SO WHAT HAPPENED TO GENERAL ELECTRIC? PART 9 (YEARS 2013-2017)

Special Guest Blog By Ken Kinlock

For those of you who have been following this special blog series through the previous eight, we started out in Part 1 describing the General Electric Company that Reg Jones turned over to Jack Welch. It was a strong company, well diversified and a delight to shareowners.

For Part 9, lets look at the Company from the 2016 Annual Report until current state with a new CEO John Flannery. (Pictured Above)

General Electric delivered in a year of sluggish growth and geopolitical surprise. There is deep skepticism toward the ideas that powered economic expansion for a generation, with concepts like innovation, productivity, and globalization being challenged and protectionism on the rise. We’re in an era when some very basic assumptions about the global economy are being tested – an era when trust in big institutions is so low that the most valued “strategy” is simply change in any form. For an American company, our country is diverging from the rest of the world. We will be less of a leader in trade. Meanwhile, we are stripping away years of bad regulatory and economic practices to promote competitiveness.

Over the last decade, GE transformed their portfolio, increasing the portion of earnings from industrial businesses from about 45% to 90%. GE strengthened competitiveness through investments in technology, globalization, and efficiency. In the past year, GE sold most of GE Capital assets at good prices, integrated Alstom – the largest industrial acquisition – and announced plans to merge our Oil & Gas business with Baker Hughes, creating a broad industry leader. These are “once-in-a-lifetime” deals for most companies.

A Simpler, More Powerful Portfolio
In recent years, GE has been making the $125 billion company simpler by focusing on core industrial businesses and deeper by means of building new capabilities. GE creates value through technology, delivering essential systems like engines, scanners, and turbines. GE has a diversified model: product and service, multiple geographies, industry balance, creating demand through data, and financing. It is important that all GE businesses achieve a competitive cost position and superior organic growth.

The GE Capital transformation has generated cash and growth. GE has exited about $190 billion of business platforms in 2015 and 2016, yielding some $45 billion in dividends that have applied to maximize returns. With smaller size and balance sheet strength, GE is no longer federally regulated as a systemic institution.

This has been an important strategic pivot as well. The “old GE Capital” was connected to the industrial balance sheet, but not really engaged with industrial growth. The “new GE Capital” has tighter alignment and broader objectives. Last year, it enabled $13 billion of industrial orders, earned $1.9 billion, paid a $20 billion dividend, and arranged $50 billion in export credit capacity outside of the U.S.

Every organization is being impacted by two macro themes: changing views on globalization and the role that digitization plays in disrupting industry. No company can escape these waves of change.

GE is a global company today and in the future. It has never considered itself to be a “stateless multinational.” GE is a proud American company that is winning in every corner of the world.

The GE Store

The GE Store is the global exchange of technology, talent, and expertise across GE’s diverse businesses and markets. GE businesses give and take from the Store.

What is the makeup of GE now.
The chart below provides four years of data, consistent with the timeframe for which we have reported the results of the businesses we expect to retain after completion of the GE Capital Exit Plan
(which we call Verticals).

Compound
annual
2013 2014 2015 2016 growth rate
Industrial revenues $101.9B $107.9B $106.9B $111.5B 3%
Industrial operating
profit + Verticals $14.3B $17.0B $17.5B $17.5B 7%
Industrial operating +
Verticals EPS $1.00 1.12 1.31 $1.49 14%

OUR INDUSTRIAL OPERATING SEGMENTS
Power
Aviation
Energy Connections & Lighting(a)
Renewable Energy
Healthcare
Oil & Gas
Transportation

Power
MISSION: Leading globally in power generation technologies
Major products: power generation
services, gas turbines, engines
& generators, steam turbines &
generators, nuclear reactors
Margins: 18.6% 230bps
Backlog: $84.7B 10%
2016 Ex. Alstom
Revenues: $20.6B1
Profits: $4.4B1
Margins: 21.5%1
Positive: Significant efficiencies from Alstom
in supply chain, service infrastructure, new
product development and selling, general &
administrative (SG&A) costs; strong services
growth; H-class gas turbine launch
– Negative: Excess capacity in developed
markets; continued pressure in oil & gas sector
Outlook: Improving global competitive
position; positioning the business for growth
with Alstom

RENEWABLE ENERGY

MISSION: Making renewable power sources affordable, accessible & reliable for the benefit of people everywhere
Major products: onshore & offshore wind turbines, hydropower solutions
Margins: 6.4% 50bps
Backlog: $13.1B 5%
Revenues: $7.9B1
Profits: $0.5B1
2016 Ex. Alstom
Margins: 6.9%1
Revenues: $7.9B1
Profits: $0.5B1
+ Positive: Strong revenue & orders
growth from new product introductions &
digital capability
– Negative: Increasing pricing pressure & need
for innovation from continued competitive
pressure from other wind turbine producers
& energy sources
Outlook: Positioning the onshore & offshore
wind businesses to drive value for customers
by in-sourcing blade production through the
acquisition of LM Wind Power

