British defence contractor BAE Systems has been hit hard by US defence cuts

BAE Systems sees share price plummet

Defence giant BAE Systems saw shares sink 8.3 per cent after it missed 2013 profit expectations and cut its guidance for this year.

The slump came during a tough session for the wider London market after figures showed a contraction in Chinese manufacturing and some members of the US Federal Reserve fuelled speculation that interest rates may go up sooner than Wall Street had been expecting.

But BAE shares led the fallers board in London by some distance – down 36.4p to 400.4p – as it warned that earnings per share could reduce by between 5 and 10 per cent this year.

The British firm receives 44 per cent of its revenue from the USA and it is feeling the heat from US defence spending cuts, which last year caused pre-tax profits to fall by 65 per cent to £422m.

While the figure was distorted by an accounting write-down based on the value of future US business, even when excluding the one-off item BAE's underlying earnings figure of £1.9bn was still short of City hopes.

"Awful headline figures from BAE Systems this morning," said Jordan Hiscott, senior sales trader at Gekko Global Markets.

"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."

Shares in the firm had previously fallen 5 per cent in December after it lost a multi-billion pound deal to sell 60 Eurofighter Typhoon supersonic jets to the United Arab Emirates.

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