Letter to Shareowners
Dear Fellow Owners,
2008 was a tough year, and we expect 2009 to be even tougher.
The liquidity challenge I reported in last year’s letter has become a global financial meltdown. In 2008, we worked hard to keep the Company safe and to anticipate how the financial crisis would impact our businesses. In the past, I believed that our diversified portfolio would protect us in all kinds of economic cycles. But we never anticipated a global financial system failure and its continuing economic fallout.
The macro-environment has been brutal. The losses in the whole financial services industry are projected to be at least $2 trillion. The lending capacity that has come out of the system is somewhere between $5 trillion and $10 trillion. We have now entered an economic recession across most of the world.
Government actions have helped to stabilize the environment. Capital markets have improved, largely due to aggressive actions by the U.S. Federal Reserve, U.S. Federal Deposit Insurance Corporation, U.S. Department of the Treasury, and global governments. In addition, stimulus programs being implemented around the world will provide trillions in new investments.
In this very tough environment, GE earned $18 billion, our third highest year in history. Thanks to the extensive repositioning of our portfolio over the past eight years, we redeployed our capital to enable growth. Our operating cash flow for the year remained strong at over $19 billion. We have a $172 billion backlog in infrastructure products and services. We have geographic diversity, with 53% of our revenues outside the U.S. We also have a great pipeline of new products.
The credit for this performance in the toughest times I’ve ever seen goes to the people of GE. The efforts of more than 300,000 skilled GE workers, technicians, credit analysts, technologists, engineers, service providers, our experienced management team, and all employees helped us end 2008 with solid profitability and prepare our Company for future growth.
Despite our efforts, the GE stock got hammered. Companies with a presence in financial services, like GE, are simply out of favor. I can tell you that no one is more disappointed than I am with the performance of our stock in this tough environment. I assure you that we will work hard to restore your trust, and we will continue to work hard to build GE for the long term.
We are in a recession and, at times like these, it is difficult to predict how bad and for how long. We are running GE to “weather the cycle.” However, I believe we are going through more than a cycle. The global economy, and capitalism, will be “reset” in several important ways.
The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.
The financial industry will radically restructure. There will be less leverage, fewer competitors, and a fundamental repricing of risk. It will remain an important industry, just different.
There are other resets as well: the diminished role of the automotive industry; a prolonged downturn in housing; a decline in the prominence of alternative investments; and the nature of executive responsibility and compensation. You get the point. Successful companies won’t just “hunker down”; they will seek out the new opportunities in a reset world.
In that context, we have taken strong actions to protect the Company during this recessionary cycle. At the same time, we will continue to execute our long-term strategy. We will continue to build strong businesses that will perform over the long term. And we will drive the common initiatives that build competitive advantage.
In this very tough environment, GE has earned $18 billion, our third highest year in history ... We have a $172 billion backlog in infrastructure products and services ... We also have a great pipeline of new products.
2008 Company Highlights
- Earnings were $18.1 billion, the third highest in Company history
- Revenues grew 6% to a Company record of $183 billion
- Global revenue grew 13%
- Infrastructure and Media segments grew operating profit 10%
- Total equipment and services backlog grew to $172 billion, an increase of 9%
- Services grew 10% with a backlog of $121 billion
- Industrial organic revenue grew 8%
- Invested $15 billion in the intellectual foundation of the Company including products, services, marketing, and programming
- Filed 2,537 patent applications in 2008, an increase of 8%
- Named 4th most valuable brand in the world by BusinessWeek
(In $ billions)
5-year average growth rate of 12%
Earnings From Continuing Operations
(In $ billions)
5-year average growth rate of 7%