NRG Energy, Inc. (NYSE: NRG) today announced its “Transformation
Plan.”
The Transformation Plan Targets:
- $1.065 Billion Recurring Cost and
Margin Improvements, including:
- $855 Million Recurring Annual Free Cash
Flow before Growth (FCFbG) Accretive Improvements
- $210 Million Permanent SG&A
Reduction from Asset Sales and Divestments
- $2.5-$4.0 Billion Targeted Asset Sale
Net Cash Proceeds, plus
- Removal of $13 Billion Total Debt From
Balance Sheet
Pro Forma Effect of Transformation
Plan1:
- Pro Forma Annual Adjusted EBITDA:
$1.845 Billion
- Pro Forma Annual FCFbG: $1.230
Billion
- Pro Forma Net Debt: $6 Billion or 3.0x
Net Debt / Adj EBITDA
- Excess Cash to Deploy: Up to
approximately $6.3 Billion through 2020 ($20/share2), including $4
Billion by end of 2018 ($12.5/share3)
The Business Review Committee (BRC) unanimously recommended the
Transformation Plan and it received the unanimous support and
approval by the NRG Board of Directors and management.
Mauricio Gutierrez, President and CEO, NRG: “The transformation
plan announced today demonstrates our commitment to simplify and
strengthen the company to thrive through any market cycle. This
plan is the result of a comprehensive review of our entire business
by the board and management to simplify our business, right-size
our portfolio and strengthen our balance sheet to create
significant value for all our stakeholders.”
Larry Coben, Chairman of the NRG Board of Directors: “By
establishing the BRC, the Board kick-started an exhaustive
four-month review where nothing was sacred. The Board and
management scrutinized and challenged every available opportunity
that could create value for our shareholders - and embraced the
plan being announced today. The Board unanimously and
enthusiastically supports this transformational plan.”
John Wilder, Chairman of the NRG Business Review Committee: “The
BRC, composed of five experienced and skillful directors and
supported by two exceptionally qualified independent advisors,
worked continuously for four months on a comprehensive review of
NRG’s operations and cost structure to dramatically improve NRG’s
financial performance and competitiveness. We developed an
extremely detailed transformation plan that was unanimously
approved by the BRC and the board. We targeted divesting businesses
that represent over 60% of NRG’s EBITDA to generate $2.5-4.0
billion of net proceeds and facilitate $13 billion of debt
reduction. We targeted rapidly executing annual improvements with
72% of run rate annual benefits of $1.07 billion achieved in 2018,
92% in 2019, and 100% achieved in 2020. Finally, we established a
rigorous capital allocation process to ensure NRG is financially
flexible for years to come and to ensure NRG wisely allocates its
expected 2017-2020 $6 billion of excess cash flow in 12-15% or
better unlevered internal rate of return investments, or
distributes the excess cash to our shareholders.”
Jeff Rosenbaum, Portfolio Manager at Elliott Management: "NRG's
management and Board deserve substantial praise for the hard work
and clear thinking reflected in their truly transformational plan
announced today. This new business rightsizing strategy,
recommended by CEO Mauricio Gutierrez and Business Review Committee
Chair John Wilder and backed unanimously by the Board, will focus
NRG on substantial cost cuts, portfolio streamlining, balance sheet
deleveraging and a strong capital investment / shareholder return
program. All of the stated objectives have transparent and
achievable targets. We are pleased that this process has delivered
such a strong plan for shareholders.”
The Transformation Plan
The Transformation Plan is designed to significantly strengthen
earnings and cost competitiveness, lower risk and volatility, and
create significant shareholder value. The three-part, three-year
plan is comprised of targets in the areas of operational and cost
excellence, portfolio optimization, and capital structure and
allocation enhancement. Importantly, the majority of targets and
results are achievable by the end of 2018, providing investors and
the company with clear line of sight to results. This plan is the
product of a comprehensive, “blank slate” evaluation of all NRG
businesses, assets, and functions, collectively conducted by the
BRC, NRG management, and independent consultants and advisors to
the BRC. The Transformation Plan’s components consist of:
1. Operations and cost excellence:
$1.065 billion total annual cost and margin
enhancement (approximately 70% expected to be achieved by year-end
2018), including $855 million recurring, annual FCFbG accretive
cost and margin enhancement that consist of: $590 million Adj.
