John L. Flannery, Chairman and CEO, General Electric
Jamie S. Miller, Sr. VP and CFO
Kieran Murphy, Sr. VP, GE; President and CEO, GE Healthcare
Monish Patolawala, VP, Chief Financial Officer and Chief Digital Officer, GE Healthcare
Lee Cooper, President and CEO, U.S. and Canada
Rachel Duan, President and CEO, GE Healthcare China
Catherine Estrampes, President and CEO, GE Healthcare Europe
Maher Abouzeid, President and CEO, GE Healthcare Eastern Growth Markets
Luiz Verzegnassi, President and CEO, GE Healthcare Latin America
Farid Fezoua, President and CEO, GE Healthcare Africa
Myra Eskes, President and CEO, GE Healthcare ASEAN, Korea and ANZ
Nalinikanth (Nal) Gollagunta, President and CEO, GE Healthcare India and South Asia
Soichiro Tada, President and CEO, GE Healthcare Japan
Tom McGuinness, President and CEO, GE Healthcare Imaging
Emmanuel Ligner, President and CEO, GE Healthcare Life Sciences
Jörg Debatin, VP and Chief Technology Officer
Laurent Dubois, CEO, GE Healthcare Partners
Anders Wold, President and CEO, Clinical Care Solutions
Thomas Mitchell, Acting VP, Global Supply Chain
Terri Bresenham, Chief Innovation Officer, GE Healthcare
NO. OF EMPLOYEES: 52,000 (313,000 total)
GLOBAL HEADQUARTERS: Amersham, U.K.
Talk about a fall from grace.
Nearly two decades ago, GE was at the top of its game, brandishing a $410 billion market valuation and a share price around $34. It was America’s most valuable corporation back then, due largely to the genius of former Chairman/CEO Jack Welch—Fortune’s “Manager of the Century” in 1999—who increased the company’s overall worth 28 times during his tenure and added (mistakenly, perhaps in retrospect) a financial services unit to GE’s already multifarious repertoire.
Diversification into commercial lending and leasing, insurance, and financial consulting initially served GE well: By the end of Welch’s reign in 2001, GE Capital accounted for nearly half of the industrial giant’s total business, and the company was outperforming rivals like Mitsubishi, Koninklijke Philips N.V., and Siemens.
Then came the Sept. 11 terrorist attacks. GE’s aviation leasing business took a significant hit as air demand contracted considerably, but lending limits, special financing, and cross-collateralization loans helped minimize the damage. The company wasn’t so lucky during the 2008 financial crisis, though: Dwindling cash and a weak balance sheet forced GE to seek a bailout from the federal government and billionaire businessman Warren Buffett.
With the Great Recession now a distant memory amid the skyrocketing stock indexes and economies worldwide, GE remains curiously mired in a prolonged meltdown that has obliterated more than $100 billion of shareholder wealth and reduced its market value by 62 percent since its 2000 peak. The company’s former cash cow, GE Capital, is now practically worthless and the subject of federal investigations by both the U.S. Securities and Exchange Commission and U.S. Justice Department. Compounding GE’s woes last year was a dividend cut (only the second since the Great Depression), a downgraded credit rating, slumping share prices, and the largest pension deficit of any U.S. public company.
GE’s implosion continued in 2018 with shareholder and retiree lawsuits, massive job cuts (mostly in the Power division), weak sales of turbines and generators, and most recently, its removal from the Dow Jones Industrial Average (see sidebar, page 54).
“It’s like their sails are all torn when they’ve got the perfect wind,” William Blair & Co. analyst Nicholas Heymann, a former GE corporate auditor, told Bloomberg Businessweek in February. “It makes you wonder what’s next.”
ANALYST INSIGHTS: The good news for GE Healthcare is that GE has decided to spin off Healthcare into its own separate company. Similar to the process that Siemens Healthineers has gone through recently, this will allow GE Healthcare to have more flexibility in running its business and managing its portfolio. This will likely result in more acquisitions once the IPO is complete in 2019.
