British arms manufacturer BAE Systems on Thursday said net profits fell 22 percent to £478 million (544 million euros, $780 million) in the first half on falling sales.
The group, posting earnings for the six months to June 30 compared with the first half of 2010, also unveiled plans to repurchase some of its shares at a cost of up to £500 million, sending BAE's share price shooting higher.
BAE Systems added that sales dropped 13 percent to £9.23 billion in the first half.
The company also took a charge of £160 million for the higher-than-expected cost of completing an offshore-patrol-vessel programme for Oman, but this was offset by an exceptional gain of £125 million from Britain's Ministry of Defence.
The maker of Challenger tanks, Tornado jet fighters, Astute class submarines and Queen Elizabeth class aircraft carriers, raised its dividend to 7.5 pence from 7.0 pence.
In response, BAE's shares surged to stand 4.9-percent higher at 307 pence in afternoon deals on London's FTSE 100 index, which was down 0.70 percent.
"Clearly defence cuts already confirmed in the UK and partially in the US will continue to impact on BAE revenue and profits," said Howard Wheeldon, senior strategist at brokers BGC Partners.
BAE has cut more than 15,000 jobs, including contractors, over the past two years as it seeks to offset government spending cuts around the world.
Britain last year unveiled plans to shrink its armed forces and scrap key assets like its flagship aircraft carrier, under its Strategic Defence and Security Review (SDSR) that forms part of savage public sector cuts.
But the change meant the state had to pay BAE a charge of £125 million.