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GE-2009 Electrical Products Group (EPG) Conference

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GE-2009 Electrical Products Group (EPG) Conference

  1. 1. Electrical Products Group J. R. Immelt Chairman & CEO May 19, 2009 quot;Results are preliminary and unaudited. This document contains “forward-looking statements”- that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” believe,” “seek,” “see,” or “will.” Forward-looking statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include: the severity and duration of current economic and financial conditions, including volatility in interest and exchange rates, commodity and equity prices and the value of financial assets; the impact of U.S. and foreign government programs to restore liquidity and stimulate national and global economies; the impact of conditions in the financial and credit markets on the availability and cost of GE Capital’s funding and on our ability to reduce GE Capital’s asset levels and commercial paper exposure as planned; the impact of conditions in the housing market and unemployment rates on the level of commercial and consumer credit defaults; our ability to maintain our current credit rating and the impact on our funding costs and competitive position if we do not do so; the soundness of other financial institutions with which GE Capital does business; the adequacy of our cash flow and earnings and other conditions which may affect our ability to maintain our quarterly dividend at the current level; the level of demand and financial performance of the major industries we serve, including, without limitation, air and rail transportation, energy generation, network television, real estate and healthcare; the impact of regulation and regulatory, investigative and legal proceedings and legal compliance risks; strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward- looking statements.” “In this document, “GE” refers to the Industrial businesses of the Company including GECS on an equity basis. “GE (ex. GECS)” and/or “Industrial” refer to GE excluding Financial Services.” Weathering the recession
  2. 2. 1Q’09 performance Earnings V% GE Infrastructure 11% Maintained backlog … orders (10)% S&P industrials (38) Solid cost out … more NBCU (45) restructuring S&P media (29) Increased transparency … Capital Finance $1.1B Capital Finance S&P financials – Resolved rating Strong relative performance JRI EPG 05-19-09/3 Environment Economic downturn continues Positive signs – Global recession + Parts of the globe still robust … China, Middle East, Latin America – Unemployment continues to increase + Broad deflation should help margins – Commercial credit cycle will be difficult + Customer usage helps services growth – Weak consumer/business confidence + Stimulus momentum – Long cycle equipment orders +/– Capital markets improving pressured Continued caution JRI EPG 05-19-09/4
  3. 3. Company total year framework Dec. 16 Today Comments Energy ++ • Global growth Infrastructure Technology + • Aviation on track Infrastructure • Healthcare pressured NBCU 0/‒ — • Advertising market weak • Tough comps Capital Finance $5 Profitable • Costs lower • Tax benefits Corporate/C&I Flat • C&I on track • Costs lower • Additional restructuring planned JRI EPG 05-19-09/5 Capital Finance ($ in billions) 2009 stress case update Original Fed. Fed. outlook base case adverse case Pre-tax, pre-provision ~$13.3 ~$11.1 ~$9.2 Credit costs (9.7) (11.5) (13.7) $3.6 $(0.4) $(4.5) Capital Finance earnings ~$5.0 ~$2.0-2.5 ~$0 GECC ratios (%) – 4Q’09E TCE/TA 6.9 6.4 6.1 Estimated Tier 1 common 7.7 7.2 6.9 1Q credit losses & impairments running at slightly better than Fed. base case … leading indicators still tough Adequate capital … current scenarios do not require external capital Analyst meeting July 28 … will review 2Q & early look at 2010 stress case JRI EPG 05-19-09/6
