Ladies and gentlemen, welcome to our 2017 third 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. 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, cash flow from operating activities strengthened. In the grocery trade, the work to renew the K Food store chains is well underway. The integration of Suomen Lähikauppa and related synergy benefits materialized sooner than anticipated. Within the building and technical trade, there has been positive development in Finland. The operating profit of Onninen, in particular, continued to grow.
In the car trade, sales, profitability continued to develop positively. As a sign of long-term commitment to corporate responsibility, Kesko is again included in the Dow Jones Sustainability Indices. Next, briefly on our key performance indicators. Third quarter net sales grew 1.8% to over EUR 2.6 billion. The comparable operating profit increased from EUR 98.2 million to EUR 102.5 million. Comparable return on capital employed for the rolling 12 months was 11.4%. Return on equity was 9.9%. Looking at net sales by division. In the third quarter, grocery trade represented half of the group's net sales, building and technical trade 42%, car trade 8%. Next, quarterly sales. Third quarter net sales declined 5.2%. In comparable terms, sales grew 1.8%. Looking at quarterly operating profit. Third quarter operating profit increased from EUR 98 million to EUR 103 million. The corresponding margin grew from 3.5% to 3.9%.
Moving on to the return on capital employed. It was 11.4% for the group. The target level is 14%. 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 EUR 370 million, interest-bearing net debt, EUR 159 million. The net debt to EBITDA ratio is at 0.4. Cash flow from operating activities was EUR 102 million. The cash flow from investing activities was a negative EUR 52 million. Capital expenditure was EUR 63 million. Our financial position is strong, 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, +0.2% in the third quarter. The third quarter highlights included good progress in the renewal of the K Food store chains. As a result, sales, customer flows in all chains are growing. Profitability was boosted by good sales, synergy benefits, the divestment of Russian operations. Integration of Suomen Lähikauppa and resulting synergy benefits have materialized sooner than anticipated. We expect to complete the transfer of the remaining stores to retailers ahead of schedule by the end of first half 2018. A few words about our K-Citymarket. We are pleased that K-Citymarket's renewal strengthens the chain's 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-Citymarket is different.
Thanks to renewed fresh foods departments, we have seen strong sales growth, especially in fruit and vegetable and fish sections. Also, there have been changes in the non-food product selection: focuses on cosmetics, clothing, and home textiles. During the quarter, we launched Hemtex and mywear collections. The development of services continues, the food online store as an example. Net sales in grocery trade declined by 4% to EUR 1.313 billion. In comparable terms, growth was 2.4%. Operating profit in grocery trade increased from EUR 49 million to EUR 59 million. The corresponding profit margin was 4.5%. Next, building and technical trade. On the market, growth in B2B business is expected to continue stronger than growth in B2C. The market is expected to grow in the Nordic countries and the Baltics, but at a somewhat slower rate. Third quarter highlights for us.
Net sales, excluding the specialty goods trade, increased in comparable terms by 3.2%, driven by B2B trade. In Finland, growth continued to be strong both for Onninen and K-Rauta. Kesko Senukai's profit was burdened by renewals and expansions. Sales and operating profit in the specialty goods trade were diminished by divestments made in first half 2017. Next, an update on Onninen's integration, which progresses solidly. Onninen sales and operating profit continue to grow. In Finland, Onninen has a strong position and positive development. Measures 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 online store. Next, on the new organization for the building and technical trade as of today.
Changes to organization 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. A joint commerce organization for the whole division will ensure efficient sourcing and improve competitiveness. Next, net sales in building and technical trade. Net sales decreased 9.4% to EUR 1.121 billion. Sales in specialty goods went from EUR 266 million to EUR 117 million. Sales of building and technical trade, excluding specialty goods, increased from EUR 972 million to just over EUR 1 billion. In comparable terms, sales grew 0.8%, plus 3.2% in building and technical trade, excluding specialty goods, and -15.5% in specialty goods trade. The reported decline in net sales reflects made divestments. Next, operating profit in building and technical trade. It declined from EUR 45 million to EUR 43 million. Operating profit in specialty goods went from EUR 11 million to EUR 6 million.