—Dave Sheppard, Co-Founder and Principal, MedWorld Advisors
Nobody knows for certain, of course, but Chairman/CEO John L. Flannery is doing his best to create a better future for the 126-year-old enterprise through the sale or spinoff of $20 million in GE businesses, including its iconic lightbulb division. He also announced plans in June 2018 to combine Aviation, Power, and Renewable Energy into a “high-tech” industrial company, divest GE’s stake in oil services company Baker Hughes, and spin off Healthcare into a standalone entity. The Transportation business, meanwhile, is merging with U.S. rail equipment manufacturer Wabtec Corp. in an $11.1 billion deal.
“When I first took stock of our portfolio, I saw a series of competitive businesses that were fundamentally strong. But they play in infrastructure industries that have experienced significant disruption—from globalization, digitization, shifting demands, and new players,” Flannery noted in GE’s 2017 annual report. “I concluded that we were running too many businesses at once to do them all justice. We had to admit we didn’t have the financial and management bandwidth to have so many large, global businesses in the open throttle position that they need to progress. We are narrowing our long-term focus to three key industries where our impact is greatest: aviation, health, and energy. We run competitive businesses with market-leading positions in each of these sectors, industries that are positioned for major long-term growth. We have our work cut out for us. There are things we need to fix. But we can. We know how to. And we will.”
Flannery wasn’t kidding about the difficulty of reversing GE’s fortunes: Total revenue slipped 1.3 percent last year to $122.1 billion and declared dividends fell 14.5 percent to $7.7 billion. Net earnings were down $5.8 billion, and shareholders’ return on equity sank 8.7 percent—a sobering regression from the 10.9 percent growth the company posted in 2016.
Moreover, total segment profit fell by more than half to $7.98 billion due to sizable losses in the Power, Oil & Gas, Transportation, Lighting, and Capital business segments. The latter franchise recorded the greatest loss (not surprising, given all its troubles), increasing its deficit more than five-fold to $6.76 billion in 2017. Profits also sank in Oil & Gas, down 84.1 percent to $220 million (from $1.4 billion in 2016); Power, contracting 45.3 percent to $2.78 billion; and Transportation, falling 22.5 percent to $824 million.
“When I look back on 2017, there’s no doubt: GE had a very tough year,” Flannery told investors in the annual report, nine months after he succeeded former Chairman and CEO Jeffrey R. Immelt in June 2017. “While most of our businesses delivered solid—and in the cases of Aviation and Healthcare, world-class—performances, our cash flow was challenging. We took significant charges at Capital and Power Conversion and made painful cuts to GE’s dividend and employment. We lost some of the intense focus on operations and rigorous execution that have been GE’s hallmarks for generations.”
ANALYST INSIGHTS: With GE Healthcare’s spin out, they will now have greater freedom to operate and provide greater patient facing products without worrying about the overhead associated with supporting the rest of the GE brand. This is a great phase for their medical device business and there should also be significant spin-outs of brands not core to the business. Exciting times ahead.
—Marissa K. Fayer, CEO and Founder, Health Equity for Women and HERHealthEQ
With the struggles of its legacy businesses—particularly Power, Oil & Gas, and Lighting—Flannery is wise to bank GE’s future on Aviation, Energy, and Healthcare, as those segments generated strong returns in 2017. Aviation increased sales 4.2 percent to $27.37 billion and grew margins by 100 basis points, while Renewable Energy expanded its profit 26 percent and overall sales 13.8 percent on the tailwinds of a burgeoning onshore wind market and energy cost reduction efforts.
Improved healthcare access in emerging markets and China, along with productivity-based technological solutions, helped boost 2017 Healthcare proceeds by 4.5 percent to $19.1 billion and profits by 9 percent to $3.44 billion, GE’s annual report indicates. Imaging and ultrasound solutions proved especially fruitful in emerging economies: The company, for example, expanded its market share in Egypt with the March 2017 deployment of its Discovery IQ PET/CT imaging technology, and the furnishing of 700 imaging/scanning units to 200 hospitals, some of which had never before owned such innovation. Technologies supplied to the hospitals include the Discovery IQ PET/CT system, designed to provide both high image quality and quantitative standardized uptake value measurements; cSound, an imaging platform for better cardiovascular ultrasound quality; the SIGNA Explorer MR, created to improve image quality and workflow, and simplify operations; and the Carestation 620, a compact anesthesia system made specifically for small spaces.
