DEFENCE giant BAE Systems has warned of tough times ahead, despite posting a two per cent rise in sales last year to £22.4billion.

Pre-tax profits rose five-fold to £1.4billion, but experts said that was largely due to huge charges levied on the firm in 2009 when it acquired a rival company.

Defence spending cuts are pre-icted to have a major impact for the next year, overshadowing yesterday’s 2010 annual results.

BAE Systems was the biggest faller in the FTSE 100 yesterday morning, with shares down more than 3.5 per cent. The company said that it faced “a challenging market environ-ment” and that it expected “that pressures on defence budgets, particularly in the US and UK, will continue”.

BAE, which employs 4,000 East Lancashire workers, is to axe 270 workers at its Samle-sbury plant and a further 966 in Warton.

The move was prompted by the coalition government’s decision to axe the Harrier and Nimrod aircraft.

A BAE statement said: “Going forward, the focus will be on securing key new programmes, pursuing export opportunities, and sustaining the margin improvement from the busin-ess's ongoing restruc-turing and efficiency initiatives.

“In 2011, a reduction in sales is anticipated as the changes arising from the Strategic Defence and Security Review reduce activity.”

The company saw a small rise in underlying earnings to £2.2 billion last year.

Overall sales rose two per cent to £22.4 billion last year.