Good morning, ladies and gentlemen, and welcome to the Bodycote results presentation. My name is Stephen Harris. I am the Group Chief Executive. On my right is Dominique Yates. He's our Chief Financial Officer. And somewhere at the back of the room is our new chairman, Anne Quinn. So let's look at the agenda here. It's in the same format as we normally do. I'm going to do the highlights. Then Dominique will come up and do a financial review. I'll come back and do the business review. And then we'll go to the summary and outlook. So without any further ado, these are the highlights. Now, a number of people have told me that we really need, when we do these things, to be a little bit more descriptive and use things like superlatives and adjectives. I actually decided I thought we should let the numbers speak for themselves.
I hope you agree. So they're not too bad. The revenue grew 14.9%. That's 9.6% at constant currency. 24% growth in headline profit. Return on sales up to 18%. Shouldn't be a surprise to anybody. Free cash flow of GBP 83 million. Then moving on to the business development, Classical Heat Treatment. We've continued with our operational improvements, something we've been doing for many years and will continue to do. We have invested in capacity pinch points. We'll talk a little bit about capacity issues as we go through here today. In our Specialist Technologies, we've continued to invest quite heavily, particularly in HIP Services, LPC, and S3P capacity. And you'll recall, of course, that earlier in the year we announced that we launched our Powdermet technologies. Coming to the dividend, so the final dividend that we are proposing is GBP 0.121. That brings the total dividend to GBP 0.174.
That's an increase of 10% year-on-year. Just to wrap it off at the bottom line there, we are issuing a special dividend today, well, when we get to recommend it to the AGM, of GBP 0.25. It was nothing last year. Okay. With that, I'll hand over to Dominique.
Thank you, Stephen. Good morning, ladies and gentlemen. Chart 6 here summarizes the group's financial results. Stephen's already referred to the revenue growth with its positive impact on headline operating profit and group margins. We also delivered, as a result, an additional 12.2p in headline earnings per share. Return on capital employed has climbed more than two percentage points to 19.3%. On top of that, the cash-generating capability of the group has been amply demonstrated, with almost GBP 40 million of net cash being generated in the year after we paid GBP 30 million of dividends and spent a further GBP 14 million on acquisitions. Chart 7 shows the (it's on the normal slide) showing the operating profit bridge. Once again here, we have more than covered the impact of cost inflation with price increases.
I should point out here that as we are potentially entering into a more inflationary environment, that's actually a good thing for Bodycote. Bodycote will tend to do better in an inflationary environment. The sites we acquired in 2016 contributed an additional GBP 3 million of profit on top of the contribution from 2016. These sites have integrated well into the business, and revenues are already benefiting from being part of the Bodycote network. There were no acquisitions in 2017 which contributed to the numbers. So the Doncasters acquisition that we made in December was right at the back end of the year, didn't contribute anything to the 2017 numbers. And I know a lot of you are interested in what the gearing is of the business, how much of our sales increase drops through into headline operating profit.
Well, if I strip out the impact here from new facilities, which typically will have lower incremental margins being the margin of the facility, and the same for acquisitions, and if I also allow for the GBP 8.4 million increase in the share-based payments cost that we incurred in 2017, which is an unusual increase because it's an increase on a relatively small figure from the previous year, then the drop-through that we achieved from the incremental sales was around 68%. Well, was 68% in 2017. So that is a reasonably strong result. And as we've previously forecast and told you, the foreign exchange translation benefit contributed a further GBP 6 million to operating profit growth. Chart 8 shows the ADE divisional performance.
To summarize, ADE enjoyed a much improved second half as it benefited from a pickup in U.S. onshore oil and gas revenues and also sequentially improving North American civil aviation revenues. As a result, margins also picked up to 23.5% for the full year. 9 shows the AGI divisional performance. 2016 acquisitions here, all of the 2016 acquisitions were in AGI and in Classical Heat Treatment. They contributed 5% to the revenue growth of the AGI division. But we also had very strong growth in emerging markets and good growth in Western Europe, which contributed to the overall growth of 13.1% at constant currency. Margins improved once again, continuing an unbroken sequence now of incremental margin gains year-on-year for the AGI division since 2010.
