letter to investors Investing in growth capability allows the Company to deliver through economic cycles. Our Energy team, led by John Krenicki, is a dynamic example. They are growth leaders. As the U.S. power bubble came to an end in 2001, the future of our Energy business was uncertain. In 2001, 75% of Energy’s Power Generation earnings came from selling large gas turbines in the U.S. In 2007, this should be 2% of their earnings. Yet our business is booming. Why? Because we invested in technology and growth. Today, Energy has six products with revenues greater than $1 billion versus one in 2000. Because of a focus on environmental solutions, our lineup of renewable energy technologies is the largest in the world with $5 billion in revenues. This leadership in technology has created a large installed base generating $10+ billion of services revenues. We are using Lean and NPS to improve our performance. Energy’s customer outage cycle has improved 30%, and their parts repair cycle has improved 25%. Energy’s NPS with key utility customers has gained five points, showing increasing customer satisfaction. We enhanced our commercial excellence by taking an enterprise approach to customers. We have strengthened the coordination with our Energy Financial Services business to fully serve customer needs and improve investor returns. We can take a strategic approach to major projects like integrated water and power gen- eration in Saudi Arabia. We are the industry leader in innovation. We are investing more than $500 million in coal gasification and the next-generation nuclear boiling water reactor. These will be “workhorse” technologies as the world grapples with the need for low-cost power with reduced greenhouse gas emissions. These products could generate $10–$20 billion of orders over the next 10 years. Energy is winning globally, by aggressively redeploying assets to serve customers everywhere. We are operating in China, Russia and the Middle East. We have created a coal center of excellence in Poland. About 80% of our gas turbine orders in 2006 came from outside the U.S. We invested in a “growth team.” At Energy, Rick Stanley (Technology) and Dan Heintzelman (Services) are alumni of our Aviation business and recognize the importance of innovative technologies linked with services. Alex Urquhart is the long-time leader of Energy Financial Services with deep industry knowledge and customer contacts. Jim Suciu, Chi Choi and Ricardo Cordoba (Sales) are empowered to deliver for customers around the world. Jody Markopoulus (Sourcing) and Larry Blystone (Manufacturing) are reducing costs and fulfilling customer commitments. As a result, Energy is delivering. It is a $19 billion business, growing 16% organically. Because of our ability to invest and deliver, Energy is an innovation powerhouse with decades of growth ahead. At GE, we launch initiatives so that we can unleash our teams’ intellect to create shareowner value. Sometimes, it is diffi cult to see the value of our initiatives immediately. The story of our Energy business is tangible proof that our growth process is paying off. Growth as a Process Technology Customers Globalization Commercial Excellence Innovation Growth Leaders Execute for Growth Great People and Teams At the end of each training course that I teach at Crotonville, I give our team a challenge: return to work as a GE zealot or find a new job. It has never been more important for people to understand exactly why they work for a company. We value leaders who perform over time. As a result, we don’t have a lot of debates about short-term versus long-term performance. In the short term, we have a sense of mutual accountability. In other words, the businesses are committed to deliver for investors and for each other. Our “average hold” of a business is measured in decades. We do not “flip” assets. We are builders of businesses. This takes people who believe in teamwork and have pride in workmanship. We have a team that is focused on building a company that has enduring value and makes the world a better place. Our culture matches the expectations of long-term investors. 8 ge 2006 annual report
I may have been the only person who liked our commercial aviation leasing business for the two years after September 11. We experienced customer bankruptcies, global slowdowns and a variety of other challenges. But our team made diffi cult decisions to keep investing and supporting our customers. Ultimately, this created abundant returns for our investors and loyalty from our customers. Henry Hubschman, who runs this business, is the ultimate “builder.” Similarly, persistence paid off as we transformed our “old” rail business into a global “growth engine.” Dave Tucker, Transportation’s commercial leader, has worked in this business for 30 years. He has been working feverishly to globalize this North American business. In 2006, 40% of our orders came from outside the U.S. New customers in China, Brazil and Kazakhstan are buying our products. We have another $4 billion of global opportunities. Technical innovation, matched with Dave’s determination, has doubled the market for this great business. Dave, too, is a builder. We have a long-term commitment to training. This is how we transfer knowledge within GE. For the last two years we have trained our team on the growth leadership traits so that they could become high-performance builders. However, we recognized that building a culture to invest and deliver is a “team sport.” As a result, we launched a team-based training course called Leadership Innovation and Growth (LIG). We will take 50 business teams through LIG by the end of 2007. This is a weeklong process that drives improvement in a business’ growth culture and capability. In the end, the leader has a list of “quick hit actions” to achieve the team’s growth vision. Maryrose Sylvester led her Automation and Embedded Systems team through LIG. This is a $1 billion business that has the oppor- tunity for dramatic growth through technology and globalization. Maryrose used LIG to make resource allocation calls and launch new growth initiatives. This is a team that can drive explosive growth over the next few years. Steve Capus led his NBC News team through LIG. This team has had an outstanding year, with big wins in “Nightly News,” the “Today” show and MSNBC. However, they must find new ways to grow. Steve is using LIG to accelerate new programming ideas and increase focus on the Internet. Ultimately, we are trying to match a leader with a team with a mission. As we do this, we create a high-performance culture that can invest and deliver. We don’t want thematic leaders who move from subject to subject. They can’t build. All of our compensation and succession planning values long-term commitment. We believe in the impact of LIG and will make one-third of our executive education “team-based” in the future. We love high- performance people. But we have learned that building businesses over the long term takes a team. It also helps retention. Everyone likes hiring GE people. While our people are well paid, some private companies can pay them more. Sure it is tempting, but we rarely lose leaders who have a passion for building. These talented people recruit loyal teams and are driven to build dynamic businesses for the future. letter to investors GE teams get to see how the story comes to life. Can we effectively treat Alzheimer’s disease? Will nuclear power have a resurgence in the world? Will India be a leading economy? Will “The Office” be the next “Seinfeld”? Our teams will see it fi rst. They are the architects of the future. They sit in the front seat of history. Invest and Deliver GE is a reliable growth company. We have grown earnings 11% annually over the last 25 years. We have increased the dividend for 31 straight years. We will perform for you in uneven economic cycles. We have invested in the future and we will continue to do so. We have a valuable set of leadership businesses. They are posi- tioned to capitalize on global infrastructure investments, emerging market growth, environmental challenges, expanding and aging demographics, accelerating digitization and substantial liquidity. We deliver every day. Our organic growth rate has increased, margin rates are expanding and returns are approaching Company targets. The Company has high visibility on excellent fi nancial results. Your GE team is better than ever. They are more innovative more global more technical than at any other time in our history. Most importantly, they are committed to work on your behalf. It is this desire to win that defines your team, one that will “Invest and Deliver” for the future. Just like after September 11, I am still buying GE stock. Our earnings have almost doubled, our portfolio strategy is complete and our initiatives are in place. We have worked hard to improve this Company. We have built a better GE. I know that our best days are ahead. Invest and deliver. Courage and discipline. Every quarter and every decade. This is your GE. Jeffrey R. Immelt Chairman of the Board and Chief Executive Offi cer February 9, 2007 ge 2006 annual report 9
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