General Electric's (GE) CEO Jeff Immelt at 2014 Electrical Products Group (EPG) Conference (Transcript)

| About: General Electric (GE)

General Electric Company (NYSE:GE)

2014 Electrical Products Group (EPG) Conference

May 21, 2014 11:30 ET


Jeff Immelt - Chairman, CEO


Scott Davis - Barclays Capital

Jeff Sprague - Vertical Research Partners

Nigel Coe - Morgan Stanley

Julian Mitchell - Credit Suisse

Steve Tusa - JPMorgan

Steve Tusa - JPMorgan

Anyway, now it's time for me to hand it off to our leading Francophile and highlight of the conference, Mr. Immelt, vous avez la parole. You have the floor.

Jeff Immelt

Great Steve. Steve that was an awfully bold decision you made. Stay here really, you know, you teach us off. So good morning or we would like to say GE bonjour, it's good to be with you. And just to see highlight, 2014 is looking good, on track no change to the model, we feel good about where we are positioned. We are executing the strategy to do the retail finance spend executing on our key initiatives.

But what I really want to spike up today is, why the company is different, big advantages we think we are building in areas like analytics and globalization and some portfolio moves and really give you a sense of some of the big changes that are going on inside the company right now.

So the environment I say generally getting better, U.S. gets a little better everyday we see demand for credit, you probably heard this week Europe growing again. Emerging markets were so quite positive and bullish on the emerging markets. Good value gap so inflation has been benign and lots of volatility around governments around the world. And our big themes continue to be in tact. So we are – I would say more bullish on the environment feel pretty good about the way GE is positioned in that regard.

The segments, really no update on the segments, off to a good start in the first quarter this year. Power a little stronger, healthcare a little weaker, but really across the board, I say pretty consistent with the expectations we set at the beginning of the year. The team is executing well and we are seeing some good acceleration in some key segments and so we like kind of the profile and – of the segments and how we are doing. And we think some of the businesses have got off to a tough start like energy management are going to rebound in the second quarter and ought to be still meet objectives for the year.

No change to the way we think about corporate, I just wanted to highlight a couple of things. Corporate costs are going to be down $500 million, so simplification is driving across the entire platform. And we're still trying to do more restructuring than we have gains. So we are doing a ton restructuring this year somewhere between $1 billion and $1.5 billion now help us this year, next year and into the future and that's why corporate remains a drag. So the earnings for the company would be even higher and the earnings growth rate would be higher if not for the uncovered restructuring, which we think is going to position us going forward.

No real change in cash or expectations for the year. Our revenue expectations for the year, we started off industrial organic growth at 8%. So we feel good about the profile of the company in terms of where it goes.

We are executing the strategy. We expect to do the retail finance spin in the third quarter or the IPO in the third quarter so on track for that. I think we have got more certainty around the timing. We feel good about the third quarter for execution of the IPO. Industrial earnings growth double-digit earnings growth driven by organic growth in the 4% to 7% and we continue to see good margin enhancement across our businesses.

GE Capital is on track to earn $7 billion this year. We expect to get a $3 billion dividend from GE Capital this year, but that's the precursor to getting a ton of cash out of GE Capital next year when we do the retail finance spend. So no change in really expectations along those lines and good steady earnings growth while we are going through the portfolio transformation. So we expect to continue to grow the dividend aligned with earnings. We expect the share as we do the RFS split to get the shares down to 9% to 9.5%. We still expect to do at least $4 billion of dispositions this year for burning those cash.

The balance sheet is extremely strong and financial services and we are on track to hit the return on invested capital of 17% by 2016 as we talked about in December. So we are executing the strategy and very focused on the things we are doing there. We still expect to get a gain in retail finance. It's unclear whether that's going to be a continuing operations or discontinued operations; it could very well be a disc ops by the time we get there.

So that's kind of laid the land on strategy execution. And the profile of the business is what we really feel like the industrial businesses are gaining momentum a good backlog. Our initiatives are pretty powerful in terms of sustaining the kind of organic growth we are getting this year. We see good margin enhancement this year that's sustainable and leading into the future. And we are looking at the portfolio and either getting margin enhancement of some of the underachievers or find ways to create value along those lines.

GE Capital, I would say we now are thinking about by 2015, once we do the retail finance spend, a number more like $300 billion in E&I versus $350 billion. So we are going to execute the spend. We are still looking hard at the red assets and see a lot of non-core opportunity. We are seeing good growth in the core GE Capital assets and looking for ways to making GE Capital even more capital efficient as times goes on. So this is the way to profile the company going forward. We think the execution is improving and the strategy is really on track.

