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General Electric Company (GE)
March 07, 2012 7:00 am ET
Trevor A. Schauenberg - Vice President of Corporate Investor Communications
John G. Rice - Vice Chairman, Chief Executive Officer of GE Global Growth & Operations and President of GE Global Growth & Operations
Reinaldo A. Garcia - Chief Executive Officer of EMEA and President of EMEA
Mark Hutchinson - Vice President of Real Estate - Asia
Steve Sargent - Chief Executive Officer of GE Australia and New Zealand
Khozema Shipchandler - Chief Financial Officer
James William Ireland - Chief Executive Officer of GE Africa and President of GE Africa
Jeffrey R. Immelt - Executive Chairman, Chief Executive Officer and Member of Public Responsibilities Committee
Julian Mitchell - Crédit Suisse AG, Research Division
Deane M. Dray - Citigroup Inc, Research Division
Clifford Ransom - Ransom Research, Inc.
Scott R. Davis - Barclays Capital, Research Division
Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division
John G. Inch - BofA Merrill Lynch, Research Division
Alexander Virgo - Berenberg Bank, Research Division
Trevor A. Schauenberg
Previous Statements by GE
» General Electric's CEO Discusses Q4 2011 Results - Earnings Call Transcript
» General Electric's CEO Hosts Annual Outlook Meeting - Conference Call Transcript
» General Electric's CEO Discusses Q3 2011 Results - Earnings Call Transcript
Secondly, this meeting is being webcast right now and will be available for replay post the session. The information will be available on our website as usual, www.ge.com/investors so please look for it there.
Quick discussion about today. We're going to have about 1 hour, 1.5 hours presentation from the leadership team. We'll have then -- followed by a Q&A, take a quick break, and then we will have offline, off the webcast, one of the most successful men in all of Brazil, Eike Batista for the EBX Corporation, will come up and give you an overview of what he does in Brazil, what he does with us and his outlook on the economy here, which I think you'll find very, very interesting.
And then we'll have a plant tour up to Celma, which is one of the more -- most productive aircraft service shops in the entire world. So I think we have a nice full day packed for you here.
As I always say, elements of this presentation are forward-looking. And based on the world, as we see today, those elements can change, so please interpret them in that light.
And I'd like to introduce our host for today is -- we're very pleased to have our Vice Chairman and President, CEO, Global Growth Operations, John Rice, and several members of his leadership team.
So with that, I'd like to introduce to you, John.
John G. Rice
Thanks, Trevor. And let me add my welcome for those of you on the WebEx and also those of you in the room, welcome back. And I think you got a sense from the dinner last night the discussion that you heard from the mayor and the governor, why we're so excited about places like Brazil. I mean, you saw 2 elected officials who stand shoulder to shoulder with the best elected officials that you see around the world. And I know it sounded at times like a little bit of a GE commercial. It wasn't intended to be that. But it's a couple of great guys and one of the reasons that we're quite bullish about the prospects for this country.
So today's agenda, I'm going to go through an overview and a little discussion about our strategy and do a little bit, I hope, to connect the dots for you about trends that we see around the world. Then, you're going to hear from 5 of our regional business team leaders. And then I'll come back and do a summary and a total company update. And then as Trevor, we'll do -- we'll have time for Q&A after that.
The key messages you're going to hear today, look, we have been in these markets for a long time when we talk about the growth markets in some cases, over 100 years. So we're not new with this, but we're learning new things, and we're trying new things. And you're going to see a little bit more about how we're working to capture growth opportunities in the future in a way that's a little bit different than we might have done in the past.
We've got a pretty targeted and focused strategy. This isn't a random set of occurrences. We're really thinking about how we do this and what we do and where we do it. We're going to spend a lot of time talking about how we're trying to optimize global capabilities and build on these broad, strong global strengths, and yet be local everywhere we need to be local in look, feel and finish. We're going to do this without compromising margins. Our margins, globally, are in line or ahead of our global averages. You'll see some cost out and cost redeployment opportunities. We can do this and maintain the right risk profile for this company and protect our intellectual property. And we'll talk a little bit more about that. And in a way, we think that we have been, when you look the capital moves we've been making over the last 10 years, designing the company for what the world needs today and tomorrow and on into the future, and we think you'll see that, too.
From a macro perspective, if you look at the last 20 years. The notable changes that Brazil and China have moved up in the pecking order, and Russia and India have joined the list. But the other thing that's very notable about the macro view of this is that the growth markets, as we define them, are going to be 50% of the world's GDP by 2025. And you all look at the world that I see today and GDP growth rates are down from what they were a year ago. The forecasts have been revised slightly and the new forecast in China, as recently as this week. But we still look at the macro long-term trends. And a recent Pricewaterhouse study captured the last 15 years and the developing countries grew a little bit -- a hair over 5%, and the forecast for the next 15 years is a hair under 5%.
So this thing, we think, has a long tail in spite of the revisions that had been made recently to global GDP rates. And one of the driving factors of that is that the world needs infrastructure. And as GDP rates get revised, there's still a tremendous pressure on governments and countries to build out the infrastructure. And we believe that, that's going to be the last thing that gets cut.
There have been a spate of announcements about significant infrastructure, fundings -- $4 trillion on this chart. In a bunch of different places, it's an enormous number. We're going to break it down for you and show you by region how this looks and what is part of a current spending effort. So there's a -- these are big numbers. In some cases, they take place over 3 to 5 years. In some cases, they take place over the next 20 years. We'll show you what's being spent in the current period in the regions that we're going to talk in more detail about.
