Ladies and gentlemen, welcome to our 2019 second quarter result call. I'm Kesko's President and CEO, Mikko Helander. Together with me, I have our CFO, Jukka Erlund, and Vice President of Investor Relations, Kia Aejmelaeus. I will first give a brief overview of our business performance. After that, we will be happy to take questions. Our strong strategy execution increased net sales and improved profit to all-time best second quarter result. In the grocery trade, growth is still clearly outpacing the market into Building and Technical Trade Division, sales grew and profit increased. Acquisitions of the Fresks building and home improvement store chain in Sweden and Laakkonen's Volkswagen, Audi, and SEAT businesses were completed. Strong strategy execution increased net sales by 2.1%. Operating profit was our all-time best second quarter result, EUR 122.5 million. Operating margin went up to 4.4%.
The net finance costs for the group's continuing operations totaled EUR 23.1 million, including interests for lease liabilities of EUR 24.2 million. The net sales for Kesko's continuing operations in April, June totaled EUR 2,781,000,000, up 4.1%, thanks to our strong growth strategy execution. Net sales increased both in the grocery trade and building and technical trade. Kesko's comparable operating profit for continuing operations for the second quarter was EUR 122.1 million, up by EUR 9.2 million. Profitability improved in the grocery trade and building and technical trade. Despite the acquisitions and investments carried out this year, our financial position is still strong. At the end of June, the group had liquid assets of EUR 200 million, interest-bearing net debt, including lease liabilities, was EUR 440 million, and the corresponding net debt to EBITDA ratio was 1.0. Lease liabilities were some EUR 2,350,000,000.
Cash flow increased significantly. CapEx increased due to the acquisitions. On this slide, we can see all the investments made this year. The most significant one is the acquisition of the Fresks building and home improvement store chain in Sweden. During the first half of the year, our investments totaled EUR 471 million. Return on capital employed was 9.5%. It improved in the grocery trade. Next, we take a closer look at each of the division's first grocery trade. Net sales growth continued strong, and in comparable terms, net sales increased by 7% to more than EUR 1.4 billion. Growth was impacted by the positive development in customer numbers and the timing of Easter, which fell on the second quarter. Comparable operating profit increased by EUR 9.5 million to EUR 79 million. Profitability improved due to good sales development and good cost efficiency.
K Group's grocery sales increased by 6.6%, which clearly outpaces the market growth rate of 4.2%. Q2 sales were boosted by the timing of Easter, which fell on April this year. Price inflation was approximately 1.5%. Customer numbers grew in all chains, and online sales growth was 119% in the second quarter. Our functional strategy is the reason why our sales growth is clearly outpacing the market. Good customer experience is at the core of everything we do. We use customer data to build store-specific business ideas and digital services. The integration of Suomen Lähikauppa and redesigns for the whole store network, as well as all chain brands, have proven successful. Next, Building and Technical Trade. Net sales, excluding the specialty good trade, grew significantly by 7.1% to EUR 1,066,000,000, despite Easter's negative effect. Net sales grew in Finland, the Baltics, and Belarus.
In Norway and Sweden, net sales increased due to the acquisitions completed. Comparable operating profit increased by EUR 8 million to EUR 45.5 million. The impact of acquisitions on profitability was EUR 5.6 million. In Building and Technical Trade, focus is shifting to renovation building. Kesko's net sales growth was the strongest in the Baltic countries, Sweden, and Norway. Comparable operating profit increased significantly. Our extensive transformation program in Sweden and the integration of the Fresks chain are both proceeding according to plans. The acquisition of Fresks, completed in May, has significantly strengthened our position in Sweden. It made us one of the leading building and home improvement store operators in Sweden and will clearly improve our profitability there. The stores operate under our new K-Bygg brand and are especially aimed at professional builders. We have also improved our K-Rauta.fi online store's delivery options and utilize our extensive store network better.
Positive development can be seen, and online sales have grown by 109%. Next, Car Trade. Net sales in the Car Trade were down by 13%, and the market remained challenging. We expect the market to improve in the later half of the year. Comparable operating profit was EUR 5 million despite the market disturbances. We have completed the acquisitions that will increase the efficiency of our sales and service network. The Car Trade market has been challenging, and new car sales have declined not only in Finland but also elsewhere in Europe. Consumer demand has also been weakened by uncertainties regarding car taxation and motive power. The strategic strengthening of our sales network is proceeding well. This year, we have completed three acquisitions. The 2018 pro forma net sales of these businesses totaled EUR 355 million and operating profit EUR 6.5 million.