That's consistent with the group's strategy of improving the quality of our AGI business and of getting AGI margins, Classical Heat Treatment margins, up to the levels that we enjoy within our ADE business. Chart 10, another chart we've shown many times, shows the group results by major currency, with profits from the Eurozone now representing almost half of the group's operating profit. We've also included the average rates for the year on this chart. As exchange rates develop, you will have an idea of the impact of those exchange rate movements on our group result. Based on where we are today, the exchange rates that are around today, then we are expecting, if those continued through to the end of this year, a forex headwind on operating profit of around GBP 3 million. Chart 11 shows the group's cash flow, really demonstrating its cash-generating capability here.
We enjoyed, once again, 90% headline operating cash conversion. Free cash flow increased by GBP 22 million, or more than a third, to GBP 83 million in the year. And this in spite of a GBP 12 million increase in net CapEx spent. Onto 12. We ended the year with a headline tax rate of 22.9% against our half-year guidance of 25.5%. We had an exceptional tax gain of GBP 6.4 million in the year, which is excluded from the headline tax rate. The inclusion of 2017 timing differences at tax rates prevailing at the end of the year brought the headline tax rate down to the 22.9%. As far as the future is concerned, we still don't have clear guidelines on the implementation rules associated with the U.S. Tax Cuts and Jobs Act and how they might impact on financing structures in particular.
So accordingly, while we are confident that our structures comply with the OECD BEPS guidelines, we can only say that we do not believe that our 2018 headline tax rate will exceed previous guidance of 26.5%. We are not, at this stage, guiding to a lower tax rate. We've also previously said that there is an upward trend in our tax rate as our marginal tax rate exceeded our average tax rate. With the reduction in U.S. corporation taxes, this is no longer the case. Therefore, you can use the 26.5% rate going forwards for the time being. With almost GBP 40 million of net cash at year-end, the board is proposing a GBP 0.25 special dividend worth around GBP 47.5 million.
That brings the total dividend for the full year, together with the ordinary dividend, to GBP 0.424, or a dividend yield for the full year based on where our share price started today of above 4.5%. And finally, we've extended, during the year, our revolving credit facility out to 2022. So we have secure financing for the foreseeable future. Chart 13's just a reminder, really, of our capital allocation priorities. So we invest for growth in the business. Then we apply our cash to paying ordinary dividends, followed by acquisitions if we can find them, and finally, distributing any spare cash to shareholders via a special dividend. Which leads me into chart 14. This is a new chart. And I'm fortunate enough, this is the best one in the pack, and I get to present it. So that's always nice and a good one to finish off with.
So after maintaining our equipment, Bodycote has generated almost GBP 380 million of net cash since 2014. We've found opportunities to invest over GBP 160 million of this to grow our business, either via investing in existing facilities or new facilities or in acquisitions. And we've also returned GBP 225 million over that period to shareholders. So it really encapsulates the cash-generative nature of our business and how we're focused on using the cash to grow the business for shareholders' benefits or, alternatively, to give the excess cash directly back to shareholders. Now, back to Stephen for the business review.
Thank you, Dominique. Okay. Let's just take a quick canter through the different markets, if we might. We'll start with aerospace and defense. Revenue for this area is GBP 161 million. We achieved a constant currency growth of 2.3%. On the bar chart there, you can see the growth since 2014.
It's a little unfortunate that you can't see on this scale how much that growth is. Unfortunately, as we go through the slides going forward, we didn't want to adjust the scales to make one look a little bit different from the other. So you can see the relative impact in each of the sectors. But this is not too bad. Civil aviation in aerospace and defense here is up 5.6%. So these are all constant currencies, folks. Now, in that civil aviation area, we've got strong growth in the U.K. We've had that growth now for quite a bit. It's going very strongly. And we will be expanding facilities in the United Kingdom in 2018 in order to meet the demand.
The nice other issue that we have in the civil aviation side, which, as you might recall, for a couple of years here was less bullish, if I can put it that way. It was a little bit more subdued. It's now picking up. Now, the importance of that is that we've spent nearly a decade getting onto the LEAP series engines. And what we have with the LEAP series is a much higher percentage than we did on the older CFM56s. And that crossover is quite important for us. What you're starting to see now in North America is that impact as the engine supercycle, as people call it, starts to come into play, and it actually starts to get some traction. So it's very pleasing because this shows the results of quite a lot of effort over the years.
