I think we're all here. Good morning, everyone, and welcome. I'd also like to extend a welcome to those who are joining us on the audio webcast. I'm Bill Whiteley, Chairman, and I'm joined here today by our Chief Executive, Nicholas Anderson, and our Executive Director, Neil Daws. Unfortunately, our Finance Director, Kevin Boyd, can't be with us today, as he is at home recovering from recent surgery. However, I know he is well, and I'm sure he's listening to the audio webcast. Good morning, Kevin. I will introduce the 2017 results, then Nick will explain some of the financial details, and we'll take you through the operations and outlook. Afterwards, we'll be happy to take questions.
For my last full year as chairman, I'm very pleased to report on organic sales growth of 6%, following on from 4%, organic growth in 2016. This was achieved against a global backdrop of much improved industrial production growth rates. Combined with a currency tailwind and a significant contribution from acquisitions, we're reporting 32% growth in sales to just shy of GBP 1 billion. Adjusted operating profit was ahead 30%. The adjusted operating profit margin declined 20 basis points to 23.6%. This lower margin was expected due to the slight dilutive effect of the acquisitions. Watson-Marlow again achieved outstanding organic sales growth of 10%, with all regions contributing. In the Steam Specialties division, organic growth was 5%, with all geographic segments showing growth.
Nick will take you through these results shortly. Adjusted earnings per share grew to GBP 2.205, and we're recommending a 16% increase to the final dividend, bringing the total dividend to GBP 0.875, a total increase of 15%. And with that, I'll hand over to Nick.
Thank you, Bill. I will now take you through my first part of today's presentation, which is the 2017 financial review that would normally be presented by Kevin Boyd. As always, the numbers that will be discussed today are the adjusted figures. There are a number of readjusting items this year relating to the acquisitions and the U.S. tax charges. You will find details of these in the appendices. As Bill said, organic sales growth was 6%, with all our reporting segments delivering organic sales and profit growth. In the first half year, we saw significant currency tailwinds, which abated in the second half, giving a 5% increase in sales for the full year. The exchange impact on operating profit was higher, adding 9% to a mixture of translational and transactional gains.
I will cover exchange movements in more detail on a later slide. The operating profit margin fell by 20 basis points to 23.6% due to the dilutive effect of the acquisitions. Excluding acquisitions, the margin would have been 24.7%, an increase of 90 basis points. On an organic basis, that is, excluding acquisitions and currency effects, the margin remained in line with the prior year as we invested the operational leverage gains in the implementation of our strategy. Net finance expense increased by GBP 3.8 million due to interest payments on the debt taken to fund the acquisitions. IAS 19 pension interest remained constant at GBP 2.5 million.
The overall tax rate also remained constant at 29.1%, although we believe that it will fall to around 27% in 2018 as a result of the recent U.S. tax reforms. Adjusted EPS increased 29% to GBP 2.205. Finally, we are recommending raising the total dividend for the year to GBP 0.875, an increase of 15%. This bridge shows the growth of sales in the year, with the lighter green showing growth in the first half of the year and the darker green, the growth in the second half. Sales rose GBP 241 million to GBP 999 million. Foreign exchange accounted for GBP 38 million, with the vast majority coming in the first half of the year.
Organic growth in the Steam Specialties division of GBP 28 million was just under 5%, which compares with 2% in 2016. Overall growth was stronger in the second half due to EMEA and the Americas, as Asia Pacific grew ever so slightly to 6%... Watson-Marlow's outstanding performance continued, with 10% organic growth contributing GBP 20 million. This was spread almost equally over the two halves, with the full year benefiting from a large number of orders carried over from 2016 . Acquisitions added 20% in the year, comprising the full year effect of Hiter and Aflex, which were acquired in 2016 . Gestra, which joined the group in May 2017 , and Chromalox, which joined in July 2017 .