Emerging markets like Egypt, however, were not the sole source of GE Healthcare’s growth last year. The company also paid mind to developed economies, launching macrocyclic agent Clariscan in Europe in early March. The latest addition to GE’s range of magnetic resonance imaging (MRI) contrast media options, Clariscan aims to better visualize brain, spine, and associated tissue abnormalities. The product is available in both vial and pre-filled syringe form, and complements the company’s existing linear agent Omniscan, which has been used in routine diagnostic practice for more than 25 years. Gadolinium-based agents have been shown to improve the contrast between normal and pathological tissue, and have therefore become a gold standard detection tool for MRI applications.
Innovation was integral to GE Healthcare’s 2017 sales surge, too. The company launched 26 new products in its imaging and clinical care solutions portfolios, including an automated, dry conduction thawing technology for cry-bags; a high-performance cardiovascular computed tomography (CT) system; and a more comfortable mammography system. The latter product (Senographe Pristina, designed exclusively by women) gives patients the ability to adjust the degree of breast compression during scans—an empowering feature intended to improve screening compliance and breast cancer detection.
“It’s the first in the industry, so nothing like this exists,” Agnes Berzsenyi, president and CEO of women’s healthcare for GE Healthcare, said when the Pristina made its debut in September.
Executives made the same claim about the CardioGraphe, a system developed in partnership with Israeli firm Arineta Ltd. to improve costs and non-invasive imaging accessibility in hospitals, emergency rooms, or point-of-care settings. The product creates a 3D image of the coronaries, valves, chambers, and myocardium in one heartbeat and can also perform CT angiography studies beyond the heart, including both the aorta and carotids.
Another “first” is very likely through GE’s partnership with the University of California, San Francisco, where clinicians are working on a library of artificial intelligence (AI) algorithms for faster imaging scan assessment. The team’s initial focus is formulas that can distinguish between a normal scan and those requiring follow-up or acute intervention; one currently under development, for example, screens X-rays for the presence of pneumothorax (collapsed lung), and alerts radiologists to prioritize the screening in the worklist queue.
“What is so powerful about combining analytics, deep learning, and cloud technology is that the solutions will only get smarter and more scalable over time,” Charles Koontz, chief digital officer of GE Healthcare, said last fall. “While this partnership begins in Silicon Valley, it’s the global users of the algorithms who will disrupt the way care is delivered.”
Other healthcare disruptions are on the way through a handful of partnerships and acquisitions GE finalized in 2017, including:
- A deal for United Kingdom-based Monica Healthcare, maker of wearable, wireless fetal monitors used with 100,000 patients last year. The company’s single-use Novii device measures maternal and fetal heart rates as well as uterine activity.
- The purchase of British cryogenic processing firm Asymptote, whose technology preserves cell viability during the cryogenic processing of cellular therapies.
- The deal for 22-year-old healthcare consultant Novia Strategies, now part of GE Healthcare Camden Group. The operating unit provides advisory services to more than 2,400 hospitals and health systems on such issues as care delivery redesign, accelerating health system integration, population health management, and resource maximization.
- A 10-year collaboration with Partners HealthCare to integrate AI into the hospital setting. The union involves Massachusetts General Hospital and Brigham and Women’s Hospital Center for Clinical Data Science, and will feature co-located multidisciplinary teams with broad data access, computational infrastructure, and clinical expertise. Initially, the pair will develop applications for improved clinician productivity and patient outcomes in diagnostic imaging, but the eventual goal is to create new business models for healthcare AI as well as products for medical specialties like molecular pathology, genomics, and population health.
- An agreement with Redwood City, Calif.-based HeartFlow Inc. to increase the clinical availability and adoption of FFRct, a proprietary technology to diagnose and treat coronary artery disease (CAD). HeartFlow’s fractional flow reserve computed tomography helps clinicians create a definitive, personalized treatment plan for CAD patients, thereby reducing the need for additional invasive testing. The technology is touted as the first (and only) non-invasive technique to provide insight into both the extent and impact of CAD on blood flow to the heart. The companies are targeting the U.S. market initially before expanding it in the future.