EBITDA-accretive cost savings4 (approximately 85% expected to be
achieved by year-end 2018), $215 million Adj. EBITDA-accretive
margin enhancement program (net of recurring costs), and $50
million maintenance capex reduction. The total cost reduction also
targets $210 million in permanent SG&A reduction associated
with asset sales and divestments (run rate realized in 2018).
The plan also expects to realize (i) $370
million non-recurring working capital improvements through 2020 and
(ii) approximately $290 million in one-time costs to achieve.
2. Portfolio optimization:
Targeting $2.5-$4.0 billion of asset sale net
cash proceeds5, including divestitures of 6 gigawatts (GWs) of
conventional generation and businesses6 and 50-100% of NRG’s
interest in NRG Yield and its leading renewables platform.
NRG is well underway in a process to explore
strategic alternatives for its interest in NRG Yield and the
renewables platform. The strategic alternatives span a variety of
ownership structures and partnership types, including the potential
partial or full monetization of the renewables platform and NRG’s
interest in NRG Yield with a goal to optimize how NRG participates
in renewables and to deconsolidate the associated debt. Beyond
creating value, NRG seeks to simplify its corporate and business
structure while preserving the ability to provide comprehensive
energy solutions to customers.
In addition, as previously disclosed, NRG has
entered into a restructuring support agreement to restructure and
divest its ownership interest in GenOn Energy, Inc. (approximately
15 GW). On June 14, 2017, GenOn filed for a pre-arranged Chapter 11
bankruptcy with 93% noteholders’ support and expects emergence
before year-end 2017.
With respect to asset sales and the strategic
alternatives process, NRG expects to announce signed agreements
during the fourth quarter of 2017. NRG has engaged Citi, Goldman
Sachs and Morgan Stanley for certain asset sale processes that are
well underway.
3. Capital structure and allocation
enhancements:
A clearly prioritized capital allocation
strategy that targets a reduction in consolidated net debt from
approximately $18 billion to approximately $6 billion of
consolidated net debt / Adj. EBITDA from 6.4x7 to 3.0x by year-end
2018. In addition to achieving the 3.0x target leverage ratio, the
plan expects to provide up to $6.3 billion of excess cash for
allocation through 2020, including up to $4 billion of excess cash
by year-end 2018. NRG expects to deploy this excess cash in either
projects or investments with at least 12-15% unlevered pre-tax
returns or shareholder return programs.
The full Board of Directors will maintain oversight of the
execution of the Transformation Plan with monthly updates provided
to the Board’s Finance and Risk Management Committee. A score card
will be provided to the investment community and will be updated on
future quarterly earnings calls.
Analyst Day
NRG plans to host an Analyst Day following the full announcement
of asset sales and the NRG Yield and Renewable process to provide
an updated comprehensive strategic plan. The Analyst Day is
targeted for late 2017 / early 2018.
2017 Guidance
NRG is maintaining its guidance range for fiscal year 2017 with
respect to both Adjusted EBITDA and FCFbG investments and adjusting
for the deconsolidation of GenOn and the impact of the
Transformation Plan on 2017.
1 Pro Forma results assume the 100% sale of NRG’s interest in
NYLD and Renewables platform.2 Based on 4/30/2017 shares
outstanding of 316,082,221.3 Based on 4/30/2017 shares outstanding
of 316,082,221.4 Excludes recurring costs to support margin
enhancement activities.5 In addition to consolidated net debt
reduction of $8.5 billion related to these assets.6 Excluding the
disposition of GenOn Energy, Inc. and its subsidiaries.7 Based on
consolidated net debt as of March 31, 2017 and midpoint of 2017
Adjusted EBITDA guidance.
2017
2017
($ in millions)
Guidance Revised Guidance Adjusted
EBITDAa $2,700 - $2,900 $2,565 - $2,765 Cash From Operations $1,355
- $1,555 $1,760 - $1,960 Free Cash Flow before Growth Investments
$800 - $1,000 $1,290 - $1,490
a. Non-GAAP financial measure; see Appendix Table A-11 for GAAP
Reconciliation to Net Income that excludes fair value adjustments
related to derivatives. The Company is unable to provide guidance
for Net Income due to the impact of such fair value adjustments
related to derivatives in a given year.