The net effect of these four acquisitions was an additional GBP 155 million of sales in the year. I would like to point out that when we quote organic growth rates and growth due to acquisitions, we do so at constant currency. That is, after having adjusted the prior period to the current figure's exchange rate. This next bridge highlights the underlying movements in adjusted operating profit for the year. Starting on the left, adjusted operating profits in 2016 was GBP 180.6 million. Exchange movements had a significant effect on the first half year results, with a more muted effect in the second half. For 2017, FX translational contribution was GBP 9.4 million, and the transactional gain was GBP 6.6 million.
The full year effect of the Hiter and Aflex acquisitions, plus the addition of Gestra and Chromalox during the year, added GBP 27 million profit. Good organic sales growth in EMEA and Asia-Pac flowed through to the bottom line, and the Americas suffered from the non-repeat of a GBP 1.5 million exceptional profit in 2016, caused by the strong devaluation of the Argentine currency in late 2015. In Watson-Marlow, the operational gearing from higher sales was less marked due to the increased investments for future growth. All these elements combined to produce an operating profit of GBP 235.5 million in 2017. This chart shows operating margin progression over the last 10 years.
The reported margins fell by 20 basis points to 23.6%, due to the dilutionary effects of the acquisitions, which had a combined margin of 17.3%. Excluding acquisitions, the margin rose 90 basis points to 24.7%, boosted by currency effects. As expected, excluding acquisitions and currency, the organic margins remained constant as we increased revenue investments in support of future organic growth. In the Steam Specialties division, reported margins were constant at 22.9%. Excluding the Hiter and Gestra acquisitions, the margin grew 70 basis points to 23.6%, mostly due to positive currency movements. On an organic basis, the trading margin increased 10 basis points. In Watson-Marlow, the reported margin dropped back 70 basis points, mostly as a result of the Aflex acquisition.
Excluding Aflex, margins grew 40 basis points to 33.5% due to positive currency movements. As expected, margins fell as a result of increased revenue investments for future growth. Looking forward, we would expect the full year effect of Gestra and Chromalox to again dilute group margins in 2018. If current exchange rates prevail throughout the year, we anticipate an adverse transactional effect on group margins. However, we are working hard to mitigate the effect of those currency headwinds. This slide represents the foreign currency translational movements by half year between 2016 and 2018. The yellow shaded area on the right indicates a projection of those movements in 2018, should February's exchange rates prevail to the end of the year.
The blue bars represent the group's internally compiled sales-weighted foreign currency index for each half year, based on the movement of sterling against the basket of currencies we trade in. The horizontal solid lines indicate the full year average rate, sorry, average index. The group's currency index rose strongly in the second half of 2016 as a result of sterling weakening following the Brexit referendum. The effect continued mildly in the first half of seventeen, abating slightly in the second half of 2017 . The full year effect in 2017 was a 5% translational tailwind over the 2016 sales, as indicated in the green arrow. Sterling strengthened towards the end of 2017 and into early 2018 . As a result, the group's currency index has fallen on a year-to-date basis....
Should February's closing rates prevail for the remainder of the year, we could expect a 2% translational headwind in 2018, as indicated in the red arrow. In addition to the translational effects, profits are also impacted by transactional effects, as we have numerous foreign currency trade flows between different countries. Transactional effects are also impacted by currency hedges taken during the year. In 2017, the combined translational plus transactional impact on profits was GBP 16 million, of which the transactional element was GBP 6.6 million. Looking forward, at February's exchange rates, we would anticipate operating profit to suffer a translational plus transactional loss of around GBP 10 million in 2018. Obviously, these numbers will change in line with variation of exchange rates, sales mix, and the hedges that we have in both years. Strong cash flow.
Turning now to cash flow, 2017 was dominated by two major acquisitions, Gestra and Chromalox. There was a working capital outflow of GBP 34 million, which was driven by organic sales growth acceleration, currency, and acquisitions. On a constant currency basis, excluding acquisitions, working capital as a percentage of sales fell by 50 basis points. At GBP 35 million, capital investment was up 12% in 2017, reflecting the increased size of the business. In 2018, we would expect capital investments to be closer to GBP 45 million. Notable capital projects for 2018 include consolidating Aflex's four existing sites into a purpose-built facility. A three-year project with GBP 4 million set to be invested in this year.
