Welcome to our 2018 second quarter results call. I'm Kesko's President and CEO, Mikko Helander. Together with me, I have our CFO, Jukka Erlund, and Vice President, Investor Relations, Kia Aejmelaeus. I will first give an overview of our business performance, and after that, we will be happy to take questions. Starting with the second quarter highlights. Our net sales were up by 4% and operating profit totaled EUR 89 million. Growth operatively, excluding divestments, was EUR 11 million. Performance in all core businesses improved. We announced several acquisitions in Norway, the Baltics, and Finland. The growth strategy adopted in 2015 was defined further during the quarter. Briefly on the numbers. Second quarter net sales grew comparably by 4% to almost EUR 2.7 billion. Operating profit increased from EUR 83.8 million to EUR 89 million. Return on capital employed increased to 13.7%, and return on equity to 11.7%.
On group net sales, the second quarter net sales declined by 3% to EUR 2,673 million, significantly impacted by the divestments. In comparable terms, net sales grew by 4%. Looking at the group's quarterly operating profit, it increased from EUR 83.8 million to EUR 89 million. The corresponding margin grew from 3% to 3.3%. Second quarter 2017 includes EUR 5.8 million in operating profit from divestments. Taking this into account, operating profit improved by EUR 11 million. Moving on to return on capital employed. At 13.7%, our return on capital employed was close to the 14% target level. That said, there is still room for improvement, especially in building and technical trade. A few comments on our financial position. At the end of second quarter, equity ratio was 46.2%. Liquid assets were almost EUR 450 million. Interest-bearing net debt to EBITDA ratio was 0.4%. Cash flow from operating activities improved to EUR 140 million.
Cash flow from investing activities totaled minus EUR 54 million. Our financial position remains very strong, allowing us to develop our business going forward. Next, I will discuss business development by division. First up, grocery trade. Market-wise, overall sector growth was 3.1%, being affected by the timing of Easter and warm weather early summer. Price inflation was approximately 2.3%, partially impacted by increases in alcohol and tobacco taxes. Second quarter highlights for grocery trade: customer numbers were up in all chains thanks to successful chain redesigns. Growth was strongest in the neighborhood market due to the timing of Easter and warm weather early summer. Profitability improved thanks to net sales growth and synergies. Integration of Suomen Lähikauppa and transfer of stores to retailers was successfully completed. Kespro's food service operations were strengthened by the acquisitions of Kalatukku E. Eriksson and Reinin Liha.
In comparable terms, grocery trade grew 2.9% to EUR 1,327 million in the second quarter. Grocery trade second quarter operating profit increased from EUR 50.5 million to EUR 52.8 million. The corresponding margin grew from 3.8% to 4%. Suomen Lähikauppa's integration and transfer of stores to retailers was successfully completed by quarter end. We are very pleased with the acquisition. Nearly EUR 700 million worth additional sales were added. Targeted synergies of EUR 30 million were achieved ahead of schedule. The total investment made amounted to EUR 120 million. Thanks to the acquisition, we have achieved a clear leading position in the neighborhood market. A total of 380 stores that were converted to K-Markets have now been transferred to retailers by the end of June 2018. During the quarter, Kespro's offering was strengthened by acquisitions of Kalatukku E. Eriksson and Reinin Liha. The acquisitions will strengthen Kespro's competitiveness in the fast-growing food service wholesale market.
Kespro will be able to offer restaurant customers a more extensive selection of fish and meat, fresh food products. The products will be gradually made available to wider customer base from autumn onwards, utilizing Kespro's efficient logistics. Building and technical trade. Outlook for the market remains favorable, although growth pace is expected to slow down. Strong economics, warm weather, early summer, and the timing of Easter supported the market. Second quarter highlights for building and technical trade. Net sales and operating profit grew, excluding the specialty goods trade. Sales and profit development was good, especially in Finland and in Kesko Senukai in the Baltics. Restructuring in Sweden and changes in network structure in Norway decreased sales. Acquisitions of Skattum Handel and Gipling for Byggmakker chain in Norway of the online operator 1A Group in Baltics were announced during the quarter.