Investor Conference Call
NRG will host a conference call today, July 12, 2017, at 8:30
a.m. Eastern to discuss the Transformation Plan. Investors, the
news media and others may access the live webcast of the conference
call and accompanying presentation materials by visiting NRG’s
investor website at http://investors.nrg.com and clicking on
“Presentations & Webcasts.” The webcast will be archived on the
site for those unable to listen in real time.
About NRG
NRG is the leading integrated power company in the U.S., built
on the strength of our diverse competitive electric generation
portfolio and leading retail electricity platform. A Fortune 500
company, NRG creates value through best in class operations,
reliable and efficient electric generation, and a retail platform
serving residential and commercial businesses. Working with
electricity customers, large and small, we implement sustainable
solutions for producing and managing energy, developing smarter
energy choices and delivering exceptional service as our retail
electricity providers serve almost three million residential and
commercial customers throughout the country. More information is
available at www.nrg.com. Connect with NRG Energy on Facebook
and follow us on Twitter @nrgenergy.
Safe Harbor Disclosure
In addition to historical information, the information presented
in this press release includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act. These statements involve
estimates, expectations, projections, goals, assumptions, known and
unknown risks and uncertainties and can typically be identified by
terminology such as “may,” “should,” “could,” “objective,”
“projection,” “forecast,” “goal,” “guidance,” “outlook,” “expect,”
“intend,” “seek,” “plan,” “think,” “anticipate,” “estimate,”
“predict,” “target,” “potential” or “continue” or the negative of
these terms or other comparable terminology. Such forward-looking
statements include, but are not limited to, statements about the
anticipated benefits of acquisitions, the Company’s future
revenues, income, indebtedness, capital structure, plans,
expectations, objectives, projected financial performance and/or
business results and other future events, and views of economic and
market conditions.
Although NRG believes that its expectations are reasonable, it
can give no assurance that these expectations will prove to be
correct, and actual results may vary materially. Factors that could
cause actual results to differ materially from those contemplated
herein include, among others, general economic conditions, hazards
customary in the power industry, weather conditions, including wind
and solar performance, competition in wholesale power markets, the
volatility of energy and fuel prices, failure of customers to
perform under contracts, changes in the wholesale power markets,
changes in government regulations, the condition of capital markets
generally, our ability to access capital markets, unanticipated
outages at our generation facilities, adverse results in current
and future litigation, failure to identify, execute or successfully
implement acquisitions, repowerings or asset sales, our ability to
implement value enhancing improvements to plant operations and
companywide processes, our ability to implement and execute on our
publicly announced transformation plan, including any cost savings,
margin enhancement, asset sale, and net debt targets, our ability
to proceed with projects under development or the inability to
complete the construction of such projects on schedule or within
budget, risks related to project siting, financing, construction,
permitting, government approvals and the negotiation of project
development agreements, our ability to progress development
pipeline projects, the timing or completion of the GenOn
restructuring, the inability to maintain or create successful
partnering relationships, our ability to operate our businesses
efficiently including NRG Yield, our ability to retain retail
customers, our ability to realize value through our commercial
operations strategy and the creation of NRG Yield, the ability to
successfully integrate businesses of acquired companies, our
ability to realize anticipated benefits of transactions (including
expected cost savings and other synergies) or the risk that
anticipated benefits may take longer to realize than expected, our
ability to close the Drop Down transactions with NRG Yield, and our
ability to execute our Capital Allocation Plan. Debt and share
repurchases may be made from time to time subject to market
conditions and other factors, including as permitted by United
States securities laws. Furthermore, any common stock dividend is
subject to available capital and market conditions.
NRG undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law. The adjusted
EBITDA and free cash flow guidance are estimates as of July 12,
2017. These estimates are based on assumptions the company believed
to be reasonable as of that date. NRG disclaims any current
intention to update such guidance, except as required by law. The
foregoing review of factors that could cause NRG’s actual results
to differ materially from those contemplated in the forward-looking
statements included in this Earnings Presentation should be
considered in connection with information regarding risks and
uncertainties that may affect NRG's future results included in
NRG's filings with the Securities and Exchange Commission at
www.sec.gov.
