June 24, 2014 / 7:51 AM / in 4 years

UPDATE 3-British defence contractor Chemring CEO Papworth steps down

* Army veteran Michael Flowers to replace Mark Papworth

* H1 underlying pretax profit falls 29 pct

* Shares fall as much as 12.5 pct, top loser on LSE (Adds analyst comment; updates share movement)

By Aashika Jain

June 24 (Reuters) - Chemring Group Plc’s chief executive, Mark Papworth, who was tasked with turning around the troubled defence contractor, has stepped down less than two years into the job.

Shares in the company, which makes ejector seats for fighter jets and flares used to counter heat-seeking missiles, fell as much as 12.5 percent, making the stock the top loser on the London Stock Exchange.

Chemring, once a blue-chip company, has been reeling under defence budget cuts in the United States, its largest market, in the past few years.

The company did not say why Papworth, under whose tenure the stock lost more than a third of its value, was leaving.

Chemring said Michael Flowers, who served in the Australian army for 22 years and is a member of the company’s executive committee, would replace Papworth.

Flowers, who headed Chemring’s Australian business, has previously worked with BAE Systems, Europe’s biggest defence contractor.

“I think (the appointment) should be a positive given his operational experience and his current tenure within the business,” said Canaccord Genuity analyst Charlotte Keyworth, who attended the post-results conference call for analysts.

Keyworth cited the element of surprise as a reason for the share fall. “No one was expecting it today,” she said.

Flowers’ defence background is expected to help him take on the tough challenge of grappling with defence spending cuts across the globe that have forced Chemring to issue a slew of profit warnings in the past few years.

Papworth took the helm in October 2012, following private equity firm Carlyle Group LP’s move to drop its takeover bid for the company.

He launched a restructuring that included the sale of non-core businesses, job cuts and consolidation of several business units. Chemring sold its European ammunitions business for 167.8 million pounds ($282 million) earlier this year.

Chemring also reported on Tuesday a 29 percent fall in underlying pretax profit for the first half to 18 million pounds. Revenue for the six months ended April 30 fell about 7 percent to 277.4 million pounds.

The company said it expects its restructuring initiative to show further improvement in the second half of the year.

Shares in the Fareham, England-based company were down 8.5 percent at 189.75 pence at 1410 GMT. ($1 = 0.5880 British Pounds) (Reporting by Aashika Jain, writing by Karen Rebelo in Bangalore; Editing by Gopakumar Warrier and Saumyadeb Chakrabarty)

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