Integration is proceeding according to plans and will lead to more efficient sales and service network operations. There will be significant and interesting new additions to our range of hybrid and electric cars in this and upcoming years. Now a few comments on the future. Our outlook is based on the IFRS standards that took effect on 1st of January 2019. In comparable terms, the net sales as well as the comparable operating profit for continuing operations for the next 12 months are expected to exceed the level of the previous 12 months. More than 1,800 Kesko employees have now moved to K Campus, our new main office building. Working in this new building enables increased collaboration across organizational boundaries in the spirit of one unified K. This ends my prepared remarks. Thank you for your attention. We will now be happy to answer any questions you may have.
Our first question is from Jutta Ränönen from SEB. Please go ahead. Your line is open.
Thank you. Hi, all. A question on Onninen and its profitability. It was year-on-year not that different, no sort of robust profit improvement. Could you walk us through why is that the case? Given that you have stated Onninen does have long-term potential in profitability, when do you actually expect that to come through and how? Thank you.
All in all, Onninen has steadily improved profitability. Still, this positive trend has continued, excluding Norway. Norway, as also previous time mentioned, we have had some challenges. We are just implementing more corrective measures to strengthen our performance also in Norway. That is the main reason. All in all, we believe that we can expect also in the future in Onninen businesses, that positive trend will continue.
Maybe to add on Mikko's comment, as you know, we improved the profitability with Onninen EUR 1 million during the second quarter. Another sort of slightly negative side was also coming from Sweden. As you know, we sold the HEPAC contractor business there, obviously it had some sort of impact on the operating profitability as well. That was sort of like another reason.
Okay. Thank you. The same or similar question on the DIY part of this division that had a very nice improvement year-on-year. Was there something that was specifically good not to be repeated in the coming quarters, or would you say that that's a kind of good, solid organic improvement you've seen and that is maybe likely to continue? Thanks.
Yeah. All in all, as you know, in Building and Technical Trade, we can see a lot of growth and profitability improvement potential. Of course, we are very pleased that current management, Jorma Rauhala and his team, they have now succeeded steadily quarter by quarter to increase sales and improve profitability. We don't see any reason to believe why this positive trend will not continue also in future.
Okay. If I ask, still relating to this, because you've had some loss-making countries, both in the DIY part and the Onninen part. Could you just remind us of which, I don't know if you want to talk about the first half of this year or the full last year, which countries are still loss-making, and which are sort of, you mentioned them in the report of course, which are improving. Just to get the potential here in terms of getting just the losses back to breakeven or profit. Is it only the Sweden matter, or do you have some other areas such as Onninen Norway being loss-making, for example? Thanks.
Just where we look countries, just Sweden has been loss-making awful long time. We are now more than pleased to confirm that finally also Kesko Sweden will turn to black numbers and figures. Thanks to renewal measures, corrective measures in K-Rauta, thanks to successful divestment of a loss-making part of Onninen, and of course, thanks to wonderful acquisition of Fresks. We are very pleased that we succeeded to make this acquisition, and I can confirm that integration has started also very well. Jorma Rauhala and his people, they have excellent track record from successful integrations. For example, Jorma led very successfully SLK fast integration to our grocery division. Same approach and same attitude we have also in Sweden. Based on that, we are very optimistic that we will see finally very good sales development, good progress in profitability.
All other businesses that we have in Kesko Corporation are profit-making. Okay, Norway, once again, in Onninen, we have had some challenges, but corrective measures are in process.
Okay. I think that's all on my behalf. By the way, congrats on the new headquarters as well.
Thank you.
Our next question is from Nicklas Skogman from Handelsbanken. Please go ahead. Your line is open.
Yes. Hi. I thought I'd be a bit cheeky and go back to the comments around the Onninen business in Sweden. It's loss-making on a full-year basis. I think that has been confirmed, and it's also confirmed in the report. In this quarter, it would have had a positive impact on EBIT. Is that true? How much was that you're sort of losing out from divesting it in this quarter?
Sorry, could you repeat a bit? Did you refer to Onninen Sweden?
