general electric

General Electrics Presentation Brief View to Diversification

( U N ) Re l a t e d D i ve r s i f i c a t i o n 0 6 /11/2013

Julian Kimora, Scott Lichtenstein, Erdem Tokmakoglu

2

ContentsG E

GE Overview and History1

AviationA

2 GE Core Competencies and Divisions

HealthcareB

Relatedness3

GE CapitalC

NBCUniversalD

Conclusions4

3

GE’s PAST to PRESENT (GE website)

A p p e n d i x 2

51926

X-Ray

121990

Tomography

21900

Steam Turbines

31905

Bond& Share

111987

GE Capital

11892

Foundation

81938

Boxbob Locomotive

142013

GE Sells

Completely NBC

91953 Lexan

Accidentally Developed Coating

71935 First

Garbage Disposal

41919

Radio Corp. of America

Formed

101986

GE Reacquires

RCA, Forms NBC

61932 Credit

Foundation

132 0 0 4

Boing 787

4

KEY INFORMATION (Yahoo Finance)

G E O u t l i n e

Founded: 1892

Headquarter:Fairfield, Connecticut,

CEO: Jeffrey R. Immelt

Global Locations: more than 160 countries

Employees: 305,000

Total Revenue: 147,359,000,000 USD

Operating income(EBT): 17,406,000,000 USD

Net income: 13,614,000,000 USD

O ne of the 12 original Dow Jones Industrial Average members

Various M&As have shaped GEs organisational structure

5

0 $

40 $

80 $

120 $

160 $

200 $

2008 2009 2010 2011 2012

Sales/Revenue Gross  Income Research  &  Development EBITDA

ANNUAL FINANCIALS (Marketwatch)

A P P E N D I X 1

Total Assets

717.26B2012

Total Liabilities

588.79B2013

Total Equity

128.57B2013

Net Operating Cash Flow 31.33B

B i l l i o n s

6

ORIGINAL BUSINESS AREASO R I G N

Original business areas were focused on the generation and application of electricity.

Power Plants Transformers Electric Locomotives

X-ray Tubes Household Goods

7

MEET THE KEY PEOPLE Pe o p l e

1981 CEO

Jeffrey Immelt

CEO 2001 - Present “worlds best CEO“ (Barron),

Restructured GE, selling unrelated

assets and focusing on core businesses

-However, GE stock is over

40% lower than when he took over

Jo h n Welch

Chairman & CEO 1981 - 2001 Joined GE as chemical engineer in 1960

Increased market cap from $13 bil. to several hundred billion

Streamlined operations and reduced bureaucracy

”Manager of the century” (Fortune Mag. 1999)

8

EXTERNAL STRATEGIES THAT CREATE CORE COMPETENCES

A B O U T G E

Few Corporate Layers Where the ideas are born

Only 4 Corporate layers Very few corporate staff

Therefore more differentiation

Power Differentiation,

Portfolio Investments, Value Creation,

“Aggressive acquisition &

expansion strategy” Regularly acquire firms in times of economic downturns

which improves customer values

Technical Leadership Promoting the work

Innovation %6 Investment on Research

Over Revenue

9

CORE COMPETENCIESA B O U T G E

Innovation Cultivation in them of an insatiable desire to learn, to stretch and to do things better every day.

GE uses its capabilities in R&D to continue to produce some of the world’s most innovative industrial products

Tax Strategies Corporate Profit Accounting to reduce tax liabilities (Scott 1977)

G E famously paid no US income taxes in 2010 despite earning a profit of $5.1 billion in the country that year.

The company employs 375 lawyers in the largest tax department in the world” (AP)

Corporate Organisation Design Strategies The global recruitment and nurturing of worlds best people (GE 2011)

GE spends over $1 billion annually on management training (WSJ) “Session C” management training and performance review every year

Financial Economies of Scale Cross-business synergies from debt coinsurance effects

In a moderating growth operating environment and greater uncertainty,we believe investors will gravitate to GE's late-cycle exposure, high-margin services mix, emerging markets strength, and attractive earnings visibility/consistency,’ Dray wrote in a note to investors.” (AP 2006)

10

RelatednessG e n e r a l I n fo

Corporate Relatedness

The application of core competencies to different business areas

All of GE’s divisions share their core competencies of innovation, management training, and tax strategies

