More than £1bn was wiped off the value of British defence company BAE Systems after it warned that US defence spending cuts would reduce its profits by up to 10% this year.
BAE, Britain's biggest manufacturing employer, warned that US plans for $450bn (£270bn) of defence cuts over the next decade will reduce the size of its US business by 15% in 2013 and 2014. The US accounts for 44% of BAE's sales, but the company said that, together with other factors, the cuts would hit profits by between 5% and 10% this year.
The warning wiped more than 8% off BAE's share price to 400p, reducing the company's market value by £1.1bn to £12.9bn.
The arms maker has already suffered from government cuts, with pre-tax profits down 65% last year to £422m, though sales were 2% higher at £18.2bn.
Jordan Hiscott, of financial spread-betting firm Gekko Global Markets, said BAE's figures were "awful".
"As western governments withdraw their military assets and needs from deployments in Iraq and Afghanistan, defence cuts could become more prevalent in the sector – this is undoubtedly being highlighted in the figures this morning."
BAE's warning comes a week after jet engine maker Rolls-Royce said government cuts will cause a "pause in revenue and profit growth" following a decade of increasing sales. That warning knocked more than £3bn off Rolls' market value.
Ian King, BAE's chief executive, said budget pressures in the company's largest markets will continue to "prevail" but said the firm – which makes fighter jets, drones and submarines – had made efforts to expand into new markets to offset some of the expected downturn in the US and Britain.
"We are the most global of all defence companies," he said. "We have a record order book and content from outside the UK and US is growing.
"Overall, the group delivered a solid performance in 2013, against the background of reduced government spending and challenging market conditions."
The company, which employs more than 88,000 people worldwide, said its order backlog was worth £42.7bn over the medium term.
On Wednesday BAE agreed a deal on the price of 72 Eurofighter Typhoon jets it is selling to Saudi Arabia following years of negotiations.
King said the public is "never going to know" how much the Saudis are paying for the jets, which initially had a £4.4bn price tag. BAE had been trying to extract more money after the Saudis requested advanced weaponry and equipment for the jets, which are being built in Warton, Lancashire. The first part of the "cash settlement" is expected in the next few months.
He said the Gulf had become an increasingly important market for the Typhoons. More than 390 of the jets – which are built in conjunction with European aerospace group Airbus and Italian defence contractor Finmeccanica – have been delivered, mostly to European countries, and a further 571 Typhoons are on order.
Bahrain, Qatar and Malaysia are considering buying the Typhoon rather than Lockheed Martin's F-35, which are made in the US, the Rafale from France's Dassault Aviation and the Gripen from Sweden's Saab.
King pointed out that even if countries pick the F-35 Lightning II, BAE collects 15% of the revenue as it is a subcontractor, making parts including the crew escape and life support system.
As well as maintaining the jets in the future, King said BAE will continue to supply Britain's nuclear submarine fleet and make ground vehicles for the US. "If anyone thinks the US is not going to have an army and need combat vehicles they're crazy," he said.
The company is also benefiting from the growing threat from cyber terrorism and cyber crime. "Cyber is growing from both government and commercial activities," he said. BAE has won a five-year contract to protect Vodafone's cyber security, and King said BAE had signed a deal with other big multinationals, including banks, but was prevented from naming clients.
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