Appendix Table A-1: 2017 and Pro Forma Adjusted EBITDA
Guidance Reconciliation
The following table summarizes the calculation of Adjusted
EBITDA providing reconciliation to net income:
2017 Adjusted EBITDAPrior
Guidance
($ in millions)
Low High GAAP Net Income 1 150
350 Income Tax 80 80 Interest Expense & Debt Extinguishment
Costs 1,065 1,065 Depreciation, Amortization, Contract Amortization
and ARO Expense 1,235 1,235 Adjustment to reflect NRG share of
adjusted EBITDA in unconsolidated affiliates 110 110 Other Costs 2
60 60
Adjusted EBITDA $2,700 $2,900
2017 Adjusted EBITDARevised
Guidance
($ in millions)
Low High GAAP Net Income 1 360
560 Income Tax 80 80 Interest Expense & Debt Extinguishment
Costs 825 825 Depreciation, Amortization, Contract Amortization and
ARO Expense 1,150 1,150 Adjustment to reflect NRG share of adjusted
EBITDA in unconsolidated affiliates 110 110 Other Costs 2 40
40
Adjusted EBITDA $2,565 $2,765
Pro FormaAdjusted EBITDA
($ in millions)
Low High GAAP Net Income 1 790 990
Income Tax 60 60 Interest Expense & Debt Extinguishment Costs
355 355 Depreciation, Amortization, Contract Amortization and ARO
Expense 440 440 Adjustment to reflect NRG share of adjusted EBITDA
in unconsolidated affiliates 60 60 Other Costs 2 40 40
Adjusted EBITDA $1,745 $1,945
1 For purposes of guidance, fair value
adjustments related to derivatives are assumed to be zero.
2 Includes deactivation costs, gain on
sale of businesses, reorganization costs, asset
write-offs,impairments and other non-recurring items.
Appendix Table A-2: 2017 and Pro Forma FCFbG Guidance
Reconciliation
The following table summarizes the calculation of Free Cash Flow
before Growth providing reconciliation to Cash from Operations:
2017 Pro Forma ($ in
millions)
Prior Guidance
RevisedGuidance
For Trans-formation Plan
Adjusted EBITDA $2,700 - $2,900 $2,565 - $2,765 $1,745 - $1,945
Cash Interest payments (1,065) (825) (355) Cash Income tax (40)
(40) (40) Collateral / working capital / other (240) 60 (45) Cash
From Operations $1,355 - $1,555 $1,760 - $1,960 $1,305 - $1,505
Adjustments: Acquired Derivatives,
Cost-to-Achieve, Return of Capital Dividends, Collateraland
Other
0 0 0 Adjusted Cash flow from operations $1,355 - $1,555 $1,760 -
$1,960 $1,305 - $1,505 Maintenance capital expenditures, net (280)
- (310) (210) - (240) (110) - (140) Environmental capital
expenditures, net (40) - (60) (25) - (45) (25) - (45) Preferred
dividends 0 0 0 Distributions to non-controlling interests (185) -
(205) (185) - (205) 0 Free Cash Flow – before Growth Investments
$800 - $1,000 $1,290 - $1,490 $1,130 - $1,330
EBITDA and Adjusted EBITDA are non-GAAP financial measures.
These measurements are not recognized in accordance with GAAP and
should not be viewed as an alternative to GAAP measures of
performance. The presentation of Adjusted EBITDA should not be
construed as an inference that NRG’s future results will be
unaffected by unusual or non-recurring items.
EBITDA represents net income before interest (including loss on
debt extinguishment), taxes, depreciation and amortization. EBITDA
is presented because NRG considers it an important supplemental
measure of its performance and believes debt-holders frequently use
EBITDA to analyze operating performance and debt service capacity.
EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
operating results as reported under GAAP. Some of these limitations
are:
- EBITDA does not reflect cash
expenditures, or future requirements for capital expenditures, or
contractual commitments;
- EBITDA does not reflect changes in, or
cash requirements for, working capital needs;
- EBITDA does not reflect the significant
interest expense, or the cash requirements necessary to service
interest or principal payments, on debt or cash income tax
payments;
- Although depreciation and amortization
are non-cash charges, the assets being depreciated and amortized
will often have to be replaced in the future, and EBITDA does not
reflect any cash requirements for such replacements; and
- Other companies in this industry may
calculate EBITDA differently than NRG does, limiting its usefulness
as a comparative measure.