We also expect to start construction of a new office and logistic facilities in Australia, and continue the upgrading of our manufacturing facilities as part of our future factory program. Operating cash flow increased to GBP 203 million. Underlying cash performance remains strong in view of the increased sales and capital investments, achieving an operating cash conversion of 86%. Finally, there was an outflow of GBP 484 million, inclusive of fees, for the acquisitions of Gestra and Chromalox. We finished the year with a net debt of GBP 374 million, which represents 1.4 times EBITDA. Return on capital employed increased by 500 basis points to 52.9%.
By the end of 2018, we anticipate further reducing our net debt levels to 1.0 times EBITDA. This slide details our 10-year dividend history, showing compound annual growth of 11%. We have a record of 50 years of dividend progress, stretching back to 1967, and over that period, the compound annual growth is also 11%. We have a progressive dividend policy, where dividend payments follow underlying earnings per share growth while maintaining prudent levels of dividend cover. In 2017, we're proposing an increase to the final dividend of 16%. This brings the total dividend for the year to 87.5 pence, an increase of 15%, and results in a dividend cover of 2.5 times. Our capital allocation policy remains unchanged.
Our first priority is to invest in ourselves for organic growth, and our second priority is to look for suitable bolt- on or related acquisitions. Should net cash balances accumulate with no significant acquisitions in sight, we would seek to return cash to shareholders by way of special dividends, as we did in 2010, 2012, and 2014. However, in the near term, we would look to reduce the debt levels prior to new returns of capital. This last finance slide looks at the various factors that influence the operating margin, showing for each item whether they had a positive, negative, or neutral effect on margins. You're already familiar with this slide. However, I wish to remind you that the purpose of each arrow is to provide purely directional indication of the effect.
There is no intent to quantify the impact on margin by each factor, as that can vary over time and between the different factors. As you can note in this slide, we anticipate that all factors will have a similar effect in 2018 as they had in 2017, except for foreign currency movements. The group experienced transactional gain in 2017. However, in 2018, should February exchange rates prevail throughout the year, we expect to see a reversal of this effect, as the 2017 tailwind becomes a headwind. The net effect of this chart is that we expect to see group margins coming under pressure in 2018 due to the negative effect of currency headwinds.
However, while we continue investing in the business to drive sustainable organic growth, we are also taking actions to mitigate the unfavorable effect of currency headwinds by maximizing the positive impact derived from our manufacturing efficiencies, price management practices, and operational gearing. I will now move into my second part of today's presentation, and I will again cover three themes with you. First, I will take you through our markets and performance in 2017 . Second, I will update you on our progress implementing our strategies and share three customer case studies. And finally, I will summarize the key points of today's presentation, and will open for your questions. You're already familiar with this graph that tracks the quarter evolution of the annual industrial production growth rates, which we refer to as IP. As you all know, IP is the best predictor of our markets.
This is the latest information published by Oxford Economics in their Global Industrial Production Watch, which includes preliminary data for December 2017. There are three observations I would like to highlight today. First, following five consecutive years of low or no growth, global IP growth rates averaged 3.4% in 2017. This recovery was again led by emerging markets that grew on average 4.2%, with China's IP growth averaging 6.2%, after peaking at over 8% earlier in the year. Second, developed markets experienced the best IP growth rate since 2010, averaging 2.9% in 2017. The strong performance was led by Europe, where IP averaged 3.3%, while the USA averaged 2% growth after two years of mild industrial recession.
My third observation is that Oxford Economics is indicating a strong IP slowdown in China during the fourth quarter of 2017. Their forecast is based on granular data published by China's National Bureau of Statistics. This is reflected in the lower emerging markets IP growth rates at the end of 2017. However, I must add, our group has not yet perceived any material softening of our markets in China. Given differing views on IP growth rates for 2018, our plan's based on the overall assumption that global IP growth rates in 2018 will remain at the same levels of 2017.
