The sharp fall in profits was largely impacted by impairment charges of £973m, the majority of which were the result of a failure to win a follow-on contract to supply medium tactical vehicles to the US government.
In addition, fines amounting to £278m drove down results after BAE pleaded guilty to a charge of conspiring to make false statements to the US government and breaching duty to keep accounting records in relation to payments made in Tanzania.
The company said that conditions in both the UK and the US remained difficult, with defence budgets expected to come under further pressure.
It added that cost-reduction measures were being aggressively implemented across the group.
However, with one-off costs and fines stripped out, the group reported underlying earnings of £2,220m, up 17 per cent from 2008.
Overall sales rose by 21 per cent and the group has raised its dividend from 14.5 to 16p.
The group added that it currently had a large order book in the UK as a result of long-term contracts for the Typhoon combat aircraft, the Type 45 anti-air warfare destroyer and Spearfish and Sting Ray torpedoes in service with the Royal Air Force and Royal Navy respectively.
Chief executive Ian King said: ‘BAE Systems’ strategy of investment in businesses with strong positions in attractive sectors of the defence and security market continues.
‘Despite the difficult economic environment and changes in priorities in many of its markets, the group continues to develop plans for growth over the medium term.’
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