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 William Whiteley, Chairman, and I'm here today with our Chief Executive, Nicholas Anderson, and Finance Director, Kevin Boyd. I will introduce the 2016 results. Kevin will explain some of the financial details, then Nick will take you through the operations and outlook. Afterwards, we will be happy to take questions from the room. We are very pleased to report an organic sales increase of 4% achieved against a global backdrop of a very low industrial production growth rate. Combined with a significant currency tailwind and a small contribution from acquisitions, this took sales to GBP 757 million for the year. Adjusted operating profit was ahead 18% at reported exchange rates, the adjusted operating profit margin increased by 100 basis points to a record 23.8%.
Watson-Marlow achieved outstanding organic sales growth of 10% with all regions contributing. In the Steam Specialty business, organic growth was over 2% with all geographic divisions showing growth. Nick will take you through the divisional results in detail shortly. Adjusted earnings per share was GBP 1.715, we are recommending an 11% increase to the final dividend, bringing the total dividend to GBP 0.76, an increase of 10%. With that, I'll hand you over to Kevin.
Thank you, Bill, good morning, everyone. As always, the numbers that we will be discussing today are the adjusted results. The only material difference this time is the amortization of acquired intangible assets. As Bill said, organic growth was 4%, with all our reporting divisions delivering organic sales and profit growth. Following the Brexit referendum, the currency headwinds of the last few years have reversed, we saw an 8% increase in sales due to exchange movements. The exchange impact on operating profit was slightly higher, adding 9% through a mixture of translational and transactional gains. I'll cover exchange movements in more detail on a later slide. The operating profit margin grew 100 basis points due to a number of events that affected the first half of the year. The restructuring in the U.K. and the closure of a small manufacturing factory in the U.S.A. in 2015.
The non-recurring benefit in Argentina as a result of their currency devaluation. Transaction exchange gains, a positive mix effect from the continued growth in Watson-Marlow. Net finance expense increased to GBP 2.6 million due to reduced cash balances following the payment of special dividend in the second half of 2015 and the acquisitions made in 2016. The overall tax rate has reduced slightly to 29.1%, looking forward, we'd expect a similar rate for 2017. Adjusted EPS of GBP 1.715 was up 20%, benefiting from the lower tax rate and slightly from the share consolidation in June 2015 that was linked to the special dividend paid that year. Finally, as Bill said, we're recommending raising the total dividend for the year to GBP 0.76, an increase of 10%.
Looking at the sales bridge, this shows the growth in 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. In total, sales rose GBP 90 million to GBP 757 million. Of that, foreign exchange accounted for GBP 53 million, with the vast majority coming in the second half of the year following the Brexit referendum. Organic growth in the Steam Specialties business of GBP 14 million was over 2%, which compares to a flat performance in 2015. The first half was helped by the two large one-off orders in the Asia Pacific and the significant price increases in Argentina following their devaluation in late 2015. In total, these factors contributed to just under 1% of the Steam Specialties growth. Watson-Marlow's outstanding performance of recent years continued with 10% organic growth contributing GBP 17 million.
This is spread equally over the two halves with an unexpectedly strong last quarter. In 2015, we disposed of M&M from the Steam Specialties business and added Asepco, MasoSine Japan, and Flow Smart to the Watson-Marlow business. In 2016, we added Hiter to the Steam Specialties business and Aflex to Watson-Marlow. The net effect of these 5 acquisitions and one disposal was an additional GBP 7 million sales in the year. Moving now to operating profit. This bridge shows the key changes, highlights the underlying movement in adjusted operating profit for the year. Starting on the left, adjusted operating profit last year was GBP 152 million. Exchange movement had little effect on the half year results, but was significant in the second half following the Brexit referendum. For the year, FX contributed GBP 11.2 million translational gain and GBP 3.3 million transactional.
Latin America benefited strongly in the first half of 2016 from Argentina's currency devaluation in late 2015, as US dollar denominated prices rose ahead of input replacement costs. This non-recurring gain is estimated GBP 1.5 million. In the first half of 2015, we undertook restructuring in the Steam Specialties business in the U.K., and we closed a small manufacturing site in Colorado. The net benefit of these actions was GBP 2.3 million.