So if you shift now, what I would like to do the rest of the time is, just kind of talk about the future. So you heard, I think the last time we spoke with you about the Alstom transaction. The Alstom transaction would add $0.08 to $0.10 incremental EPS in 2016, which we would expected to close in 2015. We got a great foundation in a 170 countries with more than $200 billion of backlog, good team, well-deployed, lots of cash. You got a great foundation. And really on that foundation I think there is just couple of thoughts I would give you then I will talk a little bit more about today.

One in technology, we have always had a great technical company. We have got a fantastic profile of new products. And we are adding to that the capability of executing these products more quickly and at lower cost so big initiatives are going to make that better.

Probably an unmatched framework in emerging markets and I think I want to give you a more of a sense of how much of a competitive advantage we have as we approach these emerging markets. I know this, we have talked a little bit about the industrial Internet; we have been doing it out for four years. So we have I think ahead start in terms of how we view analytics and the power that's going to bring in terms of growth and margins for the company going forward.

With simplification, we have kind of expanded that and it really is changing the culture of the company, the way we run the company to make us faster and lower cost and more competitive and we are tremendously excited about where that leads.

And we are going to execute on those initiatives no matter what. And I think the way I look at Alstom. Alstom allows us to accelerate our portfolio of goals, allows us to get to 75:25 from an industrial financial service standpoint. It's a pure play infrastructure play for us and it just makes things better faster as we look forward.

So these are the ways that I would like to think about the company really getting better as we look at the future. So technology is a key advantage for the company. We invest about 5% of our revenue back into R&D. We are a big patent filer or top-ten filer globally and inside the United States. And this allows us to gain market share. It allows us to drive a good manufacturing cost and grow margins. And allows to fill product line gaps like diesel, power generation, capability, other product gaps that we have in the company. So technology is always what sets up the installed base. It's the key part of our strategy and we think we are really well-positioned.

Every year I talk about the breadth and depth of the company and the technology that we are advancing. The tire four locomotive, we think is two years ahead of competition is going to be very well-positioned for 2015 and 2016, it build a big advantage. The Revolution CT is FDA approved and now out there and positioning us to grow market share in 2015 and beyond.

We made good progress in the water business and we are now positioned in a ton of the unconventional few areas as ways to grow. And we build a high market share, high margin by a process manufacturing business that's well above $1 billion with very high margins and we think these are other things we can do both organically and inorganically inside the company. So we just continue to launch a broad and deep technology inside GE.

We also bring into new industries and one of the ways that we drive synergies with the oil and gas growth we have seen is by using the totality of the company in oil and gas and we are able to do this in ways that highly believable to our customers and far ahead of what our competition can do. So not only do we have all the technologies that we bring into oil and gas, but we can bring healthcare technology into the imaging of pipes and doing inspection which is number one to big customers like Exxon and BP. We can bring power conversion to the electrification at the subsea factory and there is other technologies we can bring to build systems for our customers. We are adding to this by having a global research center in Rio and one in Oklahoma City. So we are really surrounding the industry in a very powerful way that's recognized by our customers.

And we are doing technology in a different way. I think with [fast source] (ph) into second year of really driving this around the company, the H Turbine is a good example of a product we brought to market much faster and much lower cost so big improvements in cycle time, big improvements in program expense. We are going to be shipping units in 2016. We are bidding on the tremendous array of new opportunities. Our market share is going to be high in this product. And this was just on a different way. It's leveraged some of the early H technology we had. We now have hardware engineers using modern tools are able to operate more like software, engineers in terms of the ability to pivot. And we have got total focus on what customers are expecting so 61% efficiency more than 400 megawatts of output. This is going to be the most efficient biggest unit and out there in record speed by 2016.

From a cost standpoint, all of these engines that we are launching are going to be shipped at lower cost points in the future than how we are originally looked at them. And this is going to be because of the work we have done on should cost analysis, advance manufacturing, got a welding techniques, better additive manufacturing techniques, doing a lot in terms of sensors inside our factories.

And so our manufacturing teams are aligned with our engineering teams to do things better and faster in the future than they have ever done before. And we think this in addition to all of the efforts that we had in R&D is just going to make GE that much further ahead in the competition looking forward.

