Good day, ladies and gentlemen, and welcome to the General Electric 4th Quarter 2012 Earnings Conference Call. At this time, all participants are in listen only mode. My name is Diana, and I will be your conference coordinator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Trevor Schonberg, Vice President of Investor Communications.
Please proceed.
Thank you, Deanna. Good morning, and welcome, everyone. We're pleased to host today's Q4 and total year 2012 earnings webcast. Regarding the materials for this webcast, we issued the press release earlier this morning and the presentation slides are available via the webcast. The slides are available on our website at www.ge.com/investor.
As always, elements of this presentation are forward looking and are based on our best view of the world and our businesses as we see them today. Those elements can change as the world changes. Please interpret them in that light. For today's webcast, we have our Chairman and CEO, Jeff Immelt and our Vice Chairman and CFO, Keith Scharen. Now we're excited to get started, so we'll turn it over to our Chairman and CEO, Jeff Immelt.
Great, Trevor. Thanks. Good morning, everybody. Look, the G team had a very strong quarter. We saw real strength in the emerging markets and the developed region stabilized.
Orders grew by 7%, excluding foreign exchange and wind, and organic growth was 4% in the quarter and 8% for the year. Earnings were strong with operating EPS up 13%. Industrial earnings were up 12% with all segments growing for the 2nd straight quarter. Capital had another good quarter and for the year, industrial earnings were up 10% and capital up 12%. We delivered on our margin commitments, which grew by 120 basis points in the quarter and 30 basis points for the year.
Industrial CFOA was also very strong in the quarter. And for the year, CFOA grew by 48% to 17,800,000,000 dollars We returned substantial cash for investors in 2012 to dividends and buyback. And in the Q4, we announced a 12% increase in our dividend and an expansion of our buyback program. Finally, in December, we announced a strategic acquisition of our aviation business called Avio. So this was a very successful quarter for GE.
It strengthened as the quarter continued and builds momentum for the future. Orders grew by 2% in the quarter. This is up 7% excluding again the impact of foreign exchange and win. We had a solid order growth in 5 of 6 businesses. Order pricing grew by 0.5% in the quarter.
Equipment book to bill ratio was 1.2 and we ended the year with a record high backlog of $210,000,000,000 Many of our businesses had great quarters. For instance, healthcare equipment orders grew by 7%, MR was up 12%, CT up 23% and ultrasound up 11%. And importantly, growth market orders expanded by 12%. Our growth initiatives continue to deliver. Our growth regions expanded by 9% in the quarter and 11% for the year.
6 of 9 regions grew by double digits, including Russia, Australia, Latin America, China, Africa and ASEAN. For the year, China grew by 19%. Services had another good quarter in revenue backlog and margins. PowerGen Services had a very strong quarter. Service backlog grew to a record $157,000,000,000 We continue to launch new products and service offerings.
We're winning with our aviation product lineup, which is giving us high share of commercial engines. Oil and gas had record orders and backlog. Our subsea orders almost doubled versus last year. And distributed power grew by 19% for the year. In November, we announced 9 new service offerings for the industrial Internet with 20 more in the pipeline.
So we continue to deliver in volatile markets. AG had a great margin performance in the quarter. Margins grew by 120 basis points in the quarter and 30 basis points for the year. Every business grew margins in the quarter and our performance really was driven by value gap expansion of $330,000,000 service margins, which grew by 190 basis points and simplification. For the year, SG and A as a percentage of revenue was down 100 basis points.
We achieved these results in spite of the fact that foreign exchange created for the year. We entered 2013 with substantial momentum. We expect to hit 70 basis points of improvement in 2013. This is based on very positive value gap, structural cost and service margins, which are really in the run rate and mix in 2013 should not be a drag. So really a good job by the GE team.
GE had a very strong performance on cash as well. For the year, we hit $17,800,000,000 up 48%. Industrial CFWAY in the quarter was $6,200,000,000 up 12%. We had good performance on working capital even while we continue to invest in growth. We ended the year with a cash balance of $15,500,000,000 and consolidated cash of $77,000,000,000 Our strong industrial CFOA performance plus capital dividends is supporting our plan for balanced capital allocation.
So we returned $12,400,000,000 to investors through dividend buyback, we expect this to continue in the future. We announced the acquisition of Avio in December for $4,300,000,000 As you know, we have a significant backlog of engines and shop visits. We've invested in capability, materials and capacity to improve our new engine margins. Recently, you've seen several partnership announcements from GE Aviation in our supply chain. In Avio, we're acquiring an existing position in engine development.
They bring complementary technologies to GE. We think there's an opportunity to expand this technology beyond aviation. And there's substantial synergies about $200,000,000 or more and relatively low execution risk. So at 8.3 times EBITDA, we believe this will generate a good return for our investors and we expect to close in the second half of twenty thirteen after regulatory approvals. So now I'm going to turn back over to Keith to talk about company operations.
