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Making Progress

GE has stayed competitive for more than a century—not because we are perfect—but because we make progress. Progress is about getting better, being better, doing better; this is why GE people get up every day. We are mission-based. GE technology and people move, power, build and cure the world. As investors, you can expect us to listen, learn, adapt and change. You should expect us to get better every day, to make progress.

The difficult part about progress is that great results take time. But, the pay-back can be huge. Last November, we received $40 billion of engine wins at the Dubai Air Show—in two days. These commitments were for revolutionary new products that have come to market in the past few years. They are based on big bet technologies, years in the making and delivered ahead of the competition.

Leading these results was the GE9X, which is the sole-source engine for the Boeing 777X. This plane is 20% more fuel efficient than the one it replaced, saving airlines $11 million per airplane per year. The GE engine drives 50% of this improvement based on innovative new technology in compressors and combustors. This new engine—the largest and most fuel efficient in the world—has only 16 fan blades, down from 22 in its predecessor. This achieves efficiency and reliability for our customers. And, to further performance, it is based on a GE invention: a new material called ceramic matrix composite. This material retains its strength at 2200° F — 500° F higher than metal-at one-third the weight.

Our wins in Dubai came primarily from three customers: Emirates, Etihad and Qatar Airways. None of us grew up at GE with them as customers. Each has emerged as a global leader in the past decade. And, we have built an excellent relationship with them based on solid operational performance and mutual trust. The combination of superior technology and strong relationships is the essence of competitiveness and allowed GE to win virtually all of the commitments at the show.

Winning takes bold commitments, a dedicated team and resilience. There were at least two "moments of truth" as we invested in our new engine line-up. After the 9/11 tragedy, the commercial aviation industry was in full crisis. Instead of panicking, we increased our investment in the business and our customers. This has created trust and loyalty for GE that is unmatched. In 2008, during the depth of the financial crisis, we substantially increased our investment in commercial engine R&D. Because we made the right bets, we have the best products at the right time, securing decades of leadership for your Company. The desire to compete and win runs deep across the Company.

GE's ability to innovate is particularly crucial in the slow-growth and volatile economy we live in today. Frequently I tell investors that if we ever see a U.S. economy like the ones we had in the '90s, GE will have earnings upside. While we don't expect that soon, there are signs that the U.S. economy is getting a little better each day.

Meanwhile, Europe has stabilized; while its expansion is anemic, the "daily crises" have been eliminated. And, there are pockets in the region that are robust for GE like Germany, the Nordic region and Central Europe.

We still see opportunities in emerging markets. China is one important engine of growth. China has massive financial strength, and we see its reform efforts as a positive. GE has a major role in helping China solve its healthcare, clean energy and transportation challenges. In the resource-rich countries, our prospects are bright despite a more volatile macro-situation. GE provides the capability for these countries to industrialize through our technology and localization efforts. That is why our growth is accelerating in regions like the Middle East, Russia and Africa despite social and political unrest.

The world is complicated. But, through the fog of the last five years, I would take the 2014 economy any day. The recovery is slow, but there are no major headwinds. While governments are not addressing major challenges like immigration and regulatory reform, there is less disruption. And, we have the financial strength to make progress on our own.

We are positive about the future. We have positioned GE to capitalize on the growth themes of the era. We are investing to lead in the new technologies that will drive efficiency for the Company and our customers. We are improving our speed and lowering our cost. We plan to deliver a valuable financial performance. We are making progress.

We Are the World’s
Most Competitive Infrastructure Company

Investment in infrastructure is expected to reach $60 trillion by 2030. Success requires technology, services and execution delivered at scale across a massive global footprint. With more than $100 billion in revenue and nearly 16% margins, we are the largest and most profitable infrastructure company in the world. Our goal is for infrastructure earnings to be 70% of GE's total.

Infrastructure is essential. Countries must invest in infrastructure to compete and create jobs. For instance, Africa has a 100 gigawatt deficit in electricity. Only by investing in power generation can it sustain growth. Fortunately, Africa is surrounded by some of the world's largest reserves of oil and gas. Converting "gas to power" is its infrastructure challenge. Only GE can provide complete solutions to solve its electricity problem. In Africa, we are a productivity partner. As a result, we are growing 30% annually there.

