Coleshill-based flooring distributor Headlam Group (HEAD) has warned that it might find it tough to hit its financial targets for 2008 after tough trading in the last two months in its residential and commercial markets.

With the pound currently trading at record lows against the euro, inflationary pressures are bound to grow for a company that sources products from eurozone countries such as Belgium.

But chief executive Tony Brewer insisted, however, that investment levels would be maintained and there would be “absolutely no lay-offs” among the company’s 2,000-strong workforce.

Figures for the six months to June 30 showed that Headlam grew revenues by 6.6 per cent to £276 million while pre-tax profits gained 1.7 per cent at £20.9 million.

Since then, group like-for-like sales fell by 4.8 per cent in July and by three per cent in August compared with the same two months last year.

Mr Brewer said in his stock market statement: “During the first six months, the group has produced a solid result. Traditionally, the final four months of the year represent the highest sales volume and subsequently, are the most profitable.

“However, in the last four months to the end of August, the markets have proved to be increasingly demanding, particularly in the UK.

“Due to the unpredictable nature of the current marketplace, the board we believe we face a challenge to meet our original trading objectives for 2008.” Despite that, directors expect the company to continue to outperform its rivals and increase market share, Mr Brewer added.

The market responded by marking the company down sharply in early trading but the stock later clawed back some of its losses to close 12 per cent lower at 293.5p, valuing the company at about £279 million.

“Downgrades [to profit forecasts] look inevitable, perhaps in the region of 10 per cent or so.” said broker Kaupthing Singer & Friedlander in a research note.

Mr Brewer said later: “We’re outperforming the market, but it’s undoubtedly more difficult and challenging.” Falling sales were a result of a general tightening in consumer spending, rather than from the downturn in housebuilding, Mr Brewer said. Flooring for new homes represents only about five per cent of group sales.

“If consumer spending is being squeezed, we’ve got a 23 per cent market share in the UK and so we can’t be immune from that.” he said.

The commercial market, which accounts for 31 per cent of turnover, had performed better than the residential market, he added.

Headlam distributes floorcoverings for homes and businesses to independent retailers and contractors via 47 brands in the UK. It also operates from sites in the Netherlands, France and Switzerland.

Headlam said it had continued talking to various businesses in the UK and continental Europe with a view to acquisitions.

Mr Brewer said the company was likely to make some purchases during the rest of the year, probably of companies with a turnover of between about £2 million and £6 million, although he declined to elaborate.

With basic earnings per share 8.4 per cent ahead at 16.6p, the interim dividend is to be increased by 4.7 per cent to 5.60p.