As expected, divestments in line with strategy decreased sales and profitability in the specialty goods trade. Second quarter net sales in building and technical trade. Net sales decreased by 8.4% to EUR 1,102,000,000. The decline was impacted by the specialty goods divestments carried out in the first half of 2017. In comparable terms, net sales increased by 5.4%. The comparable second quarter operating profit for the building and technical trade was EUR 33.4 million, excluding specialty goods trade result was EUR 31.2 million, improving EUR 3.3 million. Meaning that in core business, operating margin improved from 2.9% to 3.1%. Second quarter comparable operating profit for the building and technical trade was EUR 33.4 million versus EUR 34.8 million the year before. As can be seen from the graph, operating profit is impacted negatively, primarily due to divestments in specialty goods and the divested Baltic real estate.
The operative result improved by EUR 3.9 million. During the quarter, we continued with successful acquisitions and divestments in line with strategy. In Norway, to strengthen the Byggmakker chain, we acquired Gipling and Skattum Handel. As a result, profitability will improve and share of own retailing in Norway will rise to 40%. The acquired companies have strong market position in the Oslo and Trondheim regions and operating in total 29 stores. The combined 2017 net sales were EUR 245 million and the operating profit, EUR 9.8 million. The acquired 1A Group offers Kesko Senukai a comprehensive e-commerce platform to serve the Baltic markets. The company's 2017 net sales were approximately EUR 41 million. The divestment and discontinuation of the Russian operations proceeded according to plans. The divestment of machinery trade in Baltics and agricultural machinery trade in Finland was agreed. Moving on to car trade.
Market-wise, first time registrations of passenger cars and vans were up by 11.5% in the second quarter. The new worldwide harmonized light vehicle test procedure or simply, WLTP, emissions testing will be implemented from September onwards. This may slow down car trade in Europe in the second half of this year. In the second quarter, car trade net sales and operating profit continued to grow. At 19.5%, the market share of our Volkswagen, Audi, SEAT, and Porsche passenger cars and vans was at a good level. Order book for new cars was +5%. We are investing in leasing services and a nationwide charging network for electric cars at K-Market locations. In the second quarter, car trade net sales grew 4% to EUR 244 million. Car trade second quarter operating profit increased from EUR 7.6 million to EUR 8.7 million. The corresponding margin grew from 3.2% to 3.6%.
Lastly, a few comments on our outlook. In comparable terms, the net sales for continuing operations for the next 12 months are expected to exceed the level of the previous 12 months. The comparable operating profit for continuing operations for the next 12-month period is expected to exceed the level of the preceding 12 months. However, investments in the expansion of logistics operations and in information systems and digital services will burden profitability during the period. Thank you for your attention. We will now be happy to answer any questions you may have.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. Our first question comes from the line of Maria Wikström of Danske Bank. Please go ahead. Your line is open.
Sorry about it. Had it on a mute. Had one follow-up after the analyst conference earlier today, this is about the profitability in Kesko Senukai operations. If I look at the profits contributed to minority shareholders, I see it's up from EUR 4 million last year up to EUR 11 million in Q2 this year. A little bit there, where is that difference coming from? Then, at the same time, if we could touch upon the profitability improvement in the Kesko Senukai operations that you mentioned in the text, but if we could get a little bit of a view on the magnitude, please. Thank you.
Yeah. Maybe shortly I'll start. If you look at the comparable effect on the earnings per share, it was somewhat lower than that one. I think the comparable figures are there. There was a delta of around EUR 3 million during the second quarter to the profitability for the non-controlling interest, that's affected by two things. One of them being the Kesko Senukai's profitability improvement, which was around 50% of that effect. Another effect was also regarding our machinery trade, which is signed to be sold and which we are expecting to take place at the latest in October. That also affected. We already have there a minority, and those two factors were the keys there. EUR 3 million change in the profitable level without the non-recurring items.