Starting our 2017 analysis with the Steam Specialties division in Europe, Middle East, and Africa, organic sales were up 5% at constant currency, and more importantly, operating profits were up 7% organically. The full year effect of sterling's devaluation against euro, and almost all other currencies in this region, was a 5% tailwind for sales and 11% for profits. We experienced good organic sales growth across most of our major markets, particularly Italy, France, Iberia, Benelux, and the Middle East. Sales were broadly flat in Germany and slightly down in the U.K. and the Nordic region. The integration of Gestra is progressing well and contributed 19% growth to sales and 13% to the profits of this region. Operating profit margins expanded by 40 basis points to 21.7%.
Excluding Gestra, trading margins improved 140 basis points, as our continued focus on effective price management, selective cost controls, and efficiency improvements at our European manufacturing facilities were reinforced by the effects of a strong currency tailwind. We remain well placed for further progress in this region, confident in our ability to continue delivering above market growth. In the Asia Pacific segment, organic sales were up 6% at constant currency, while operating profit was up 7% organically. Currency tailwinds increased sales by 5%, with Gestra's small presence in the region adding a further 1%. China performed strongly, with sales and profits up from smaller self-generated improvement projects, as well as larger capital projects. Korea delivered solid growth, despite the weak industrial production environment, due to a particularly large oil and gas project delivered during 2017.
Japan, Taiwan, and Vietnam also achieved excellent progress. Our recently established direct sales and manufacturing company in India is progressing well and in line with our expectations. Domestic sales have doubled in 2017, and manufacturing volumes increased significantly, improving the underutilization of this long-term strategic investment. In 2017, we completed our plant extension in China, and also established a new regional distribution center in Singapore to serve Southeast Asia and Australasia. Operating profit margins expanded by 30 basis points. Excluding Gestra, trading margins improved by 60 basis points. We remain well placed to make further progress in this important region as we continue investing in the implementation of our strategy. Turning now to the Americas. Overall, organic sales were up 2%, while operating profit was up 1% organically.
Currency tailwinds raised reported sales by 4%, with the Hiter and Gestra acquisitions added another 6% to the top line. In North America, organic sales declined marginally despite good sales growth in Canada. In the USA, distribution sales returned to growth after recovering from a weak 2016, while end user sales growth remained challenging with the non-repeat of large prior year projects. Latin America achieved 6% organic growth, with good growth in Mexico, Argentina, and Colombia. Brazil ended the year with a marginal decline, despite achieving 2% growth in the second half of the year. Hiter Controls, the Brazilian valve business acquired in July 2016, made excellent progress in 2017, with sales to date in line with our expectations and delivering a small profit in the second half ahead of schedule.
Operating profit margin was flat organically due to the non-recurrence of Argentina's exceptional GBP 1.5 million pound profit benefit in the first half of 2016. Currency movements actually reduced trading margins by 30 basis points in the Americas, with a further 40 basis points dilution from the acquisitions. Should the recent strengthening of sterling against the U.S. dollar continue, we will see another dilution impact on margins, which we are actively working to counteract through increased operational efficiencies. We remain well positioned to achieve further progress across the Americas, despite the still low industrial production growth levels and continued political uncertainties. This is the first opportunity to report contributions by Chromalox, since we completed the acquisition on the third of July 2017.
In this six-month period, Chromalox delivered sales of GBP 75.1 million and an operating profit of GBP 13.8 million. These results are in line with our expectations at the time of the acquisition and expanded the group's 2016 organic revenues by 9%. For comparable purposes, full year sales were around GBP 146 million, or 2% below 2016 at constant currency, while trading profit was close to GBP 26 million or 3% up on 2016 at constant currency. It is worth noting that as of the second quarter of 2017, order intake was higher than each comparable quarter of the previous year, with good demand growth throughout the second half of the year.
Growth in the fourth quarter reached the highest level over the past two years and translated into a return of strong sales and profit growth in the quarter, positioning Chromalox well for 2018. The integration process is progressing very well, and as planned, we are advancing the investments to underpin sustainable organic growth for the medium to long term. The post-acquisition trading profit margin of 18.4%, while the full year margin was 17.8%, 80 basis points above 2016. Despite increased revenues, investments for growth, and potentially unfavorable currency headwinds, we anticipate maintaining those full year trading margins in 2018. Watson-Marlow's organic sales grew 10%, boosted by a number of large orders placed in the late 2016 and shipped in early 2017.
