BAE Systems shares have fallen by 9 per cent after the defence giant recorded a net profit drop of 82 per cent.

The company recorded profit after tax of £176 million over 2013, compared to £948 million the year previously following western defence cuts, with business particularly affected in the U.S.

BAE said: "As certain areas of spending were protected from these reductions, such as military personnel accounts, the budgets funding much of the US defence industrial base are likely to be disproportionately impacted”.

BAE warned that it expected further profit drops for it pre-tax earnings in 2014 of around 7.5 per cent.

The profit fall comes despite a major deal with Saudi Arabia for Typhoon aircraft valued at £18.18 billion.

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BAE pointed to the continuation of “challenging market conditions” from reduced government spending and increased financing costs.