Protect our franchise and brand. We protected the GE brand and our long-term franchise. We increased our research and development (R&D) funding by 7%, and positioned the Company to seize new opportunities through investments. We announced an exciting new initiative, healthymaginationSM, and continued to successfully drive our signature ecomaginationSM effort. Through the crisis, GE remained the world’s fourth most valuable brand.
“For the last decade, we have run the Company with, at times, more than half our earnings coming from financial services. As we grew, financial services became too big and added too much volatility. GE must be an industrial company first. We have increased our investment in industrial growth. We will only grow strategically in financial services. We will carefully monitor our size and return capital from our financial services business as soon as possible.”
We were, however, far from perfect, and I want you to know that we also learned a few lessons during the crisis that will help us run the Company better. Managing size and complexity was a strength for GE during a generation of economic stability. The world we live in today has more systemic risk. So GE must change.
For the last decade, we have run the Company with, at times, more than half our earnings coming from financial services. As we grew, financial services became too big and added too much volatility. GE must be an industrial company first. We have increased our investment in industrial growth. We will only grow strategically in financial services. We will carefully monitor our size and return capital from our financial services business as soon as possible.
Over time, we invested in areas like global mortgages, where we could grow earnings, but that in the end did not fully leverage our competitive advantage. We have taken strong actions to simplify and focus GE around our core competitive advantages.
We applied a tighter focus on operations and liquidity during the crisis. As a result, we weathered the recession with high margins and strong cash flow. We have built stronger processes around enterprise risk management and capital allocation. Similarly, we have improved the productivity of our supply chain and lowered overhead cost. Historically, we have run the Company with very little cash on hand. Now, we have developed a more conservative cash profile to better prepare for volatility. These practices will remain in place even as the economy improves.
It wasn’t always pretty, but we executed on our key priorities in 2009. GE Capital is positioned to win in a reset financial services industry. Our industrial business will continue to outperform. We have a healthier balance sheet and a strong brand. We have put you through a lot of volatility during this crisis. But we never stopped learning and making the Company better. We will perform for you in the future.
The GE Renewal
GE is an innovative technology and services company that can solve some of the world’s most difficult problems, grow earnings and have substantial cash available to reinvest in the Company or return to shareowners. And, in the markets we have chosen, we will have a meaningful competitive advantage.
A simplified portfolio focused on infrastructure.
We are the world’s best infrastructure company. We’ve built leadership franchises in Energy, Oil & Gas, Healthcare, Aviation, Transportation, Water and Consumer Products. Investors value our infrastructure business model. We have grown our earnings by almost 10% annually for two decades with high returns and strong cash flow. We have great technical and geographic diversity, which reduces volatility.
Infrastructure can fully leverage GE enterprise advantages. Much of our technology is common to multiple businesses, so we can spread innovations across our portfolio. We share a common approach to servicing our installed base. We enjoy deep relationships across our businesses with emerging-market governments who look at infrastructure in its totality. Our businesses require big investments and financing that only a strong company like ours can provide. We should be able to offer more customer value at a lower cost than any of our competitors.
Infrastructure offers GE dynamic, long-term growth through building out adjacencies. We built several new adjacencies over the past decade, like renewable energy, oil & gas, water treatment and life sciences. In 2000, these businesses were virtually zero; today they generate around $20 billion in revenue. We are currently launching new adjacencies in batteries, avionics and services.
We are repositioning GE Capital as a smaller and more focused specialty finance franchise. Our competitive advantage is in value-added origination and risk management. We will continue to be a significant lender for assets we know, and in markets where we are a recognized leader. We are preparing for a more highly regulated financial services market. GE Capital can still generate solid returns in this more focused form.
“Infrastructure can fully leverage GE enterprise advantages. Much of our technology is common to multiple businesses, so we can spread innovations across our portfolio. We share a common approach to servicing our installed base. We enjoy deep relationships across our businesses with emerging-market governments who look at infrastructure in its totality.”
Our ability to finance improves our understanding of how our customers work and make money. Outside the United States, governments like to partner with companies that bring complete technical and financial solutions. To small businesses, GE Capital can add more value than banks because we offer industrial practices that help them grow.
Reducing our ownership stake in NBC Universal (NBCU) was a difficult decision, but it offers important benefits to the Company. Presuming the deal is approved, we expect to receive an attractive valuation and a lowered risk profile.
GE owned NBCU for more than 20 years, during which average growth and return both were 11%, above the industry average. We were the ratings leader for most of those years. We have been a consistent investor in content, people and platforms. More recently, we had disappointments in primetime for our broadcast network.
But we got the big things right. When we merged with Universal in 2004, we enhanced shareowner value by diversifying our broadcast business model. Subsequently, we built one of the industry’s most successful cable platforms, broadened our content, made investments in Hispanic media, globalized our distribution and positioned the business for a digital future.
Investors in GE expect us to make smart capital-allocation decisions. This is what the NBCU/Comcast partnership will be. The transaction will generate cash that we can invest in infrastructure growth. At the same time, we will own a large stake of a media enterprise, better positioned to compete.
Our leadership in infrastructure and financial services positions GE for long-term growth. There will be more than $10 trillion invested in infrastructure by 2015, with a significant portion in emerging markets. Our simplified, powerful portfolio is aligned with global growth opportunities well into the next decade.