We are a really good global company with a very diversified footprint in the growth markets. I think the work that John Rice has done over the last three or four years has really given us a diversified portfolio. And as you can see the regions have all grown quickly over the last three or four years and that's going to continue into the future. So being local, begin present, being out there as really been beneficial and really been key.

And I think one of the things I want to portray for you is that this notion of localization is a big competitive advantage for GE versus other big companies or small companies. This just gives you a sense of some of the array of investments we have made from multi-modality facilities that might be making four or five GE products in India, in Saudi Arabia, Nigeria to low cost centers in China, low cost engineering centers in Mexico and Poland to big localization place in Africa, Brazil and Australia. We can just play this – a lot of the only gas business has localization content rules. We can just do that better than people because of our scale and breadth. And so you got to think about us playing this global game better faster with more scale than any of our competition when you look at how we are positioned today.

Services has always been key to the company that's always been a key part of the profitability of the company and we have a long history – a massively huge backlog. The installed base grows about 3% every year, margins continue to get better. So we get a big installed base, proven track record of investment around that installed base. And we continue to add more value to how our customers see GE and how we are positioned going forward.

And I think what you proved this week at EPG is something that we have thought about for a long time, which is you may go to bed thinking us an industrial company, but if you are not capable in analytics, you are going to be a not competitive in the future. And it maybe the first 100 years of GE was about the physics of the product, but the next period of time is going to be about the analytics. And the way you are going to eat it is through better dollars per installed base, better margins, incremental software sales and tighter relationships with customers.

And one of the things that makes this so powerful is speaking the language of the customer. Things like the industrial Internet, the marketing phrases that can rally people behind. But when you sit in an oil and gas CEOs office or a utility CEOs office and you talk about no unplanned downtime, asset optimization – enterprise optimization that's what this means. That's what we are building here, right?

And that's where we are and that's where GE can lead. And again, it's all about from our customers’ standpoint what to-date of downtime at LNG plant worth? What is 5% increase in a wind turbine worth? And it's all easily monetizable by our customers. We took a very – I would say intense strategy to build capability not buy it. So we have added big players from inside the industry, Bill Ruh from Cisco, Kate Johnson from Oracle. We have got more than 1,000 people at our center of excellence in San Ramon. We have got – they build on 10,000 software engineers inside the company already. And we are hiring people that are data scientists and systems architects and we are hiring from all the companies that are out there and our value prop to this people is great.

And then we are adding to that commercial folks. We are adding to that sales people that know how to do outcome selling, system selling. And because we are first, we don't want to do everything ourselves because we are first we have some real enterprise advantages. So we have got good partners, people like Cisco and Amazon Web services, some strategic alliances with people like Accenture and others that like in Teleris. We have done some small investing in platforms that we think can enhance the system going forward and so we are building a core capability there and a few acquisitions.

But looks guys we have got the best talent, we have got the best partners and we built the best foundation as we started into this process of enhancing our service business going forward. In the intense of all this is just to develop our own middleware. So we have built a software stack that can enable user interface, can enable data acquisition from industrial units and can enable analytics that are built on that.

And this has a chance; this is where all the GE engineers are writing. It has a chance to become an industry standard, we are working with people like SoftBank and other telecom companies that want a license Predix. We call this Predix which is the middleware. And this allows us to launch new applications in six weeks. So we can now eat this, right? So we are now building – we are at 40 application so far. We are in a mode where we can add them quickly. And will be this year in excess of $1.1 billion run rate that will show up primarily in our service businesses and drive productivity at the same time.

So people, software, output, leadership, first mover advantage that's the way I would think about this initiative in terms of GE.

And here is some of the applications since you travel around the businesses and we will find ways to show more this to our investors as times goes on. But, if we can stratify all the engines we have in CSAs, if we can stratify the ware use and data around hard and harsh environment and different environments. There is hundreds and millions of dollars of productivity to build in, in terms of time on win guarantees and things like that. Wind power up gives 5% more output to wind asset which is, if you are a developer that improves your returns by 20%, so massively important.

On the enterprise side, optimization tools like Teleris, which is a whole airline productivity suite, Rail 360, which is the way to work with the railroads on ways to optimize their fleet. In healthcare, we have got enterprise suites as well. So we view this as a big growth engine, big margin engine for the company going forward and the place to GE is truly in the lead.

You firmly talk about simplification; I think this is taken on an acceleration inside the company. I think we started with the context of how do we get cost out particularly in the overhead of the company and now its blossomed, it's really have four key parts.