  4. 4. Infrastructure ($ in billions segment profit) Dynamics ++ + – $6.1 Energy Oil prices Credit Services Global economy Emerging markets Stimulus '08 '09E Margins $8.2 + Services Credit Technology Emerging markets Air freight Stimulus U.S. diagnostic imaging Cost out U.S. rail loadings '08 '09E Managing through a difficult environment Maximize services, emerging markets, stimulus & cost out JRI EPG 05-19-09/7 NBCU ($ in billions – segment profit) Upfront outlook $4B + Cable $3.1 (10)-(15)% - – Network '08 '09E '08 '09E + Double digit growth in Cable ‒ Expecting market to reflect recessionary pressure + Across-the-board strength in Cable +/– Film and Parks mixed + Great content/ratings in Cable News, CNBC, – Broadcast advertising pressure … NBC News, Sports + New content in primetime … strong digital platform realizing savings from ’08 actions + Comedy is key … Leno launch – Restructuring + “Advertiser friendly” approach Historically post-recession scatter offsets smaller upfront Cable strength & breadth of portfolio help offset recession impact JRI EPG 05-19-09/8
  5. 5. Executing through the recession Stabilize Outperforming Strengthen the Capital Finance + in a + balance sheet tough economy + Solid funding plans + Protect backlog + Strong cash generation + Margins on new + Growth with stimulus + Maximize financial origination flexibility + Services strength + Strong capital ratios + Global orders + Lower cost JRI EPG 05-19-09/9 Solid funding plans ($ in billions) 2009 2010 $69 Collections > $67 Collections > originations … ~$25B originations … ~$25B ~$45 CP at $50B by year end ~$40 Pre-fund in 2009 Bank lines > CP ($7B done) $8B+ non-guaranteed Strengthening ILC TALF securitization 7 Maturities Debt Maturities Debt issuances issuances Credit ratings … Double A stable ~$30B cash … earnings impact JRI EPG 05-19-09/10
  6. 6. Solid new margins ($ in billions) Commercial Finance volume Capital allocation 1Q ~$50-55 3-4% positive earnings $7.3 CLL + Demand strengthening + Bulk buy + New originations ROI … 3%+ Verticals + Sale leaseback (GECAS/EFS) + Restructuring 1Q'09 TY'09 ROI + New originations ROI … 5% Strong commercial rhythm Global + Solid profit … Garanti +44% banking + Funding improving Increasing customer touch points Proposals 9X vs. 1/1/09 … U.S. + ’08+ underwriting solid conversion rate 4X in Americas consumer + Margins > losses Valuable franchises … operating in today’s economy JRI EPG 05-19-09/11 Industrial earnings outperform ($ in billions) Huge backlog What we can control ~$170 Orders + Protect our backlog $10B of financing … <$1B in 1Q Robust CSA Services 120 + Maximize impact of stimulus Invested $50B R&D this decade Partner in green Energy, Infrastructure, Healthcare Equipment 50 – + Leverage our unique business model Company-to-country + Services Uncertainty Timing of recovery Customer credit + Aggressively repositioning cost structure Impact of regulation GE has advantages JRI EPG 05-19-09/12
  7. 7. Global stimulus Target regions Built process & pipeline Government targets # U.S. Brazil projects $B “Green” technology U.K. China Energy 157 $94 Infrastructure Germany Canada Healthcare 126 32 Rural healthcare France Japan Other 136 66 Healthcare IT EU Saudi Arabia 419 $192 Export finance/R&D Accelerate projects Accelerate technology Smart Grid – Miami Pakistan power grid + Sodium battery (NY) + $0.4B GE content + $0.2B GE content 2011 commercialization + Partner … FP&L, Cisco + French financing Customer demand + Biggest demo + Build IB 350 direct & thousands + 1,000 jobs + 250 jobs indirect JRI EPG 05-19-09/13 Robust service model ($ in billions) Growth Drivers ’09 profit GE growth Market IB Usage $35 + Energy + + + F turbine outages O&G + + + + IB growth Aviation + – + + CFM/GE90 shop visits Healthcare + – + + Customer outsourcing '08 '09E CSA 120 + Transp. + – + – Environmental services Margins + + ~$8B of earnings … higher visibility JRI EPG 05-19-09/14
  8. 8. Win the big global orders ($ in billions) China growth15-20% Global Industrial revenue + Execute on stimulus … Rail + Healthcare growth + + East to west pipeline (O&G) ~$60 India election outcome is encouraging Execute on big Energy projects + Iraq on track + Environmental + O&G resurgence + MEA growth Leverage global partnerships '08 '09E + Aviation … Middle East $1B+ + JV with government railroad Kazakhstan + 1,700 Class I locomotives rail + Service franchise + Local production in 2010 ’10F-’13F + Ship to new regions JRI EPG 05-19-09/15 Lower cost ($ in billions) Base cost Material deflation $44 4-5% $40 – 1% (2)% '08 '09E '10F '08 '09E '10F Plan for more restructuring … Lower commodity costs headcount & footprint Global sourcing Indirect deflation Supply chain excellence Lower spend Strong cost momentum into 2010 JRI EPG 05-19-09/16