And quite frankly, if you aren't on the engine supercycle by now, great, it's too late. So this is something that will go on for quite a long period of time. The only counterpoint to aerospace and defense is the defense side. Now, defense isn't a big issue for us. You recall that we aren't really on these very sexy defense programs. We do a lot of consumables. So we aren't really bobbing around on the froth at the top. And there is an issue in defense, generally, on the underlying side is those consumables, which are things like munitions that are fired off on the ranges all the time, whether there's conflict or not, because they only have a shelf life of a certain amount. The stocks of those are generally being reduced over time here. And so we've continued to see that.
The other side of the defense side is that we do have a good position on flying assets, as we call them. And as those planes and rotaries come into production, which, as you know, there are a whole series of those coming in place, that will be good for us. Right now, those numbers are relatively small. So defense, a small decline here. It is a smaller part of the business quite a lot. Okay. Moving on to energy. So energy, GBP 56 million. This is one of the smaller parts of our business. It used to be bigger. It used to be bigger when the oil price was higher. You can see the trend in the graph. And this one is the only one that we're showing you half on half. And I think it's quite important because what you see in the energy business is a sequential increase.
We'll talk about what that's about. So we've got an increase overall of 4.4%. But the onshore North American oil and gas now, what are we talking about here? We're talking about Permian Basin activity, really. So this is unconventional drilling, for example, also topside work onshore. We preserved our Texas, Oklahoma facilities when the downturn came. A lot of people thought we were mad. But we took them down in terms of costs but kept them there. We didn't shut anything down. And that's because, at some point or other, this business was always going to come back. And so we were sitting there waiting. It has come back very strongly, quarter by quarter, throughout 2017. Now, I'm not going to predict where it's going to go in the future. That's not something I get into.
But right now, the onshore North American oil and gas business is doing very well. Now, in contrast to that, the business outside of North America and here, we're talking about subsea. We're also talking about onshore but outside of North America. You have a situation where that, really, for us, has not recovered. In fact, subsea continued to decline, as did some of the onshore stuff in different parts of the Middle East. And so that has actually hurt us a bit. Now, you should also know that our Specialist Technologies are focused typically on the ones that are in it are typically on subsea and downhole. And we'll come to that later. So this has been a little bit of a drag in the energy side.
The other thing that has been an issue at the end of the year. I'm sure you're all aware of the fact that the two sort of market dominating. I'm not allowed to use those terms. But the largest IGT businesses actually announced a lot of layoffs in the fourth quarter. And they cut their production. Now, we produced for them. And that cut was fairly significant for the industry. Now, fortunately, IGT is not a big part of our business. But we do have a part of it. And that's what happened at the end of the year. That's the overall story. We'll come back to some elements of it on the energy side later. But energy's doing quite nicely. So let's talk about automotive. So a little bit of color on automotive. Most of our business in automotive, by far, is car and light truck.
We do have some heavy truck business. But it's a smaller part of our business. It's not really meaningful overall. Now, if you look at background demand and I'm not talking about our business. I'm talking about the background demand for cars. I'm sure you're all aware of this. But in 2017, you saw a couple of percentage points improvement in Europe and a 1 percentage point or so decline in North America. So our business, GBP 205 million, it grew 14.1%. Clearly, that isn't the same as the background car demand. So what's driving that? So our business is 14.2% up in car and light trucks itself. 3.9% of that came from acquisitions, which Dominique told you about, that we made in 2016. We didn't have any acquisitions in 2017 that actually added to anything here. So 2016, we had 3.9% of this growth comes from that.
We also have been investing very heavily in one of our Specialist Technologies called low-pressure carburizing, or LPC. That technology is critical for some of the newer platforms. The growth has been very good. Overall, this business for us is very good. Now, some people might ask, "What about the diesel effect?" Because I know that is a very popular thing in the daily papers. Just to note that our North American business, where the decline in the market was, there's no real diesel business in North America for anybody. For one reason or another, Americans don't like diesels and never really introduce them. Canadians do like them. But unfortunately, in the winter, they kind of freeze to the ground. They can't get them started. So diesels are not a North American phenomenon. They're a European phenomenon.
So our exposure on diesels is something that we can talk about in the future. But where we are today, Europe, very nicely up. And North America, doing very well too. Emerging markets, very strong with automotive, which we'll come back to. Heavy truck revenues, as I said, up 13.2%. A lot of people talking about it's going to be a better year in 2018. Please remember, our heavy truck business is not something that moves the needle for us very much. So let's come to general industrial. Quite an important part of our business, this is roughly 39% of the group is in general industrial now. Now, you know that we've seen a few years here of declining business in general industrial. We're not alone. General industrial is, for us, it's really a proxy for industrial production.
