Sappi swings to profit on cost cutting

Johannesburg - Pulp and paper maker Sappi [JSE:SAP] posted a return to third-quarter profit on Thursday, as cost cuts in its European business offset weak paper prices.

Sappi reported diluted headline earnings of 9 US cents per share for its April-June quarter, from a loss of 9c a year earlier.

Headline earnings are the main profit gauge in South Africa and exclude certain one-time and non-trading items.

Demand for glossy paper has fallen as tablet computers and e-readers take a huge bite out of the traditional magazine industry and as retailers rely more on websites than printed catalogues.

Sappi has closed some paper mills to focus on higher-margin businesses such as chemical cellulose, which is made from wood and used in clothing, plastics and pharmaceutical products.

Sappi is now the world's largest manufacturer of chemical cellulose.

Its shares were down 1.4% at R42.40 rand at 09:35.

The shares are up 30% this year, outperforming a 12% rise in Johannesburg's All-share index.