GE has a unique advantage because of our depth and breadth. Customers value our technical depth. Our products are the heart of our customers' operations. GE's high-performance locomotive improves profitability and safety at a railroad. And, our unique breadth makes GE a desirable partner. In Russia, we are investing across five business segments. We are building local capability to deliver local solutions. GE is one of the largest multinationals in the country.

We have a set of enterprise initiatives that capitalize on our scale and ability to spread ideas horizontally across GE. These initiatives are customized for infrastructure and allow us to lead in both share and margins. We invest more than $10 billion each year to reinforce this leadership.

GE wins with technology. We invest 5%-6% of revenue back into new products every year. Technology creates competitive advantage and margins. We spread ideas through our Global Research Center with six locations around the world. Our products must be both innovative and economical. I ran our Healthcare business in the late '90s, and we sold three types of MR scanners; today we sell many more with differentiated customer benefits. We know how to deliver the best technology at every price point with high margins.

GE wins in growth markets. We know how to be both global and local. Most countries want the same things-competitive capabilities that create jobs, sense of pride and progress that lifts all people up. They want to tap into the global marketplace for progress, ideas, and the capability to export their goods. GE is an excellent partner as countries grow. For instance, we opened a new business-process center in Saudi Arabia that will employ thousands of local women. This is good for GE, while making us an integral part of the Kingdom's economy. Last year, growth market orders passed $40 billion and grew by 11%. Our revenues exceed $1 billion in 24 countries.

GE wins by delivering customer productivity. We understand the domain in which our customers operate. Our customers want outcomes: more power, better fuel burn, no unplanned downtime. We deliver these outcomes. For instance, we have an innovation for our power generation customers, called the Advanced Gas Path. This is a control and software upgrade to our installed base. Implementing this technology will extend our customers' operating parameters, delivering a 30% reduction in downtime and saving fuel. We have a service backlog of $180 billion, aligned with achieving customer productivity.

We can leverage our enterprise advantages as we win in new infrastructure markets, like Oil & Gas. We have grown this business from a "standing start" to nearly $20 billion in 15 years. We invest on the premise that the oil and gas industry will require the same technical intensity and execution as Aviation, where GE leads. We can draw on the "GE store"-gas turbine technology, aviation materials, healthcare imaging, global capability—to solve customer problems. To win in Oil & Gas, we have increased our R&D, built research centers in Oklahoma City and Brazil, and launched innovative solutions in areas like advanced subsea systems and enhanced oil recovery. We are investing in new manufacturing capacity in Angola, Indonesia, Brazil and Russia. Through our service offerings, we give our customers resilient systems that improve their output. Our ability to turn enterprise capabilities into profitable growth is valuable to investors.

The balance of our portfolio is a valuable specialty finance franchise, which we have decided to make smaller. We settled the remaining liabilities of our former Japanese consumer finance business. This business had been a financial drag on the Company, and our exit is a positive for investors. And, we announced a planned split-off of our Retail Finance business in a capital-efficient process beginning in 2014. We have a solid franchise in the private label credit card business, but it is a step removed from GE Capital's strength of lending to industrial middle-market companies. By 2015, we expect financial services should be 30% of our earnings.

GE Capital is a valuable middle-market franchise that builds on GE strengths and our domain expertise. We have strong leadership franchises in areas like equipment and inventory finance, and a portion of our assets are around GE's installed base. This gives us unique capability in aviation, energy and healthcare. We link our Capital customers to GE through a program called "Access GE," through which we share our best practices to help them run their businesses better. GE Capital has never been stronger or safer, and we are making substantial investments to meet the standards expected from a Federal Reserve regulated financial institution.

GE's portfolio sets our potential. We have completed substantial work over the past decade. We have repositioned GE Capital as a smaller and safer specialty finance leader with less leverage and more liquidity. We have redeployed capital from businesses outside the GE core-like insurance and media-to platforms that can leverage our strengths like Oil & Gas and Life Sciences. We expect this portfolio to deliver valuable growth and trade at a premium in the future.

Leading in Productivity

We are consistently innovating inside GE. In an "efficiency-starved" world, our innovations are focused on productivity. We are investing in three initiatives that can deliver big gains in productivity for our customers and GE.