And the pressure is to increase standards of living and reduce the wealth disparity. And the thing that we see when we look at events in the Middle East in the last year and really around the world is extraordinary pressure on governments to make these kind of changes in the population in their countries that doesn't have access to the basics. And I'll show you more on that in a minute.
Just in the last 6 months, $18 billion of infrastructure wins in the growth markets. We could have put a lot more thumbtacks on this chart, but we didn't want to make it too complicated. There is real stuff happening every day.
We also look at another, really, 20 or 30 countries. We've captured 10 on this slide that are the next generation of growth markets. These are the places that you don't necessarily worry about or think about in the context of our company because they may not be material today, but they will be material at some point in the future and this is really the next phase of our growth.
Meeting the world's needs is what this is all about. There's close to 1.5 billion people around the world that don't have access to the basics: healthcare, electricity, water, that leads us right down the path to distributed power solutions, lower-cost health care, financing solutions. And we're going to talk in more detail about all of those. Some 3 billion people will be added to the middle class over the next 20 years. That's 150 million people a year, all of whom will have the same kind of demands in terms of basic living conditions and infrastructure that we have. They're going to want to improve access to everything. So that takes us to aviation and transportation.
And today, there's roughly 70 billion tons of stuff that gets pulled out of the earth; mining and oil and gas and the like. And that's growing about 2 billion tons a year, which feeds right into the oil and gas, mining, obviously, and spaces like biofuel. So we think that this really does -- these problems aren't going to get solved in the next 6 months or 16 months. It's going to take a long time, and it's going to drive a lot of demand.
As I said at the outset, this isn't a new thing for us. So we've been doing this for a while. And growth markets, as a percent of our total industrial revenue, now represents 37%. In revenue terms, that's as big as all of our industrial revenues were in the late 1980s. And what we've done to get here and what we'll do to continue from here is rethink where we're making decisions and who's making them. We call it recentralizing decision-making, not decentralizing because we're talking about putting bigger people closer to the point of contact in countries and regions so we facilitate a faster, more efficient decision-making process in the businesses, executing on the kind of partnerships that you've heard us talk about for a while now, and we'll quantify in a minute just exactly what that means.
Connecting capital to customers. So if you want to be a great global infrastructure company in today's world, you have to be great at connecting capital to those infrastructure projects. The small part of that will be our capital, not much. It hasn't been a lot over the last 10 years. It won't be a lot over the next 10 years. This is really more about third-party capital, export credit agencies. And we'll talk a little bit about what we're doing organizationally to make sure that we've got a world-class effort underway there.
Market-driven product development. We've talked in the past about in-country, for-country, how do we develop things in China, in India, in Brazil for those markets. It's really taking on another dimension. It's in-country, for-country and beyond. Most of what we're doing now in these markets is satisfying a local need and now being exported to other markets, and I'll show you some examples of that in a minute.
As you'll see at the end, we think that within the next 10 years, the growth markets will comprise 50% of the company's total industrial revenue. And of course, supply chain and local fulfillment capability, getting the footprint right, being where you need to be, when you need to be there with the right capabilities is a lot of what this is about.
In terms of the last 5 years, when you look at the growth markets, and we break them down, as you know, between resource-rich and rising Asia. We've seen great growth at multiples of GDP. We don't want to forget about the developed countries because there's growth there. We grew last year in places like Germany, in Eastern Europe. It's a mistake to lump all of Europe into one definition. And Eastern Europe, from an infrastructure perspective, we see growth opportunities. So we're going to be working on those as well.
But clearly, the growth markets are going to outpace GDP over the next 5 to 10 to 15 years. And as you can see there, we've doubled revenue in 27 countries in the last 5 years. And there's another list of 27 countries that we think we can double it over the next 5 years.
In terms of what we see in 2012, continuing growth. This is consistent with what Jeff talked about at the end of last year. But the resource-rich countries growing at 20% to 25%. Rising Asia, growing at 10% to 15%. So no basic change. And we're going to give you a lot more color and information about why we think this is going to continue to happen.
As I said at the beginning, we've been working hard to reallocate the actions that Jeff and the board have taken over the last 10 years have allowed us to allocate capital into market segments and businesses that count in the context of global infrastructure.
This is just a few examples of how we've allocated $20 billion worth of industrial acquisitions. Since 2006 we've expanded our footprint. Almost 2/3 of the revenue from these deals is global in nature and 20,000 employees in the global markets.
And as you'll see, this is very meaningful to our customer base. Some of what we've done here in Brazil and the acquisitions that support Petrobras, very, very meaningful. And Steve Sargent and Reinaldo will connect some of those dots for you in more detail.
So our strategy is relatively simple at this level. We have to find the balance between these broad, global, deep domain business strengths. So aviation, energy, water, healthcare, and make them local everywhere they need to be local.
So as we look at 100 or 125 countries where we do business, the best global companies in the world will be the ones over the next 20, 30, 40 years that get this balance right. Take advantage of synergies, take advantage of efficiencies, build deep, strong, domain competence, build on what we have in -- whether it's David Joyce's aviation business or John Krenicki's Energy business, John Dineen's Healthcare business, and make them local, look, feel and touch everywhere they need to be local. That will be the catalyst for accelerating global growth.