The first one is, less is more. That the companies like our need to have smaller headquarters, fewer layers, simpler processes and we found that as cost comes out its also liberated speed and activity. And I think we are just scratching the surface of where we can go.

You add to that a real focus on speed. With fast fortune basically taken lean and added to its principal from Silicon Valley and it basically puts every crosses on the clock. I mean that's the way I look at transfers inside the company. It's not good enough to do those two, you got to have strong commercial intensity and fundamentally what we are trying to create inside the company is 300,000 people drive to work everyday knowing that their future is depending on the markets and customers and act accordingly.

So tremendous focus on winning in the marketplace and really implementing information technology that drives margins and speed and use our scale to achieve administrative scale. And this is a game changer inside in the company and one that's moving very quickly in an important way.

So we are well on our way of hitting our 12% goal by 2016. Every business has got SG&A as a percentage of revenue down between 5% and 15%. So this is every business across the company. The enabling function this is finance and HR legal things like that are all down 15% to 20% inside the company. Headquarters is down substantially down $500 million. ERPs are more simplified and reduced and just fewer processes, legal processes more on the clock as you look forward.

And I think people see that scarcity drives better team work and more accountability that everything now is mainstream inside the company and we just think it's a – for us look guys – 10 years ago we were 70% inside the United States. Now, we are 65% outside of the United States, in 170 countries, across eight business platforms and world that's highly regulated, right? Simplification is the way you win in this time period. So we are driving it very, very hard inside the company.

The customer piece is just as important as the cross-sell piece. So when you think about how you run the markets. We basically redeployed people from headquarters into the field. We have invested in selling tools and systems. So our businesses have configurators and pricing tools and things like that. We have very strong partnership with marketing and commercial finance to drive competitive advantage in the marketplace. And if you look at healthcare, we have got more sales people despite having a fewer less structural cost. We have invested in people that know how to sell the entire solutions of the company in the sea-suite. We can now build the products that we make online with configurators the entire sales force is on

So we have great transparency around information. I can go there and engage with any sales person in our oil and gas and sales business and through charter, find how the accounts doing and what's going on real-time? And very specific share and margin programs that we can execute throughout the sales force.

So huge intensity around the commercial phase at the same time we are taking structural cost out of the company. And then great leveraging of IT tools. So configurators are driving margins, if you look at the big contribution margin improvements we have made in the subsea business, a lot of those have been driven by information technology. Our field services for us, we have a tremendous array of field service people, using Predix with our analytics platform we can now get to the fingertips of people that are doing plant turnarounds in Algeria. All the expertise around how a part is wearing, what the right techniques are online and immediately.

We are bringing sensors and the Predix platform in our manufacturing plants to help us drive more productivity and more speed inside our manufacturing plants and overall just big consolidation in ERPs, the number of applications shared services and the cloud. So I think the way you got to look at simplification is it's in full flight. And this is going to be big fuel for our margin enhancement as time goes on. So really guides us up.

Technology, I think highly advantaged versus our peers. Globalization, we got a footprint that no one can match globally. Analytics, we are eating it right now. Not a PowerPoint. It is going into the revenue with the big first mover advantage. That's a culturally focus on competitiveness, speed, growth, really key for the company going forward.

And I think we have on top of that great base on a great foundation that change to accelerate the industrial, financial service mix for the company. So look Alstom deal we like, it's a deal that's executable. It's a deal we are confident in.

We think it changes the portfolio. It allows us to accelerate the portfolio change. And as we go forward, look we just want to become industrially a pure play infrastructure company. We are going to look for ways to create value around the non-infrastructure types of business inside the company and then GE Capital that's highly focused on place, the ways that we can be advantaged versus banks and generally gives great returns and when you look at the right-hand side of the page from an infrastructure standpoint. You end up having a really balanced competitively positioned infrastructure company, big energy portfolio, big oil and gas portfolio.

Energy management that's there to facilitate both of those in terms of how you look at where you are into the future. Aviation and transportation incentive portfolio global leaders well-positioned for growth. And healthcare, its part of the company, leverages the global research center, its an anchored tenant as we go to growth markets and kind of the infrastructure model on the competitive advantage we think GE has is really technology, global position, interface with customers, very strong brand, infrastructure brand and the ability to finance and on that foundation we built very big scale based globally positioned company. So 75:25 strong portfolio real platform of excellence and competitive advantage that's the GE that we are rounding into and growing into as time goes on. So accelerate the portfolio.

