Five choices that drive the FUTURE
Strategy is about making choices, building competitive advantage and planning for the future. Strategy is not set through one act or one deal. Rather, we build it sequentially through making decisions and enhancing capability. As we look forward, it is important that investors see the Company through a set of choices we make for the purpose of creating value over time.
First, we have remade GE as an “Infrastructure Leader” with a smaller financial services division. We like infrastructure markets because they are growing and because they utilize GE capabilities in technology, globalization, financing and customer relationships. About $60 trillion of infrastructure investment is needed by 2030 to support billions of new consumers joining the middle class in the emerging world, and to support developed-market productivity.
“At $100 billion of revenue with 15% margins, we are the largest and most profitable infrastructure company in the world.”
Over the last decade, we have grown our infrastructure platforms by investing in adjacencies, pursuing opportunities that are closely related to our core. About one-third of our infrastructure revenues comes from businesses we weren’t in a decade ago. These include fast-growth businesses like Oil & Gas, Life Sciences, and Distributed Power. This growth has come through organic investment and focused acquisitions.
At the same time, we are creating a smaller, more focused financial services company—one that has a lower risk profile and adds value to our industrial businesses. We will continue to reduce the size of GE Capital from the $600 billion of assets it was in 2008 to a goal of $300–$400 billion in the future. GE Capital has a sound fiscal position, with Tier 1 capital above 10% and strong liquidity. We can generate returns above our cost of capital. Over the next few years, we plan for GE Capital to return about $20 billion of dividends back to the parent. We will purposefully reallocate capital from financial services to infrastructure and grow it faster. Our goal is to have infrastructure earnings reach 70% of our total over time.
We have dramatically simplified GE over the past decade. The last major portfolio move we made was exiting NBC Universal (NBCU). In the first phase, we sold 51%, and reallocated $11 billion from the proceeds to purchase new platforms in Energy and Oil & Gas. These businesses already have generated $1 billion of earnings and are growing 20% annually.
Recently, we announced an agreement for the disposition of the remainder of NBCU, and its real estate, for $18.1 billion. This creates additional cash for value creation in the short term, through increased share repurchase and investment in growth.
Second, we are committed to allocating capital in a balanced and disciplined way, but with a clear priority for dividend growth. GE will generate $100 billion for allocation over the next few years, including cash from existing operations, dividends from GE Capital and dispositions.
The top priority remains growing the dividend. Since 2000, we have paid out $106 billion in dividends, more than any company except Shell, and more than we paid out in the first 125 years of the Company combined. We like GE to have a high dividend yield, which is appealing to the majority of our investors.
We plan to buy back shares to get below 10 billion, where we were before the crisis. We will make significant progress toward that goal in 2013 by allocating a significant portion of the NBCU cash to repurchase our shares. In total, we plan to return $18 billion to investors this year through dividend and buyback.
We will continue to execute on focused acquisitions, a capital-efficient way to grow the Company. We will keep our focus on acquiring specific capabilities where GE can add substantial value. We can execute on a few of these each year.
Third, we have significantly increased investment in organic growth, focusing on R&D and global expansion. In doing so, we have invested ahead of our competition. We believe that investing in technology and globalization is key to gaining market share. Annually, we invest more than $10 billion to launch new products and build global capability. We make these investments with the full benefit of GE’s scale.
Over the past decade, we have doubled our annual R&D investment, increasing $2–$3 billion to 5%–6% of revenue. Because of this investment, we have progressed from a company that can launch one new commercial engine each decade to a company that can launch one each year. We will launch 10 new gas turbines this decade, significantly more than in previous times. We are a broader and deeper technology leader than at any time in our history.
We have built a company that has high share in growth regions. In 2012, we had $40 billion of orders in growth regions, a 12% increase over the prior year and a threefold increase in the last decade.