Companies

GE to increase focus on Chinese market

By Rachel Layne (China Daily)
Updated: 2011-03-15 10:42

A General Electric Co jet engine at the eighth China International Aviation and Aerospace Exhibition in Zhuhai, Guangdong province, in November 2010. [Photo / Provided to China Daily]

International sales expected to reach 60 percent of total revenue: CEO

BOSTON, Massachusetts - General Electric Co (GE) will build on last year's earnings rebound with new products in energy, health care and aviation, while expanding in growing markets such as China and India, Chief Executive Officer Jeffrey Immelt said.

"We see signs of economic strength every day," Immelt said in his annual letter to investors, which was formally released on Monday. Growth is volatile after the global financial crisis, and "it doesn't always 'feel great' because we have entered a new economic era. Growth around the world is happening at multiple speeds".

About 53 percent of sales last year came from outside the United States as Immelt built exports and focused on faster-growing regions and countries such as eastern Europe, the Middle East and Brazil.

International sales should approach 60 percent of total revenue as GE taps those markets and increases exports from a larger manufacturing base in the US, said Immelt.

"We plan to have an increasing number of products localized in China and India in the next few years" as more than 1 billion people join the middle class in Asian markets including those two countries, Immelt said. "This will give us the right technology to satisfy our customers' needs."

The company resumed share buybacks last year and raised its dividend twice after slashing the payout by two-thirds amid the financial crisis. It has boosted research and development funding.

The shareholder dividend will be a "priority" moving forward, Immelt said.

"Being a CEO can be pretty humbling," he wrote. "The toughest years of my life were 2008 and 2009. They were difficult for the company, investors and the economy as well. But our team worked hard for investors and the company. We promised you we would come out of the crisis a stronger company, and we have."

The CEO, entering his 10th year in the job, has trimmed about half the Connecticut-based company's portfolio in the past decade. Divestitures have included plastics, insurance and most recently a majority stake in NBC Universal.

"Repositioning GE in volatile times has demanded patience from our long-term investors," Immelt wrote. "Today, we earn more money than we did when the stock traded at an all-time high."

GE agreed to more than $8 billion in acquisitions last year, investing some of the cash hoarded during the crisis, and ended the year with $79 billion in cash, $19 billion at the parent level.

Related readings:  GE seen posting 14 percent rise in profit  GE says China deals to bring $2b in sales  GE to build innovation center in SW China  GE Healthcare aims to boost medical facilities

The GE Capital finance unit returned to profit growth after Immelt slashed the division's assets and retrenched during the financial crisis. He curbed leverage as GE lost its AAA debt rating, the highest available, in 2009.

Additional challenges during Immelt's tenure have included Hurricane Katrina, the 2001 terrorist attacks that toppled the twin towers of New York's World Trade Center and damaged the Pentagon four days after he took the helm, and an oil spill in the Gulf of Mexico.

His letter was written before Friday's earthquake in Japan shook a nuclear power plant that includes some GE reactors built almost four decades ago.

Since 2009, Immelt has added more than 6,300 manufacturing jobs in the US, and $17 billion of last year's $150 billion in sales came from exports.

He's also doubled the amount of research and development for non-financial products to $6 billion. "We are prepared for a future fueled by human innovation, not cheap labor," Immelt wrote.

Earnings are now higher than they were when GE stock was at an all-time high, about $60 a share in 2000, Immelt said.

GE outperformed the Standard & Poor's 500 Index last year for the first time since 2004, rising 21 percent compared with the S&P's 13 percent.

Profit should continue to rise this year and next, bolstered by infrastructure businesses including the world's biggest makers of power-generation equipment, locomotives, healthcare imaging systems and jet engines. Growth at the streamlined GE Capital will mitigate a rising tax rate, Immelt said. The finance unit's leverage has been lowered to 5-to-1 from 8-to-1, he said.

"GE's earnings quality should continue to improve," Immelt said. "Our goal is to maintain infrastructure earnings between 60 percent and 70 percent of GE's earnings. Our tax rate increased in 2010 and will grow substantially in 2011. These elements will create a more valuable GE."

Immelt, named in January to lead US President Barack Obama's outside group of advisers on job creation and competitiveness, has lobbied for more manufacturing in GE's home country.

"Unemployment is high in every corner of the world," he wrote. "As a result, jobs are the real currency of reputation. Without jobs, confidence - and growth - lags. GE must be cost-competitive. But at the same time, we must know how to create and value front-line jobs."

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