The Alstom deal Jeff and Steve and team and I talked about it when we announced a couple of weeks ago. This is kind of the financials we talked about $13.5 billion enterprise value, 7.9 pro forma EBITDA multiple less than five. After synergies, $1.2 billion of cost synergies by year five basically $4 billion of net synergies cumulative synergies over five years and that's net of cost. So tremendous synergy potential in the business, good returns, trying to close in 2015 as I said it's a deal that's executable. It's a deal we are experiencing. It's the deal we expect to close from an Alstom standpoint. So that's – and we have more synergies that we are going to work on that what we told you about. And it's extremely straightforward. We got a big installed base. We view services as a competitive advantage, Alstom installed base and we think we can add value as that takes place. So that's a pretty clear synergy.

Gas turbine, we got high market share almost 50%, gas turbine market share today, but this is way to add more content to that through balance of plant and project management. We have a good onshore wind business; they have offshore in hydro that's a good framework. We have got a very strong growth market platform, they add to the growth market platform. So a lot of the revenues are from somewhere in emerging markets, the combination takes us almost to $60 billion in growth markets.

Alstom has a much stronger steam portfolio than we do and a much stronger grid portfolio than we do. I think it is an addition. We have acquired two Alstom companies. We acquired their gas service business in 1999. We acquired their power conversion business in 2011. So we have a lot of Alstom people inside the company and we have great access to what they are doing and how they are doing? So it gives us confidence as we look at the company and what we can do. So strategic opportunity to fair play so its complementary products in common markets and so that's kind of the way we have looked at this deal as we are going forward.

And we are extremely experienced in Europe and France. So we build on a history of CFM, maybe the most successful industrial joint venture in the history of the world. We build on the Thomson CGR relationship that's more than 25 years old. We acquired the Alstom plant in Belfort. Our biggest advocates in France are the employees of the Alstom plant that we acquired in 1999. That speak very highly of the company and the changes that they have seen. But the power conversion is a recent acquisition rounding in the shape and we add to that the work we have done with Nuovo Pignone building the only gas business, Ian Parker Avio, so a tremendously strong framework.

So as a lot of European companies Alstom has a lot of employees globally, but 24,000 outside of France in Europe, outside of France in Europe and 9,000 in France and that's what GE compares. And you guys have read, as we have spoken to the French government, we talked about this being a base of the power business going forward. We have talked about adding employment in France. So opportunities to – for win in the country and to move some headquarters and local partnerships in France.

So we think this deal is good for France, its good for GE, its good for Alstom. And we are having constructive dialogs along those lines. And we are going to accomplish that and still generates some great synergies for the business going forward.

So I would say all of this at the top envisioned the kind of synergies that we have in place and as I say, we still have other opportunities beyond that as time goes on. So again, we like to do. We feel good about the deal, how we are positioned and where we are in terms of the structure. And we are going to continue to work constructively with the French government as we look at where we go in the future.

So 2014 looks good. I think we are on track to meet the commitments we made to you in terms of industrial earnings growth, organic growth, margin expansion and off to a good first quarter, GE Capital $7 billion of earnings, $3 billion out of cash, but set up for the retail finance, IPO this year and the spin off next year and using that to retire shares. And then good position overall and we think about the company technically strong, very strong, globally strong, very strong analytics in the lead. I would say a big lead not a small lead.

Simplification driving real cultural changes inside the company and an opportunity to accelerate the portfolio transition, it's pretty powerful. And the team is good. I like how the new players are positioned inside the company. So I think that strengthens the company in terms of where we are. And I like the way that's all come together. So that's a plus, really good bench.

And I think the ability to hire from the outside, look anybody that was here this week, if they are going to become good at the industrial Internet, they are going to hire people – they going to have to hire people from the outside. I mean the software language is SPARK, right? That's the – those were the tools. Those were in Silicon Valley they are not in Connecticut or connected in New York or Atlanta, Georgia. You are going to have to be able to do that.

And from a compensation standpoint guys I can say we are continuing to evolve thinking on incentive compensation. We are going to look harder at margins and return on invested capital Jeff Bornstein is in the team right now, he is going to take a look at the incentive comp and how we structure it going into 2015 and beyond. And so just a different company with a lot of good tailwinds and well-positioned for the future.

So let me end there and happy to take questions. Got the mics out, yes, Scott?

Question-and-Answer Session

Scott Davis - Barclays Capital

Sure. I'm sure there is not a lot you can say so I might be going down a rabbit hole here. But this Alstom is, excuse my French, but becoming a bit of [shit] (ph) show.

