January 12, 2018 / 8:49 AM / 4 months ago

UPDATE 1-Elevator maker Kone expects China to hit 2018 profitability

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HELSINKI, Jan 12 (Reuters) - Elevator maker Kone reported its first fall in annual profit in a decade on Friday and said tough competition in China and increased raw material costs meant pressure on profitability would continue in 2018, knocking its shares.

The Finnish rival to Otis of the U.S., Switzerland’s Schindler and Germany’s ThyssenKrupp has the leading position in China, the world’s largest elevator market.

Kone said in a statement that based on its preliminary information, 2017 sales grew by 4.2 percent from a year ago on comparable exchange rates to 8.94 billion euros ($10.8 billion), ahead of its 1 to 3 percent forecast.

But core operating profit fell to 1.23 billion euros from 1.29 billion in 2016, in line with its forecast range of 1.20 and 1.25 billion euros.

Kone’s shares were down by 2 percent at 0844 GMT, having initially dropped by 4 percent after the announcement.

“The adjusted EBIT (earnings before interest and tax) margin is expected to continue to decline in 2018 as witnessed in 2017. However, the margin pressure is expected to start to ease towards the end of 2018 as a result of pricing and productivity actions that have been taken,” Kone said.

“The margin decline in China is already a trend... But this profitability guidance looks somewhat more cautious than expected,” said Pekka Spolander, analyst at OP Equities who has a “reduce” rating on the stock.

He noted that Kone had dropped its routine of giving numerical profit guidance. The company said it would give a more precise business outlook in April at the latest.

Kone said last year it was planning to cut 1,000 jobs globally to save around 100 million euros ($119 million) annually by 2020. ($1 = 0.8295 euros) (Reporting by Jussi Rosendahl; Editing by Edmund Blair and Alexander Smith)

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