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Military spending cuts have led to a drop in profits at UK defence company BAE Systems.

Profits before tax for the first six months of the year were £691m, down from £781m a year ago, with global sales down 13% to £9.2bn.

Despite this, BAE announced a dividend rise of 7% and a share buy-back scheme.

BAE benefited from a one off payment of £125m from the UK Ministry of Defence in compensation for contract changes over the past nine years.

The company reached a separate settlement agreement with regards to the cancellation of the Nimrod surveillance jet and Harrier jet programmes, but did not disclose the numbers.

BAE also took a one off loss of £160m linked to a contract to provide an Omani patrol vessel.

The scheme to purchase £500m of its own shares was well received by investors, with BAE shares closing up by 4.9%.

Chief executive Ian King said the company would focus on new areas of business such as cyber weapons.

"We continue top pursue the fast lanes of growth in the areas of military and technical services, cyber and intelligence and high-end electronics," he said.

Analysts said the results were not as bad as they could have been given the spending cuts.

"These results are by no means a disaster, and the increased shareholder returns should be taken as a positive," said Andrew Gollan from Investec Securities.