We will lead as the industrial and analytical worlds collide. We believe that every industrial company will become a software company; that ultimately deep domain knowledge is tougher to come by than writing code. In this sense, GE seeks to link the "iron and the data." Our assets have sensors that produce a customized stream of performance data. We can harness this data to optimize performance. We know that smart machines, guided by domain-based analytics, in a distributed setting, will drive new levels of productivity. We call this the Industrial Internet.

Our customers want our assets to operate with no unplanned downtime and optimal performance. Small improvements in asset performance could impact $20 billion of benefits for our customers. We are delivering software and analytical solutions that can take data from our installed base and turn it into productive outcomes for our customers. We call our data solutions "Predictivity," and so far, we have launched 24 offerings generating $800 million of incremental revenue. We expect Predictivity revenues to exceed $1 billion in 2014.

Our systems can analyze the performance of individual engines in the Aviation installed base; this allows us to differentiate repairs, saving money and time for our customers. Through GE's Healthcare Asset Management, radiologists can keep "images in the cloud." This improves clinician productivity, expands networks of care and enhances diagnostic confidence. For our rail customers, one point of system efficiency is worth $2 billion of profit every year. In this market, GE delivers a complete solution from dispatch to network planning to train handling, called RailConnect 360. We plan to shift a substantial portion of our repairs to "condition-based" versus schedule-based; this will deliver substantial savings to our customers.

We will lead in advanced manufacturing. We spend about $72 billion each year in our factories. Material science and analytics are transforming the way that our factories can operate. Digital tools will make us faster and more efficient.

We are investing in high-performance computing so that we can reduce design cycle time. We are a leader in advanced fabrication innovations like 3D printing, to lower product cost and drive speed. We have digitized our supply chain to enable collaboration. We are at the leading edge of robotics and automation. Our factories are smarter, more distributed and reconfigurable.

Advanced manufacturing will create a meaningful impact for our investors. Our Aviation business has a $125 billion backlog of new products and services. We are launching one new engine each year for the rest of the decade. In the past, we might have outsourced 40% of these engines to global suppliers; in the future, we plan to manufacture more at GE, capturing an increased portion of supply chain value. Manufacturing is the basis on which we will compete and win in the future.

We will lead in the "age of gas." Energy is becoming the major driver of regional competitiveness. Shale gas in the U.S. is creating electricity costs that are substantially below the rest of the developed world. But the U.S. is not alone; gas is being discovered and developed around the world.

This is creating a "tipping point" for fuel substitution. Gas is replacing coal in power generation around the world based on efficiency and environmental impact. Gas is replacing diesel for distributed power and transportation. China plans to increase gas power generation by 10 gigawatts annually to clean its environment. Because of this trend, there are billions being invested in gas exploration, transportation and monetization to connect gas supply with demand. GE can participate in every step of the gas value chain.

The new drivers of productivity represent a trio of "only GE" applications. We are the only company that is linking iron and data. We are uniquely positioned to lead in advanced manufacturing. And, we can create the "total gas solution" because we are a technical leader at every step. We are investing to win.

We Are Simplifying Everything We Do

To achieve our goals, we must simplify GE. We compete across eight platforms in 170 countries with multiple regulators. Having lived through multiple crisis events in the past decade, we attempted to manage volatility through layers and reviewers. Like many companies, we were guilty of countering complexity with complexity: more P&Ls, more inspectors, multiple reviewers. Along the way, we had created a higher-cost structure, an artificial sense of risk management, and we were insulating our people from the heat of the market. If you want to see where speed and accountability go to die, watch the third review of anything.

We are transforming GE around the "culture of simplification." This is not a reorganization or an initiative. Rather, it defines the way we make decisions, work together and work with our customers. We are focused on efficiency, speed and market impact. We are driving decisions closer to markets and making our teams accountable for outcomes, not process.