And it's very interesting because I know somebody's going to ask me, "So why didn't you buy anything in the year?" And one of the things that, of course, we were looking at was we were in the middle of lots of deals. And then the world very quickly turned in the first quarter. And life got a lot rosier for a lot of other people. And you can imagine what that does when somebody's in the middle of a transaction, okay? So we're not foolhardy when we do these things. Anyway, moving on. The 2016, 2017 growth here, the differential, is 10.4% in constant currency. No particular hotspots. Broad-based all around the world, everywhere that we deal in. What's in general industrial? It's soup to nuts. I mean, if it isn't one of the other sectors, it's in here.
This general industrial sector was boosted for us by our S3P growth. In this sector, that was a 14% growth. 2016 acquisitions contributed 4.3% to the growth. That leaves quite a chunk of other work that was growing. I do want to point out there is a small element of this, which is restocking. When you've had a few years and you're an off-road vehicle builder or agricultural equipment manufacturer and you've actually been squeezing down and squeezing down, you run your inventories right down flat. And then when the upturn comes, you end up with an inventory build. It's a short-term effect. There is a small part of this 10.4% growth that is due to restocking. It's something that you won't see going forward so far.
The good thing about this general industrial business is most of this growth is done through our investments and our activities. We said when the downturn started in this area that if the world wasn't going to generate any growth, we would do it ourselves. That's exactly what you're seeing. Just another point. If you strip out the acquisitions through this period and you strip out the investments that we've made, the underlying business that was existing in 2014 is still quite a bit ahead of the underlying business of where it is in 2017. That goes to how much capacity we've got and all the rest of it, okay? Let's just move on and look at our technologies. Now, as you know, we have two groups of technologies. One, we refer to as Classical Heat Treatment. It's a very broad field.
There are lots of technologies in Classical Heat Treatment. We've got pretty much every one of them. They are mature processes. They're used for treating metal components. Every metal component is treated using Classical Heat Treatment, at the very least. Everything you see in this room that you wear or whatever, piece of metal, it is treated by Classical Heat Treatment. Not necessarily ours. There are many people that do this out there. It comprises two areas of work. One is a tightly controlled process that affects the core properties of the materials, how tough they are, how durable they are, whatever. The other set of processes, which actually affect the surface characteristics. If you look at this slide that I'm showing here, on the left-hand side of the slide are the core process, kind of, technologies.
On the right-hand side are the type of technologies that are used for surface characteristics. And here, on the right-hand side, we're talking things like diffusion processes, where you're actually diffusing atoms of some other element, like carbon or nitrogen, into the surface of the metal. And that's what changes the surface characteristics. So you can imagine hardness, durability on the surface. It's corrosion resistance. They're all surface-type properties. I don't want to give you too big of an in-depth today. I just want to make sure that everybody understands where this is. Bodycote's position here. Well, we've over 1,000 process lines in 23 countries in Classical Heat Treatment. And we are, by far, the largest player, by far. Moving on. The next set of technologies that we have are our Specialist Technologies .
Some of the folks in the room that are about the same age as me will remember that when I joined this company, we decided that we would, in fact, invest in some Specialist Technologies . We would pull them out of the cupboard, as they were, or wherever they would be. We would invest in them. They are differentiated technologies with significant barriers to entry. They're not like the Classical Heat Treatment side. Both sides of the business are very valuable. These technologies have different business characteristics. They allow customers to produce very high-value-added products. Some of these technologies are not a substitution technology. In other words, they're not doing something differently from something else that's already in the market. I mean, if they're doing something differently, they're here because they add more value.
In order to create the market, what you have to do is to get people to stop doing what they're doing, convert over to this new technology, which they don't have a lot of familiarity with, and show them they can make a lot more money out of it because the value they get is much higher. Some of these Specialist Technologies are brand new to the world. What that leads to is customers being able to do unique products that they've never done before and can't do any other way. That's just a general description of what the Specialist Technology's about. What are they? You could see them here. The ones on the left-hand side are arrayed as the ones that are predominantly sold at the moment into the aerospace and energy areas.
