Investors in BAE Systems ran for cover yesterday after the defence giant took an £865m hit in the US, where an axe has been taken to the Pentagon's bloated budget.
Its shares slumped more than 8 per cent as the Eurofighter Typhoon maker revealed that profits fell 81.6 per cent to £176m in 2013 and warned that earnings per share this year will drop by between 5 per cent and 10 per cent.
Some of the £865m writedowns – which made up a total impairment charge of £887m – are related to acquisitions that BAE made in the US several years ago, but the group conceded that pressures to cut spending and reduce the deficit on the other side of the Atlantic are set to continue.
BAE's poor results are a significant blow for UK manufacturing, illustrated by its huge revenue of nearly £18.2bn last year, which was up slightly from £17.9bn in 2012.
In response, the shares dived 36.4p, or 8 per cent, to 400.4p.
Ian King, the chief executive, said that the defence cuts in the US were "impacting the whole industry". However, he insisted that the group had "delivered a solid performance in 2013, against the background of reduced government spending and challenging market conditions".
In one piece of good news for investors, the finance director, Peter Lynas, said that BAE would now be accelerating its share buyback programme; in the first of a three-year plan, around £270m of shares have been repurchased.
"We'll be upping the pace," said Mr Lynas, who added that the writedowns had no impact on dividend payouts and were a "technical accounting issue".
Mr King said that this week's welcome announcement that tortuous negotiations over the sale of 72 Eurofighter jets to Saudi Arabia had finally been completed puts BAE in a strong position to win more work with the kingdom. He described the country's need for more kit as "very real and immediate".
Garry White, chief investment commentator at Charles Stanley, said yesterday that investors who had piled into BAE shares after the Saudi Arabia announcement on Wednesday must be "smarting".
Mr King also gave a hint at the company's concerns over the implications of a "yes" vote for Scottish independence, though again he declined to give a clear answer over whether a company with shipbuilding operations in Scotland has discussed contingency plans with the Ministry of Defence. "Would we like more clarity? Yes, we would," he said, though added that the vote was a matter for the Scottish people.