We are driving a leaner structure. In administration, less is more. We have learned that fewer layers, simpler rules and more field empowerment actually improve execution and accountability. Every decision should have no more than two approvers: We should empower the experts in the market, reinforced by governance and best practice sharing. In addition, we plan to execute the majority of our administrative processes through shared services, with common standards across our businesses. This will make us more competitive. We expect to reduce our administrative overhead cost by $4 billion between 2012 and 2016. Ultimately, we will end up with selling and administrative cost of 12% of revenue; this is a world-class benchmark. Our Power & Water business is reducing its overhead by more than 20%, while increasing its number of new products and growing share. Our Healthcare business has eliminated one-third of its P&Ls, while improving customer responsiveness. We are creating more value with lower cost.

All processes are faster. We have combined the principles of Lean Six Sigma with the culture of “The Lean Startup,” from Silicon Valley, in a process called FastWorks. It is based on fast action, quick adjustments and measured outcomes. FastWorks accelerates impact, learning, improvement and validation. Dual fuel power generation is an important product gap for our Distributed Power business. Our initial approach was an investment of $350 million and seven years of development. Using FastWorks, we will be in the market in 2014, while investing a fraction of the initial estimate. FastWorks is catching fire inside GE across multiple processes, improving speed and competitiveness.

We are increasing customer intensity. We have reconfigured all of our commercial processes to work at market speed. Our commercial teams are empowered to lead, supported by enabling functions that are measured on market success. We have increased the number of experts in the field to deliver for our customers. Because we have invested in our growth market framework, we can move commercial decisions closer to the customer. In our Aviation services business, 75% of the flow commercial deals are approved in the regions with quick turnaround. Our Company is beginning to feel the market speed.

In a digital world, the major source of scale advantage derives from a lean backroom structure with a foundation of information. GE will be a major beneficiary of cloud computing, simplified systems and mobility.

We will still make a few mistakes. But the biggest risks at GE are the inability to seize market opportunities, layers that block reality and leaders who are not personally accountable. Simplification is making us more competitive.

We Are Delivering for Investors

Executing our initiatives will deliver results for investors. We would like investors to view our financial performance as a multi-year plan with substantial progress reached each quarter and year. By 2016, we expect to have 70% of GE's earnings from our industrial businesses. We expect to have industrial margins and returns exceeding 17%, at the top of our peers. We expect GE Capital to generate good returns while delivering cash to the parent. We expect to generate more than $90 billion of cash to allocate, returning the majority of that to you in dividends and buyback. And, we plan to grow EPS each year.

We made progress in 2013. We earned $24.5 billion of segment profit, up 7%. We grew operating EPS by 9% and returned $18 billion to you through dividends and share repurchase. We ran the Company well, with margins expanding by 60 basis points and $17 billion of cash generation, excluding NBCUniversal deal-related taxes. GE Capital finished the year with Tier 1 capital above 11% and $75 billion of liquidity.

Our industrial segment earnings grew 5%. Performance was broad-based with four businesses growing earnings 10% or more: Aviation, Oil & Gas, Transportation and Appliances & Lighting. We ended the year with $244 billion in backlog, a record. GE Capital grew its earnings by 12%, behind strong performance in Real Estate and international lending and leasing. We continued to shrink our balance sheet; ending net investment was $380 billion at year-end, down more than 40% from our pre-crisis peak. With a shrinking balance sheet and massive financial strength, GE Capital was able to pay a $6 billion dividend to the parent.

Our total shareholder return expanded by 38% in 2013, ahead of the market. We added $64 billion of market cap and, at $282 billion, are the sixth most valuable company in the world. At year-end, we increased our dividend by 16%.

In 2014, we have planned for our industrial earnings to grow by more than 10%. We expect organic revenue growth between 4%—7%. The big initiatives will fuel our success. Growth market orders expanded by 11% in 2013; this will translate into solid revenue growth. Our service revenue is $45 billion, and we expect solid revenue growth in 2014. We are planning for another year of substantial margin enhancement, beyond the 15.7% we achieved in 2013.

Margins have been an area of focus for GE. A decade ago, during the power bubble, we had artificially high margins. This has now been reset, and we have been making steady progress. Through simplification, we have made substantial reductions in structural cost. FastWorks is focused on equipment margins, which will be up substantially this year. We are restructuring our lower-margin businesses with a target of at least 10% margins for them in the near term.

GE Capital's earnings will decline in 2014 and 2015 as we exit Retail Finance. However, we plan to grow earnings in line with industrial growth thereafter. Our specialty finance franchises have strong positions with mid-market customers. We can originate new businesses at high margins.

