The Iraq and Afghan wars have been kind to BAE Systems as Britain's leading arms giant reported a surge in profits on the back of sending ammunition and armoured vehicles to the front line.

But Ian King, BAE chief executive of six months, admitted the American military bandwagon may be grinding to a halt, and the firm aims to make it big in US homeland security and to develop India as its next big defence market.

BAE today reported a 31% surge in underlying pre-tax profits to £1.9 billion in 2008 on sales 18% higher at £18.5 billion. That was fired by the wars being fought by America and Britain in Afghanistan and Iraq.

Profits from its land and armaments business jumped 75% to £566 million, making its BAE's most profitable business last year. The money-spinner was the delivery to the US Marines of more than 4700 anti-ambush, mine-resistant armoured vehicles made by Armor Holdings, the American defence business BAE acquired for £2.3 billion in 2007.

However, that bonanza is about to disappear. King admitted that as the contract winds down, it will deliver less than a tenth of that number this year.

But the company admitted the wars have also been good for its operations in the UK. Under a new £3 billion, 15-year agreement with the Ministry of Defence, BAE is supplying UK armed forces with 80% of their munitions, and delivered 168 lightweight M777 howitzers to the front line.

Despite the recent deployment of more troops to Afghanistan by Barack Obama, the new President is thought likely to restrain military spending. That is why King, who took over after a boardroom bust-up between long-time chief executive Mike Turner and chairman Dick Olver, is looking to new markets.

“We are focusing on developing businesses like India as our seventh major international market and on national security in the US, specialising in providing intelligence and information and data for agencies,” King said.

“We have been very active in India partnering with companies and through Detica, our acquisition last year, we will be better-placed in the US national security market. It is a market that is very fragmented and there are opportunities for more acquisitions.”

The company said it is putting in £425 million to shore up its £3.3 billion pensions deficit. The dividend for the year is rising 13% to 14.5p.