Takeover target Origin Energy has posted a sharp decline in half-year underlying profit, weighed down by lower earnings in its energy markets business and a higher tax expense.
Australia's top electricity and gas retailer reported a statutory net profit of $399 million for the six months to December 31, compared to a $131 million loss a year earlier.
However, underlying profit for the half year slumped more than 80 per cent to $44 million.
"The first half result is mixed, reflecting a higher earnings contribution from Integrated Gas, contrasted with more challenging conditions for Energy Markets resulting in lower earnings from that business," Origin CEO Frank Calabria said.
Underlying earnings from the core energy markets business - which includes the electricity and gas retailing operations - slid to $148 million from $268 million a year ago, mainly because of a hit in the electricity business due to under-recovery of wholesale energy costs and higher fuel costs.
Despite this, Origin last month lifted the full-year earnings forecast for its energy markets division to between $600 million and $730 million, driven by a likely increase in natural gas and electricity gross profit, as well as improved coal delivery under legacy contracts.
On Thursday, the company said it now expects the full-year result to come in at the higher end of this range.
Underlying earnings in the integrated gas business were up 10 per cent to $954 million due to higher realised oil prices, partly offset by losses from hedging of commodity prices.
Meanwhile, Origin said it was still awaiting a binding takeover proposal from Brookfield and private equity firm EIG, who had proposed a cash takeover at $9 a share in November.
Origin said the consortium had "substantially completed due diligence and active engagement continues" but it was yet to receive a final offer.
The deal has been complicated after the federal government late last year moved to intervene in gas markets to rein in runaway prices for customers.
It has prompted markets to factor in a lower offer price from the bidders.
"Gas market legislation changes since the initial offer have raised concerns with respect to the outlook for future east coast domestic gas pricing and could possibly impact APLNG contractual LNG exports," RBC Capital Markets analyst Gordon Ramsay said in a note.
"This creates increased potential for a price revisit by the consortium."
By 1430 AEDT, Origin Energy shares were down 2.8 per cent to $6.91 each.
