Ladies and gentlemen, welcome to our 2018 first quarter results call. I'm CashStar's President and CEO, Pete Korllander, together with me, I have our CFO, YOOk, Ireland, and Vice President, Investor Relations, Kia, MLios. I will first give an overview of our business performance and after that, we will be happy to take questions. I will start with a brief introduction of K Group formed by Tesco and the K Retailer entrepreneurs, with close to €13,000,000,000 in retail sales. Last year, K Group is the biggest retail operator in Finland and the 3rd biggest in Northern Europe.
We employed around 42,000 trading sector professionals. Tax is paid and limited accounted for 1,000,000,000. Our local purchases accounted for some 1,000,000,000. We are ranked as the most sustainable trading sector company in the world on the Global 100 list. The first quarter highlights.
Our net sales, operating profit and return on capital employed were all up. Especially in grocery trade, the beginning of the year was excellent. Building a technical grade performed as planned Additionally, operations in Russia were divested. Cartrate continued strong performance. Briefly on the numbers.
1st quarter net sales grew comparably by 3.4% to all 1,000,000,000. Operating profit increased from 1,000,000 to 1000000. Return on capital employed increased to 13.5 percent and return on equity to 10.9 percent. On group net sales, the 1st quarter net sales declined by 5.7% to 1,000,000, significantly impacted by the divestments carried out in the first half of twenty seventeen. In comparable terms, net sales grew by 3.4%.
Looking at the group's quarterly operating profit. Operating profit increased by 27% from 1,000,000 to 1,000,000. The corresponding margin grew from 1.2 to 1.7% first quarter 2017 includes EUR 4,600,000 in operating profit from divestments. If taking this into account, operating profit improved by 49%. Moving on to return on capital employed.
Return on capital employed was 13.5% for the group, especially in building a technical trade, there is still room for improvements. A few comments on our further strengthened financial position. At the end of 1st quarter, Equity ratio was 49.3 percent. Liquid assets were almost 1000000 and we were debt free with a negative net debt to EBITDA ratio. Cash flow from operating activities was €39,000,000 strengthened by improved profitability.
The return of surplus assets paid by cash co pension fund as well as the Russian divestment. Capital expenditure was EUR 55,000,000, 2.3 percent of net sales. We are in a strong position to develop and grow Next, I will discuss business development by a division. Starting with grocery trade. Market wise overall sector growth was approximately 5.5% being affected by the timing of Eastern and the increase in alcohol and tobacco taxes.
While the importance of quality and premium products arising, price competition has remained tight. First quarter highlights for grocery trade, we ensured good progress in Chain Greater Giants, the sales and customer flows have grown in all k food store chains. Thanks to the new neighborhood market approach and acquisition of Soumelahekaupa profitability improved significantly. Guest cross growth and profitability strengthened further. In comparable terms, closure rate grew 7.4% to 1,276,000,000 in the first quarter.
Grocery rate operating profit increased from 26,400,000 to 38,700,000. The corresponding margin grew from 2.1 to 3% Our share of the quickly developing neighborhood market is close to 60%. This is driven by the acquisition and successful integration of Sonae Sikalp. The total investment amounts to approximately 1,000,000. The 400 Siwa and Valin Total stores were converted to new game markets representing additional sales of almost 1000000.
Customer feedback has been positive and sales have grown approximately 15%. We have gained significant synergies. By this summer all stores will have been transformed to retailers. In total, there are some 800 k mark stores of those over 700 stores have been rebranded and remodeled. High quality neighborhood market services have also strengthened the sales and market position of KCT market.
We are investing strongly in the new online food store and online food sales are growing forcefully. Last year, we piloted our new online food store service successfully in 2 k city markets in the Greater Helsinki region. The new concept offers K City market's extensive selections with FECN deliveries using concentrated K Transport. During this spring, the service will expand to Pampers Tourku Oulu and Kerawa. K Group's online food cell services already increased over 3,000,000 Next, building a technical trade.
Market wise development is supported by economic growth, and outlook continues favorable. That said, cold winter weather in Europe impacted the market. Negatively, in the beginning of the year. 1st quarter highlights for building and technical trade will perform according to plants in the traditionally softest quarter. Divestments in specialty crude slate decreased sales and profitability as expected.
We were happy with the good sales performance of K Rauta and on in Finland and in Finland and Kescosenu Kai in the Baltics. Meanwhile, sales were burdened by restructuring in Sweden and by changes to store network in Norway. Next, 1st quarter net sales in building and technical trade. Net sales decreased by 18.2% to EUR 877,000,000. The decline was mainly impacted by the divestment carried out in the first half of twenty seventeen with specialty coal sales down from 1000000 to 1000000 to 1000000.
