THE DECLINE in the valuation of sterling against the euro has prompted a downward revision in the earnings forecast for Grafton Group, owner of Woodies DIY and Atlantic Homecare.

Executive chairman Michael Chadwick said analysts' forecasts of 70.8 cent adjusted earnings per share were "reasonable at this stage", down from "market estimates" in the range of 73-76 cent per share that were forecast at the start of the year.

Already heavily exposed to the property downturn in the Irish market, Grafton makes more than half its operating profits in Britain. The euro-sterling exchange rate increased to 76.23p last night from 73.34p at the end of 2007, having increased from 67.15p at the end of 2006. Every percentage point drop in the value of sterling versus the euro reduces Grafton's annual profit by €1.25 million.

Grafton said sales were lower in its Irish merchanting business in the first two months of the year due to weakness in the new housing market. This business represents some 26 per cent of turnover. Sales in the British market increased in the first two months but at a "slightly lower rate" than in 2007.

Shares in the group closed unchanged at €5.23 last night after it reported an 8 per cent rise to 84.3 cent in adjusted earnings per share for 2007, a sum that excludes the impact of once-off property profits and amortisation of intangibles. Pretax profit rose 8 per cent last year to €228.6 million and revenues rose above €3 billion for the first time to come in 9 per cent stronger at €3.21 billion.

Operating profit, excluding property gains, was 9 per cent stronger at €265.8 million. This reflected a 24 per cent rise British operating profits to €142.1 million, offset by a 5 per cent drop to €123.7 million in Irish operating profit.

Grafton expects housing completions to drop below 50,000 this year from 78,000 in 2007 before returning to the 50,000-55,000 range in 2009.

The group said the percentage decline this year in its Irish merchanting revenues, which rose to €819.16 million last year from €816.6 million, would in the high single digits. However, it said there may be some improvement in housing starts later in the year.

"Roughly one-eighth of total turnover is in Irish housebuilding, so it's not the end of the world," said finance director Colm Ó Nualláin. In addition, the group said growth in the non-residential and infrastructure market and growth in the repair, maintenance and home improvement market should mitigate some of the impact of lower housing output.