May I still ask what was the extraordinary item in the minority interest in Q2?
There have been some assets which have been sold in Kesko Senukai, which have been those sort of non-recurring items. It was some of the assets that Kesko Senukai group as a whole owned, and there was the minority part, of course, took the bigger share in that part.
Perfect. No further questions.
Thank you. Our next question comes on the line of Niclas Skogman of Handelsbanken. Please go ahead. Your line is now open.
Yes, hello. I have two questions for the moment, please. First of all, looking at the building and technical trade and excluding the specialty goods and excluding Onninen, so the builders merchant business, if you will. Year to date margins are 1.6% versus 2.1% last year for H1. If we adjust this for the Baltics property divestment, EUR 1.7 million, the margin is 1.8%. It's still down 30 basis points. Could you please explain what is driving the worsening profitability in that part of the business, please?
Excluding Onninen, if you look at the DIY and builders merchant type of business, Finland did a better profitability as well as did Kesko Senukai in the Baltics. On the contrary, in Sweden and Norway, the profitability was somewhat weaker than last year or so. That change is coming from the Swedish and Norwegian operations and mainly seen from Sweden. That's the factor behind there.
Okay. I know you're taking measures to improve, but have you seen any improvement towards the end of the quarter or anything, or is it?
Yeah.
Still very tough?
Yeah. The improvements, of course, are underway at the moment. We have a new management there. Those are underway there. On the sales side, yes, we do see that some effects have been already visible there, but it's still having a store side network with three stores less than we did a year ago. That of course affects somewhat still there. Like I said, we do have seen also positive signs on that side, but it will take some time still to do those initiatives which are underway there.
Okay. Thank you. Your group costs have been quite a bit lower year to date versus last year. What's your best guidance for the full year number?
Well, I would say that last year we were at the heaviest level with the cost side. In that sense, definitely we will come to a lower level this year than we did last year. We did see that already during the first quarter. I would say the second quarter was even below the normalized level. Our net cost base during the second quarter was quite low. The third quarter is usually somewhat lower, and then on the fourth quarter it will be closer to the levels that we were during the first quarter. I would say that each quarter lower than last year, and this was even somewhat more during the second quarter. There have been a number of things affecting it. Reduce cost bases in different areas and so on. That's the case.
Okay. Around EUR 30 million then for the full year?
Yeah, that's the ballpark there.
Okay. How about next year? Do you expect to stay at these levels? I mean, plus minus growth of the business?
Yeah. At least not too far from the current levels. We have done some cost reductions there and some other measures as well and in that sense might be a little bit increase, but nothing radical and clearly below the 2017 levels.
Okay. Thank you very much. I think, I guess one question on the joint venture, the wellbeing stores joint venture, the losses you're making there, do you expect them to stay for the coming quarters, or do you think your profitability is going to improve quickly?
You mean Hehku, I suppose. Hehku joint venture. Yeah, we should remember that we started business beginning of this year. We are still in very early stage. At the same time, we can see also from numbers that not easy, not at all to start a new business. Key question is that how well we succeed together with Oriola to bring right selection of products to the Hehku stores. That is a key question. We are working now very hard together with Oriola people to provide right assortment. Let's see later this year how we will succeed.
The clear initiative is to get further growth to the sales side and at the same time reduce the cost base as well. Like Mikko said, changes in the assortment as well.
Okay, perfect. Thank you very much.
Thank you.
May I remind you that if you want to ask a question via the telephones, please press 01 on your telephone keypads. There are no further questions on the telephone lines at this time. Please go ahead, speakers.
Okay, ladies and gentlemen, thank you for your participation. I can say that we have very hot summer day here in Helsinki. Anyhow, I had decided to go to swim. I recommend everybody to do exactly the same. I wish together with my colleagues, very pleasant summer afternoon for everybody. Thank you very much. Bye-bye