Because of these limitations, EBITDA should not be considered as
a measure of discretionary cash available to use to invest in the
growth of NRG’s business. NRG compensates for these limitations by
relying primarily on our GAAP results and using EBITDA and Adjusted
EBITDA only supplementally. See the statements of cash flow
included in the financial statements that are a part of this news
release.
Adjusted EBITDA is presented as a further supplemental measure
of operating performance. As NRG defines it, Adjusted EBITDA
represents EBITDA excluding impairment losses, gains or losses on
sales, dispositions or retirements of assets, any mark-to-market
gains or losses from accounting for derivatives, adjustments to
exclude the Adjusted EBITDA related to the non-controlling
interest, gains or losses on the repurchase, modification or
extinguishment of debt, the impact of restructuring and any
extraordinary, unusual or non-recurring items plus adjustments to
reflect the Adjusted EBITDA from our unconsolidated investments.
The reader is encouraged to evaluate each adjustment and the
reasons NRG considers it appropriate for supplemental analysis. As
an analytical tool, Adjusted EBITDA is subject to all of the
limitations applicable to EBITDA. In addition, in evaluating
Adjusted EBITDA, the reader should be aware that in the future NRG
may incur expenses similar to the adjustments in this news
release.
Management believes Adjusted EBITDA is useful to investors and
other users of NRG's financial statements in evaluating its
operating performance because it provides an additional tool to
compare business performance across companies and across periods
and adjusts for items that we do not consider indicative of NRG’s
future operating performance. This measure is widely used by
debt-holders to analyze operating performance and debt service
capacity and by equity investors to measure our operating
performance without regard to items such as interest expense,
taxes, depreciation and amortization, which can vary substantially
from company to company depending upon accounting methods and book
value of assets, capital structure and the method by which assets
were acquired. Management uses Adjusted EBITDA as a measure of
operating performance to assist in comparing performance from
period to period on a consistent basis and to readily view
operating trends, as a measure for planning and forecasting overall
expectations, and for evaluating actual results against such
expectations, and in communications with NRG's Board of Directors,
shareholders, creditors, analysts and investors concerning its
financial performance.
Adjusted cash flow from operating activities is a non-GAAP
measure NRG provides to show cash from operations with the
reclassification of net payments of derivative contracts acquired
in business combinations from financing to operating cash flow, as
well as the add back of merger, integration and related
restructuring costs. The Company provides the reader with this
alternative view of operating cash flow because the cash settlement
of these derivative contracts materially impact operating revenues
and cost of sales, while GAAP requires NRG to treat them as if
there was a financing activity associated with the contracts as of
the acquisition dates. The Company adds back merger, integration
related restructuring costs as they are one time and unique in
nature and do not reflect ongoing cash from operations and they are
fully disclosed to investors.
Free cash flow (before Growth investments) is adjusted cash flow
from operations less maintenance and environmental capital
expenditures, net of funding, preferred stock dividends and
distributions to non-controlling interests and is used by NRG
predominantly as a forecasting tool to estimate cash available for
debt reduction and other capital allocation alternatives. The
reader is encouraged to evaluate each of these adjustments and the
reasons NRG considers them appropriate for supplemental analysis.
Because we have mandatory debt service requirements (and other
non-discretionary expenditures) investors should not rely on free
cash flow before Growth investments as a measure of cash available
for discretionary expenditures.
Free Cash Flow before Growth Investment is utilized by
Management in making decisions regarding the allocation of capital.
Free Cash Flow before Growth Investment is presented because the
Company believes it is a useful tool for assessing the financial
performance in the current period. In addition, NRG’s peers
evaluate cash available for allocation in a similar manner and
accordingly, it is a meaningful indicator for investors to
benchmark NRG's performance against its peers. Free Cash Flow
before Growth Investment is a performance measure and is not
intended to represent net income (loss), cash from operations (the
most directly comparable U.S. GAAP measure), or liquidity and is
not necessarily comparable to similarly titled measures reported by
other companies.
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version on businesswire.com: http://www.businesswire.com/news/home/20170712005570/en/
NRG Energy, Inc.Media:Marijke Shugrue,
609-524-5262orInvestors:Kevin L. Cole, CFA,
609-524-4526orLindsey Puchyr, 609-524-4527
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