BAE Systems' profits drop as defence budgets fall

Typhoon jet BAE Systems makes the Typhoon fighter jet

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UK aerospace company BAE Systems has reported a fall in full-year profits, blaming delays over a major contract with Saudi Arabia and weak global demand.

Pre-tax profits fell more than 6% to £1.37bn ($2.1bn), compared with £1.47bn last year.

Sales also fell from £19.1bn to £17.8bn for the year to 31 December 2012.

But BAE, which makes the Typhoon jet fighter, said its order backlog rose 8% to £42.4bn.

It also cheered shareholders by announcing a 4% increase in final dividend to 19.5p as well as a three-year share repurchase programme worth up to £1bn.

BAE's shares closed up 4%.

But its outlook for 2013 remained cautious, with the company saying it expected "modest growth in underlying earnings per share" and a "constrained" US and UK market.

Its deal to supply Saudi Arabia with 72 Typhoons has hit trouble following disagreements over the final contract price, while in the US, where BAE derives 40% of its revenues, the defence budget is being cut by $487bn (£320bn) over the next decade.

In December 2012, BAE won a £2.5bn aircraft contract with the Sultanate of Oman to provide 12 Typhoon fighter jets and eight Hawk Advanced Jet Trainer aircraft.

The company has been under pressure to develop an alternative growth strategy following the collapse of its planned merger with European defence company EADS in 2012.

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