Ladies and gentlemen, welcome to our 2017 third quarter results call. I'm Kesco's President and CEO, Mick Cohelander. Together with me, I have our CFO, Yuka Ehland and Vice President, Investor Relations, here MLA also. I will first give an overview of our business performance. And after that, we will be happy to take your questions.
I will start with third quarter highlights. The implementation of our strategy is proceeding well. Net sales grew in comparable terms in all divisions profitability improved and cash flow from operating activities strengthened. In the gross rate, the work to renew the K food store chains is well underway. The integration of Sommelahi Kaupa and related synergy benefits materialize sooner than anticipated.
Within the building and technical trade, there has been positive development in Finland. The operating profit of Oningen in particular continued to grow. In the card rate, sales and profitability continued to develop positively. As a sign of long term commitment to corporate responsibility, Kescorp is again included in the town zone's sustainability. Indicates.
Next briefly on our key performance indicators. 3rd quarter net sales grew 1.8 percent to over 1,000,000,000. The comparable operating profit increased from 1000000 to 1000000. Comparable return on capital employed for the rolling 12 months was 11.4% and return on equity was 9.9%. Looking at net sales by division.
In the 3rd quarter, the grocery trade represented half of the group's net sales building a technical trade 42% and card rate 8%. Next quarterly sales. 3rd quarter net sales declined 5.2% in comparable term sales grew 1.8%. Looking at quarterly operating profit. 3rd quarter operating profit increased from 1000000 to 1000000.
The corresponding margin grew from 3.5percentto3.9percent. Moving on to the return on capital employed, it was 11.4% for the group. The target level is 14%, so there is still room for improvement, especially in building and technical trade. A few comments about our financial position. At the end of the quarter, equity ratio was 49%.
Liquid assets were 1,000,000 and interest bearing net debt, 1,000,000. The net debt to EBITDA ratio is at 0.4. Cash flow from operating activities was 1,000,000 and the cash flow from investing activities was negative 1,000,000. Capital expenditure was 1,000,000. Our financial position is strong and allows us good possibilities to develop the business in line with our strategy.
Next, I will discuss business development by division starting with grocery trade. Market wise, the recovery of the Finnish economy supports the growth of the trading sector. We have been happy to note moderate growth in consumer prices, plus 0.2% in the third quarter. The 3rd quarter highlights included good progress in renewal of the Kforce store chains. As a result, sales and customer flows in all chains are growing.
Profitability was boosted by good sales synergy benefits and the divestment of Russian operations. Integration of Soumelahi Karpa and resulting synergy benefits have materialized sooner than anticipated. Also we expect to complete the transfer of the remaining stores to retailers ahead of schedule by the end of first half twenty eighteen. Then a few words about our KCT market. We are pleased that KCT market's renewal strengthens the change market position.
By the end of September, the new concept has been implemented already in 27 stores. We have store specific business ideas. Every K city market is different. Thanks to renewed Fresh Foods departments, we have seen strong sales growth, especially in Freud and vegetable and fish sections. Also there have been changes in the non food product selection focuses on cosmetics, clotting and home textiles.
During the quarter, we launched HEMETEX and MiWay collections. The development of services continues the food online store as an example. Net sales in grocery trade declined by 4% to 1,313,000,000,000 in comparable terms, growth was 2.4%. Operating profit in grocery trade increased from 1000000 to 1000000 The corresponding profit margin was 4.5%. Next, Building And Technical Trade.
On the
market, growth in P2P business is expected to continue stronger than growth in P2C. The market is expected to grow in the Nordic countries and the pulpics, but at a somewhat slower rate. Then third quarter highlights for us. Net sales, excluding the specialty cost trade increased in comparable terms by 3.2%, driven by B2B trade. In Finland, Crote continued to be strong both for Onin' and K router.
Cescozenuoka's profit was burdened by renewals and expansions. Sales and operating profit in the specialty course trade were diminished by divestments made in first half twenty seventeen. Next, an update on ordinance integration, which progresses solitary. Oninan sales and operating profit continue to grow. In Finland, Oninan has a strong position and positive development.
Messures to improve profitability have progressed well in Poland in Sweden, while losses have reduced profitability measures will continue. Integration focus is on customer interface, supported by investments in digital customer service, channels such as the launch of new on shop online store. Next, on the new organization for the building a technical trade as of today. Changes to organizational structure and responsibilities have been made for stronger growth and profitability. Local companies in each country have been given increased emphasis supported by shared functions.
Also, a joint commerce organization for the whole division will ensure efficiency and sourcing and improve competitiveness. Next, net sales in building a technical trade. Net sales decreased 9.4% to 1,100,000,000 to 1,000,000,000. Sales in EspecialICUS went from 266,000,000 to 117,000,000. Sales of building and technical grade, each pruning specialty costs increased from 972 1000000 to just over 1,000,000,000.
