Profits at BAE Systems dipped by 7% in 2012, a year dominated by US budget cuts and its failure to seal a merger with Airbus firm EADS.

BAE's sales reduced by 7% to £17.8 billion in 2012 while the company warned that defence spending in the UK and United States, where it generated 20% of its revenues last year, was expected to continue to be constrained.

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However, contracts outside the two countries more than doubled last year to £11.2 billion, leading to an 8% increase in its order backlog to £42 billion.

With reduced activity in support of US operations in Iraq and Afghanistan, BAE has targeted growth in cyber, intelligence and security businesses.

It has also reduced headcount by 3,600 over the last year, bringing the total reduction over the past four years to around 26,000 worldwide.

Profits fell 6.6% to £1.37 billion today but BAE said that it expected a return to earnings per share growth this year, subject to near-term uncertainties in US budgets and the final terms of a key fighter jet contract with Saudi Arabia.

Shares rose more than 4% following the update today.

BAE was recently boosted by Oman's order of 12 Typhoons and eight Hawk trainer jets, worth around £2.5 billion including support packages. But delivery of both aircraft is not expected to start until 2017.

The company was forced to scrap its tie-up with EADS after political wrangling scuppered the two companies' plans to create the world's biggest defence and aerospace group, with combined sales of around £60 billion.

It said today that focus on underlying business performance was "sustained as a priority" while the merger discussions were under way.