I say at the moment because these technologies are pretty much applicable across all kinds of markets. But you have to choose your targets. And these on the left are predominantly in the aerospace and energy markets. In contrast, the technologies on the right are predominantly in the automotive and general industrial, okay? The growth potential here is phenomenal. They have great market opportunity. There are lots of difficulties in getting that opportunity because when you're in the business of introducing new technologies that are going to be around a long period of time in an area where people haven't seen change for many, many years, changing their mind is difficult. And it takes a lot of work. We invest in these areas for growth. This is where the majority of our growth is going, our investment is going, and is very good margins.
So what happened in 2017 in Specialist Technologies ? I'm sure somebody might be interested in that. Here are the numbers. Now, you might recall that we aspire to 10% growth in this business year in, year out, nothing to do with the background markets because we are penetrating markets with a new technology. Now, obviously, market demand in the background has an impact. But because these have got market penetration issues, they are far less influenced by market demand. So constant currency growth, 4.5%. It feels kind of odd to be standing up here and saying, "Well, I'm not happy with 4.5%." But I'm not. So let's talk about what's happened here. So in our S3P, LPC, CID technologies, we're double-digit growth across those. So where did the rest come from? Well, the growth was held back by a couple of areas. One should be no surprise to anybody.
The HIP Product Fabrication and Surface Technology technologies are focused on the oil and gas market. HIP PF is predominantly in subsea. Surface Technology is in subsea and downhole. The big issue here is a lot of it is outside of North America. That shouldn't be a big issue in terms of surprise. I suppose the one thing that we were not expecting was our HIP Services situation. Two big issues. One was the industrial gas turbines cut, which I've told you about already. Now, that's not going to be something that will rebound next week or anything like that. This is a fairly long-run situation. It's the smaller part of our HIP Services business by a long way. I'll say this right now. In some ways, this is a blessing in disguise because, as you'll see, we have some capacity issues that we're addressing.
We've been investing to address those capacity issues and getting a little bit of capacity available for the aerospace side, which, to be honest with you, as we go forward, is looking very strong. And we are going to be putting in new HIPs. The HIPs, they are big chunks of equipment with big chunks of capital. So if we've got a little bit of capacity, it buys us a bit of time. Don't forget, a HIP takes, roughly speaking, two years from order to installation and about a year to shake down thereafter. So it's not a short-term issue. So if you get a bit of capacity from somewhere, it's quite important. So the other unfortunate part of our HIP Services business was that we had an unplanned outage in the second half. I'm happy to say that by year-end, we'd resolved it. That's not an issue going forward.
The IGT volumes, they will be covered over by growth in the aerospace side, no doubt, as we go forward. You are aware that we bought some HIP capacity from Doncasters in the U.K. at the end of the year. We've mentioned that. That's a nice fill-up. Not huge, but it's a nice fill-up. We also have a new mega HIP coming in, which will be operating in Europe at the end of 2018. There will be more North American capacity going in in 2018, 2019 kind of time. Our S3P capacity in this business is amazing. You just can't seem to invest in it fast enough. So we're accelerating in the S3P side of life. Overall, looking forward, the forecast in Specialist Technologies does look strong. I hear you say, "Well, what about Powdermet?" Okay. We talked about this.
We launched it at the beginning of the year. I would like to remind you that we said, as we did with all these Specialist Technologies , "Don't expect anything for about three years." This is in deployment stage. So don't look to Powdermet to move the needle for about three years. It's looking very exciting, I've got to tell you. But we'll see as time goes by. This is, I think, a very important slide. So we've been adding facilities. We've been investing quite heavily. And we've actually invested in GBP 37 million over 10 sites in the period of 2014 to 2017. In the bottom right-hand corner, you can see when the sites went into service. And please remember that one of our sites typically has a three- to five-year kind of cycle before it gets up to full capacity. That doesn't mean it's out of capacity.
But that's when we're getting all the returns that we're wanting. And as we've been laying down sites all the way through this period, you can imagine that they're cumulatively growing and growing and growing. Now, how much is GBP 37 million worth in terms of revenues? Let me give you some metrics that might help you. Generally speaking, in Classical Heat Treatment and if you look back in our reports, you'll see which ones of these were classical and which ones were specialist. As a generality, in Classical Heat Treatment, it's roughly GBP 1 of capital for GBP 1 of sales, okay, when they're running at the returns that we're looking at. In the Specialist Technologies , it's about 0.6 of capital for GBP 1 of sales. One exception, HIP Services. In HIP Services, it's about GBP 2 of capital for GBP 1 of sales.