Currency tailwinds raised sales by a further 5%. Strong organic growth was achieved in all geographic regions, with Asia-Pacific and Latin America particularly strong. Sales were up in the pharma and biotechnology sector. That accounts for over 40% of Watson-Marlow's global sales, despite facing a slower start to the year and a tough comparison with 2016. Good sales growth continued in the OEM and general industry markets, with excellent growth in the food and beverage sector, driven by the innovative MasoSine Certa pump. Aflex Hose, acquired in November 2016, is integrating well and performed ahead of our expectations, adding 12% sales growth and 7% profit growth to Watson-Marlow in 2017. Operating profit increased by 6% organically, and 25% on a reported basis, with currency tailwinds boosting profits by 10%.
As previously indicated, we have accelerated our revenue investments in support of future organic growth, which therefore reduced the organic trading margins in 2017 by 110 basis points, offsetting most of the strong transactional currency gains. Reported trading margins declined 70 basis points to 32.4%, driven by the dilutive effect of Aflex's lower trading margin. We continue to accelerate our revenue investments for future growth, including a step up in R&D investments with the recent acquisition of a small pre-revenue company, and we anticipate a small margin decline in 2018, similar to the organic decline of 2017. I will now move into the next part of this presentation, which will provide an update on the implementation of our global strategy for growth, and share three new customer case studies that help illustrate how our strategy is underpinning growth.
2017 marked the third full year implementing the business strategies that we developed during 2014. So we're very pleased to see the positive impact on sustainable organic growth and margin improvement that is resulting from these strategies. The increased industry sector focus of our direct sales organization is producing higher sales growth rates in the priority sectors chosen by the Steam Specialties business, compared to the growth rates of the other market sectors. These priority sectors accounted for 50% of our 2017 sales, up from 40% in 2014. Also in Spirax Sarco's Steam division, the sales growth rate of controls and thermal energy management products outpaced the growth of our traditional condensate management products. Those products represented 40% of total sales and are the main constituents of our self-generated solution sales.
The Spirax Sarco Academy was established in 2016, with its own fully dedicated organization and incremental annual budget of over GBP 1 million. In 2017, the first training modules were rolled out to almost 1,100 customer-facing salespeople in over 40 countries, with training materials translated into 16 different languages. We continued our organic, geographic expansion with 4 new direct sales companies operating in 2017 across East Africa, Indonesia, Thailand, and Vietnam. Spirax Sarco Steam division was also established a direct sales presence in Greece, Sri Lanka, and Morocco, while Watson-Marlow established a sales office in the United Arab Emirates. Almost 30 innovative new products were launched in 2017 across the Spirax Sarco Steam business, Chromalox, and Watson-Marlow, where we highlight the award-winning low pulsation Quantum pump with single-use cartridge technology, as well as the MasoSine Certa pump range, primarily for the food and beverage industry.
Lastly, we established a new distribution center in Singapore to improve the effectiveness of our supply chain into Southeast Asia and Australasia, increased the efficiencies of our manufacturing plants, reduced our lost time accident rates, and also reduced our carbon emission intensity. 2017 also marked a watershed year in the implementation of the corporate strategy that we developed in 2014 with the acquisition of Gestra in May and Chromalox in July. Both of these businesses are highly complementary to Spirax Sarco. Gestra increases our market share in the Steam Specialties business, enhances our product portfolio with industry-leading products and technologies, and reinforces our customer first business strategy by providing a stronger presence in some of our strategically chosen industry sectors. Chromalox significantly expands our addressable market, as it is also dedicated to transfer of heat energy into an industrial process using electricity.
Our group now has the unique capability to access a much wider range of industrial heating applications. These two acquisitions greatly strengthen our presence in Germany and the USA, two of the world's top four economies, which are notoriously difficult to penetrate organically. Their lighter presence outside of those markets, however, provides an opportunity for further geographic expansion, leveraging the group's global footprint. Very importantly, both Gestra and Chromalox also operate through a direct sales model in their home countries. This allows us to extend the same successful growth formula of the group as applied internally to ourselves in the last decades. As you can see, both acquisitions broaden our platform for continued organic growth. The integration of both acquisitions is proceeding very positively, and have been well received by employees and customers. Their 2017 performance remained in line with their respective acquisition cases.
