BAE Systems today announced a small drop in its pre-tax profits to £333million for the first half of the year -- down from £359million last year.

The company, which employs more than 10,000 people at its Lancashire sites at Samlesbury and Warton, said it expected to continue its recovery over the second half of the year.

BAE last year ran into problems funding and delivering the Nimrod reconnaissance aircraft and the Astute submarine but cost over-runs were settled with the MoD in February.

"The management team focused on delivering an improved performance across our businesses and addressing the key issues arising from the challenges of 2002.

"While good progress has been made, we recognise that there is much more to do to deliver acceptable profitable growth and increased shareholder value," said chairman, Sir Richard Evans.