President & CEO Sakari Tamminen says: Our third quarter was divided into two. Because of the general uncertainty caused by the debt crisis in Europe, mill deliveries in our steel business were well below expectations. Our steel business, and with it the operations of the entire company, posted a loss for the third quarter. On a positive note, there was continued strong order flow and improved profitability in our solutions businesses construction and engineering.
Our order intake was up 18 % year on year at 678 million. There was good growth in demand in Finland and Central Eastern Europe, especially Poland, and also in Russia. Orders in the construction and engineering businesses showed favourable development and the level of activity in customer industries is good. On the other hand, mill deliveries in our steel business - where demand is based on long-term needs and wholesale demand - have been weaker than expected. Mill deliveries account for over half the total deliveries in the business area. Our net sales for the third quarter were up 10 % year on year at 674 million. Relatively best net sales growth was in Central Eastern Europe, where growth came mostly from the construction business.
The company's gearing ratio rose to around 68 % because of tied-up net working capital, investments and the loss made by the steel business. Delivery volumes in the steel business were too low to free up working capital at the rate we anticipated. One of the main targets is to free up working capital in our steel business to align the gearing ratio with the company's long-term target of 60 %.
In the construction business, positive notes were improved operating profit, as well as growth in order volumes of residential roofing products in almost all market areas. Also commercial and industrial construction deliveries grew, especially in Finland, the other Nordic countries and Ukraine. In Russia, too, there was continued good demand for commercial and industrial construction. Capacity utilisation rates have improved in the construction business.
In the engineering business, the markets in our main customer segments were good. Our engineering business moved back into the black during the third quarter and operating profit was up more than 30 per cent year on year. Growth was highest in delivery volumes of cabins, frames and booms for the lifting, handling and transportation equipment industry. Also deliveries to construction and mining equipment and forest machine manufacturers showed further growth.
Growth levelled off in the steel markets mostly because of the uncertainty in the financial markets in Europe and cautious decision-making due to the weakened economic outlook. In our steel business, the fall in order intake was visible especially in mill deliveries. Service centre sales, where demand is based on short-term needs, remained at a good level. Net sales developed relatively well in the Nordic countries, Central Eastern Europe and Russia. Sales of special steel products remained at a good level in Western Europe, but in many new markets such as China deliveries decreased. Special steel products accounted for 32 % of net sales in the steel business for the third quarter. The loss posted for the third quarter was mainly due to higher raw material costs and a lower capacity utilisation rate in steel production, which was affected by modernisation of blast furnace 2 at the Raahe Steel Works.
Production capacity in the European steel markets has been adjusted throughout the line. Utilisation rates are usually lower towards the end of the year than at the start. The capacity utilisation rate in our steel business is estimated to be around 80 % during the fourth quarter. This is why profitability of our steel business during the second half of the year will be weaker than during the corresponding period in 2010. In the solutions businesses, we anticipate that market conditions will remain reasonably good for the rest of the year. Based on this, we forecast the capacity utilisation rate in the construction and engineering businesses will be better in 2011 than in 2010.
Consolidated net sales in 2011 are estimated to grow approximately 15-20 % year on year. Profitability is estimated to improve compared to 2010.
Ruukki, Helsinki
