BAE Systems says annual net profit drops 14% to £1.07 bn

British arms manufacturer BAE Systems on Thursday said the company's net profits dropped to £1.07 billion ($1.63 billion, 1.23 billion euros) last year, a 14-percent drop on 2011.

Group revenue fell seven percent to £17.83 billion in 2012 compared with a year earlier, BAE Systems added in an earnings statement, as the British and US governments tighten their defence budgets amid global economic strains.

"Following a period of growth, defence budgets in the US have flattened and are expected to remain constrained in response to reducing overseas operations and measures to address federal deficits," BAE said in its earnings statement.

"In the UK, the defence market has stabilised following changes to programme priorities outlined in 2010 through the UK government's Strategic Defence and Security Review."

BAE added that "the overall outlook in both countries is expected to continue to be constrained."

The company's year was dominated by the collapse of BAE System's proposed $45-billion merger with European aerospace giant EADS.

A plan to create the biggest aerospace and defence group in the world was brought down last October by unexpectedly strong opposition from Germany.

Europe's biggest economic power torpedoed the deal over a decision to shift completely the power behind the civilian arm of the new group to Toulouse in southern France where airliner maker Airbus is based.

Berlin was also said to have rejected plans for the group's military operations to have been run from London where BAE Systems is based, leaving Germany empty-handed.

EADS had wanted to expand in the United States and gain better access to a civil aviation market which is forecast to grow in coming years, to reinforce its defence activities.

BAE manufactures a host of products ranging from military transporters to Bradley fighting vehicles, Challenger tanks and Queen Elizabeth aircraft carriers.

BAE is also part of the Eurofighter Typhoon consortium that includes the German and Spanish subsidiaries of EADS, as well as Italy's Finmeccanica.

In addition, BAE has ramped up its focus on the United States, with the acquistion of United Defense Industries for $4.192 billion in 2005, and Armor Holdings for $4.1 billion in 2007.

The US market now accounts for 40 percent of BAE Systems' total group revenues -- making it the biggest foreign supplier of military goods to the Pentagon.

In the United States, BAE is a key supplier for the F-35 Joint Strike Fighter jet and is also responsible for the Trident nuclear submarine programme.