The net effect of the acquisitions and disposals that I described earlier was an additional half a million GBP profit, which leaves an underlying improvement in operating profit of GBP 9.4 million, or 6%. That's driven predominantly by the operational gearing benefits from Watson-Marlow, increased manufacturing efficiency, and good price management in both businesses. All of which combine to give us the operating profit for 2016 of GBP 180.6 million. A familiar graph next. We've shown you this before.
It has the operating margins in the first and second half for the last 10 years. Margin in the first half of 2016 was up 190 basis points at 22.5%, reflecting the benefits of the restructuring carried out in the first half of 2015 and the one-off gain in Argentina. As expected, the second half margin was in line with the same period in the prior year at 24.9% as we invested transactional currency benefits in the business to sustain organic growth. The margin in the Steam Specialties business grew 60 basis points to 22.9 for the year, turning out 2.9%. In Watson-Marlow, the margin grew 170 basis points to an exceptionally strong 33.1% for the year. The blue line on the chart shows the progress of the group margin for the full year, reaching the record 23.8% that we report today.
Margin improvements have been driven by sales growth, disciplined pricing, lower material input prices, and manufacturing efficiencies. However, low industrial production growth is limiting leverage opportunities, and in 2017, we will prioritize investment in organic growth over further margin expansion. You'll have seen a variant of this chart before, and I've tried to simplify it a little, but I'll give you a little time to have a look at it. What this slide shows is the foreign currency translational impact, first between 2015 to 2016, and then shows what it might be should current exchange rates continue to the end of the year. Between 2015 and 2016, sterling devalued by 8% against the currencies we trade in. In fact, of all the significant currencies we deal in, only the Argentine peso and the Egyptian pound actually weakened against sterling.
As can be seen in the graphic, the majority of the impact occurred in the second half of the year, not surprisingly. If current exchange rates were to persist for the rest of the year, we'd expect to see a further gain against sterling of 6% in 2017, almost all of it taking place in the first half of the year. This chart shows the currency effect on sales. If we consider operating profit, as I've said before, we had a translational impact of GBP 11.2 million and a transactional impact of GBP 3.3 million in 2016. Looking forward to 2017, we'd expect a translational gain of approximately GBP 10 million and a transactional gain of some GBP 7 million in 2017. Obviously, these numbers will change as exchange rates vary, and they depend on sales mix and also the relative hedges we have in both 2016 and 2017.
Turning now to cash flow, 2016 saw a good performance with very strong cash generation. There was a working capital inflow of just over GBP 4 million, in part due to sales being more evenly spread over the year, but also a continuing focus on inventory efficiency. As a total, working capital as a percentage of sales fell 140 basis points at constant currency, excluding acquisitions. Capital investment was broadly in line at GBP 31 million. Of note were our new world-class manufacturing plant, warehouse, offices, and training center in India, and a major GBP 13 million expansion of our plant in Shanghai. Looking forward, I would expect capital investment to increase to around GBP 40 million in 2017 as we complete the plant in China, look to build new office and logistic facilities in Australia and Singapore, and invest in our new acquisition, Aflex.
Of course, it should be remembered that as the majority of our investments will be overseas, currency also has an effect on capital spend in the year when expressed in sterling. Operating cash flow increased to GBP 183 million with excellent cash conversion of 101%. Tax paid rose on higher profits and timing differences. However, as I said, we expect the underlying charge in the P&L fell 70 basis points to 29.1%.
Free cash flow was GBP 126 million, and we made dividend payments of GBP 52 million. The GBP 140 million in the prior year obviously included GBP 91 million of special dividends. Finally, in acquisitions, there was an outflow of GBP 66 million, just under GBP 4 million for Hiter and the balance on Aflex. We finished the year with net cash of GBP 27 million and return on capital employed increased 380 basis points to 47.9%. Moving to dividends.
