01—Abstract
Summary
Summary of the 10-K filed February 14, 2019. Cited figures are marked; the original filing is the authoritative source.
PPL Corporation's combined 2018 Form 10-K, filed February 14, 2019, reports net income attributable to PPL shareowners of $1.827 billiona for 2018, up from $1.128 billion in 2017, and operating revenues of $7.785 billion.
Earnings from Ongoing Operations, a non-GAAP measure, were $1.705 billionb in 2018 versus $1.553 billion in 2017. The U.K. Regulated segment, operated through Western Power Distribution (WPD), produced $1.114 billion of net income in 2018, about 61% of PPL's total, while the Kentucky Regulated and Pennsylvania Regulated segments contributed $411 million and $431 million.
Management projects lower 2019 net income than 2018, mainly because 2018 included favorable unrealized gains on foreign currency economic hedges, though it expects Ongoing Operations earnings to rise. The filing highlights significant uncertainty around Brexit, including the January 2019 rejection of the U.K. withdrawal agreement by Parliament and a default exit date of March 29, 2019. PPL reports that its foreign exchange exposure for 2019 budgeted earnings is 100% hedged at an average of $1.39c per GBP.
The company also faces a major legal dispute: Talen Montana filed suits in October 2018 alleging that a November 2014 distribution of $733 milliond to PPL's subsidiaries rendered PPL Montana insolvent, and PPL states it believes it has meritorious defenses. Capital expenditure projections total $14.551 billion for 2019 through 2023, and the filing discloses that a 2018 forward equity sale and the at-the-market program provided additional equity funding. In the Kentucky and Pennsylvania regulated businesses, LG&E and KU filed a rate case in September 2018 seeking increases of approximately $112 million at KU and $35 million (electric) and $25 million (gas) at LG&E, with new rates expected May 1, 2019.
Most revenue in the U.S. utilities was affected by Tax Cuts and Jobs Act refunds to customers. The company announced on February 14, 2019 that its quarterly dividend would increase to 41.25 cents per share.
02—Key points
Key Highlights
- Net income attributable to PPL shareowners rose to $1.827 billion in 2018 from $1.128 billion in 2017, while Earnings from Ongoing Operations rose to $1.705 billion from $1.553 billion.
- The U.K. Regulated segment generated $1.114 billion of net income in 2018 and accounts for about 61% of PPL's net income, making it the dominant earnings contributor.
- Management expects lower 2019 net income versus 2018, primarily because 2018 benefited from favorable unrealized gains on foreign currency economic hedges.
- Projected total capital expenditures are $14.551 billion for 2019 through 2023, with distribution facilities ($9.327 billion) the largest category.
- Brexit remains a key risk: PPL's 2019 budgeted GBP earnings are 100% hedged at $1.39 per GBP, and a disorderly U.K. exit was the default scenario as of the filing.
- Talen Montana litigation seeks damages over a $733 million 2014 distribution; PPL says it believes it has meritorious defenses and the outcome cannot yet be predicted.
- The quarterly common dividend was raised to 41.25 cents per share (an annual $1.65) on February 14, 2019, from 41.0 cents.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 14, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $7.79B$7.45B | +4.5% |
| Operating Income | $2.85B$2.90B | −1.7% |
| Interest Expense | $963.00M$901.00M | +6.9% |
| Net Income | $1.83B$1.13B | +62.0% |
| EPS (Basic) | $2.59$1.64 | +57.9% |
| EPS (Diluted) | $2.58$1.64 | +57.3% |
| Shares Outstanding (Basic) | 704.44M685.24M | +2.8% |
| Shares Outstanding (Diluted) | 708.62M687.33M | +3.1% |
05—Questions
Frequently Asked Questions
How did PPL's earnings change in 2018?
Net income attributable to PPL shareowners was $1.827 billion in 2018, compared with $1.128 billion in 2017. Earnings from Ongoing Operations, which excludes special items, was $1.705 billion versus $1.553 billion. Basic EPS from net income was $2.59 versus $1.64.
What is the outlook for 2019 earnings?
PPL projects lower net income in 2019 compared with 2018, mainly because 2018 included favorable unrealized gains on foreign currency economic hedges. Excluding 2018 special items, net income is expected to increase, driven mainly by the U.K. Regulated segment and the Corporate and Other category.
What are the main risks from Brexit?
PPL's greatest Brexit risk is a decline in the British pound relative to the U.S. dollar, which would reduce the dollar value of WPD's earnings. The company has hedged 100% of budgeted 2019 exposure at $1.39 per GBP and 49% of 2020 at $1.49 per GBP. The filing notes the U.K. Parliament rejected the withdrawal agreement on January 15, 2019.
What legal exposure does PPL face from the Talen Montana matters?
Talen Montana alleges that a November 2014 distribution of $733 million from the sale of PPL Montana's hydroelectric facilities improperly rendered that company insolvent. Claims include breach of fiduciary duty and fraudulent transfer, with unspecified damages including punitive damages. PPL believes it has meritorious defenses and says the cases are in early stages and the outcome cannot be predicted.
What are PPL's capital spending plans?
PPL projects total capital expenditures of $14.551 billion from 2019 through 2023, including $9.327 billion for distribution facilities, $3.238 billion for transmission facilities, $855 million for generating facilities and $682 million for environmental projects. Domestic regulated utility spending is expected to be recovered through rates, pending regulatory approval.
06—Continue