  9. 9. Strong cash generation ($ in billions – Industrial CFOA) Dynamics $14-16 ‒ Progress collections ’09/’10 headwind up to $5B + Offset by working capital improvements Inventory $2B Receivables 2 Payables 1 + Lean is driving results Aviation ’08 ’09E + Inventory turns 6.2 6.9 $1B cash Receivables turns 4.2 4.6 savings Divest & other ~$2B Payables days 76 86 GE working capital opportunity … 1 turn = ~$5B+ GE teams targeting working capital upside JRI EPG 05-19-09/17 Financial flexibility 1 Raise equity 2 Cut dividend 3 More cash on hand $15B ~$13B $47B $16B 4Q’08 ’09E-’10F 3Q’08 1Q’09 4 Reduce CP 5 Reduce leverage 6 Absorb losses $102B $17-20B 6.6% $58B 1Q’08 1Q’09 GECC TCE/TA ’08 + ’09 GE has strong operating processes & balance sheet … no need to raise external capital in world we see today JRI EPG 05-19-09/18
  10. 10. GE in recession 1 Stabilize Capital Weather the losses Finance Stabilize funding New margins Adequate capital Increased transparency … analyst meeting 7/28 2 Industrial earnings Protect backlog outperform Maximize stimulus Services Global reach Lower cost 3 Strengthen the Strong cash generation balance sheet Conservative approach JRI EPG 05-19-09/19 Leading in a reset world
  11. 11. Our view of reset world Dynamics For GE Dramatic change in Financial Smaller Capital Finance Services Increased role of global Positive engagement governments Slower developed world Play in big markets economic growth Organic growth Services Highly differentiated global Focus “resource rich,” growth China & India Trust is low … corporations getting more scrutiny Build brand & culture JRI EPG 05-19-09/21 The future for GE ($ in billions) Profitability Growth Assets 1.5-2.0% Cyclical & Financial ~$400-450 ROI strategic + Infrastructure Revenue Margins 15-20% 2-3X GDP & Media ~$125 Strategic imperatives 1 More valuable portfolio 2 Organic growth 2-3X GDP + Reposition Capital Finance + Launch new technologies + Expand services growth + Invest in growth businesses + Position in fast growth regions + Win in big themes JRI EPG 05-19-09/22
  12. 12. More valuable portfolio Partner to Build business ($40B) maximize value … Top P&Ls Renewable energy Nuclear Avionics Oil & Gas HCIT/Life Sciences Services Cable/int’l./film Water/ES GE competitive advantage Timely exits ($60B) Reinsurance/FGIC Market attractiveness Financial Assurance Divest to create Plastics/Silicones value … Homeland Industrial Supply Security 4 TV Stations Portfolio Long term focus on improving industrial growth rate JRI EPG 05-19-09/23 Reposition Capital Finance ($ in billions) Fit with the era Mortgages Equipment Lower leverage … more regulation Services Today Future Some “Low stress” funding … diversified consumer Fewer competitors Restructuring 15% Global banks Valuable franchise with Global banks 15% strategic flexibility 15% Strong GE connection Core Core & 55% verticals Domain-based verticals 85% Align with brand Verticals Origination + risk 15% Competitive with banks Assets $540 ~$400-450 Profitable franchise JRI EPG 05-19-09/24
  13. 13. Launch new technologies ($ in billions) Technology investment Big pipeline in place (2000-2009) $50 20,000+ Broad technical & content leadership in patents big industries $40 + Energy + Healthcare + Media Build unique systems that utilize breadth + Smart Grid Product Content Bring big impact GRC-brand technologies Global position to market Stimulus support Consistent investment over the past decade … multiple new platforms launching in 2009-10 JRI EPG 05-19-09/25 Broad based Energy leadership Base load Renewables Oil & Gas Clean coal Wind Electrification Launching 2.5MW Duke-GE Global growth first plant in 25 yrs. Solar Launching thin film “Integrated riser” ABWR/ESBWR “Green Industrial” Only U.S. based Water reuse player Waste heat recovery $2B+ opportunity Billions of GE content World’s biggest Technical in each plant renewables business leadership in O&G JRI EPG 05-19-09/26