This shows our 10-year dividend history, giving compound annual growth of 11%. We now have a record of 49 years of dividend increases stretching back to 1967. Over that period, a similar compound annual growth of 11%. We have a progressive dividend policy where dividend payments follow underlying earnings per share growth while maintaining prudent levels in dividend cover. In 2014 and 2015, dividend growth exceeded earnings per share growth. This year, we are proposing an increase in the final dividend of 11%, bringing the total dividend for the year GBP 0.76, an increase of 10% and giving dividend cover of 2.3 times. Our capital allocation policy is firstly to invest in ourselves for organic growth, then to look for suitable bolt-on or related acquisitions.
Should net cash balances accumulate significantly with no acquisitions in sight, we would seek to return cash to shareholders as we did in 2010, 2012, and 2014, by way of special dividends. This last slide from me looks at the various factors that have influenced the operating margin and shows for each item whether they have a positive, negative, or neutral impact on margin. Translational foreign exchange movements have little effect on margin, transactional much more so. We saw transactional gains in 2016. We expect to see them again in 2017, hence green arrows. Sales growth remains a key enabler of margin progression. With industrial production growth rates still at a low level, we wouldn't expect any material volume leverage. Sales pricing also shows as neutral for 2016.
Our value-added technical sales approach and continued focus on price management enabled us to achieve reasonable price increases, generally in line with inflation. We've shown a similar neutral arrow for the current year, indicating inflationary type price increases. Material input prices began to rise in the second half of 2016. We expect this trend to continue in 2017, having a negative effect on margins in the year. Restructuring in the U.K. and the U.S. in 2015 had a full year benefit in 2016, as I've said. We also saw underlying growth efficiencies in our manufacturing units. We expect those to continue in the current year. We show product and business mix as neutral in both years as we don't expect any material change. Finally, we continue to invest to develop the business.
2017 will see additional spend on various projects, the Spirax Academy, IT, and geographical expansion, to name but a few. Also in 2017, while not strictly business development, we will see a significant rise in the ongoing cost of pension provisions. These factors are reflected in the negative margin arrow for 2017. The net effect of the above is we expect to see stable organic margins in 2017 with the gains from currency and manufacturing efficiency being reinvested in the business to drive sustainable organic growth. I will now hand you over to Nick, who will take you through the divisional results. Thank you.
Thank you, Kevin. Good morning, everybody. Nice to see you all here again today. Maintaining the format of our previous presentations, I will again cover 3 main themes with you. First, I will take you through our markets and our performance in 2016. Second, I will update you on the progress we are having in the global implementation of our strategy for growth. Finally, I will summarize the key points of the day and open for your questions. As you know, industrial production growth, which we refer to as IP, is the best predictor of the performance of our markets as our sales growth correlates closely to IP growth rate. I'm sharing again this graph that represents the annual IP growth rate by quarter since 2012, where the thicker green line shows the evolution of global IP.
The red line tracks the movements of the emerging markets. The blue line represents the developed markets. This data is published by IHS Economics in their latest report. The yellow shaded area on the right is IHS's forecast for the four quarters of 2017. I wish to highlight three observations from this very busy graph. First, the good news. IP data for the fourth quarter of 2016 confirms an improvement on the zero-growth environment of the first half of last year. We enter 2017 with better IP growth rate, sorry, of just under 2%. Most of that recovery occurred in the emerging markets led by China, Southeast Asia, and Russia. Second, global IP growth rates for the first half of 2017 are forecasted to remain at close to 2%.
This is clearly an improvement on the half percentage point average of the past two years and is comparable with the average of the 2012 to 2014 period. The final observation I'd like to highlight today is that while global IP growth rates have improved, the quantum of these improvements is still modest. With the annual average improving by just over one percentage point. IHS is confident in the sustainability of those improvements is marked by their forecast of softening IP in the latter part of this year, which by the way, is not included in the under 2% growth they forecasted for 2017. Clearly, whilst macroeconomic expectations are improving, market uncertainty remains very high.
We have built our plan for this year based on an overall assumption that market conditions in 2017 will be modestly better than 2016, that we also still need to continue investing in our ability to self-generate growth in order to be less reliant on market-based improvement. Starting now with the Steam Specialties business in Europe, Middle East, and Africa. Organic sales were up 1% at constant currency. More importantly, operating profits were up 10% organically, to reach an unprecedented GBP 50 million in 2016. This performance was achieved in a still weak and uncertain market environment as IP growth rates remained very low throughout all the year at around one percentage point. Organic sales growth was mixed, consistent with the still low industrial production growth rates and weaker project activity.
