Birmingham software developer Delcam said it would continue its commitment to research and development as it reported record first half sales.

The company, which employs 200 people at its head office in Small Heath, saw sales increase to a new high of £13.5 million from £11.8 million last year.

This helped pre-tax profit increase by 11 per cent to £1.2 million for the six months to June 30.

Delcam chairman Tom Kinsey said the company had achieved higher profits even though it continued its high

level of investment in research and development and in sales and marketing.

R&D spending in the first half rose to £3.7 million from £3.1 million last year, while the overall figure is on course to pass last year's £6.5 million.

Marketing director Bart Simpson said: "Our business model is different to other software companies. About a third of our revenue comes from recurring business from our present users.

"We offer maintenance contracts which mean they receive latest updates to the software and latest version.

"The R&D effort is not just about developing new products for new customers, but also about keeping our existing customers. It is absolutely crucial."

At present around a third of Delcam's 500 staff around the world work in R&D, a figure which could increase in the coming months as the company looks to add up to 20 new recruits.

Mr Simpson said Delcam had also benefited from the acquisition of EGS, and the FeatureCAM system last May.

Delcam paid £1.6 million for the system which can be used on CNC machines and job shops for high volume work.

Mr Simpson said: "This complemented our existing products and is used in more high volume production."

Another key factor had been the success of its PowerInspect inspection software, following the conclusion of deals with three machine manufacturers.

The software developed by Delcam is now being supplied as standard to quality assurance machines produced by Renishaw, Hexagon, and Faro.

Powerinspect sales were up by 80 per cent as a result, said Mr Simpson.

In July the company paid £1.64 million in cash, plus an additional amount of up to £800,000 million dependent on achieving agreed performance targets for the Partmaker business, also in America.

The company produces Partmaker which is used to control Swiss turn machines which make high volume, high precision components used in medical and dental industries.

"With these two acquisitions we are able to leverage our global sales organisation and increase sales in America and outside," said Mr Simpson.

Mr Kinsey said the improved profitability enabled the company to increase its interim dividend to 1.2p per share, up from 1.1p last year.

Looking ahead, Mr Kinsey said he expected Delcam to continue its normal pattern of higher sales and profits in the second half of the year.

But he did sound a note of caution about the value of the dollar.

"However, with the majority of Delcam's international business being undertaken in US$, any further decline of the US$ could marginally affect our level of profitability."