Europe's biggest defence contractor BAE Systems reported a 7 percent fall in full-year profit, hit by continued cuts to military spending by the United States and Britain, a delay in key orders and the end of the Iraq war.

BAE Systems on Thursday posted underlying earnings before interest, tax and amortisation (EBITA) of 2.02 billion pounds ($3.18 billion) for the year to the end of December 2011.

Its revenues fell 14 percent to 19.15 billion pounds, primarily due to a cut in supply orders to the U.S. army after it pulled out of Iraq and the delay of an order for 72 Eurofighter Typhoon jets by Saudi Arabia.

BAE was expected to post a 2011 EBITA of between 1.44 billion and 2.15 billion pounds, with the average at 1.9 billion pounds, according to a Thomson Reuters poll of 18 analysts.

The company, which is involved in the production of F-35 fighter jets and Astute class submarines, increased the total dividend 7.4 percent to 18.8 pence but said the outlook was uncertain.

BAE Systems is operating in a difficult business environment as defence spending reduces in its largest markets, the US and UK, Chief executive Ian King said.

Whilst little sales growth can be expected for the group in 2012 in the current market conditions, modest growth in underlying earnings per share is anticipated, assuming a satisfactory conclusion to Salam (Saudi Arabia Typhoon) negotiations in 2012 and excluding the benefit of a 2011 R&D tax settlement.

BAE, which derives 47 percent of its revenues from the U.S. and 29 percent from Britain, has been hit by cuts to military spending as governments look to reduce their debts.

The U.S. capped its military budget at last year's levels for 2012, while Britain wants to cut defence spending by 8 percent over the next four years - a move expected to disrupt its procurement plans.

Shares in BAE, which have fallen 6 percent in the last year, closed at 333 pence on Wednesday, valuing the business at around 10.8 billion pounds.

(Reporting by Rhys Jones; editing by Matt Scuffham)