2014 was a year in which the Group experienced uncertain trading conditions in several of its major markets, together with significant fluctuations in the exchange rates used to translate the results of its overseas subsidiaries into sterling.
I am pleased to report that the Group, under the stewardship of Stephen Harris and his executive team, made solid progress throughout the year by continuing to execute the strategy of improving the mix of sales, towards higher value and positive growth areas, while maintaining focus on productivity improvements and strict cost control. Together this has again enabled the Group to grow its profitability, backed by strong cash generation and an impressive return on capital employed. Going forward we will continue to invest in suitable opportunities, either organically, in both developed and emerging markets, or through the acquisition of high quality businesses at sensible prices.
Headline earnings per share of 43.8p grew by 6.3% in the year while headline operating margins exceeded 18% and headline operating cash flow is 90% of headline operating profit. As a result the Group is reporting another year of strong cash generation with £35.7m of net cash at 31 December 2014. Return on capital employed increased to 20.7% for the year.
The Board is proposing a final ordinary dividend of 9.8p, an increase of 8%, which will be paid on 1 May 2015 subject to shareholder approval at the 2015 Annual General Meeting (AGM). This brings the total ordinary dividend for 2014 to 14.4p (2013: 13.5p) costing £27.4m, which represents a year-on-year increase of 7%. Recognising the strong net cash position of the Group, the Board is again recommending a supplemental distribution, by way of a special dividend, amounting to 20.0p per share (2013: 10.0p), costing £38.1m (2013: £19.1m).
Governance and reporting
As Chairman, my key role is to lead the Board effectively. An important factor in achieving this is ensuring that good corporate governance procedures are practiced across all 26 countries in which the Group operates. In order to enable all shareholders to understand how this is achieved we have provided a Corporate governance statement in this Annual Report. This describes how the governance structure underpins the delivery of the Group's business strategy. We have also outlined the principal risks that may prevent the Group from achieving its objectives and the actions being taken to mitigate these potential obstacles.
Hand in hand with good governance goes transparent reporting, and this year we have made a number of changes to the Annual Report to ensure that this is achieved. Some of this is mandated by changes in UK reporting regulations, others through changes to the UK Corporate Governance Code, and some by pro-actively adopting best practice as it evolves.
The drive for ongoing improvement in environmental and safety reporting is described in the Corporate responsibility and sustainability section of this Annual Report.
It is the responsibility of every board to ensure that there is an appropriate succession planning process in place across the business, including for the board of directors. This is integral to the successful delivery of the Group strategy and underpins the effectiveness of the Board. During the year the Nomination Committee reviewed its plan for Board succession. With three of the four independent directors in place for more than six years, we plan to progressively transform the composition of the Board in the coming years. As a result of this exercise, John Biles, the Senior Independent Director and Chairman of the Audit Committee, will retire at the 2015 AGM. John joined the Board in 2007 and his wise counsel has been important as the transformation of the Group has taken place. He leaves us with all good wishes for the future.
In November 2014, following an extensive search, Ian Duncan, who is a qualified chartered accountant, joined the Board. Ian is a highly experienced independent director having previously gained excellent executive experience with a number of international organisations. His biography can be found in the Board of Directors section.
During the year I again met with a number of Bodycote's leading shareholders and received positive, constructive feedback from them on their views of the Group. Going forward I will maintain this valuable dialogue and also look forward to meeting increasing numbers of shareholders at this year's AGM, when there will be an opportunity to discuss the Group's business and future prospects with Board members.
It is the employees of Bodycote who make this company special. Investing in all aspects of the workforce is an important feature in creating a successful future for the business. Over the last 12 months we have upgraded our human resource strategy, having identified talent management as a crucial factor if the Group is to deliver further operational improvement. I remain convinced that investment in all levels of the workforce will help to ensure that our staff will find Bodycote to be a company where they can continue to enjoy rewarding careers. On behalf of the Board I congratulate them for the dedication and professionalism that they have demonstrated throughout another successful year.
With its strong operating and financial performance throughout 2014, the Group has again delivered a positive result for all of its stakeholders. The share price remains strong, despite the economic and political turbulence which the Group has experienced in a number of the countries in which it operates. The Group's returns have continued to move in the right direction and the balance sheet is strong.
I remain confident that the executive team, supported by the Board, will continue to deliver first class returns as they develop our activities across the globe. With a talented and motivated workforce I anticipate further progress in the periods ahead.
26 February 2015