Sales in the major markets of U.K. and Germany were up, while moderately down in France and Italy. Following the June 23rd referendum, Sterling's strong devaluation against the EUR and almost all other currencies in this region created an 8% currency tailwind, which more than offset the effects of the M&M disposal in 2015 and drove the reported revenues to GBP 234 million. Strong efficiency improvements at our European manufacturing facilities accounted for 140 of the 180 basis points improvements of organic profit. Despite the still low levels of industrial production growth rates and the continued market challenges, we remain positive and well-positioned to continue progressing in this important business. In the Asia Pacific segment, organic sales were up 3% at constant currency, reaching GBP 193 million.
Sales were ahead in almost all countries, despite the still tough economic conditions, with growth particularly good in Australia and parts of Southeast Asia, while Japan was flat after a strong 2015. China performed strongly with sales and profits up as we successfully increased the level of small self-generated improvement projects for our end user customers. Sales and profits were slightly higher in Korea as we benefited from the shipment of large projects secured in 2015 and delayed into the first half of 2016. In June 2016, we inaugurated our state-of-the-art manufacturing, training, and sales facility in Chennai, India. We are pleased with the progress that this important emerging market, which has already made a small contribution to sales growth in 2016, and where we continue to invest in the invariably slow process of furthering our market presence through the direct sales model.
We continue to invest for growth across the whole of the Asia Pacific region, where our new operating company in Vietnam completed its first full year with good sales progress. The trading profit in this region also reached GBP 50 million in 2016. The outlook for Asia Pacific suggests soft economic and market conditions with continued uncertainty regarding China and Korea. We remain positive on the longer-term prospects of this region, where we are well-positioned to continue capturing self-generated growth. Turning now to the Americas. Overall organic sales were up 5% at constant currency, reaching GBP 136 million. While operating profit was up 9% organically to GBP 29 million. In North America, sales declined 3% as industrial production contracted by just under one percentage point.
Distributor sales, which account for over three quarters of our sales in the U.S.A., also declined and had negative impact on our sales in that country. This was particularly noticeable for distributors serving the oil and gas sector, where upstream investments also remained depressed in Canada. We continue to make progress with our direct sales initiatives into other industrial sectors in the U.S.A., this growth was insufficient to offset the decline of the distributor sales. Sales in Latin America grew by 22%, driven largely by the benefit of US dollar-based pricing in Argentina. We again saw organic sales growth across all operations except Brazil, where the economy remained in a strong industrial recession. Our strong operations in Brazil continues to outperform its market and deliver good levels of profitability.
The five other operations of this region continue to perform well with double-digit sales growth, including our new sales companies in Colombia and Peru. The operating profit margin in the Americas as a whole, excluding acquisitions, improved by 10 basis points to 22.1%, as the benefits of improved manufacturing efficiencies and higher margin sales in Argentina were mostly reinvested for growth across this region. Hiter, the Brazilian control valve business acquired in July 2016, is progressing well with sales growth and performance to date in line with our expectations. We expect positive contributions to group earnings from 2018, although the initial losses incurred last year diluted the America's profit by 60 basis points to 21.5%. We remain very well positioned for further growth across the Americas, despite the low industrial production growth levels and continued political uncertainty.
Watson-Marlow's organic sales increased by another outstanding 10% at constant currency to reach GBP 194 million in 2016. This is the third consecutive year that Watson-Marlow has exceeded our expectations of organic sales growth, undoubtedly an excellent performance. Nevertheless, we should not continue to rely on these higher organic growth rates. For 2017, we continue planning for mid to high single-digit growth. We achieved strong sales growth in the pharma and biotechnology sector, with this industry now accounting for over 40% of Watson-Marlow's global sales. We anticipate the industry's faster growth to continue, albeit at slightly lower rates, as there appears to be a smaller number of expansion projects being initiated. Organic sales growth was also strong across all geographic regions, with Asia-Pacific achieving particularly outstanding growth. The 2015 acquisitions have integrated well and performed at or above our expectations.