So you can imagine here, GBP 37 million has got quite a long way to go in terms of ramp as to what these sites will be producing. Oh, and by the way, we're still adding sites. You'll still see sites coming online as we go forward. Summary and outlook. You've seen it. It was on the wires this morning. I don't intend to go through it in any detail. What we'll do now is take questions from you. So if you let me get back to my seat, we'll start then.
Yes, Michael.
Thanks very much. I may be a little bit out of date on where exactly your plants are around the Great Lakes. But does the threat of some trade barriers between the U.S. and Canada have any impact on your business?
That's a very interesting question. I'd like to say that we're psychic and that we foresaw this because, actually, it did, but it doesn't anymore. We used to have a plant in Canada that was selling into the United States, Canadian costs and U.S. revenues. You might remember that the Canadian dollar, at one point here, got quite strong. At that point in time, we said, "Let's just not do this in Canada anymore." We actually moved into the U.S. In terms of imports into the U.S., there is not a lot. Trade barriers, in fact, across the Canadian border wouldn't affect us. On that issue, I have to be quite clear. Mexico is a very big business for us.
Dominique, what's our growth in Mexico?
Growth in Mexico was above 40%.
So above 40% growth in Mexico. It's automotive. Now, we've decided that we think there's so much automotive American/U.S. investment in Mexico that there's not going to be any kind of barrier going in there in reality anytime soon. If it is, it's a much bigger problem for other people than it is for us. So we are continuing to support our customers in Mexico strongly. And they have huge demand. They're actually U.S. companies. And we're growing with them quite dramatically. That growth is not coming from emerging market status on its own. You need to know that the technology that we're putting into Mexico is primarily low-pressure carburizing, okay?
Good morning. Hi, it's Jonathan Hurn from Deutsche Bank. Can you just talk a little bit about the labor cost inflation that's coming through in 2018, where it is, what you think the impact is?
Sure. So labor cost, that's quite an interesting thing. So there is a lot of inflation on the horizon, I think, personally. If you look to Eastern Europe, it's already here. You've got double-digit inflation in labor costs in Eastern Europe. In parts of the United States, you've got inflation that is starting to rise. How does that affect us is the question. Well, general inflation is starting to rise. I think the interesting thing for Bodycote is that we are very, very strong on making sure we keep prices ahead of costs. And it's actually easier to do that when everybody's asking for a price rise. Our cost situation is as follows. We actually have, in a number of the social democracies, if I can call it that, longer-term labor contracts that won't impact our cost basis in 2018. So we're looking at 2019 and beyond.
Why is that important? Why did we sign those contracts? If you're going to get price increases and those price increases are going to be accelerating because there's inflation out there, that takes time. And so what we did, being in those economies, you can't adjust your labor as fast as other places, we decided that we would, in fact, hedge our bets, pay a little bit more in the quiet times for a little bit less in the busy times. So we don't see those places giving us much trouble in 2018. On the contrary, in North America, we're free market float, if that's the right term for it. The issue there is making sure that we keep ahead of the resources struggle because there's a huge resources struggle in North America. There are types of labor that don't exist anymore because people have left. It's quite tight.
And so we've made decisions, actually, at the beginning of the year, end of last year. So I'm talking about 2017. So end of 2016, we decided, because we could see the momentum building, that we would go out and recruit. And that's what we've been doing, particularly in places like Texas. In Texas, to find kind of labor that we need is almost impossible at the moment. Bear in mind that our high-tech labor is a constant, steady issue. We don't really flex on that too much. We're talking here about shop floor labor. So we invested a bit ahead in North America. But the inflation in wages will need to keep up. But the great thing about doing business in the U.S. is that people look at things on a fairly short-term basis.
So if they know labor costs have gone up, then they know prices are going to go up, although they might resist quite strongly. U.K., there's not an issue at all. So that's our sort of cost versus price equation. I hope that answers your question, Jonathan. A bit too long for you, I'm sure. But Andy.
Good morning. A couple of questions, Stephen and Dominique and Mike. You've talked about GI volumes not getting back to kind of prior peak. Yet you're also talking about one or two pinch points. Can you just give us an update on where you are on spare capacity and?
That sounds like a CFO question to me.
Very much so.
