicated earlier in the year, and that effectively reflected the phasing that we will see this year on engine deliveries, product mix, and also R&D spending. The good news was our order book was up, and actually at record levels in both our Civil and Power Systems businesses at GBP 76.5 billion. That's a really good positive for the long term. Just in terms of some of the specifics, revenue at GBP 6.25 billion was down about 3% from last year, although that was mainly FX related. Profit was down more.
It was down about 30%. I'm going to come back in a second to some of the main drivers of that. Our free cash flow at GBP 576 million, although actually better than we'd originally anticipated, clearly was a drop versus what we delivered in the same period last year. We're still expecting to deliver a break-even or better result for the year on cash flow, so to recover that drop that we saw in the first half. Then finally, we did increase our dividend by 3% in line with our progressive dividend policy. Let me just go through some of those numbers in a little bit more detail now. Starting with our revenue.
As I said, our revenue at GBP 6.25 billion was down versus last year, but actually flat once we adjust for the effects of the stronger pound on translating foreign currencies back into sterling. Within that, we saw growth in aero services, actually some quite good growth at about 7%, but we saw a lower volume in our Land and Sea business, particularly around OE product in both Power Systems and Marine. Our profit, as I said, at GBP 439 on an underlying basis for the year, was down about 30% from last year, or GBP 218 million after adjusting for exchange. The biggest driver of that was trading margin.
Within trading margin, we saw significant volume effects, particularly engine mix in our Civil Aerospace business, volume and mix in our Marine business, also the fact that we took a GBP 30 million one-time charge for a contract that we don't expect to complete now in Marine. Adverse volume and particularly adverse mix in our Power Systems business. The other main factor that drove the reduction in profit year-over-year was higher net R&D charge to profits, which was a combination of higher spend and also a lower level of capitalization. We expensed as opposed to capitalized more of our R&D during the period. That just really reflected the timing of where various programs are in their capitalization profile. Let's turn now to cash very quickly. The GBP 439 million of profit, as I said, became minus GBP 576 million on free cash flow.
The biggest driver of that was working capital and primarily trade working capital, which was GBP 747 million negative. That included around GBP 400 million on net receivables/payables. We had a stronger close to the year last year, and that increased the level of payments out to suppliers in the first part of the half. Equally, with quite a few deliveries right at the tail end of the half, that built up our receivables, and that cash will come in the second half of the year. The other big driver was inventory. Part of that was planned in terms of preparation for higher deliveries in the second half of the year. Part of it was unplanned, which was a combination of some supplier shortages in a couple of our business units, but also the market conditions in Marine leaving us with more inventory.
We plan to reverse that inventory build in the second half of the year, if not do a little bit better than that. That's part of our plan, as I said, to get back to a break-even cash flow for the full year. Our financial strength is really important to us, and we are very focused on maintaining our investment-grade rating. One of the things that we did during the first half was to refinance, as many of you know, our revolving credit facility, and we increased that overall to GBP 1.5 billion. We also took the decision, which we announced back on July 6, to curtail our share buyback at GBP 500 million rather than continuing for the GBP 4 billion that we previously announced. This, in my view, was a prudent decision.
I'm confident that cash flows will improve significantly over time, but I want to make sure that we maintain the right level of liquidity in the business during the short term, especially as we will be facing some additional headwinds over the next two or three years, which I'm going to come back to in a second. Just talking about some of the individual businesses. Our Civil Aerospace business, as I said, had a record order book, which was strongly positive. We also saw good growth in our services business particularly, but we were impacted by quite a change in mix between more profitable linked deliveries on the Trent 700 and 900, which were replaced by Trent 1000 and XWB, which are unlinked and therefore on which we do not book in advance aftermarket profit.
In addition to that mix change, we also saw some weakness in business jets and also in the regional aftermarket in our smaller jet businesses as well. As I said, our overall aftermarket revenue was actually quite a strong positive for the first half, and we expect that to continue into the second half. Overall Civil profit, therefore, declined by about 40% against a revenue picture which was up a little bit. That's something that clearly was impacted very much by these mix changes and also some other factors as well, the higher R&D that I mentioned earlier, and lower utilization of some of our lease engines.
In the second half, we are expecting to book some further improvements in our long-term contract profitability, including releasing a provision that we've had or that we've been building since launch on Trent 1000 launch engines, that's going to be based on improved operating performance. We'll test that technically during the second half before we release that provision. Defense Aerospace had a relatively quiet, but a slightly overall positive quarter. We saw a little bit of volume drop, but that was primarily due to some supply shortages that we'll recover in the second half of the year. We've got very good order cover in the second half of the year. We're confident that we'll be able to deliver Defense at pretty much the same sort of result as we saw last year overall for the year. Turning now to Land and Sea businesses very quickly.
Power Systems, we did have a slow start to the year. That actually improved quite significantly as we went through the first half, we had a very strong May and actually a record June. Clearly for the two months, I can't say make a summer, it's absolutely true, I think, that Power Systems now has some momentum. Their order book actually increased by 12% during the quarter up to GBP 2.2 billion, that's a record level for them. I think we've got quite good confidence now based on those plans and the order book coverage to deliver a much stronger result in the second half of the year. That weakness in the first half did affect profitability as well, it was aggravated by the fact that within the lower volume, we also saw an adverse mix.