Together with the one-month contribution from Aflex, these acquisitions boosted sales by another GBP 10.6 million, adding 6% growth. Their combined trading margin of close to 20% are still very good at a 90 basis points dilutionary effect on Watson-Marlow's excellent margin. Aflex Hose, acquired last year for an enterprise value of GBP 61.4 million, is integrating well and performing in line with our expectations. Operating profit increased by 16% organically and 34% on a reportable, reaching an unprecedented GBP 64 million. The operating profit margin increased by 180 basis points to an also exceptional 33.1%, boosted by operating gearing, manufacturing efficiencies, and transactional currency gain. I will now move into the second part of my presentation, which will again update you on our progress implementing our global strategy for growth, and I will share two new customer case studies that help illustrate how our strategy is delivering growth.
In 2016, we strengthened the industry sector focus of our direct sales organization, enhancing their ability and effectiveness to uncover self-generated growth opportunities. We are encouraged by the above-average sales growth that we have achieved in most of those strategic sectors that we have chosen, such as food and beverage, pharmaceutical, health care, and chemical. We established the Spirax Sarco Academy with its own fully dedicated organization and annual budget of over GBP 1 million. We continued our geographic expansion, opening three new direct sales companies in 2016. We leverage our R&D investment with the launch of multiple innovative new products across both the steam specialties and the Watson-Marlow business. We accelerated our Global Excellence in Supply Chain Initiative, reducing manufacturing costs, improving product availability, and optimizing working capital.
We also completed a state-of-the-art manufacturing facility in India and the new clean steam unit at our manufacturing plant in the U.K., dedicated exclusively to the manufacture of products destined for the pharmaceutical, healthcare, and food and beverage industry. Lastly, we progressed the group-wide rollout of our sustainability strategy, aligning the entire organization behind this strategic theme. As you can see, we have stepped up our revenue and capital investment in support of growth. We will continue to do so in 2017. Our strategy is focused on delivering self-generated growth. The first of today's customer case studies comes from China, where Shanghai Totole Foods company was encountering high energy costs. Our expert sales engineers developed a bespoke system to recover waste heat from the boiler's exhaust gases.
Our engineered solution uses an economizer, heat exchangers, and other ancillary equipment to recover heat and generate hot water, which is then used to preheat air required in the process to dry chicken bouillon. This solution reduced energy usage by over 10% and water usage by over 500 cubic meters in that part of the process. Generated annual savings of over 120,000 tons. As you can see, the increased sector focus and innovative solutions deliver outstanding customer value and uncovers self-generated growth. The second case is from Watson-Marlow in Germany. Rostag Kaserine Bioval is Germany's leading manufacturer of dairy products and was facing difficulty pumping shear-sensitive fluids in their cream cheese plant. The customer required a pump with very low shear properties, capable of gentle handling of cream and whey.
It was also of paramount importance for this customer that the pumping solution would meet stringent hygienic standards and be easy to clean-in-place. The solution was the new MasoSine Certa pump, launched in 2016 by Watson-Marlow. The performance achieved by this pump was described by the customer's operations manager as simply outstanding, with up to 50% more gentle handling than rotary lobe pumps, reducing process scrap rate and improving productivity. The much-improved clean-in-place properties of the Certa pump significantly reduced maintenance downtime and increased production process hygiene. Again, as you can see, innovative new product development engineers sustainable value and generates growth opportunities. Now, in summary, given the challenging market of 2016, we are very pleased to report sales growth of 14% and operating profit growth of 18%. The group's operating profit margin rose to a new record of 23.8%.
We continue to deliver robust cash generation, achieving 101% cash conversion after capital investment. Our balance sheet remains very strong. Consistent with our performance over the past 49 years, the board is recommending a total dividend increase of 10% for 2016. We continue to invest in the implementation of our strategy in order to improve our ability to self-generate growth. Looking forward to 2017, we will prioritize accelerating investments for growth over further operating profit margin expansion. We have a robust and resilient business model. Assuming no significant deterioration in trading conditions, the board expects to make further progress in 2017.