Well, on the chart that I was showing, I've indicated we spent more than GBP 160 million between investments in new facilities or adding capacity to existing facilities or acquisitions since 2014. And as Stephen indicated when he was going through the market charts, we're not yet back up to the underlying sales that we saw back in 2014 on general industrial. So long or short of it is, we have plenty of capacity out there to grow, as long as it turns up in the right places and in the right technologies. But we've got plenty of capacity out there.
Regionally, where's the most capacity?
So overall, you've got to say that, yes, in Classical Heat Treatment, the U.S. has taken longer to build. So you can imagine that we have more available capacity there. That, of course, has an impact, in general industrial, on what kind of margins there are around. Any more, Andy?
Yeah. I'll point another one for Dominique and then one for you, Stephen. With respect to Specialist Tech margins, I appreciate that, as a percentage, it's probably drifted a little bit compared to Classical Heat Treatment, given the growth there. But am I right in thinking that margins haven't gone backwards in Specialist Tech ? If anything, they might have gone up.
Correct. Specialist Technologies, and we've got the 4.5% constant currency sales growth there. Specialist Technologies margins did edge up slightly. As you know, our focus in Specialist Technologies is not margin improvement. The margins and returns we get are already very good. We're focused there on trying to grow our sales faster.
Just for the voice note, special dividend of GBP 0.25. Can you just talk about kind of M&A aspirations?
Oh, yeah. M&A.
And kind of thoughts on the market, as you say.
Yeah. Very good. Very good. Thank you for that. So yeah, we thought we had hooked some early in 2017. And the fish kind of said, "Oh, we'd rather swim away for this point." We're still on the program. We will be upping our attention to acquisitions because it takes more effort in a bullish market to go find them. We will remain disciplined. But I would very much hope you can never forecast acquisitions. I would very much hope that we would be adding acquisitions. They are a make-buy decision for us. I mean, you need to understand that. I'm not talking about the big ones. I'm talking about the small-site, kind of privately owned things. If we can acquire something that is in our network, we can use our network to build that business. And it's there ready-made. And you can go. So it's a very quick turn.
The downside on it is that these businesses don't look like our businesses. They don't look like the kind of technology approach that we have. They don't look like the kind of efficiency approach that we have. So when we buy them and bring them into the business, you've got to do a lot of work in terms of polishing them. If there isn't an acquisition available, then your other alternative is to build something. So you can look at it as a sort of make-buy decision for us in Classical Heat Treatment because we're not buying technology here, folks. What we're doing is we're buying targeted capacities in targeted markets. So I would expect to see more activity there. And who knows? We might get one out there, just like we did with the Doncasters' HIP assets, where we get something in the specialist side.
That would be very nice. They're very, very few and far between, as you can imagine. Does that answer your question?
Thank you.
Hi. I'm Mark Davies-Jones from Stifel, too, if I may. Firstly, very much a CFO's question. I didn't quite understand why the headline tax rate ex the one time this year in 2017 was as low as it was and why none of that carries through to 2018. Could you just give a little bit more background on that, the 22.9 headline number?
Sure. Sure. So the movement within the year on timing differences, effectively, you value at year-end, the year-end rates. And therefore, with the U.S. Tax Cuts and Jobs Act being passed in December, we rightly recognized those liabilities at the end of the year at the new rate. And that resulted in a lower charge to the P&L based on that timing difference than we would otherwise have expected. So that's why the headline tax rate in 2017 was lower than the 25.5% we were originally expecting.
Okay. So effectively, the headline rate is still.
To some extent, affected by a one-time adjustment, then?
No. No, it's not. It's affected by the timing differences in the year. We will have those sorts of timing differences in future years as well. Yes, inasmuch as the timing difference is the one side of it's at 35% and the other side's at 21%, I guess you could argue that is a slight one-off in nature. More generally, looking forward, the other part of the question, why are we guiding to no more than 26.5% for 2018 and beyond? Well, the answer to that is that the legislation brought in a load of new regulations. We don't know how those regulations are going to be implemented yet. We do have a benefit from our financing structures. At this stage, we don't know whether the implementation rules will have an impact on the benefit we currently enjoy from those financing structures or not.
Okay. A slightly more operational question, Stephen, if I may. On the automotive side, you have clearly outperformed the underlying industry.
I thought it was going to be a CFO question, actually.