Thank you, Jeff. I'm going to start with the Q4 summary. So the income statement we had operations revenues of $39,300,000,000 that's reported up 4%. Ex FX revenues were up 5%. Industrial sales of $27,300,000,000 are up 2%, up 3% ex FX again.
Capital revenues of $11,800,000,000 were up 2% and operating earnings of $4,700,000,000 were up 13%. Operating earnings per share of $0.44 were up 13%. If you look, continuing EPS here includes the impact of the non operating pension and net earnings per share includes the impact of discontinued operations, which I'm going to cover on the next page. As Jeff said, year to date cash of $17,800,000,000 was up 48%, including the dividends from GE Capital, a great year on cash. For taxes, the GE rate of 21% for the quarter, that's up about 6 points from last year, mostly due to higher pretax income.
And the Q4, GE rates consistent with our rate through the 3rd quarter and the low-20s rate we forecast all through the year. So right now, we'd forecast a similar GE tax rate for 2013. The 6% GE Capital rate is consistent with the mid single digit rate we forecasted for Q3. As we mentioned in December, our plan for next year for G Capital includes less tax benefits. So right now, I forecast a rate of approximately 10% for 2013 for GCC.
On the right side, you can see the segment results. Total industrial segment profits up 12%. It's great to have all 7 of the Industrial segments delivering positive earnings growth. And these results also contributed to Industrial segment profit of $15,500,000,000 up 10% for the total year. GE Capital also had a strong quarter.
Earnings were up 9 percent. If you include the impact of the preferred dividends, G Capital represented 36% total company earnings in the 4th quarter. Overall, a strong segment growth quarter and I'm going to cover each of the segments in more detail in a minute. Before I get to the businesses, I'll start with other items in the quarter, Q4. First on the one time benefits, we had $0.01 of after tax gains from 2 non core dispositions that occurred in the 4th quarter in the segments.
We sold the Thomas Medical business in Healthcare. That business sells disposable medical devices for cardiology and we realized a $24,000,000 after tax gain. And in Aviation, we sold Smith's business in California Duarte, which makes thrust reverser actuation equipment and we realized a $67,000,000 after tax gain. So in total, dollars 0.01 on the benefits. We also had $0.02 of after tax restructuring and other charges in the quarter.
These charges related principally to continued cost structure improvements at GE Capital, at Healthcare, Power and Water and Energy Management as well as some business development costs. On the bottom of the page, we had $305,000,000 of charges in discontinued operations. We booked 286 $1,000,000 of additional reserves on a gray zone this quarter. While we watched the claims decline 28% in the 3rd quarter, the claims in the 4th quarter were above our model expectations. So we revised our assumptions this quarter.
Right now, we're reflecting a further slowing in the overall claims reduction rate than we had previously modeled and that brought our year end reserve to $700,000,000 So we'll continue to update you as events and facts change on the gray zone rate. Right now, I'll switch to the business results. First, I'll start with Power and Water. As you know, this is the Q1 reporting the 3 separate businesses. So Power and Water, the business continued to be impacted by wind.
However, the overall execution delivered positive operating results. Orders of $7,200,000,000 were down 16%, down 6% ex wind. Equipment orders of $3,500,000,000 were down 26% driven by thermal and renewables. The thermal orders of The thermal orders of $974,000,000 were down 49% as we had orders for 26 gas turbines versus 50 last year and we also had orders for 2 steam turbines versus 20 last year. In addition, there were $500,000,000 of thermal slips that went out of the Q4 into 2013.
For the total year, we had a holders for 108 gas turbines versus 134 in 2011, and the total year thermal orders in dollars were down about 7 Total thermal order pricing was up 1% in the 4th quarter and up
0.5% for the total year.
On renewables 4th quarter, renewable orders of $987,000,000 were down 50%. We had orders for 412 wind turbines versus 1023 last year. Renewable order pricing was positive, 0.4 23 last year. Renewable order pricing was positive, 0.4 percent and service orders of $3,600,000,000 were down 3%. Power gen services was up 7% and you'll see that's important in terms of profit, but that was offset by nuclear, which was down 15% in line with lower activity in Japan.
For revenues of $7,700,000,000 they're up 2%, that's driven by services. Equipment revenues of $3,900,000,000 were down 2%, driven by thermal down 14%, partially offset by wind up 10%. We shipped 32 gas turbines versus 33 last year and we shipped 7 22 wind turbines versus 688 last year. Service revenues of $3,700,000,000 were up 5%, driven by PowerGen Services, which was up 8% Powergen Services op profit was up double digit in the quarter. Total segment profit of $1,700,000,000 was up 5% as the benefits of the higher services and lower product costs more than offset lower prices.
And in the quarter, margins expanded by 80 basis points. On the right side, oil and gas had another strong quarter, closed out a great year. Orders of $5,600,000,000 were up 18%. Equipment orders of $3,100,000,000 were up 31%, driven by the strong subsea systems and drilling and surface orders. Year to date equipment orders were up 21%, service orders of $2,400,000,000 were up 4% on again strong subsea systems orders.
