Staffordshire software and support services company EG Solutions yesterday said it was trading in line with expectations and was hopeful of returning to profit by the end of the year.

The company, based in Penkridge, posted a pre-tax loss of £638,000 for the six months to July 31, compared with a profit of £762,000 last year. Its revenue declined to £2.07 million from £3.43 million a year ago and shares closed 5p down at 33.5p.

Chief executive Elizabeth Gooch said recovery plans outlined six months ago were intended for the long term and those expecting a n overnight turnaround would be disappointed.

She said she was pleased with the way the plan was progressing and there were signs of progress.

Mrs Gooch said in addition to lower revenue, the company had to contend with a rise in administrative costs.

"We have struggled because of the loss of a major client and failed bids for two major contracts.

"What we are doing now is diversifying and concentrating on smaller contracts to minimise risk," she said.

She said good progress had been made towards reducing costs, mainly through staff cutbacks.

Although sales were lower on last year, they were marginally ahead of market expectations and the company said it maintained revenues at the same level as the second half.

The company said it was developing its international market and had achieved exposure in three of its target markets; South Africa, the Netherlands and India.

It said it invested £120,000 in its South African operation and a second deal had been secured since the half-year end.

Mrs Gooch said the company had been impressed with the opportunities in Africa and had had no trouble recruiting, unlike in the UK.

"Africa has the second largest number of software graduates outside the US.

"Unfortunately we are not finding this to be the case in the UK where we find it extremely difficult to recruit," she said.

The Research & Development team established by the company in South Africa is also paying dividends.

It has completed the development of eg activity manager; a new module of the firm's eg work manager software which enables clients to track actual processing time in comparison with target processing times on an ongoing basis.

"In total we have invested a further £300,000 in R&D and launched new versions of eg work manager and eg operational intelligence. These new versions are now in use by our clients," said the company.

EG Solutions said it had also introduced strategies to create long term secured contractual income.

Measures include increasing servicing revenues from existing clients, revised licensing models and three-five year licences.

As a result of these strategies, Software Maintenance revenues have increased by 22 per cent in the period and Software Development revenues are 30 per cent higher than in the full year ended January 31, 2007.

It said it had also secured contracts worth £340,000 and although these were small they would grow during the second half and more significantly in 2008.

"These strategies allow us to build long term contractual commitments from our clients, which in turn, will increase secured revenues for future periods," it said.