Jeff Immelt

I want to know the translation of that [shit] (ph) show.

Scott Davis - Barclays Capital

I think it translates as [shit] (ph) show. How do you solve, I mean how do you solve for this not becoming a big drama, a bidding war, used distraction that ends up with the end up that losing in anyways. And kind of what's plan B, I mean what at point do you say enough is enough?

Jeff Immelt

I would make a couple of comments. The first one is, this is a great company, what we do this, there is not one initiative that would change, there is not one outlook that would change regardless. You have to trust us a little bit that we know what we are doing. I mean you guys – you just have to say this is a company that's a done a lot of this in the past. We know how to do diligence. We know how to work with governments. We have an impeccable reputation in France. We are extremely experienced on this that we know what we will and won't do in a very disciplined way and I think have fought all this through.

So I just would say you can describe the show anyway you want, I'm not – I don't sit here and say God I'm surprised, I just we have done this before and that's the best I can tell you.

I would say at the end, look guys I want to give you the impression that we like this deal and we are confident in this deal. We really are. These things are – get played out in the media but underlying there is a win here for GE. There is a win here for Alstom, and there is a win here for France. And if weren't confident, we had all three of those things, we would never, we wouldn't be here right now. So you got to know that.

Scott Davis - Barclays Capital

Fair enough. And then just – I'm going to steal the microphone one more second here. The one business that some of us have some concerns about is U.S. healthcare and it's really a developed market, healthcare in Europe too. How do you solve for diagnostic equipment, I don't want to call a secular decline but maybe flat lining from here with headwinds. I mean there are new business models or new things you can consider there to out stuff?

Jeff Immelt

I think the way we do our planning – near term planning around core and developed markets is for flat markets. And then it's going to shake out, right? So I think you have to look at in the context of growing services growing information, running the table in emerging markets. Having a good focus niche life science business and not constructing a business that is mid-single digit revenue growth and double-digit operating profit type growth given simplification, given productivity, given the things that we have done. There is not an acquisition out there that we don't look to see anything other than what it is. And then Scott, I just think it does clears at some point, right? There is going to be consolidation in the providers, there is going to be a sense of who the winners and losers are and things like that.

And then I would ask investors step back and say once that all happens, instead of healthcare that's 20% of the global economy and growing maybe two, even with all those problems. So I think you would stay focused in the short-term or what you can fix. But over the long-term I still think there is some juice in the model. Yes, Jeff.

Jeff Sprague - Vertical Research Partners

Just back to Alstom, but more just what it means for your power business and the nature of my question is, the way you show it feels like it's a nice off sense of growth move. But the more I think about it, it kind of feels defense what I mean by that is historically you have been able to really cherry pick the gas turbine and avoid all the kind of danger volatility on balance of plant and EPC work and everything.

How important is this to protect your gas turbine franchise and this deal doesn't happen as there is – is there some other path to go ahead and kind of fortify that position?

Jeff Immelt

Jeff, the way I look at it, first and foremost think about this as a service deal. If you look down kind of like, how do you think it through, you got a big increase in install base. It's kind of what we were put on earth to do, it adds capability, it add scope, it add install base. And so you start from this massive position of value creation to begin with.

And then look, we finished the year like if you look at the fourth quarter, we finished last year close to 50% market share in heavy duty gas turbines. So we are able to run this play, however, you want to run the play. I think it gives us more value content which I view as totally incremental upsides or gives us value content and the bottoming cycle, it gives you more value content around the project. Allows you to be smarter around the world in terms of how the projects take place. But I view that not as playing defense, I view that Jeff has an incremental upside in terms of where we go.

And then from a grid standpoint, you really have a chance to make one plus one equal three in terms of grid and things like that. So I think its all on offense. I really do. And I think our market share speaks for itself really right now. But the H, guys we are getting – we are going to – we are extremely well-positioned with H in terms of the bidding we are doing right now and what we are seeing in the marketplace. And so we feel good about that as well Jeff.

Jeff Sprague - Vertical Research Partners

And just one Alstom and then one GE Capital, on Alstom, I mean you made the point that it accelerates right – it accelerates 75%, so it's the fastest way to get you there. And you say was the best thing, I mean is this the best thing in the M&A pipeline, so this doesn't…

Jeff Immelt

I think from a capital allocation standpoint, you guys, I wanted to come back because these things are always hard right because there is an element of uncertainty all of us – none of us like uncertainty. But I would say – I would come back and say we like the deal, we have done this before, we are confident of the deal, right? This will have more twist and turns, but we wouldn't have started it if we didn't think we could finish.

