The takeover target, Origin Energy, has posted a 20 per cent lift in underlying earnings, despite a steep rise in costs.

NEAL WOOLRICH: The takeover target, Origin Energy, has posted a 20 per cent lift in underlying earnings, despite a steep rise in costs.

The result might not be enough to ward off an approach from the UK-based BG energy.

But Origin's decision to commercialise its coal seam gas reserves could prove the best defence.

Neal Woolrich reports.

NEAL WOOLRICH, REPORTER: It's been a year of extremes for the power industry, on top of soaring energy prices and high customer turnover, Origin Energy is now a takeover target.

Despite those distractions Origin has tabled a half billion dollar net profit up 13 per cent, underlying earnings, which includes one-off items, grew by 20 per cent.

GRANT KING, MD, ORIGIN ENERGY: Each of the legs of each of the segments of the business, the fuel, that is the upstream segment, the generation and the retail segment are growing strongly, and each of them is contributing to earnings and contributing to growth.

NEAL WOOLRICH: Origin's raw material expenses were up 40 per cent during the year driven by the rising cost of energy it purchased.

But Grant King says Origin was still able to expand its retail profit margins.

GRANT KING: And that's because we have been able to achieve some reductions in what we call our cost to maintain our customers, and that's the other key cost or part of our cost to serve. So we're seeing cost pressures because of higher churn, but we've also been able to reduce our costs a bit through scale and efficiencies.

NEAL WOOLRICH: The result was assisted by the first full year of earnings by the Sun Retail business in Queensland which Origin brought in 2007 for $1.2-billion.

SHAUN MANUELL, ENTITY TRUSTEES: The fact that margins have been increasing is the important point.

We saw the retail margins increase from 8.4 per cent to 9.2 per cent, and that's a good level of improvement.

So churn has been an issue in Australia for a long period of time and it's probably not going to go away, but the fact that they've got those margins up will be seen as a positive by the market.

NEAL WOOLRICH: But that success might only make Origin's predator, BG energy even more determined.

The UK company is offering almost $14 billion to buy Australia's second largest power retailer.

Origin has countered by seeking partners to develop a liquefied natural gas project, that would put a commercial value on Origin's coal seam gas reserves.

GRANT KING: We have shortlisted a number of quite large organisations, each of whom has participated in the progress. We have not given any specific detail or who they are or when we expect those final bids to be received.

SHAUN MANUELL: What they are doing is a very smart tactic because historically companies under takeover say "trust us in terms of valuation". Origin are taking that a step further, they're actually going out into the market and saying, "We are seeking bids to prove what the, or external bids, to prove the value of the assets they have under their control".

NEAL WOOLRICH: Another company that's had to deal with external problem is Tatts group. The gaming operator reported an 11 per cent rise in profit after tax last financial year. That's despite the impact of equine influenza and the Victoria Government's decision to end the state's poker machine duopoly. But the company's chief executive Dick McIlwain is only prepared to forecast single-digit growth for the year ahead.

DICK MCILWAIN, CEO, TATTS GROUP: We generate a lot of cash, we don't have a lot of problems with watching debt every second, particularly since we re-established our financing at very favourable rates only a few months ago.

NEAL WOOLRICH: And this year's plunge in consumer sentiment doesn't seem appear to have affected movie goers either, with Village Roadshow posting a 10 per cent rise in net profit to $62 million.