|2012 (£m)||2011 (£m)||Reported growth||Underlying growth|
|Headline operating profit||66||68||%||%|
|Headline operating margin||14.7%||17.8%|
|Statutory operating profit||34||49|
|Return on capital employed||12.3%||15.7%|
Reported revenue for Smiths Interconnect grew 18%, or £70m, driven mainly by the acquisition of Power Holdings Inc. (PDI) which added £54m. Underlying revenue grew £13m, or 3%, reflecting a strong second half performance from Microwave partially offset by tough trading conditions continuing to impact both Connectors and Power.
Reported headline operating profit declined 2%, or £2m. Excluding the £4m profit benefit from the PDI acquisition (net of integration costs), underlying headline operating profit fell 9% (£6m). Margins declined 310 basis points to 14.7% due to a combination of adverse operational gearing caused by lower volumes, particularly in Connectors, and a 90 basis point dilutive impact from PDI. First half gross margins were weak because of sales mix and pricing pressure. In response, we cut costs including headcount reductions in several facilities, closed one production plant, started the closure of another, outsourced some non-core manufacturing processes and transferred selected production capacity to low-cost countries. In addition, procurement initiatives continue to offset cost inflation. These actions helped increase second half margins compared with the first half. Action plans are also in place to improve PDI’s margins through operational and procurement initiatives.
Return on capital employed declined to 12.3% as a result of the lower profitability in the underlying business and the impact of the PDI acquisition.