Without Alstom, we are still going to hit 70% industrial financial by 2016, so we had a pathway and a roadway to get there. But, from a financial standpoint, it's just a – it's well priced, the synergies are good, it paced for itself quickly. So if you look at the pipeline, it's not the only thing that's there, but it's an attractive thing, a thin book so that I think that's a good thing as well. And so when we add that all up we thought it was worth. We think it's good for investors and put us on a good – in a good spot.

Jeff Sprague - Vertical Research Partners

And then on GE Capital?

Jeff Immelt

Well, we're going to hit 70, right so it's not like we're already going down on that.

Jeff Sprague - Vertical Research Partners

You're not going to do any other M&A now 2014, 2015 what's the opportunity for that.

Jeff Immelt

I think this is the one we're looking at right now, yes.

Unidentified Analyst

When you get to $300 billion of GE Capital, what's the GE Capital dividend look like?

Jeff Immelt

Look, I think the way to think about it is, you're always going to have a core dividend that's probably along the lines of 30%, right of the earnings on an annual basis. And then over time there is still this place still has a ton of liquidity, low leverage. And so there's going to be an opportunity for special dividends on top of that. So I think we need to get the retail finance slipped on and then look at how it looks going forward and we think – we think some of the numbers we gave you I think.

Unidentified Analyst

Do you think you can still grow it and do specials after this is all done?

Jeff Immelt

Look, again, let's all play through right, and we'll get a ton out with retail finance. But there is still is a incredibly I would say robust balance sheet in GE Capital as you look at it going forward. Yes, Andrew. Since Steve decided to keep you guys another year you got to figure it how to hold the mics better.

Unidentified Analyst

Just a question on Synchrony timing?

Jeff Immelt


Unidentified Analyst

So third quarter, is it we're targeting third quarter, or do we have regulatory permission to do in third quarter now?

Jeff Immelt

I think we're on the track to do in third quarter. So again, there is we're now feeling like that's pretty definitive.

Unidentified Analyst

And then you sort of talked about extracting more value out of GE Capital, you highlighted assets shrinking down to $300 billion. Can you extract the cash out of GE Capital before completing the Synchrony IPO as you continue to sell down?

Jeff Immelt

Andrew it's the next big tranche let's say on mass. But then, we continue to look at to say what is that mean to be [safee] (ph) what is a mean to be safe and secure? And I still think there is cash optionality around GE Capital, but we like the retail finance. We think that's a very capital efficient way to do it. And like I said, I think we're really on the track for Q3. Yes, Steve.

Steve Tusa - JPMorgan

Thanks Jeff. I'd like to get some more color around that 4 billion in divestitures that you're looking at over the near term. And you're phrasing today is the candidates would be those that fall into the category of non-infrastructure and you certainly got more than 4 billion of non-infrastructure candidates, you could be looking at it and you also don't typically talk about names, so I'm not expecting names. But, maybe can you provide for us a color about the approach the timing of some of these divestitures to get down to that industrial technology model that you're looking for. And maybe some of the idea of staged exists and partnerships and what kind of ways might these divestitures take form so we could be prepared for that?

Jeff Immelt

So you are right about the part of not naming names, so again, I think I look at it to say then it's not a bad time to me thinking about this, there is a ton of cash out there, there is a combination of real both strategics and non-strategics we're looking in some of these spaces. We like sometimes the stage exit approach, I wouldn't be surprised to see that take place again as you look at some of these because we think there is more value creation as you go as you go along and we want to participate in some of that as well. And there is really nothing holding us back, I think as we think it makes sense strategically and financially we'll continue to go forward.

Steve Tusa - JPMorgan

And just one clarification out of these divestitures for this year you're contemplating would there be gains that would be used to offset some of the naked restructuring you're looking for now?

Jeff Immelt

Yes. I mean I think Jeff correct me if I'm wrong. We announced the Wayne disposition a week or two ago, that has a gain associated with it that will, we're doing a lot of restructuring in second quarter. So, that has a gain associated with it, most of this will. And I think Jeff and Matt were kind of enjoying, I will give you guys heads up on those as we go. Nigel?

Nigel Coe - Morgan Stanley

So you've taken the cycle – development cycle the H-class down from five years to two and a half, three years and that's extraordinary leap of technology. What is the biggest driver and I know its fast work, I know you think certification but is the biggest thing or driver of that cycle time reduction? And then on top of that you said 39 bids for the H-class 39 proposals and thing that's a lot of activity and is that geography diversified or is it focused in certain areas?

