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PPL preparing for Brexit, UK currency volatility

The U.K.'s planned departure from the EU loomed large over PPL Corp.'s second-quarter earnings call Aug. 6, with executives assuring analysts and investors that they are prepared for an October Brexit and further sterling volatility.

"We recognize the recent weakness in the exchange rates and continue to monitor potential impacts to our earnings projections; however independent forecast of future exchange rates remain within the range of presumptions used for 2021 projections," said Senior Vice President and CFO Joseph Bergstein Jr., who became CFO on July 1.

"While near-term fluctuations in the currency are expected, given the current political environment, the majority of analysts project a recovery in the currency rates following a Brexit resolution," Bergstein said.

Meanwhile, the company has guarded against the damage a depreciating pound would cause with currency hedges.

"We have flexibility in our hedging program that does not require to add additional hedges at this time and allows us to take an opportunistic approach to hedging as we monitor the dynamics of the political situation and move toward the Brexit deadline in October," Bergstein said.

Allentown, Pa.-headquartered PPL's regulated segment delivers power to Southwest and Central England and South Wales through its U.K. subsidiary, Western Power Distribution PLC.

While acknowledging that the political landscape in the U.K. is challenging at the moment, Chairman and CEO William Spence said the company has committed to efforts to educate government ministers and members of Parliament who may not be familiar with "the electricity network's great track record." Spence pointed out that costs remain lower than they were when the grid was nationalized and said reliability has improved by 60%, noting "customer satisfaction, which is at the highest level it's ever been."

Spence listed the diminished clout of the Labour Party as an overall positive for PPL. The party has recently reembraced the nationalization of electricity distribution companies that were privatized under Margaret Thatcher's government in 1989.

"The Labour Party has really continued to lose momentum politically," Spence said. "There's always a probability that they could regain some of their footing, but in our view, it's very unlikely."

However, PPL's political outreach is not limited to Westminster.

"We have a political consulting firm that we use in the U.K. that's been very helpful for us to reach out to some of the other stakeholders outside the Parliament to educate and inform local community leaders and so forth," Spence said. "I think we're doing what we can to combat some of broader political forces at play, but it is rather challenging."