Invest and Deliver
In 2008, we should hit all of our financial goals and outperform the S&P 500. Our revenues should grow by at least 10% to $195 billion, with organic revenue growth at 2 to 3 times GDP growth. Our earnings per share should grow by at least 10%. Our return on average total capital (ROTC) should near our target of 20%. We expect to return $18 billion to our investors through the dividend and stock buyback.
We have the discipline and the processes to win in this tough environment. We are in the fifth year of a successful organic growth initiative that is delivering results. More than half of our revenues are outside the U.S., and our global revenue growth was 22% in 2007. We have $150 billion of Infrastructure products and services in backlog. We have strict risk discipline, and as a result, have no exposure to losses from Collateralized Debt Obligations (CDOs) and Structured Investment Vehicles (SIVs). We have retained a “Triple-A”-rated balance sheet and generate substantial cash flow, so we can invest while others pull back.
GE is different because we invest in the future and deliver today. We are uniquely positioned to win in the essential themes of this era. We help to create the future and, by doing so, drive our own growth. We are a leadership company. We have built strong businesses that win in their markets. Together, our businesses deliver consistent earnings growth through the cycles. We are a high-performance company. We can harness ideas from across the Company to drive superior organic growth, margins, and returns. We are a company that develops leaders. Our team is experienced, and still they learn every day. Our bench is deep.
In the rest of this letter, I will share with you the value embedded in the totality of GE. In a tough 2008, this value will be unlocked for you.
Throughout the economic cycles, GE’s long-term goals are organic revenue growth at 2 to 3 times GDP growth, greater than 10% earnings growth, operating cash flow growth exceeding earnings growth, and a return on average total capital of 20%.
| (in $ billions) | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|
| Consolidated Revenues | 105 | 124 | 137 | 152 | 173 |
| Organic revenue growth (%) | -1 | 6 | 8 | 9 | 9 |
Revenues increased 14% to $173 billion. Organic revenue growth was 9%.
| (in $ billions) | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|
| Earnings From Continuing Operations Before Accounting Changes | 13.3 | 15.6 | 17.4 | 19.4 | 22.5 |
Earnings grew 16% to $22.5 billion. Earnings were $2.20 per share, an increase of 18% versus 2006.
| (in %) | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|
| Total Shareholder Return | |||||
| GE | 31 | 58 | 56 | 70 | 75 |
| S&P 500 | 29 | 43 | 50 | 73 | 83 |
Over the last five years, total return for GE shareholders (stock price appreciation assuming reinvested dividends) was 75% versus the S&P 500’s total return of 83%.
| Cash Flows | |||||
|---|---|---|---|---|---|
| Cumulative cash flow | 12 | 25 | 45 | 69 | 92 |
| Cumulative dividend and buyback | 8 | 16 | 31 | 49 | 75 |
| Cumulative free cash flow | 2 | 8 | 18 | 32 | 51 |
Cash from operating activities (CFOA) was $23.5 billion. Industrial cash flow growth was 15%.
| (in %) | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|
| Operating Profit Margin | 17.1 | 15.5 | 15.9 | 15.9 | 16.6 |
Operating profit margin increased 70 basis points (bp) to 16.6% in 2007. This operating efficiency improvement is near an all-time high for GE.
| (in %) | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|
| Return On Average Total Capital | 15.7 | 14.9 | 16.8 | 18.6 | 18.9 |
Return on average total capital (ROTC) improved 30 bp to 18.9%. This is in line with the Company’s historical highs for ROTC.