In comparable terms, sales grew 0.8% plus 3.2% in building and technical grade, excluding specialty codes and minus 15 point 5% in specialty goods trade. The reported decline in net sales free flights made divestments. Next, operating profit in Building And Technical Trade, it declined from 1000000 to 1000000 operating profit in specialty courts went from 1,000,000 to 1,000,000 in building a technical trade each quarter in specialty course it increased from nearly 1000000 to nearly 1000000. Additionally, last year, 3rd quarter operating profit included 1,000,000 from divested businesses. Moving on to car trade.
With the market, race relations are pricing. Positive economic development has strengthened the sales of lands in particular. Renewal of the Finnish car stock will possibly be expedited with scrapping premiums. The campaigns starts in the beginning of 2018. 3rd quarter highlights.
Sales and profitability in the Cartwright continued to develop positively. The compound market share for our passenger cars advanced rose by over 1 percentage point to 18.5%. The acquired post business has continued with positive performance. At more, sales began in all our own retail outlets. Net sales in Carteret increased by 12% to 1,000,000 in comparable terms growth was 3.2%.
Operating profit in card rate grew from 1,000,000 to 1,000,000. The corresponding profit margin increased to 4.2%. As a sign of our long term commitment to corporate responsibility, casecois, again, included interdown shown sustainability, work and eco europe index. Our outstanding environmental responsibilities, responsibilities course were influenced, for example, by the increase in the use of renewable energy. The very good source of responsibility this course were influencing pi case cost human rights impact assessment and cooperation with various organizations.
Let's discuss our outlook. In comparable terms, and it flew in divestments and restructuring our net sales over the next 12 months are expected to exceed the level of is expected to exceed that of the previous 12 months. On upcoming events, we have published our financial calendar for 2018. The next results will Eastern Shopping Center in Helsinki will open to customers tomorrow. Eastern is one of Kescot's most significant reason store site investments.
I hope many of you will have a chance to visit Eastern and its brand new next generation K city market. This ends my prepared remarks. Thank you for your attention. We will now be happy to answer any questions you may have.
Thank now in order to enter the queue and then after I announce you simply ask that question and And there'll be a brief pause while the questions are being registered. Our first question over to the line of Mick O'Vasti at Nordea. Please go ahead. Your line is open. Afternoon.
Three questions, if I may. Firstly, on the La Hicopa synergies, can you confirm that, most or all of these synergies have now been achieved. Then number 2 is regarding the card trade and the scrappage program starting early next year, is this negatively affecting the Q4 car sales and how much can you quantify that And then my third question is, can you please give a CapEx outlook for 2018? The cash flow improvement has being quite strong, but some of the different items in CapEx have been moving. So some color on that would be great.
Thank you very much.
Yes, let's start from Soumelaica and we can confirm that we have succeeded very well the integration of Soumelaica operations, to Tesco. And we can also confirm that those synergies we have gained even faster what originally expected. But still some synergy benefits we can expect to be realized in 2018. Duka can add something.
Yes. I would just like to add that naturally when we are going towards the retailer business model, from the beginning of that period when we are fully in the retailer business model, then it's natural that we also get full synergies from this acquisition.
And then second question was car freight and especially sales in Q4, we can say that we have very strong development in our also in our car, division and we can expect a solid performance also from sales point of view in the next quarter, especially, B2B segment is very strong, we might have some issues due to, car taxation change is expected starting from next year, but we don't believe that would complicate perfectly our car trade in the last quarter. 3rd question was CapEx. We will continue investments as planned, no major change, but we can also confirm that the investments will slightly decrease in the coming quarters as earlier communicated.
Maybe I could add a little bit more color to the CapEx. So like we have said, we expect our CapEx to come down gradually, and also the structure to change a little bit. Of course, our main CapEx still goes to stores at locations, we are opening up quite a few locations still, overall, but the proportion of the example, digital and IT investments is increasing in that, CapEx plan overall, but like I said, we are gradually coming down overall in the CapEx
Thanks very much. Thank you. We have Nicholas Skookman of Handelsbanken. Please go ahead. Your line is open.
Yes. Hello. Are you able to give a bit more color on on what is going on with the profitability in the Building And Technical Trade. More specifically, what you're doing in the Swedish business to improve profitability and how long the extra costs or the weaker profitability in the Seneca business will remain? Yes.
First, all in all, we have very strong solid performance in peeling and technical trade in Finland as well as in Kesco, Senokai. Our sales development, market share development as well as profitabilities, very strong in Kescos and O'Kai as well as in Finnish operations. Also, I'm quite happy with no way, we have succeeded to integrate on and operations to our big market system and businesses running as planned in Norway. Of course, also in Norway, we have still plenty of improvement, potential challenges we have in Sweden. First piece of remember that we have succeeded to improve care of the profitability dramatically, in speed and in last 2 years.
Part, K router, Owning and Sweden, still reporting losses much less what was last year, but we will start new measures to eliminate losses even faster also in Swedish operations. In Poland, we reported loss we when we acquired on in Poland, we knew already that also Polish operations are loss making business. But we have succeeded, in this year, turn business. And in Poland, we have now strong development and we can expect already in the coming months, positive result coming from Polish operations. Once again, we can summarize that the challenges we have in speed and I guarantee you that we will continue heavy measures to eliminate losses in Swedish operations.