In comparable terms, net sales decreased by 2.4%. The comparable operating profit for the building and technical trade was -2.2000000, representing a decrease of 1,000,000. This is explained in the next slide. As mentioned, 1st quarter comparable operating profit for the building and technical trade was minus €2,200,000 versus €5,800,000 a year before. As can be seen from the graph operating profit is impacted negatively, primarily due to divestments in specialty courts and the domestic Baltic Real Estate as well as Eastern, and the number of selling days.
The operative result was solid. We are resetting the building and technical trade business in order to reach a new level of profitability. We have a new customer oriented organization with strong geographical focus. We have made and we'll continue with good progress in improving ordinance profitability. In Sweden, we are restructuring and making the operations more efficient.
The recent divestment of the Russian Building And Home Improvement business will improve the return on capital employed. We have ongoing measures to improve overall cost efficiency of operations and achieve synergies. Moving on to car trade. Market wise, the 1st raise traces of passenger cars and vans were up by 3.3%. There will be a new WLTP emissions testing system affecting the whole industry.
We do are preparing for this to be implemented next autumn. In first quarter, our car rate continued with strong sales growth and good profit performance. Growth in Volkswagen, Audi, SEIAT and Porsche racetrations, Outback market growth. Thanks to this, our market share in passenger cars and vans increased from 17.8% to 19% our new car's order book is strong at +21 percent. In the first quarter, Cartrack grew 5.8% to 259,000,000.
Cartrait operating profit increased from 1000000 to 1000000 the corresponding margin accrual from 4.1to4.2percent. We will rename our card business. The import company, we have a auto group, we become a k out of the retail company, we have a autot will become K car. This change will move car rate more tightly under the 1 unified K brand and title cooperation across business divisions. The rebranding will also increase awareness of Cashco's Carteret division and offer a strong brand presence in new mobility services.
Lastly, a few comments on our outlook. In comparable terms, our net sales for continuing operations for the next 12 months are expected to exceed the level of the previous 12 months. However, due to divestments and restructuring, the group's net sales for the next 12 months, are expected to fall below 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 store openings and redesigns in the expansion of logistic operations and in digital services will burden profitability during the pay period.
It should also be noted that the operating profit for the comparison period includes 1,000,000 in operating profit from divestments and most of the synergies obtained from the acquisition of Soumelaica. This ends my prepared remarks. Thank you for your attention. We will now be happy to answer any questions you may have. Thank
And our first question today comes from Maria Wolfskin from IA. Please go ahead.
Hello. This is Maria Rick from Danske Bank. I actually have three questions, but maybe I'll take one at the time. So first, I wanted to ask on the food price inflation. As you mentioned that your estimates of food prices grew 2.6 percent in Q1, which is a clear step up from the figure point 5 percent in Q4.
So do you think this is a sustainable level for the food price inflation and what are your thoughts there going forward? From here. Thanks.
That we can see food price inflation, of course, quite big part of inflation coming from higher taxes of alcohol and tobacco, but also Finnish Economy and improving purchasing power of Finnish Consumers as well as the fact that consumers are seeking more and more high quality products and services have certain impact on food price, innovation. But expectation is that this positive trend will continue.
Okay. Then I had another question regarding the the guidance where you added a line stating that the disposals disposals accounted or EUR 5,800,000 in the EBIT in 2017. The EBIT growth in the Q1 without the divestments according to my calculation was 11%. And the consensus ahead of the results, we're looking at 13% growth in the, in the EBIT for the full year without this divestment. Do you see the consensus estimate for the full year too high that you wanted to guide the consensus down or you're adding this more conservative statement here is that then you didn't want to see consensus move up back of the group better than expected Q1 results.
A little bit of color color there would be great.
Good question. But as you know, we don't comment the consensus, but I repeat that we have started strongly, this year. We are very happy, how all business divisions are performing and, and of course, a grocery rate, excellent start up, strong development continues in card rate and also building a technical trade has started as planned. Based on that, of course, the outlook is, extremely and very positive. But your car maybe can open a little bit more of those things.
Yes, we would, sort of wanted to be transparent here also, just noting and commenting that that there is the impact coming from the divestment that they have been up. But if you transactions during the last 2 years and also during the last 12 months, So just to give a sort of more color on that side and also on Soma Lakeapa situation because obviously the first quarter 2017 was fairly low profitability there due to the all the restructurings we had at that point with the stores at network and so on. And Now when that sort of dehired us, we just wanted to highlight that most of the synergies have been sort of obtained and sort of, there is still part of the synergies still left, which are, of course, relating to the fact that not all the stores are, sort of at the retailer format yet. And of course, we see profit growth in the stores, like we have had also looking back, the sales growth has been good in soybean like apple stores. So obviously, we want to continue on that one as well.
Maybe I can once you can repeat that the outlook is crystal clear, our outlook says clearly that, profitability will improve.