In building and technical trade, excluding specialty goods, it increased from nearly EUR 35 million to nearly EUR 37 million. Additionally, last year, third quarter operating profit included EUR 4 million from divested businesses. Moving on to car trade. With the market, registrations are rising. Positive economic development has strengthened the sales of vans, in particular. Renewal of the Finnish car stock will possibly be expedited with scrapping premiums. The campaigns starts in the beginning of 2018. Third quarter highlights: sales and profitability in the car trade continued to develop positively. The combined market share for our passenger cars and vans rose by over one percentage point to 18.5%. The acquired Porsche business has continued with positive performance. More sales began in all our own retail outlets. Net sales in car trade increased by 12% to EUR 212 million. In comparable terms, growth was 3.2%.
Operating profit in car trade grew from EUR 6.8 million to EUR 8.8 million. The corresponding profit margin increased to 4.2%. As a sign of our long-term commitment to corporate responsibility, Kesko is again included in the Dow Jones Sustainability World and Europe Indices. Our outstanding environmental responsibility scores were influenced, for example, by the increase in the use of renewable energy. The very good social responsibility scores were influenced by Kesko's human rights impact assessment and cooperation with various organizations. Let's discuss our outlook. In comparable terms, excluding divestments and restructuring, our net sales over the next 12 months are expected to exceed the level of the previous 12 months. The comparable operating profit for the next 12-month period 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 be reported on February 1st.
Lastly, I'm happy to announce that Easton Shopping Center in Helsinki will open to customers tomorrow. Easton is one of Kesko's most significant recent store site investments. I hope many of you will have a chance to visit Easton and its brand new next generation K-Citymarket. This ends my prepared remarks. Thank you for your attention. We will now be happy to answer any questions you may have.
Thank you. Ladies and gentlemen, if you wish to ask a question, could you please press zero and then one on your phone keypad now in order to enter the queue. After I announce you, simply ask that question. If you find that question has been answered before, so to speak, or want to retract the question, just press zero and then two. There'll be a brief pause while the questions are being registered. Our first question is over the line of Mikko Ervasti at Nordea. Please go ahead. Your line is open.
Thank you very much. Good afternoon. Three questions, if I may. Firstly, on the Lähikauppa synergies, can you confirm that most or all of these synergies have now been achieved? Number 2 is regarding the car trade and the scrappage program starting early next year. Is this negatively affecting the Q4 car sales, and how much can you quantify that? My third question is, can you please give a CapEx outlook for 2018? The cash flow improvement has been 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.
Yeah, let's start from Suomen Lähikauppa. We can confirm that we have succeeded very well in the integration of Suomen Lähikauppa operations to Kesko. We can also confirm that those synergies we have gained even faster what originally expected. Still some synergy benefits we can expect to be realized in 2018. Jukka can add something.
Yeah. 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, it's natural that we also get the full synergies from this acquisition.
Second question was car trade and especially sales in Q4. We can say that we have very strong development 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 changes expected starting from next year, we don't believe that that would complicate badly our car trade in the last quarter. Third question was CapEx. We will continue investments as planned, no major change, we can also confirm that investments will slightly decrease in the coming quarters as earlier communicated.
Maybe I could add a little bit more color to the CapEx. 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 the store site locations. We are opening up quite a few locations still overall, but the proportion of the, for example, digital and IT investments is increasing in that CapEx plan overall. Like I said, we are gradually coming down overall in the CapEx.
Thanks very much. Thank you.
We now go to the line of Niklas Skogman of Handelsbanken. Please go ahead. Your line is open.
Yes. Hello. Are you able to give a bit more color 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 Senukai business will remain?
Yes. First, all in all, we have very strong, solid performance in building and technical trade in Finland as well as in Kesko Senukai. Our sales development, market share development, as well as profitability is very strong in Kesko Senukai as well as in Finnish operations. Also, I'm quite happy with Norway. We have succeeded to integrate Onninen operations to our bookkeeping system, and the business is running as planned in Norway. Of course, also in Norway, we have still plenty of improvement potential. Challenges we have in Sweden. First, we should remember that we have succeeded to improve K-Rauta profitability dramatically in Sweden in last two years. K-Rauta, Onninen 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.
When we acquired Onninen in Poland, we knew already that also Polish operations are loss-making business. 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 a positive result coming from Polish operations. Once again, we can summarize that the challenges we have in Sweden, and I guarantee you that we will continue heavy measures to eliminate losses in Swedish operations. I can confirm that in Kesko, we hate loss-making businesses.
