01—Abstract
Summary
Summary of the 10-K filed February 17, 2017. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation, a utility holding company, reported 2016 net income of $1.90 billiona ($2.79 diluted EPS) on operating revenues of $7.52 billion, up from $682 million in 2015, which was depressed by an $879 million loss on the June 2015 spinoff of PPL Energy Supply (now Talen Energy).
Earnings are now driven by three fully regulated segments: U.K. Regulated (WPD distribution, net income $1.25 billionb), Kentucky Regulated (LG&E and KU, $398 million) and Pennsylvania Regulated (PPL Electric, $338 million). The U.K. segment accounted for 66% of 2016 net income, so the company's results depend heavily on the British pound.
The filing describes the June 23, 2016 U.K. referendum to leave the EU and notes that PPL hedged 92% of 2017 budgeted GBP earnings at an average of $1.21c per GBP. Management projects lower 2017 net income, mainly from the lower assumed GBP rate and 2016 tax benefits that are not expected to recur. Capital spending is large: PPL projects $15.9 billion of capital expenditures for 2017 through 2021, including $8.8 billion for distribution facilities and $4.1 billion for transmission.
Operating cash flow was $2.89 billiond in 2016. Long-term debt was $18.3 billion at year-end, and the company's common dividend rose to 39.5 cents per quarter ($1.58 annualized) after the February 1, 2017 announcement. Pending matters include a rate case filed at LG&E and KU seeking about $103 million at KU and $94 million plus $14 million at LG&E, with a requested 10.23% return on equity and new rates expected July 1, 2017.
02—Key points
Key Highlights
- 2016 net income of $1.90 billion, or $2.79 diluted EPS, versus $682 million in 2015 (which included a $921 million loss from discontinued operations tied to the PPL Energy Supply spinoff)
- U.K. Regulated segment produced $1.25 billion of net income in 2016, 66% of PPL's total, and holds 38% of assets
- Kentucky Regulated segment net income of $398 million; Pennsylvania Regulated segment net income of $338 million
- Operating revenues of $7.52 billion and operating income of $3.05 billion in 2016
- Projected 2017 capital expenditures of $15.9 billion for 2017-2021; $3.44 billion planned for 2017 alone
- Quarterly dividend increased to 39.5 cents per share (annualized $1.58) on February 1, 2017, from 38 cents
- Management projects lower 2017 net income, driven by a lower assumed GBP exchange rate and the non-recurrence of 2016 tax benefits
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 17, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.52B$7.67B | −2.0% |
| Operating Income | $2.94B$2.83B | +3.7% |
| Interest Expense | $888.00M$871.00M | +2.0% |
| Net Income | $1.90B$682.00M | +178.9% |
| EPS (Basic) | $2.80$1.01 | +177.2% |
| EPS (Diluted) | $2.79$1.01 | +176.2% |
| Shares Outstanding (Basic) | 677.59M669.81M | +1.2% |
| Shares Outstanding (Diluted) | 680.45M672.59M | +1.2% |
05—Questions
Frequently Asked Questions
Why did net income rise so sharply in 2016?
Net income rose to $1.90 billion from $682 million in 2015. The 2015 result included a $921 million loss from discontinued operations, mainly an $879 million loss recorded on the June 2015 spinoff of PPL Energy Supply. Continuing operations also improved, with income from continuing operations up to $1.90 billion from $1.60 billion, helped by $282 million higher other income, largely from gains on foreign currency hedges.
How exposed is PPL to the British pound?
Significantly. The U.K. Regulated segment contributed 66% of 2016 net income. PPL hedges its GBP earnings, and as of January 31, 2017 it had hedged 92% of 2017 budgeted earnings at an average of $1.21 per GBP, 87% of 2018 at $1.42 and 50% of 2019 at $1.34. The filing notes that the June 2016 EU referendum added uncertainty to exchange rates and to the U.K. economy.
What is the outlook for 2017 earnings?
The company expects lower consolidated net income in 2017 compared with 2016, mainly from a lower assumed GBP exchange rate, lower U.K. incentive revenues and 2016 tax benefits that are not expected to repeat. Kentucky Regulated earnings are expected to be slightly higher, and Pennsylvania Regulated earnings roughly flat.
What major capital investments are planned?
PPL projects total capital expenditures of $15.9 billion for 2017 through 2021. The largest categories are distribution facilities ($8.8 billion) and transmission facilities ($4.1 billion). Environmental projects account for $1.4 billion, mainly at LG&E and KU, and PPL plans to issue up to $3.4 billion of long-term debt and $350 million of common stock in 2017.
What regulatory proceedings could affect future rates?
LG&E and KU filed requests with the KPSC on November 23, 2016 for base rate increases of about $103 million at KU and $94 million (electric) plus $14 million (gas) at LG&E. The filing requests a 10.23% return on equity and new rates effective July 1, 2017. A public hearing is scheduled for May 2, 2017, and the outcome cannot be predicted. Separately, WPD's U.K. revenues are subject to Ofgem's RIIO-ED1 price control, which includes inflation true-ups and annual adjustments.
06—Continue