No. It's all right. Is it? Trying to understand quite that scale of outperformance relative to the underlying volume growth in the market.
Definitely a CFO question.
Okay. Could you give us a bit more color about how much of that's about being on the right programs with the right OEMs? Or is it very specific to individual technologies?
Okay. That is a nice question, I guess. But I'm not going to give you any numbers because I don't hand out those kind of numbers. I'll tell you roughly. And then Dominique can fill in if you like. Our automotive business is not across the piece. So I'm not going to tell you the size of automotive spend out there. But believe me, it's many, many, many times bigger than Bodycote's total, okay? So when you're looking at what we sell to, we actually sell to very specific customers on very specific programs. Examples, one of our largest customers in automotive is General Motors. We deal directly with them. They have a development program which we've been working on with them over more than a decade. We actually have been adding work over that time. We continue.
In 2017, 2018, and 2019, we'll be adding work to programs that are associated with that development program for General Motors. It won't surprise you that that development program includes everything from hybrid transmissions to multi-speed dual-clutch for non-electric vehicles. There's a huge program there. That's just General Motors. So when you then come across the pond and you start looking at what's happening in Europe, it's a very similar issue. So there are this, by the way, transmissions is a lot about low-pressure carburizing. Low-pressure carburizing is not a technology that's been around that long. It is a technology that's absolutely required for light systems. So if you're talking about fuel efficiency or weight savings and if you've got a massive battery, you need a lot of weight saving, okay?
So in hybrid and indeed even in full electrics, but definitely in internal combustion engines, you're trying to take weight out. And the way you do that is making thinner, lighter components. And the way you do that is using low-pressure carburizing. In Europe, we have the equivalent of General Motors. However, we deal with the Tier 1s in Europe. And you're seeing exactly the same kind of growth in Europe. So we're on programs that we've been getting into for quite some time. It's very interesting, actually, because some people think that the automotive industry is a really not great place to be, particularly not in France. You should visit some of our automotive facilities. They're a very nice place to be. So that's in color. If you want numbers, you won't get them from me. Dominique.
Which numbers are we going to?
I don't think he needs any more, to be honest with you.
Harry. We've already covered the car and light truck revenue growth.
Yeah. He's got enough. He can work it out.
Any regional cover on that?
I could provide some regional.
He'll tell you later, okay? Harry.
It's Harry Phillips from Peel Hunt. Just one question, please. North American AGI margin went down in the second half compared to the first half. It's 10.2 in the second half, which is possibly a fraction disappointing. Could you explain what's going on there and what will happen in 2018, please?
So Dominique will pick that up and give you some numbers, okay? I want to just give you a reminder. So if you go back a number of years, particularly in the Great Lakes area and on the East Coast in Carolina Commercial, margins were much higher. If you go back even further, they were terrible. So we took a business that was not making any money at all to being very high margins. And we then set our sights on Europe. And what's happened in the meantime in general industrial, of course, is there's been a lot of crimping. And in terms of the work that we talked about in terms of efficiency and pricing and what we used to call the Bodycote margin model, well, actually, it's a general pricing discipline that we do. I did say at the time that it was like painting the Forth Bridge.
As soon as you get to it, then you go somewhere else. And then you've got to come back again. And that's part of the answer in terms of where you're looking at North America. Having said that, they're not going down going forward because we now have our sights back on it again, okay? Dominique, do you want to give him some more information, please?
Yeah. I think there's an element of this which is law of small lower numbers. Because when we're looking at North America's AGI business for a half, we're talking about GBP 50 million. We're talking about GBP 50 million equivalent of revenue in the first half. So if you're talking about one percentage point of movement, it's GBP 500,000. Frankly, you repair a couple more machines, one half, compared with another half, you can get that movement within segments. Clearly, it doesn't impact the overall group result. But you can have movements within parts of our business between halves.
I mean, it's past that Forth Bridge . Is there any structural reason why margins should be any different here?
No. It used to be the other way around. I mean, just not long ago, we were talking about margins higher than the group average in AGI in North America. And it does a little bit of this. And it's all to do with management. I have to be honest with you and plead a little bit because when you have 183 facilities around the world, keeping your eye on all 183 of them all the time, we're not perfect, okay? Anybody else, please? Okay. With that, thank you very much for coming, folks. If you have any more questions, of course, do give Dominique a call. And we'll take it from there. Talk to you later. Bye then.