Hiter Controls and Aflex Hose, acquired in 2016, have performed ahead of our expectations at the time of their respective acquisitions. Both companies are also good examples of acquisitions into related sectors that expand our addressable markets. The first of today's customer case studies comes from Spirax Sarco in China, where our engineers introduced steam heating solutions in the manufacturing process of lithium-ion batteries. The increasing demand of batteries for electric vehicles, consumer products, and energy storage systems requires growing investments in manufacturing facilities for the production of lithium-ion batteries. This market is estimated to be growing at close to 10% per annum. Within the production process, the coating and drying stage is particularly important, as temperature and relative humidity along the 50-meter long drying ovens have a direct impact on production yields and product quality.
Our steam application engineers have developed bespoke solutions that reduced energy usage and significantly improved process safety, generating annual savings of GBP 140,000 for the customers. As you can see, innovative solutions uncover self-generated growth. I would also like to add that Watson-Marlow, through Aflex Hose, and Chromalox, through their industrial heater and systems products, are also innovative, are also selling innovative solutions to improve customers' processes in this growing industrial sector. Today's second case study comes from Watson-Marlow in Belgium, where new MasoSine Certa pumps helped Atlantic Energy, sorry, Atlantic Engineering, fulfill stringent new product development requirements and bring to life a new design concept they called InnoFill. Atlantic Engineering is an equipment manufacturer specializing in the dispensing technology for food industries, particularly involving liquid and semi-liquid foods.
Their InnoFill design concept is based on a compact equipment capable of dispensing, filling, and safely sealing liquid products in a single process. This required a pump that could meet the following four critical performance criteria. First, virtually no pulsation to avoid foaming and loss of product integrity. Second, consistent and accurate flows. Third, hygienic and easy to clean, with minimal downtime between production batches. And fourth, higher temperature resistance. Only the new Certa pump met all of these criteria, displacing diaphragm pumps. This is another good example of Watson-Marlow's peristaltic pumps displacing other pumping technologies. Our third and final customer case study comes from Chromalox in the USA, where a pharmaceutical customer was looking to improve the efficiency and reliability of the bottle filling process of their headache medication.
Prior to filling, these factory-sterilized bottles require absolute absence of moisture, and they need to be slightly preheated to a set temperature. This was achieved using four batch-type ovens and involved rather cumbersome and superfluous handling alongside the filling machines. Our sales engineers proposed a solution that brought the whole drying process onto a continuous production line using dry, compressed air at 200 degrees Fahrenheit. The air is heated by four Chromalox GCH circulation heaters, which are controlled by Chromalox SCR temperature and power controllers. The result was a faster, consistent, reliable, and automated process. The entire operation is now done in one minute, compared to eleven minutes previously, without the risks of overheating some of the bottles. This is a good example of how Chromalox also uncovers self-generated growth through innovative solutions.
In summary, we are very pleased to report organic growth of 32%, with organic revenues rising by 6%. The group's operating profit grew by 30%, with the organic profit also growing by 6%. Currency tailwind expanded group sales by 5% and profits by 9%. Acquisitions contributed 20% of the top line growth and 14% to our profits. Operating profit margins decreased 20 basis points to 23.6% due to dilutive effect of the acquisitions. But excluding acquisitions, underlying trading margins expanded 90 basis points to a new all-time high of 24.7%, aided by currency tailwind. The board has declared a final dividend increase of 16%, raising the total dividend by 15%.
The group's net debt position at the 31st of December, 2017 , was GBP 373.6 million, representing a net debt to EBITDA ratio of one point four times. We continue prioritizing revenue investments in support of organic growth, while taking actions to mitigate the adverse effects of the currency headwinds on operating margins. Assuming no further deterioration in trading conditions, the board remains confident that the group will continue to make progress in 2018 .