And if I may just, just to follow-up on the, the sooner on the Swamilajikaupas. I think you earlier said that the 10,000,000 out of the 30,000,000 synergies were still to be recorded in 20 seen. So, is there, could you give any color, like, how much is now left for the remaining of the year?
No. Let's say this rate that, we have now very close situation that we have successfully completed integration of Suvala Jacoba to Tesco. Still some minor actions will be done, and complete, especially in the second quarter. Of course, on commercial side, we can see still lot of potential, but, definitely, major part of synergies, we have achieved an original target setting, we have exceeded, but, but, let's say, some some synergies we will still achieve, but, I repeat, major part of synergies, we have already collected.
Yeah. And just to sort of, open up the situation a bit more, on in 2015 when the business was acquired, the sort of pro form a operating profit was around minus EUR 18,000,000 at that point. Now if you look back the last 12 months, we are around plus 11+12000000, so quite close to 30,000,000. But of course, obviously, part of that has come due to the good sales growth as well. So So there is still some synergies to come.
But like I said, most of it has been obtained. But once again, I
repeat that we have still a lot of business potential and the hard work continues and the hard systematic business development continue in all, process exchange, including also K market chain.
Okay. And then my final question comes from the Norwegian DIY business as part of the sales loss were due to the fiery of some of the retail contracts in the Northern Parts of Norway. And my question is that is there a fear that that the concept is not competitive enough that we are going to see more of these departures in the future? And, how is the, the expiry date now within, I mean, within the foreseeable future that should we have some impact from impact from there or could we have?
First, we should remember that the Norwegian market is very attractive, and we can see plenty of potential in Norwegian building a technical trade marketer. Last year, end of last year, in Northern Europe, one big bookmarker retailer left bookmarker chain and he divested his business, and that's the reason why, we lost some some, revenue in Norway, and I underlined it was fast. 1 retailing entrepreneur in, not in, Norway. We are confident that, that we are in good shape and we will further develop on and then as well as bookmarker chain. And we will to our utmost, to strengthen, even a bookmarker chain in Norway.
That is our vision in Norwegian market.
Okay. Thank you. No further questions from my side. Thank you very much.
Thank you. And our next question today comes from Nicholas Skogan from Handelsbanken. Please go ahead.
Yes. Hi. I have a couple of questions if I may. You have talked about the synergies coming in from Soma Lejikaupin that you have reached, reached most of them. Where are you on the on and on synergy?
On in and all in all, we have succeeded also to integrate as planned to Tesco. But of course, we should remember that already originally was reported that, all in an integration will take much longer time, but we have good progress And we can see also that, only then all in all paper months, financial as well as operation of paper months is steadily improving, meaning that all in energy moving ahead as planned. But the synergies are coming in in much longer time period as we have seen in a swimmer Lake helper.
And the basic sort of reason behind that is one that, unlike in swami like a case where we sort of had a extremely fast 12 months sort of time when we put the summer lineup operations into our supply chain and use the platform that we had in our current operations in grocery in all in any case, we are not sort of doing that in that kind of pace that we would sort of switch the supply chain. So We have a separate logistical model and an IT system currently in or in NNAND and want to do the integration in a very careful way in order to avoid any kind of sort of problems in the customer service and so on. But definitely, we have started the, synergies and and and we have a sort of a lot of operations which are already common, but but like Nikko said, it will take make time before we are sort of more integrated when it comes to the supply chain and IT systems.
All right. Thank you. And then the charge you took for Olin and Sweden in the quarter, what does that relate to? And is it store closures or stock reduction or inventory write down, sir?
Yeah. Olinen and when we acquired Olinen and we knew already that the Olinen and Sweden was sadly underperforming, and it had been already a long time in difficulties and, and that that was not at all, share price. And we did already some corrective measures, last year, but not heavy measures enough And now your morale highlight, his management, they, implement now heavier measures to improve also operational and financial performance of owning them in Sweden. At the same time, we do also a lot of actions in Sweden further improve, commercial performance of K router. All in all, we have we are in the middle of peak turnaround in, in, Swedish operations.
And and the sort of cost relating to the the booking we had we had related to some of the store closures around four stores were closed and and and on those rental liabilities and and other costs relating to those closures and some, sort of efficiency measures that we have done in in relation to these closures. That's sort of the part where it's coming from.
Okay. So closing stores will be a key part in it to achieve least breakeven there?
At this autumn level, these stores were not a profitable land and The reason is, that is the reason behind in this in this case.
1st, reach, Craig Even have solid platform and, from solid platform, definitely, we will continue strong business development also in Sweden. But first, foundation must be solid and that is our short target to establish a strong solid platform also in Sweden.
So with these store closures and so on, will you be breakeven in Sweden now for all
Sorry. Could you repeat?