Okay, thank you. What do you think are the right measures? Because it seems like it must be quite weak in Sweden, given that you had an inventory write- back this year.
Let's see. Of course, we have a lot of potential also in Sweden. First we do our utmost to eliminate losses, and when we are not any more loss-making operation in Sweden, then we have 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 Northern Europe. Swedish economy is very strong, and based on that we are very keen further develop and grow in Sweden. Of course, platform must be solid and we have still some homeworks to do to establish this solid platform also in the Swedish business.
Okay, thank you.
Just a reminder to all participants that if you wish to ask a question, please do use this opportunity and press zero and then one on your phone keypad now. There'll be a further pause while any further questions are being registered. Please, go ahead.
Now very easy to say that main expectation 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. Definitely we need a new structure, new organization to manage more successfully our international, fast-growing international building and technical trade operation. 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 trade division. We should remember that we have succeeded in last two and a half years gradually quarter by quarter improve our profitability. At the same time, we should remember that we have great potential further improve profitability and that's the reason why we need this new structure.
Thank you. I could ask another question. How do you define comparable sales and what is included and what not in each of the divisions?
Jukka can open that more detail, all in all, comparable sales is growing in all divisions. Jukka, you can open more details.
Yeah, the way basically is that in the grocery trade, or let me start with all of the divisions. Naturally, we take out of the impact of the acquisitions and the divestments. That is the first part. The second part is that it is in local currencies. In grocery trade, it does include the stores that we acquired from Suomen Lähikauppa, but only stores which are also in the comparable period as well, so like for like type of calculation regarding the Suomen Lähikauppa acquisition.
Do you have also similar answer? 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. In that sense, it is the profitability for the whole group, but just taking the non-recurring items away from that profitability level.
We have another question. How has the K Food store sales developed per chain, excluding Suomen Lähikauppa, and how has the Suomen Lähikauppa sales developed or the ex-Suomen Lähikauppa?
Strong development in all chains, we are very pleased. Hypermarket chain, K-Citymarket, they are now performing very well on the market, beating competition. Supermarket chain, also strong development as well as neighborhood stores. We should, of course, remember that we are now in, let's say, halfway in the implementation of new strategy in our grocery trade. We continue investments, we continue renewal measures in all chains, and it will be very interesting to see already 2018 and especially 2019 when all K Food stores are modernized, how well we will succeed then, because already today, our commercial success is much better than in last 10 years.
Maybe I could add a little bit on the third quarter. Like I said, the retail sales of our chains overall grew by 2.7%, excluding the Suomen Lähikauppa. There was not really big differences between the chains. Like I said, the hypermarkets were especially good there. Looking at the Suomen Lähikauppa, the converted stores that we have had, they have continued on the same, around 10% growth on the sales as well.
Any questions from operator? I still have some online.
Currently, no questions on the phone. Once again, if you do want to, just press zero and then one. Matt, while waiting for any questions from the phones, further questions, back to you for questions from the webcast, I believe.
We had a question on any guidance on future level of capital expenditure. That was already answered, there was any guidance on common functions.
I could say a few words. On common functions, the profitability level overall has been fairly stable on that side during this year. We have had somewhat higher costs, partially due to the 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. Another thing is that partially our pension costs have been higher during this year due to IFRS pension calculations, and that's mainly due to the extremely low interest rate level, which is affecting those calculations at this point. In that sense, like I said, it has been fairly stable during the past three quarters, and at that point, we don't expect big changes overall.
We have a question on the remainder of this year. Do you see any drivers for acceleration of profitability, and what are your focus areas for the remainder of this year?
First, in grocery trade, very easy to answer and confirm that in our biggest division, we continue this very successful, systematic, very professional implementation approach of our strategy. I believe that will bring us also positive results in the coming quarters. Very much same situation also in car trade, systematic implementation, further implementation of our strategy. In Building and Technical Trade, I repeat once again that without any doubt, Sweden is on focus. Heavy measures are in process. New measures will be started to eliminate losses coming from Swedish business. Another extremely important measure in the coming months is the implementation of new operational and management structure. 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. Gentlemen, 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.
Thank you.
Thank you.
This now concludes today's session. Thank you all very much for attending, and you may now disconnect.