  14. 14. Broad based Healthcare leadership Molecular imaging pipeline Pathology tools L R GE leading in neuro- Automating labs with imaging agents digital tools Compounds being Software engineering developed for Alzheimer’s co-located with & Parkinson’s clinical pathologists Therapy being developed Molecular screening with pharma components Portable ultrasound Value MR High performance, low Innovative point-of-care total-ownership-cost diagnostics 1.5T MR Portable “at bedside” Simplified features easy ultrasound with for new users to learn exceptional image quality 65% population minimal 20% cost vs. current access to MR … big low-cost, compact U/S opportunity Innovation at all price points JRI EPG 05-19-09/27 Strong NBCU content across all platforms Cable Global cable channels Continue development of original series for cable via Universal Cable Productions Position cable as next Significant channels growth from 14 in early ’07 generation “broadcast nets” … to 67 now … to ~80 planned by 2010 … opportunity to grow price Distributed throughout Asia, Western Europe, U.K., Latam and CEE/Russia Film Comedy Public Funny Robin Get Him to Despicable Enemies People Hood the Greek Me Enhances NBC’s comedy brand Continue franchise/event focus with strong comedy Ground breaking change in broadcast TV Grow family offerings … 1st illumination title, model … eliminates need to program 5 hours Despicable Me, in ’10 per week … should make 8-10 p.m. stronger Digital: hulu provides premium online leadership JRI EPG 05-19-09/28
  15. 15. System leadership: Smart Grid Smart Grid Hybrid electric water heater Key enabling Combines energy Delivering the solutions today… technology for savings technology renewables & PHEV with traditional system Driving grid efficiency/ optimization while Same amount hot reducing carbon water at 50% less footprint energy Home energy management Smart appliances Enable peak savings without affecting consumer life-style C&I products >85% of energy & peak load in a home Enable consumer end of Smart Grid $5B Smart Grid opportunities JRI EPG 05-19-09/29 “GRC-led” technologies Military helicopter (GE 38) Airborne electric power Advanced materials Electric loads increasing … 2x – 4x 10% lower fuel consumption; Electrification technology 50-80% operations & support can improve reliability, cost advantage system cost, performance & safety $2B+ market opportunity $5B+ GE opportunity IGCC & Co2 sequestration Sodium battery Lower cost than ~1 km pulverized coal Sites plentiful … Utsira formation (Saline aquifer) regulatory challenges CO2 injection remain $150MM invested GE opportunity … Second generation leadership in locomotives Natural gas field $0.7B/plant Broad customer interest $1B+ opportunity JRI EPG 05-19-09/30
  16. 16. Expand services growth Redefine boundaries Key strategies + Grow the installed base 2-3X GDP 25-30% Global & new technologies + Expand adjacent content … increase $/installed base Software driven Sensors are a big advantage + Expand beyond the installed base Growth Margins Workflow & IT rate + Increase customer touch & ~75% of GE productivity tools Industrial earnings Goal: increase our service growth rate JRI EPG 05-19-09/31 Growing the installed base: Energy Global footprint: Saudi Arabia New product: Wind 150+ $2B+ 11K+ $1B+ Turbines Long-term Wind Long-term installed service installs service 2006-10F revenue 2006-10F revenue Built services shop Remote monitoring Launch proprietary technology Upgrade kits Fuel flex Grid efficiency Competitive advantage Incremental growth JRI EPG 05-19-09/32
  17. 17. Healthcare: services beyond the IB ($ in billions) Segments GE today Focus $35B Hospital enterprise Healthcare IT Health Information + Expand share in EMR & HIE $17B ~$1.5 + Expand clinical offerings Exchange (HIE) Growth: + Grow globally Physician offices 8%+ Clinical systems Asset management + Expand asset management Healthcare + Leverage lean care delivery Solutions Care delivery excellence Culture driven performance + Drive technology enabled $18B ~$1.0 Service line innovation patient flow solutions Growth: 7%+ Consumables + $1-5MM+ opportunity per hospital Market driver: customer productivity Market is ready for expanded GE approach JRI EPG 05-19-09/33 Position for global growth ($ in billions – Industrial revenue) Growth Priorities ~$60 ++ Build on strong positions in resource Resource rich 22 rich regions China/India 10 ++ Localize & build for long-term growth Sustain strong customer relations Developed 28 – (Europe/Japan) with global team Leverage reputation as 2008 world’s best partner Differentiated global strategy JRI EPG 05-19-09/34