With these store closures, will you be breakeven for owning in Sweden now?
That is our direction and how fast when we will achieve breakeven. I don't want, to present any guesses, but, target setting is very clear and we have in process heavy measures.
Okay. And then, a quick one on your common costs, which were down year on year. What's the outlook for the rest of the year for those?
Well, I could say that, last year, we had a fairly heavy load on the common costs and and the clear targets for this year was to decrease that cost base. Somewhat, we are not sort of I'm not sort of expecting very big changes on that one, but still to come up with a lower level of cost than last year when it was pretty much the highest level that we had and especially on first quarter of 2017. So This was something that we expected that we would come during the first quarter, down somewhat going further, maybe somewhat lower cost level also, going further nothing really big changes.
After selling the Russia properties. I think your net cash as of Q1 now. What's the plan with the balance sheet? Is it M and A or could you consider share buybacks or, what's what's the plan?
Yes, you are right. Absolutely right. Okay. Of course, successful divestment of Russian operations. One reason, but I remind that, of course, is also a consequence of successful and well running daily business.
All businesses are generating at a, operational, cash flow. That is also one reason behind of that, that nice and good development. But, balance is very strong. We are debt free company, meaning that we are an extremely good shape, but a continued implementation of our 2015 published business strategy, meaning that we are seeking organic growth as well as we are seeking acquisition opportunities to accelerate growth in all three divisions in grocery trade, in building a technical trade, as well as infrared.
Thank you very coming from online. If we wait for other questions, coming from the line of the Kepler Cheuvreux. He is asking that, in building and technical trade, weather had a negative impact in Q1. But are there any comments in the market turning around as spring has finally arrived. And then secondly, on Building And Technical Trade, Yes.
Well, that was the first question. There are still 2.
1st, actually, we didn't highlight the weather weather conditions was mentioned that winter was very cold everywhere in Europe. But I repeat that our building and technical trade started as planned when budgeting was made, we knew already that Eastern is in the first quarter we knew also that, that, in first quarter, a few days less, those commercial days those two facts had major negative impact of the 2 year 2017 first quarter. Now anyhow, we can see in April, positive development, we have had already plenty of sunny spring days and those days immediately have, had positive impact on sales, performance. As well as the fact that Eastern is not in the 2nd quarter has definitely positive impact, but still And again, it looks that our billing and technical trade has good progress and that they are progressing as planned and budgeted.
And a second question on building and technical trade coming from Frederic Ebason. If we exclude on linen and all the divestments, it seems that losses doubled in the quarter And how much is related to k route of Sweden given that revenues are down more than 20%? Or can you open up a little bit the development in the
Yes, we can open up a little bit. Yes, it was true that during the first quarter, We had 3 stores less than the previous quarter 2017. So that was the biggest impact actually to the top line top line. So the top line came down, mostly due to that fact and then due to the cold weather fact which affected especially the B2C sales there. But obviously, when we had 3 stores less, we also were able to save our OpEx in Sweden during the first quarter.
So somewhat Sweden was negative and that was mostly affected by the by the cold weather affecting the B2C, B2C sales. And like I said, Olinen improved its profitability
And then a third question from Ferraki, Barcelona, on grocery. Trade and regarding the Swami Lajicca stores that have been converted into the franchise model, he assumes that eventually, it is aimed for similar profitability from these franchisees as the legacy business. How long do you expect this to take or any comments on the current level and where we aim as
All in all, we can confirm that at the same time when Tesco has succeeded steadily improve all operational and financial performance in grocery trade we can confirm that also KA entrepreneurs have steadily improved on financial and operational performance, including also K market entrepreneurs, meaning that, that our commercial and financial performance in K Group is very solid and very strong.
David, it's also good to mention that these storm and light superstores that have been converted through K retailers, it's actually, in many cases, retailers that are already operating the stores. So they are sort of adding up, they sort of, operations mostly it's from 2 to 4 stores, a retailer for example. So in that sense, there's a sort of sort of base poor, poor building on top of the businesses that they have already had. So in that sense, from a longer term perspective, we expect the same kind of profitability from these stores than the stores that we already have.
And this is also a big change compared to situation in the past because, earlier one entrepreneur put have just one store, thanks to new strategy, today could entrepreneurs, they have chance to operate more than 1 store, and that this is also one reason why, our our system is performing much better today compared to situation some years ago. Okay. That was last question, ladies and gentlemen. Thank you very much for your active participation. Kia, you've come myself.
We wish you a very pleasant afternoon and evening. Thank you. Bye bye.
We hope to see many of you at our Capital Markets Day in June 19th here in Helsinki in the afternoon.
Sunny Sunny helsinki, hopefully. You are very warm and welcome.
If you haven't received an invitation yet, please drop me a line by email. And we will take care of it. Thank you.