So I can confirm that In caseco, we hate loss making businesses.
Okay. Thank you. And what do you think are the right measures to? Because it seems like it must be quite weak in Sweden. Given that you had an inventory writeback this year.
And
Let's see. Let's see. But Of course, we have a lot of potential also in Sweden, but first, we do our utmost to eliminate the losses and when we are not any more cost making operation in Sweden, Then we have a solid platform to start new measures further develop our Swedish. Business. We should remember that Sweden is clearly the biggest building and technical trade market in the Northern Europe Swedish economy is very strong.
And based on that, we are very keen, further develop and grow in Sweden. But of course, platform must be solid. And we have still some homeworks to do to establish this solid platform also in the Swedish business.
Thank you.
Are being registered. Please go ahead.
No, very easy to say that the, that the main expectation is, is further improve our commercial as well as financial, performance. I repeat that, we are happy with Finnish, Baltic, Belarusian operations, pretty happy with Norway, but, definitely, we need a new structure organization to manage most successfully our international fast growing international building and technical operation. And we are very confident that this more country specific country driven management model including also new global sourcing function will support, profitability. Improvements in building and technical rate division. We have good track record when we remember that we should remember that we have succeeded in last 2.5 years, gradually, quarter by quarter, improve our profitability.
But at the same time, we should remember that we have great potential of further improve profitability. And that's the reason why we need this new structure Thank you.
Then I could ask another question, How do you define comparable sales and what is included and whatnot in each of the divisions?
Yuka can open that more detail. But all in all, comparable sales is growing in all divisions, but you can open more detail.
Yes, the way basically is that in the grocery trade, we're naturally or let me start with all of the divisions. So naturally, we sort of take out of the impact of the acquisitions and the divest that's the first part. And the second part is that it is in local currencies. And then in grocery trade, It does include the stores that we acquired from Soumelahekapa but the only stores which are also in the comparable period as well. So like for like type of calculation regarding the Swamela Hakapa acquisition.
And, do you have also similar answer? What is, how is defined comparable operating profit?
Comparable operating profit, basically is the same type of calculation as was the operating profit excluding non recurring items. So in that sense, is the, it's the profitability for the whole crew but just taking the non recurring items away from that, that, profitability level.
Then we have another question. How has the K food store sales developed per chain? Excluding Swamelahikaup and how has the Swamelahikaup sales developed or the X Swamelahikaup?
Strong development. In oil change and to and we are very pleased hypermarket chain sitting market they are now performing very well on the market beating competition. Supermarket sale, also strong development as well as neighborhood stores. And we sort of, of course, remember that, that we are now in let's say, half way in the implementation of new strategy in our grocery trade. We continue investments, we continue renewal measures, in all change And, and it will be very interesting to see already 2008 and especially 2019 when all K4 stores are modernized, how well we will succeed 10 because already today, our commercial success is much better than in last 10 years.
And maybe I could add a little bit on the third quarter. So like I said, the retail sales of our chains overall grew by 2.7% excluding the sawmillahekop And there was not really big differences between the chains, like said, the hypermarkets were especially good there and they're looking at the sawmill hiccup, but the converted stores that we have had, they have continued on the same around 10% growth on on the sales as well.
Any questions from operator? I still some online,
but
0 and then 1. And, Ma'am, we're waiting for any questions from phones for the questions. Back to you for questions from the web I believe.
Okay. I still have a we had a question on any guidance of future level of capital expenditure that was already answered, but then there was any guidance on common functions?
I could say a few words. So on common functions, the sort of profitability level overall has been fairly stable on that side during this year. We have had somewhat higher costs, partially due to the programs development programs that we have had in the marketing side in the digital side and in the processes overall and building our capabilities in ICT and digital especially Then another thing is that partially our pension costs have been higher during this year due to IFRS pensing calculations. And that's mainly due to the extremely low interest cost interest rate level which is affecting those calculations at this point. So in that sense, like I said, it has been fairly stable during the last during the past three quarters and at that point sort of we don't expect mid changes overall.
We have a question on the remainder of this year. What is do you see any drivers for acceleration of profitability under what are your focus areas for the remainder of this year?
Very easy to answer and confirm that in our Picker's division, we continue this very successful systematic, very professional implementation approach of our strategy. And I believe that, that will bring us also positive results into coming quarters. Very much same situation also in car, trade, systematic implementation, further implementation of our strategy. In building a technical trader, I repeat once again that without any doubts, speed and is on, focus. Heavy measures are in process.
New measures will be started to eliminate losses coming from a Swedish business And, another extremely important measure in the coming months is, the implementation of new operational and management structure. And this new structure, we believe strongly will support positive operational as well as profitability development in 2018.
Those are all questions that we have currently online.
There are currently no questions on the phones. So a gentleman, may I please pass it back to you for any closing comments? At this stage.
Okay, guys. Thank you very much for your participation. I wish with my colleagues very pleasant afternoon and evening for everybody. Thank you.
Concludes today's session. So thank you all very much for attending, and you may now disconnect.