Yeah, the HEPAC business, this business you sold. You said that selling that had a negative impact on comparable EBIT in the quarter.
Was our heavy loss-making part of Onninen and that we have successfully divested, and we can confirm that Onninen Infra, as we call remaining Onninen business, is a healthy profitable business. Our position on Swedish market on that side is also very good. Our market share is Jukka close to 20%.
Yeah, like I said.
Thanks for that.
Yeah.
Go ahead.
Like I said, we still have the negative impact from the loss-making HEPAC contractor business during this quarter, so that did affect negatively the profitability also during the second quarter.
Okay
sold, obviously we have the profitable one.
In Q2, the months you had it in Q2 contributed or was loss-making? Made it loss-making in total, so to speak.
Yeah. Negative impact on second quarter, but not anymore on third quarter.
Okay. What was the full year negative impact on 2018 from the HEPAC business on comparable EBIT?
It is some million EUR coming losses from that business.
2019, it was quite big, heavy loss-making and had big negative impact on 2018.
Yeah. Single-digit minus losses. Yeah.
Did you say a few million EUR negative?
Yeah. Some EUR millions, yes. A few EUR million, yeah.
Okay. Thank you. I saw the Onninen sales decline in Poland. Also, Finland, is that purely due to the Easter effect and the fewer working days and so on? Or is there a new trend?
No trend. Easter, of course, has some negative impact and less working days. All in all, on the market, we have succeeded more or less as planned.
Okay. Are you targeting any synergies from the Fresks Group acquisition that you could share?
Yeah, we are targeting and we can see clearly plenty of synergies. As I mentioned, integration has started as planned, and we can see that Fresks' definitely synergies coming from that side will support also improvements in K-Rauta. We can see clearly that the K-Rauta and the K-Bygg, as we call now Fresks' business, are very well supporting each other.
Okay. Thank you very much.
Just as a reminder, if you do wish to ask a question, that is 01. There seem to be no further questions at this point. I'll hand over back to the speakers for any final comments.
Okay. We look forward to if there are more questions coming, but a question from online. There's a question that could you give us some more color on Q3 and Q4 this year, and how do you expect the different segments to develop? Further on, do you believe that you can continue winning market shares in grocery? How do you see the Finnish building and technical trade market? Are you lagging in Finland behind the market? What are you doing to improve this?
All in all, our outlook is positive, thanks to our well-performing strategy, thanks to very successful implementation of our business plans everywhere. Based on that, I can confirm that we don't see at the moment any reason why this strong growth and positive development in grocery will not continue also in the future. We can see clearly that Building and Technical Trade market everywhere in Northern Europe is still favorable in Finland, Sweden, Norway, Baltic countries, Poland, Belarus. Based on that, our expectation is that also positive trend from sales point of view as well as from profitability point of view will continue in our Building and Technical Trade. In Car Trade, as you know, we have European-wide difficulties and sales is down everywhere in Europe.
Our expectation is that already in the second half of this year, market will improve and also our product portfolio will get better. Based on that, our expectation is that our sales will recover during the second half. Expectation is that demand of new cars will get more and more back to normal 2020. Once again, I repeat that based on all that what I said, our outlook is very positive at the moment.
Maybe on the Finnish building and technical trade market, the new build is somewhat softer than earlier, the renovation market then sort of compensates on that one. As you know, we sell quite a bit for small and medium-sized companies. In that sense, renovation for us is good one. Even though the new build would be down somewhat, the renovation market is important market for us, we expect that to develop well overall.
Okay. Also a question on group common costs. Do you have an estimate where those might end up for the full year?
Like I said last time, a quarter ago, we did expect that the second quarter would be still somewhat high when it comes to the common costs. Going further, we do expect them to be at the lower level compared to the first half of the year. That is our view on that side.
Lastly, a question on Easter. Do you have any comments on what Easter impact was in Q2?
Some impact, positive impact in grocery business and a negative impact in Building and Technical Trade. Corporate level, Jukka, we can say that slightly positive, or do you.
Yeah
Open more detail? Slightly positive.
Yeah.
Not such a big impact. We are talking just EUR couple of millions.
Yeah.
Okay. Ladies and gentlemen, thank you for your participation. We have pleasant summer day and summer evening. I wish together with my fellow managers, pleasant afternoon and summer evening for everybody. Thank you very much. Bye-bye.