Global Economics

EVN Powers Up in Central Europe


The Austrian utility has boosted sales by expanding aggressively into the region, plus points east, through acquisitions and other projects

Power-generating plants may be hot, but utility companies usually aren't. They're known for steady cash generation but moderate growth at best. So how did Austrian power generator and gas supplier EVN grab the No. 3 spot in this year's hot growth list? Two words: Central Europe.

Like many Austrian companies, EVN (EVNV.F) has taken advantage of geographical proximity to expand into fast-growing markets in Central and Eastern Europe. The company, based in the town of Maria Enzersdorf outside Vienna, still generates most of its profit in Austria but has boosted its workforce and sales—key criteria in determining the Hot Growth list—by acquiring power companies in places such as Bulgaria and Macedonia.

In addition, EVN is supplying drinking water and treating waste in Moscow, and it plans expansion to other Russian cities. The company has smaller projects from Estonia to Turkey, including a sewage treatment plant in Istanbul. EVN's Southeast Europe region, home to most of the company's holdings outside Austria, increased sales an impressive 39% in the nine months to June, 2007, to $674 million.

Profit Harder to Come By

Making a profit in those new markets is not as easy as boosting sales, though, especially for a utility company at the mercy of government regulators and privatization agencies. Many former socialist countries are used to cheap, subsidized energy, making it difficult to raise prices. As a result, EVN suffered a loss of $4.8 million for the Southeast Europe region in the nine months to June, vs. a profit of $28 million in the year-earlier period.

For EVN as a whole, operating profit fell 6% to $271 million during the nine-month period, on sales of $2.5 billion, a decline management blamed on an exceptionally warm winter. EVN shares, traded on the Vienna Börse, have not performed as well as the broad market, rising 2.5% so far this year.

Still, the long-term outlook for EVN may be brighter than those numbers indicate. A host of other Austrian companies, from energy and chemicals producer OMV (OEMV.F) to financial-services provider Erste Bank (ERST.F), have boosted profit and sales sharply in recent years by beating other Western European competitors into the emerging East. Being first mover may not be easy, but for EVN and other Austrian companies it has paid off in the long run.

Ewing is BusinessWeek's European regional editor .

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