Operational Relatedness

The sharing of skills and inputs across different business areas

GE’s divisions sometimes require different inputs and skills

We will analyse the Operational Relatedness of a few key divisions

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GE CORE SECTORSA p p e n d i x 3

1. Finance

2. Power & Water

6 Transportation

7. Aviation

8. Home &Business Solutions

3. Oil & Gas

4. Power & Water

9. Energy Infrastructure

A. Powering

B. Curing

D. Building

5. HealthC. Moving

Premier Infrastructure

Company

12

GE SEGMENTS (CSI MARKET DATA)

A N A LYS I S

Total Revenue

$ 147,469M2012

46.0397.9675.608

18.29019994

741215241

28299

%31

%5%4

%12%14

%5

%10

%19

Power  &  Water Oil  &  GasEnergy  Management AviaConHealthcare TransportaConHome  &  Business  SoluCons GE  Capital

Most margin over revenue – Energy Infrastructure

Million USD

13

GE AVIATION (GE website)

G E FA I LU R E

I n 1917, GE was granted a US military contract to build the first superturbo charger for airplane engines for the US entry into WWI

By the beginning of WWII, all US Air Force planes were using GE engines

GE built the America’s first jet engine in 1942

I n 2012, GE Aviation had revenue of $19.994 billion, which is 14% of GE’s total revenue

Today, a plane flying with GE engines takes off every two seconds somewhere in the world

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GE AVIATION RELATEDNESS (GE website)

S e c t o r s

R&D Skills First turbocharged & jet engine Advanced engineering, long design period

Revenue: $19.994 Million 14% of GE’s total revenue in 2012

ManufacturingBoth machinery and aircraft engines require complex products Manufacturing focuses on precision and durability rather than volume Currently Boing 787’s engine supplier

Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s

Conclusion Co r p o r a t e & O p e r a t i o n a l l y re l a t e d

15

GE HEALTHCARE (GE website)

G E FA I LU R E

GE Healthcare began as “GE X-ray Corp” in 1926 when GE merged with Victor Electric, a manufacturer of X-ray tubes

I n the 1950s and 1960s the company began manufacturing pacemakers and patient monitoring equipment

In the 1980s, GE Medical began investing heavily in MRI and CT machines

N ame changed to GE Healthcare in 2001

2 0 1 2 reve n u e o f $ 1 8 . 2 9 b i l l i o n , w h i c h i s 1 2 % o f G E ’s t ot a l reve n u e

16

GE HEALTHCARE RELATEDNESS (GE website)

S e c t o r s

R&D Skills Biology research and biomedical engineering are different than electrical and industrial engineering

Revenue: $18.29 Million 12% of GE’s total revenue in 2012

ManufacturingA higher number of product categories sold than power generation machinery and more units sold per category

Inputs B i o m e d i c a l p ro d u c t s re q u i re s m a l l a n d i nt r i c a t e p a r t s , s o m e o f w h i c h a re e l e c t r i c a l

Conclusion S o m ew h a t o p e r a t i o n a l l y re l a t e d

17

GE CAPITAL (GE website)

G E FA I LU R E

In 1905, Electric Bond Share Co. is established to finance small utility companies

In 1932, GE Credit Corporation is founded to provide credit for families purchasing GE appliances

Had branched into credit cards, personal loans, mortgages, savings accounts, and other areas of consumer finance by the time the name was changed to GE Capital in 1987

Currently also involved in energy derivatives trading, real estate, and asset-backed securities issuing in 55 countries with over 50,000 employees

Had $46 billion in revenue in 2012, which was 31% of GE’s total revenue.

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GE CAPITAL RELATEDNESS (GE website)

A p p e n d i x 2

R&D Skills Financial market analysis and economic intuition are very different than electrical engineering

Revenue: $46 Million 31% of GE’s total revenue in 2012

ManufacturingNo manufacturing is required for GE Capital

Inputs H u m a n c a p i t a l i s l a rg e s t i n p u t

Conclusion Not o p e r a t i o n a l l y re l a t e d

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GE TRANSPORTATION (GE website)

A p p e n d i x 4

R&D Skills First turbocharged & jet engine Advanced engineering, long design period

Revenue: $5.608 Million 4% of GE’s total revenue in 2012

ManufacturingHig h - h o r s e p owe r d i e s e l - e l e c t r i c l o co m ot i ve s w h i c h s h a re g e a r a n d e n g i n e t e c h .

Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s

Conclusion Co r p o r a t e & o p e r a t i o n a l l y re l a t e d

20

GE POWER & WATER (GE website)

A p p e n d i x 5

R&D Skills Advanced engineering, long design period

Revenue: $ 28,299 Million 19% of GE’s total revenue in 2012

ManufacturingWa t e r p u r i f i c a t i o n sys t e m s , p u m p s , va l ve s , f i l t e r s a n d f l u i d h a n d l i n g e q u i p m e nt fo r i m p rov i n g t h e p e r fo r m a n ce o f wa t e r, wa s t ewa t e r a n d p ro ce s s sys t e m s , i n c l u d i n g m o b i l e t re a t m e nt sys t e m s a n d d e s a l i n a t i o n p ro ce s s e s , f l o a t i n g u s e s i m i l a r t e c h n i c a l s t r u c t u re w i t h e n g i n e s .

Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s

Conclusion Co r p o r a t e & o p e r a t i o n a l l y re l a t e d

21

GE OIL & GAS (GE website)

A p p e n d i x 6

R&D Skills First turbocharged & jet engine Advanced engineering, long design period

Revenue: $15,241 Million 10% of GE’s total revenue in 2012

Manufacturingf l o a t i n g p ro d u c t i o n p l a t fo r m s , co m p re s s o r s , t u r b i n e s , h i g h p re s s u re re a c t o r s , i n d u s t r i a l p owe r g e n e r a t i o n a n d a b ro a d p o r t fo l i o o f e q u i p m e nt u s e s i m i l a r t e c h n i c a l s t r u c t u re s w i t h e n g i n e s a n d p u m p s .

Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s

Conclusion Co r p o r a t e & o p e r a t i o n a l l y re l a t e d

22

GE HOME & BUSINESS SOLUTIONS (GE website)

A p p e n d i x 7

R&D Skills First turbocharged & jet engine Advanced engineering, long design period

Revenue: $7,967 billion 5 % of GE’s total revenue in 2012

ManufacturingBoth machinery and aircraft engines require complex products Manufacturing focuses on precision and durability rather than volume Currently Boing 787’s engine supplier

Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s

Conclusion O p e r a t i o n a l l y re l a t e d

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NBC UNIVERSAL 1 (Forbes)

G E FA I LU R E

GE founded RCA in 1919 as a subsidiary to manufacture radios

RCA launched NBC in 1926 as America’s first broadcast radio network in order to sell more radios

GE sold its stake in RCA in 1932

GE repurchased NBC in 1986

24

NBC UNIVERSAL 2 (Forbes)

G E FA I LU R E

GE bought 80% of the movie studio Universal for $5.9 billion in 2004 and merged it with NBC to create NBCUniversal

GE sold 51% of NBCUniversal to Comcast in 2011 for $6.5 billion

GE sold the remaining 49% to Comcast in 2013 for $16.7 billion

NBC had dropped from the number 1 US network in the 1990s to number 4 at the time of the sale

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NBC UNIVERSAL RELATEDNESS (Forbes)

G E FA I LU R E

GE NOT operationally related at all

Skills and inputs for hit TV shows and movies very different than for heavy industrial manufacturing (creativity versus engineering)

Sale to Comcast driven by changes in the entertainment industry

Growing power of cable: In 2011, 90% of US homes had cable TV subscriptions and spent twice as much time watching cable as watching broadcast TV (Nielson)

Rise of the internet: Netflix has 30 million US streaming subscribers and Hulu has 4 million (NY Times)

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BCG Matrix A n a l ys i s

Oil & GasAviation

Power & Water

Transportation

Home & Business

Low High

Market Share

Low

High

Mar

ket G

row

th

Healthcare

GE Capial

27

CONCLUSIONL AS T W O R D S

“One-stop shop’ for developing countries (NYT 2005). To achieve this objective, Jeff Immelt formed vertical cross- business teams in Healthcare, Energy, Water, and Rail that focused on company-to-country relationships in developing countries (GE 2004, 2005)”.

Mainly focus on related areas.

GE capital is not related but the

most profitable.

GE should be careful not to fall into “?” or “Dog”

Immelt is trying to refocus GE on

their core businesses

THANK YOU For your attention!

QUESTIONS &

ANSWERS Go ahead. Don‘t hesitate.