GE Grasping for Growth as It Prepares for Integrated Energy Spinoff

GE's first earnings release after the American conglomerate last November announced it would combine and spin-off its Renewable Energy, Power, and Digital business suggests flagging orders for onshore and offshore wind equipment and gas turbines amid a business environment wrought with uncertainty.

GE on Jan. 25 reported revenues of $15.7 billion for its Renewable Energy business, falling 2% in 2021 compared to 2020. The company attributed flagging orders over the fourth quarter associated with onshore wind equipment to production tax credit [PTC] uncertainty," continued project selectivity" in its Grid business, and a decrease in offshore wind orders due to project timing." However, it said that the segment's services growth was strong. Long-term, Renewable Energy is firmly positioned to lead the energy transition, building on advanced technologies like the Haliade-X, which GE will begin delivering in 2022," it added.

GE's Power business fared slightly worse with its 2021 revenues of $16.9 billion falling 4% compared to 2020 due to lower equipment revenues." Orders for its Gas Power business declined due to a difficult prior-year comparison and customer timing." Over the fourth quarter of 2021, GE booked four HA units, including some that will run on hydrogen-blended natural gas. But more than 20 HA technology selections made over 2021 will drive continued momentum" for the heavy-duty gas turbine class, likely manifesting in orders in 2022 and 2023, it said.

Orders for GE's Steam business, meanwhile, were up across equipment and services, driven by the nuclear part of its business, but the segment suffered lower revenues owing to fewer shipments, reduced turnkey scope of Gas, and Steam's continued exit of new-build coal." Supply chain constraints notably also significantly impacted deliveries."

In an earnings call on Tuesday, executives said progress continues on its planned spinoff of GE Healthcare into a pure-play company in 2023 and its integrated energy business spinoff in early 2024." The company's dramatic restructuring of its legacy businesses announced on Nov. 1, 2021, will leave GE as an aviation-focused company after 2024.

Each business will be focused and accountable with the agility to respond faster to customer needs, and there will be more opportunities for employees, management teams," GE Chairman and CEO Larry Culp said on Tuesday. Boards and investors who increasingly want to be part of dedicated industries and missions, and these businesses, each with a well-capitalized balance sheet, will enjoy greater capital allocation and strategic flexibility to invest in growth," he said. He suggested more details about the split will be revealed during a March 10 investor event in Greenville, South Carolina.

Launch of the new independent public company," comprising GE's Renewable Energy, Power, and Digital segments will better position it to play a critical role" in solving the trilemma of affordable, reliable, and sustainable energy, the company has said.

This business possesses a unique offering with the world's most powerful wind turbines and most efficient gas turbines, as well as technology to modernize and digitize the grid. And the energy transition represents the largest market opportunity for Digital with vertical market solutions in grid and power generation," Culp said during an investor update on Nov. 9, 2021, following its restructuring announcement.

Culp then said GE has been intently focused on improving" operational performance in these businesses. At Renewables, we're navigating some industry headwinds, and we have more work to do to improve cost productivity. But we're bullish about the business's long-term potential with our new platform, including the Haliade-X and Cypress, driving record orders. At Grid, we've been executing a turnaround through cost improvement and decreased turnkey project work. At Gas Power, we've made tremendous progress in stabilizing the business, delivering higher services growth, margin expansion, and cash generation. A large part of this improvement is driven by lean'-a playbook that we're extending to the rest of Power. And Digital, now a $1 billion business with over 40% recurring revenue, is focused on improving profitability."

Culp added that GE was well-positioned to succeed. Looking forward, with roughly 1 billion people not having access to reliable power, and energy demand only increasing, we must meet this demand while reducing greenhouse gas emissions. Our business is developing breakthrough technologies, enabling carbon capture and the combustion of carbon-free fuels like nuclear and hydrogen. And as a company generating a third of the world's electricity, we're well-positioned to help customers achieve their net-zero ambitions."

GE's strategy for growth amid cutthroat competition and uncertainty during the energy transition will focus on sound business practices, with emphasis on lean" operations, noted Carolina Dybeck Happe, GE senior vice president and chief financial officer, during the Nov. 9. investor update. Happe suggested GE is shooting for an operating profit improvement of $1 billion to $2 billion by 2023 for its Power segment. We've talked about how important Services is, and how we're focusing on increasing the Services part here."

Happe said GE Gas Power, currently led by GE Power CEO Scott Strazik, who will take the reins as CEO of the combined Renewables, Power, and Digital spinoff, expects more HA-class gas turbines to come online, contributing to services growth. The Steam business, which was in the middle of restructuring" in November, will also mainly be a service business," in 2023, she said. The Renewables business expects international growth and higher service penetration, but it will also focus on continued operational improvements, she suggested.

But on Tuesday, Culp underscored a series of near-term business dynamics" that could affect anticipated growth.

GE's Onshore Wind business has leading products and a strong franchise, but we do face near-term challenges, some structural, but many within our control." In the U.S., GE is the market leader and profitable," but it is grappling with uncertainty related to the expired federal PTC. Culp cited dismal equipment and repowering projections from Wood Mackenzie that suggest a decline from 15 GW in 2021 to about 10 GW in 2022. Inflation and supply chain issues are also a concern, he said.

Internationally, GE has experienced continued challenges that we are addressing related to new technology ramps," he said. However, significant demand in the offshore wind sector is driving more than 7 GW of Haliade-X commitments across Europe, North America, and Japan, he said.

Still, to address challenges, GE is being more selective," Culp said. It's okay not to compete everywhere and we are looking closer at the margins we underwrite on deals with some early evidence of increased margins on our 2021 orders. Our teams are also implementing price increases to help offset inflation and are laser-focused on supply chain improvements and lower costs," he said.

Global gas generation also fell in 2021, though Culp said the 2021 gas power equipment market may be above 30 GW. Overall, gas continues to be a reliable and economic source of power generation and we see gas generation demand growing low single-digits over the next decade," he said.

Looking at 2022, we see opportunities to expand margins and improve free cash flow as lean becomes further embedded and Steam continues to exit new-build coal," said Happe on Tuesday. At Gas, equipment revenue will increase driven by aeroderivative growth and heavy-duty normalizing," she said. The HA-commissioned units will almost double by year-end versus 2020, supporting future services and cash growth. We expect total power to achieve high single-digit margins in 2023."

-Sonal Patelis a POWER senior associate editor (@sonalcpatel,@POWERmagazine).

The post GE Grasping for Growth as It Prepares for Integrated Energy Spinoff appeared first on POWER Magazine.