MISSION: Pushing the boundaries of
technology in oil & gas to bring energy
to the world
Major products: turbomachinery,
subsea & drilling systems, digital
solutions, surface products & services,
downstream technology
Margins: 10.8% 400bps
Backlog: $20.8B 9%
+ Positive: Positive equipment orders growth
in the fourth quarter; significant cost
reduction actions
– Negative: Continued market pressure
from lower oil prices & customers’ capital
expenditures that are lower than forecasted;
volatility in currency exchange rates
Outlook: Improving competitive position
through Baker Hughes combination to create
a fullstream oil & gas business

AVIATION

MISSION: Providing our aviation
customers with the most technologically
advanced & productive engines,
systems & services for their success
Major products: commercial & military
engines & services, aviation systems,
additive manufacturing machines

Margins: 23.3% 100bps
Backlog: $154.5B 2%

Positive: New product launches (e.g.,
LEAP) fueling growth in installed base;
digital solutions driving customer value
– Negative: Current geopolitical
environment driving uncertainty in military
engines & services
Outlook: Positioning the business for
continued growth & manufacturing
efficiency through additive manufacturing
investments

HEALTHCARE

MISSION: Developing transformational
outcome-based solutions through
the combination of leading medical
technologies, services & digital
platforms
Major products: healthcare diagnostic
imaging & clinical systems, life sciences
products & services, digital solutions

Margins: 17.3% 100bps
Backlog: $16.8B 2%

+ Positive: Technology innovation & demand
for productivity-based technology, services
& IT/cloud-based solutions; growth in China
– Negative: Uncertain U.S. market as a result
of potential healthcare reform
Outlook: Positioned for continued
growth in core imaging business through
technology leadership & digital platforms/
solutions, and in Life Sciences business
through expansion of bioprocess solutions;
continued growth in emerging markets &
China

TRANSPORTATION

MISSION: Being a global technology
leader & supplier to the railroad,
mining, marine, stationary power &
drilling industries
Major products: locomotives, rail
services, digital solutions, mining
equipment, diesel engines

Margins: 22.6% 110bps
Backlog: $20.1B 11%

Positive: Significant restructuring actions
to position the business for future growth
– Negative: Continued declines in North
American rail carload volumes; continued
low demand for natural resources negatively
impacting the mining industry
Outlook: Challenging market, but focusing
on transforming the business to align to a
more global/digital future

ENERGY CONNECTIONS &
LIGHTING

MISSION: Being a global technology
leader for the transmission, distribution
& conversion of electrical power &
leading an energy efficiency revolution
to deliver innovative solutions that
change the way people light & interact
with their environments
Major products: grid management
solutions, power conversion
technologies, lighting & energy
efficiency solutions

Margins: 2.1% 370bps
Backlog: $11.1B 5%

2016 Ex. Alstom
& Appliances
Revenues: $7.1B2
Profits: $(0.1)B2
Margins: (1.6)%

+ Positive: Increasing demand for Grid
automation/software as a result of
digitization & modernization of grid
infrastructure; LED opportunities from
technological shift away from traditional
lighting products
– Negative: Challenging oil & gas environment;
soft demand in the North American &
European electrical distribution market
Outlook: Continuing to integrate Alstom
& restructure the Energy Connections
business; strategically reorganizing Lighting
to reduce costs, focus on key markets &
simplify the business

(a) Beginning in the third quarter of 2016, the former Energy Connections and Appliances & Lighting segments are presented as one reporting segment called Energy Connections & Lighting. This segment includes historical results of the Appliances business prior to its sale in June 2016.

CAPITAL

MISSION: Investing financial, human &
intellectual capital to help our industrial
businesses & their customers grow
Major products: GE industry-focused
financial services verticals, including
GE Capital Aviation Services, Energy
Financial Services & Industrial Finance

Ending net investment2, 3: $93B 44%
Exit plan sales closed (ENI): $190B4 Margins:

Positive: Substantial progress on the GE
Capital Exit Plan4
; strong performance from
the Verticals (those GE Capital businesses
that will remain after completion of
the exit plan and that are aligned to our
industrial businesses)
– Negative: Declining excess interest costs
on borrowing, restructuring & headquarter
costs resulting from execution of the GE
Capital Exit Plan
Outlook: Positioning the business to
support growth in our industrial businesses

Manufacturing operations are carried out at 184 manufacturing plants located in 38 states in the United States and Puerto Rico and at 325 manufacturing plants located in 40 other countries.

General Electric’s address is 1 River Road, Schenectady, NY 12345-6999; we also maintain executive offices at 41 Farnsworth Street,
Boston, MA 02210.

GE’s Internet address at http://www.ge.com, Investor Relations website at http://www.ge.com/investor-relations and our corporate blog at
http://www.gereports.com, as well as GE’s Facebook page,

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