Strong pound hits UK engineer Smiths; shares slump

* First (Other OTC: FSTC - news) -half reported headline operating profit falls 3 pct

* Reported headline revenue drops 2 pct

* Interim dividend 12.75 pence vs 12.50 pence last year

* Stock down as much as 7 pct, top FTSE-100 loser (Adds CFO comment, details; updates shares move)

By Aashika Jain

March 19 (Reuters) - British engineer Smiths Group Plc (Other OTC: SMGKF - news) said full-year earnings would be reduced by 4-5 percent if foreign exchange rates remained at current levels, sending its shares tumbling as much as 7 percent on Wednesday.

Smiths Group, which generates about 95 percent of its revenue from outside the UK, also reported a 3 percent fall in first-half profit, hurt by a stronger pound.

"The key challenge for us as we move into the second half is the rate at which we are translating our U.S. dollar earnings into sterling," Chief Financial Officer Peter Turner said on a conference call.

The pound hit a five-year high against a basket of currencies including the dollar in mid-February on expectations that the Bank of England would be the first major central bank to raise interest rates.

The pound appreciated 8 percent against the dollar in the six months ended Jan. 31. Smiths, which makes engineering components ranging from mechanical seals to medical devices, gets about 45 percent of its revenue from the United States.

The company's first-half results were also hit by continued weakness at its medical unit, which makes devices for hospitals and homecare providers.

Smiths reported a 6 percent decline in reported headline revenue in the unit, the company's second-largest, citing intense competition, distributor destocking and a tax on medical devices in the United States.

The unit accounted for 27 percent of total revenue of 1.44 billion pounds ($2.39 billion) in the first half ended Jan. 31.

Headline operating margin in the business, which the group tried to sell last year, fell to 18.3 percent from 21.1 percent a year earlier.

The company said reported headline revenue in its largest unit, John Crane, was flat.

The unit, which accounts for slightly more than 30 percent of the company's total revenue, makes mechanical seals, bearings and couplings for customers including Chevron Corp, Rolls-Royce Holdings Plc and BASF.

Revenue in the company's detection unit, which makes sensors that detect explosives, chemical agents and biohazards, declined 1 percent in the first half, hit by crimped government spending. The business accounts for 18 percent of total revenue.

The company said it would continue its restructuring programme and expects to save 60 million pounds annually, up from the 50 million pounds it had forecast earlier.

Headline operating profit dropped to 245 million pounds ($406 million) for the first half ended Jan. 31, from 253 million pounds a year earlier.

Smiths said headline revenue fell slightly to 1.44 billion pounds from 1.47 billion a year earlier.

The company raised its interim dividend to 12.75 pence from 12.50 pence.

Smiths' shares were down 5.2 percent at 1281 pence at 1324 GMT. The stock was the worst-performing blue chip on Wednesday, and weighed down Britain's top equity index. ($1 = 0.6034 British Pounds) (Reporting by Aashika Jain in Bangalore; Editing by Gopakumar Warrier and Ted Kerr)