We should have more than $90 billion of cash to allocate over the next three years, based on CFOA growth, balance-sheet efficiency, GE Capital dividends, and dispositions. We plan to return the majority of this cash to investors. Growing the GE dividend remains most important to the majority of investors. We will reduce our share count, aiming for a 10% reduction between 2012 and 2015.

We will accelerate growth through "bolt-on" acquisitions. Early in the year, we announced the purchase of Thermo Fisher's bioprocess manufacturing business in Healthcare, and Cameron's reciprocating compressor business in Oil & Gas. Both fit our model of opportunistic purchases where GE adds value through technology, global distribution and supply chain scale. Importantly, they allow us to complete market solutions for our customers.

Our plans for 2014 and beyond should be attractive to investors. You will see steady EPS growth, with a more valuable mix. We have substantial cash available to create shareholder value. I am investing right alongside of you. I have invested my entire bonus in GE stock and have purchased 145,000 shares so far this year. I now own 2 million shares outright, with another 2.8 million available if we perform. Like the rest of our leaders, I believe in GE.

Our Team Is Making Progress

Jeff Bezos is an extraordinary leader and entrepreneur who founded Amazon.com. Recently, he made the assertion that most businesses have short life spans. He said: "Companies come and go. And, the companies that are the shiniest and most important in any era, you wait a few decades and they are gone." But, GE has remained competitive because we learn and change. When we make progress, our investors are rewarded. The foundation of the Company is determined people with a winning culture.

At our kickoff meeting this year, the leader of our Ultrasound business—Anders Wold—gave a presentation about the power of ultrasound to solve global and rural health issues. In the 1990s, we were #7 in ultrasound. Today we are #1. In the past, we broke even; today we grow profits 15% annually at high margins. Ultrasound is a fast-paced, global business; and we are the best. If we trapped ourselves in dogma and slogans—don't try new things; big companies can't be fast; stick to what you know—we would have given up on ultrasound long ago. Instead, we are winning.

Kevin Nolan is a 24-year GE veteran who is VP-Technology of our Appliances business. He is a great engineer, well versed in GE training and process. We asked him to be a leader of FastWorks. Kevin grew up in the world of GE process and structure. Today, we need Kevin to move faster than our Korean competitors. Kevin has reached outside of GE for help. We set up a venture with Quirky, a collaborative manufacturing startup. Working together, we will make progress towards a six-month cycle for new products and rapid consumer feedback.

Jen VanBelle is a 15-year GE veteran. She is leading our efforts to strengthen GE Capital's regulatory capability. This is a job she couldn't have imagined or wanted five years ago. But Jen is a great, adaptable leader; and because of her, we can make progress toward becoming a model financial services company.

Heiner Markhoff is a 20-year GE veteran who leads our Water business. Through his resilience and focused execution, we are turning this business into a successful GE franchise. More importantly, we are making progress in key infrastructure markets like industrial water reuse and unconventional fuels. This could be our "Ultrasound" for the future.

These are just a few examples of great leaders at GE. People love our Company because they are committed to the interesting and impactful work they do. They stay because they work with other great people. And this team is committed to solving the challenges of today's complex global business environment.

Our team is excited and united. We will execute the strategy: driving infrastructure leadership; investing in the innovation of efficiency; building competitive advantage; achieving a culture of simplification; and investing your cash wisely. We will deliver a financial performance that creates shareholder value. We will focus on what is important and move faster.

In December, I sat with four of the most pre-eminent brain scientists in the U.S. We discussed the advanced technology around treating diseases of the brain, from Alzheimer's to traumatic brain injury. They feel that GE can have a big role in treating brain disease through our leadership in diagnostics. This is one of the most interesting, promising and challenging horizons in healthcare.

I sat back and daydreamed about the Dubai Air Show. If we were able to make such strong progress in aviation innovation in five years—20% improvement in fuel efficiency—just think what we can do in the next five years to treat brain diseases. We are just the company to advance brain science.

That is because we believe in progress
… because we are willing to take risks
… because we are GE.

Jeffrey R. Immelt
Chairman of the Board and Chief Executive Officer
February 27, 2014