UNDERLYING PROFIT SLUMPS AT CITY PACIFIC
Mortgage financier City Pacific has changed its mind about its profit for the half year to December 2005, after resolving "complex income tax issues".Two weeks ago, in a two-page media release lodged with the Australian Stock Exchange, City Pacific said it would report a marginal increase in net profit to $19 million for the half year to December 2005. That compared with a net profit of $18.8 million for the December 2004 half. City Pacific said it more than doubled revenue to $70 million in the December 2005 half, a rise that reflects the company's takeover of the Terrain mortgage and commercial broker.City Pacific yesterday lodged full financial statements for the half year to December, and these show the company reported a 10 per cent rise in net profit to $20.8 million compared with the corresponding period a year ago.The mortgage fund management business, which still counts as the company's main source of underlying revenue, recorded a 22 per cent fall in revenue over the last year to $21 million, and a 29 per cent fall in pre-tax profit to $17.7 million.It was the apparently very high margins of this segment, and a very high return on equity, that fuelled investor interest in the shares of City Pacific a couple of years ago. Presumably the drawn out wrangle with the Australian Securities and Investment Commission over the appropriate management, and advertising, of the liquidity of City Pacific's main mortgage fund has taken its toll on this segment.City Pacific's financial services segment comprises the operations of Terrain Australia, acquired for $37 million in shares in December 2004, and Treasury Group, a business acquired for $23 million in shares in February 2005. These takeovers produced combined revenues of $13.3 million for City Pacific in the half year and a loss of $470,000.The financial statements also show that City Pacific earned revenue of $24.8 million from property development, with $7.5 million booked as pure profit. There were no corresponding profits of this nature 12 months ago.So the underlying business of City Pacific, and its two business acquired over the last year or so, have all produced weaker revenues, and lower profits or losses.