Jeff Immelt

So, I would say Nigel the – the one of the things that helps us in H class is we were able to leverage a lot of the existing H that we had out there, right? So the team came up with a novel approach to achieving more efficiency and using that framework and lot of better on iteration and some of the developments tools we got inside the company. So it's really about a modeling faster, improving the cycle time to actually get to test and being able to drive that through. And the testing lab that we built at Greenville has been a huge facility that's probably in and of itself taken a year of the cycle.

And then it's a – I would say there is a reasonable amount of bidding activity in the U.S. as far as the largely IPPs. So, you're saying IPP bids in the U.S. and then Asia is huge like Asia, we basically I would say for the last three or four years have received no orders in Korea. So Korea is now an open door for us to again. And so those would be the two big places, I would say Asia and the U.S. It's going to primarily going to be base look. Yes, right there, Julian.

Julian Mitchell - Credit Suisse

Thanks. I guess in oil and gas the kind of execution on large projects has been a little uneven in the last few years. So with more balance of plant more EPC Alstom, I guess what would change in how you are managing those large projects, I think about 8 billion of that backlog you…

Jeff Immelt

Julian, what I would say first and foremost, if you look at our oil and gas business, we've been doing kind of EPC project management for a long time. So we're hoping from a human resource standpoint, we get a little bit more capability there that helps. But lot of the – if you look at subsea right one of the things I look at in subsea is kind of the – as quoted as delivered right. So, you look at the contribution margins as quoted and then what they came out as. A lot of this is around standardization change orders cycle time problems. And so that's where the primary focus has been to get those numbers up. And then I think anything around project management just makes you smarter and it will make us smarter across the company not just in power or oil and gas. Okay, go ahead, Steve.

Steve Tusa - JPMorgan

Yes. So last year we had a lot more five tide questions coming in, there are couple this year from around the room, one of them is simple, I think what's the revenue base or GE Mining today or they still using a 2016 revenue target of $5 billion even with the Alstom deal happening.

Jeff Immelt

So I would say it's in the 2 billionish range and I don't – I really I would say we still see sluggishness in mining. So I think that's probably going to be lower because I don't really – I don't count on any acquisitions in that number. So organically it's going to be a lower number probably.

Steve Tusa - JPMorgan

Okay. And then this one is how should we think about restructuring in 2015 and 2016 with or without Alstom versus a $1 billion number in 2014 so how much?

Jeff Immelt

So my hunch is, we will continue to do restructuring, so I think Jeff, if you would add to that, but we will still do restructuring in 2015. We still got a long list of projects. Yes, so I'd say it's probably not to the billion level probably less than that. And then there will be a ton of work Steve it's going to happen if you do Alstom around that base.

Steve Tusa - JPMorgan

And this is from another one here the thing to what extent you're worried about multiple compression for overall GE after the deal given Alstom low multiple historically and other things may be slowing, why not a big buyback instead?

Jeff Immelt

Look, if we thought, if we thought this was a 6% margin business that we could dramatically improve, we're not going to do it, but we're basically in similar businesses in the same market and we run our business at a 20% margin. And so I think no matter how you cut it in investment in Alstom beats the buyback and that's the way we would look at it and we think there's a ton of margin potential that's in the still.

Steve Tusa - JPMorgan

And maybe since there aren't more from the audience one last one.

Jeff Immelt

Come on Steve, you did all three of those, Steve. This is like I have a – they're coming in from the field, I will do it myself. So I agree. I think we're going to hear from all of our employees now.

Steve Tusa - JPMorgan

Right. But, so let's assume that the earlier question was whether it's true or not that you're actually able to get the margin side of Alstom right whatever bad situation you've been today, you can get the cost side, lot of the push backs that I get on it, I know is a top line organic growth level that – to what extent you have conviction on the top line of what you are buying?

Jeff Immelt

Well, it is clear. But, guys look, the coal is still 50% of the global power generation field, its growing, its projected by everybody to grow 2%, 3% into the future, lot of its outside the United States. So I think if you think about the power business post Alstom we still see that as a mid-single digit organic growth business with a ton of duty. I go back to – if you underwrite this deal start with the install base, right? There is just a ton of value in the installed base then you can build sequentially things on top of that.

Steve Tusa - JPMorgan

Jeff thanks.

Jeff Immelt

Great, Steve. Thanks.

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