  18. 18. New partnerships in region/for world Aviation “China SOE game changers” Partner to build civil aviation systems for China’s next Commercial Finance JV imminent generation of commercial aircraft AVO partnership finalized Energy Ecomagination Centre of Masdar Co-development of Smart Grid City products and technologies Growth in Aviation & Energy Rail Diesel engines & spare parts; explore e-loco partnership & adjacencies Healthcare IT partnership Jointly funded R&D Oil & Gas Capabilities aligned to regional Build O&G compressors/pumps & & global needs expand to local segments Goal: partner with national champions locally … go global together JRI EPG 05-19-09/35 Win in big themes “Clean technology” “Affordable healthcare” ecomagination + healthymagination “Green is green” “Health is wealth” Play in world’s biggest markets Utilize GE’s broad capabilities Drive technology & innovation Benefits … customer, investor, employee, public JRI EPG 05-19-09/36
  19. 19. Position in essential themes ($ in billions) ecomagination Revenues 72+ products ~$25 Big pipeline R&D leadership $17 Reputation/brand $6 Saved $0.5B by reducing carbon footprint Customer partnerships '04 '08 '10F Lead in clean energy JRI EPG 05-19-09/37 healthymagination GE value: For customers healthcare earnings – Invest $6B to launch 100+ innovations that lower cost, cost of healthcare increase access and improve quality by 15%. Focus on ++ efficient technologies, healthcare IT, more access and consumer-driven health + For employees ~$0.5B Drive better employee health through “Healthy Worksite” program to increase wellness and competitiveness; target annual cost increases to less than rate of inflation (CPI) For investors Achieve long-term healthcare organic growth of 2-3x GDP; grow healthcare “value gap” from $500MM today to higher levels in the future '08 '09E '15F For public Get ahead of healthcare changes Be transparent … partner with others … engage thought Build the GE brand and policy leaders Utilize GE’s technical breadth, global position & financial strength to support healthcare with cost, access & quality targets JRI EPG 05-19-09/38
  20. 20. Strong leadership team Functional excellence P&L leadership Strong culture 35,000 Top 500 leaders 235 Sciences depth + 20 years with GE Product discipline 60 + Global & diverse Systems capable + Long term comp Global integration Benchmark + High retention Engineers Bench Leaders + Domain experts Deep domain Function by function: Globalization continuous improvement Financial accountability Cornerstone of execution Know how to win Committed to win JRI EPG 05-19-09/39 Creating value
  21. 21. GE metrics vs. peer group 2008 industrial organic revenue growth 2008 margins 8 15.6 (%) 2X (%) 14.6 +100 bps. 4 GE GE Peers Peers 2008 return on capital 2008 revenue per employee (%) 14.8 +270 bps. ($K) 566 2X 12.1 294 GE GE Peers Peers Peers include Whirlpool, Disney, News Corp., United Technologies, Honeywell, Siemens, Philips, ABB, Rolls Royce, Alstom JRI EPG 05-19-09/41 Creating value Priorities ~$18B Restore value in Financial Services ~1.5-2.0% ROI + High return growth Financial 8 + Strong competitive position Profitable Outperform in Industrial Industrial 10 +0-5% + + Better organic growth + Lower cost/higher margins + More services 2008 Cycle New world + Strong cash flow A better GE JRI EPG 05-19-09/42
  22. 22. What the world needs GE GE + Access to affordable, + Content incredibly valuable quality healthcare + Clean, renewable energy + Mid-market financing for small to medium sized companies + National productivity + Capital to build infrastructure through low cost in growing communities transportation GE will continue to provide products, services & financing to solve world’s toughest challenges JRI EPG 05-19-09/43

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