NextEra: Leaning Into the 21st Century
Note: The following is a brief extract from Management CV in depth analysis. Please contact us for a copy of the full report.
NextEra Energy’s Chairman, President & CEO Jim Robo (58) runs one of the most successful utilities with both regulated and unregulated businesses. The CEO has focused on renewables and achieving scale, acquiring Gulf Power in 2019. This fall Robo told investors “There is no one better positioned to take advantage of it than we are. And we’re leading the transition, not just of the decarbonization of the electric grid, but decarbonization of the entire US economy. The electric grid is going to be the vehicle to decarbonize the transportation sector, it’s going to decarbonize the industrial sector. ” “We have two terrific businesses. Obviously, FPL, which we think is the best utility in the world and NextEra Energy Resources. Our goal fundamentally is to lead the transition – this energy transition to decarbonize the economy, I’m very excited about the opportunity in both businesses. Both businesses are taking advantage of a set of disruptive forces that we see that are really driving this energy transformation and that is the fact that renewable costs wind and solar along with – paired with batteries are cheaper than natural gas, cheaper than nuclear, cheaper than coal. We’ve been getting a lot of questions of what’s the fact that gas prices have gone up $0.80 on the 10-year strip since the beginning of the year. What’s that mean? Well, it means wind and solar are even more competitive than they were in January this year. So it’s terrific news and we are leading this transition. ”
Compensation and Alignment Analysis
NEE’s management team is unusually well paid but also aligned well with investor interests through major equity stakes and a focus on EPS and ROE incentive metrics. CEO Robo’s $23.7 million in total pay last year had $16.1 million paid to him in the form of long term equity. The CEO is paid a large $1.5 million salary and received a sizeable $4.8 million cash bonus last year. CFO Kujawa’s pay totaled $4.3 million in 2020 including a $2.4 million equity grant. We also note that the CEO has a lucrative potential severance in the event of Change-in-Control event which is defined at an unusually low 20% outside stake.
Equity Ownership Analysis
We like the substantial equity stakes that NEE Insiders and managers hold in their firm. They beneficially own about 7.9 million shares worth $714.4 million. CEO Robo is the largest personal holder with about 5.3 million beneficial shares valued at over $479.4 million. CFO Kujawa’s 103k vested shares are worth about $9.3 million. Divisional CEO Silagy, General Counsel Sieving, and Division CEO Ketchum each have between 239k and 474k shares worth $21.5 million to $42.6 million.
Capital Allocation Practices
CFO Kujawa has been shrewd in serially tapping the debt markets several times in 2020. Most recently, the CFO issued over $3 billion of debentures following $2.5 billion in November. Management has moderately increased its leverage with lower rates. It was $55.3 billion (60% debt/total capital) as of Q3 ’21, up from 2020’s $48.1 billion (57% debt/total capital) and 2019’s $42.6 billion (54% debt/total capital) but the CFO maintained investment-grade ratings (Baa1/A-). NEE’s cash was $692 million compared to $1.1 billion at year end ’20. YTD, operating cash flow was $6.2 billion versus $6.3 billion a year ago. CapEx was $5 billion thus far this year, in line with the $5.2 billion forecast in the year-ago period.
Material Fiduciary Issues
The Board has decreased in size to 12 Directors from 14 after Toni Jennings and William Swanson didn’t run for reelection at this year’s AGM. Both had reached the 72-year-old mandatory retirement age. Sherry Barrat (71, Director since 1998) is the Lead Director. She is the retired Vice Chairman of Northern Trust (2012) and is likely to retire at the next AGM. The many retirements, recent and pending, will be good for this aging Board. We note that NEE’s ByLaws have an unusually low threshold for a Change-in-Control which is triggered at only 20% outside ownership.