Some of that is going to be reversing again in the second half of the year. Marine was, as all of you, I'm sure, was still heavily affected by the difficult conditions in the offshore market, driven by the significant fall in the oil prices over the last year. That caused both a very weak order intake, order intake was down 46% and therefore our order book declined, also increasingly we're seeing deferrals of orders and therefore had an impact on revenue and weakness in the aftermarket. Profit fell sharply in Marine. In addition to the trading-related reductions, we also, as I mentioned a few minutes ago, took a GBP 30 million charge related to a contract that we don't believe will now complete. In addition, during the quarter, we did announce 600 redundancies during the first half, sorry.
We will probably make some further announcements on redundancies in the second half of the year, although that's contained within the guidance that we've given. Nuclear. Our Nuclear business is now separated out from Energy. That happened last year. We had a sort of quiet again, but relatively positive quarter with both revenue and profit up. I think they will also have a solid year this year. That really completes the overall picture. Our guidance for the year remains unchanged with the revised guidance that we gave on July 6th, and that's true at a segment level as well. The only segment level guidance that we had changed was for Marine, reflecting the trading conditions as I discussed previously.
It is going to be a challenging second half, but there are a number of factors I think that are very positive and will drive this. Firstly, continued service growth in Civil, building on that 7% growth in the first half of the year. We do expect higher engine deliveries, partly from recovery of some of these supply shortages, but also the ramp-up that's already planned in the second half of the year in the Civil business. We will have a somewhat lower R&D charge, and as I said, some significant impacts on profit from reversal of provisions that we've taken previously on the Trent 1000 engine and also improvements in TotalCare costs as well. In Land and Sea, a much stronger second half for Power Systems, as I described.
I think we have the momentum to deliver that now, and we've rebased the Marine forecast to give, I think, a very realistic picture for the balance of the year. That's 2015. We did also recap what we talked about on July 6th in terms of some of the headwinds that are facing us over the next two or three years, particularly the transition from the Trent 700 to the Trent 7000 engine as Airbus run out the A330 in its current form and introduce the A330neo from 2017 onwards. This is going to be a very difficult transition, as Airbus announced a big reduction, 40% reduction in February in their volume. This isn't just about volume. These are very tough commercial sales, and both ourselves and Airbus, I think, are finding that very difficult. We're also still in competition ourselves on the actual engine selection.
We are expecting, in addition to the volume drop, significantly weaker pricing on both the OE and the aftermarket on these sales, as well as a lower demand for spare engines. As we said to the market a couple of weeks ago, we think that's about a GBP 250 million impact overall for the Civil business in 2016 and indeed in 2017. Incremental to that, the weakness in business jet and regional aftermarket will increase that number to about GBP 300 million for Civil. We will continue to see, we believe, certainly through 2016, a fairly weak picture in the offshore market as well. It was important that we reiterated that. The impacts on cash won't be as severe because a lot of this is related to the nature of the linked accounting for the Trent 700, but still there will be some impacts on cash.
Overall, we should see cash conversion improve. I finished my presentation. Warren built on this by talking about some of the long-term trends. It is very important when looking at these period results to keep in perspective that this business is on a multi-year journey to actually transform itself, both in terms of its product portfolio and its industrial base. We have a GBP 76 billion order book. That is a record order book. We have a lot of very good long-term trends that will continue to drive both sides of the business. The embedded value as our Civil Aerospace large engine market share on an installed base moves up towards 50% is very significant in terms of the aftermarket revenues and cash and profits that that will generate.
We are continuing to invest in technology and in this major industrial transformation that I have described right across the business. Just to put this market share issue on widebody in perspective, it has taken us 30 years to get to this position. We are within five years of achieving it now. That is supported by our order book, which will deliver this. As I said, once we get to this kind of level of installed base market share in widebodies, we will be in a very strong position to continue to drive profitability in the aftermarket, which is one of Rolls-Royce's absolute key areas of expertise. In addition, the Trent XWB is an extremely important project for us. We are just beginning the deliveries on that program. It will be generating cash through the next 40 or 50 years.
When we think about that, the cumulative cash flow that we expect from that program is actually twice as great as the best ever program in Rolls-Royce's history, which is the Trent 700. In fact, as we get into the next decade, we will have both the Trent 700 continuing to be a strong cash driver on the aftermarket, but the XWB as well. Hopefully that is an overall summary of what we discussed this morning. We also discussed a little bit about Land and Sea. I probably covered that as much. I am sure you would like a bit of time to ask some Q&A as well.
Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you would like to ask a question, please press 01 on your telephone keypads. You can cancel at any time by pressing 02 on your telephones. That is 01 to ask a question and 02 to cancel. There will now be a brief pause while questions are being registered. Once again, just to remind you, if you would like to ask a question, please press 01 on your telephone keypads. You can press 02 at any time to cancel your question. There will now be a further pause while questions are being registered. Once again, if you would like to ask a question, please press 01 on your telephone keypads now. As we have no questions on the telephone lines, I will return the call to David Smith for closing comments.
Okay. Well, thank you very much for your attention today. I see that there aren't any questions, so hopefully that means that we did a reasonable job of going through that information. It is very important that we keep a strong level of communication with this group, and therefore I really value these calls. Hopefully that we can talk in the future. Thank you very much.
This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.