Total orders pricing was up 1.3%. We finished the year with a backlog of over $14,800,000,000 up $2,600,000,000 from last year and our 7th consecutive quarter of positive orders pricing. Revenue of $4,500,000,000 was up 11% driven by equipment. Equipment revenues of $2,400,000,000 were up 27 percent, driven by Subsea Systems, up 34%, measurement and controls were up 63%, turbomachinery was up 16% and service revenue of $2,100,000,000 was down 2%. Segment profit of $649,000,000 was up 14%, that's driven by the strong volume and positive pricing.
And our acquisitions continue to perform. For the year, they're up significantly and above pro form a. So overall, another strong growth quarter for oil and gas. Next is Aviation. The Aviation team had another solid quarter in 4th quarter.
Orders of $7,400,000,000 were up 8%. The commercial engine orders of 3 point $1,000,000,000 were up 9%, driven by CFM LEAP and Gen X. Military engine orders of $632,000,000 were up 57%, driven by U. S. Orders for F-one hundred and fourteen and T700 as well as foreign military orders for F-one hundred and ten engines.
We ended the quarter with a backlog of $22,900,000,000 up 6% versus the 3rd quarter. Service orders in the quarter of $2,700,000,000 were up 1%. Commercial services were flat. The 4th quarter spares order rate was 22 point $3,000,000 which was flat with last year. As you know, we did see spares orders stabilize in the Q4.
And as you know, spares were down double digit all year long. So, flat was an improvement. And, the total year rate was $22,000,000 down 11% from 2011. Total orders pricing was up 2.3% for the business. Revenue in the quarter $5,500,000,000 was up 11%.
That's driven by equipment, which was up 19%. Services were up 3%. We shipped 589 commercial engines in the 4th quarter, which was up 71 engines from last year and we shipped 48 NEX units in the 4th quarter. Commercial service revenues of $1,800,000,000 were flat in the quarter and segment profit of $1039,000,000 was up 22%. It's up 8% ex the deal that I covered on the other items page.
So ex the deal, segment profit growth was driven by positive price, lower base costs, partially offset by negative engine mix. On the right side, healthcare, we had a good orders quarter. 4th quarter for healthcare orders of $5,400,000,000 were up 4%. Equipment orders of $3,400,000,000 were up 7%. Developed markets were flat, but there was a big shift here.
The U. S. Was up 8%, Europe was down 8%. Emerging markets were up 24%, continued strength in the business. The Middle East was up over 100%, Russia was up 1%, partially offset by India down 12%.
By modality, CT was up 23%, MR was up 12%, ultrasound was up 11%, molecular imaging was down 8%, life sciences was up 5% and MDx was down 3%. Service orders in the quarter of 2,100,000,000 orders price was down 1.8% for the business. Revenue of $5,200,000,000 was flat driven by the growth markets up 13% offset by the developed markets down 3%. And segment profit of $1021,000,000 was up 7% as the benefits of cost productivity and other income more than offset the negative price and foreign exchange. Organic segment profit growth for the business, if you look in the Q4, it was up 1% and for the year it was up 3 percent.
Next is transportation. Transportation team delivered another solid quarter despite a slowing top line. Orders of $1,300,000,000 were up 7%. Equipment orders of $600,000,000 were up 20% driven by the strong international locomotive orders. We had orders for 100 locomotives versus 74 last year.
We had strong mining orders. In mining, it was down a little bit actually. $151,000,000 was down 7%. And service orders of 7 $20,000,000 were down 3% as fewer signaling orders offset strong locomotive service orders, which were up 14%. Revenues were down 7% on as expected lower locomotive shipments.
We had 117 locomotives this year versus 2 58 last year. That's the way we planned the year. And this was partially offset by the stronger service, which was up 26% and mining revenues, which were up 57%. Profit was up 12% on higher service and positive value gap. This is the Q1, we're presenting Energy Management separately.
The businesses here are Cover Team, which is now Power Conversion, Digital Energy, Industrial Solutions and intelligent platforms. Orders of $2,200,000,000 were up 12% driven by the strong growth in power conversion, oil and gas marine orders. Revenues of $1,900,000,000 were down 1% as lower intelligent platform sales offset the growth in Power Conversion, which was up 6%. Segment profit of $64,000,000 was up 36% with 90 basis points of margin expansion driven by a positive value gap more than offsetting lower volume. And on the bottom, Home and Business Solutions had a very positive quarter.
With Intelligent Platforms now reported in Energy Management, this segment is just Appliances and Lighting going forward. Revenues of $2,100,000,000 were up 2% driven by Appliances. We did see some strength in the contract channel from new housing starts and segment profit of $115,000,000 was more than double last year's Q4 driven by higher pricing and lower product costs. And to wrap up with GE Capital, Mike Neal and the capital team delivered another solid quarter. Revenues of $11,800,000,000 were up 2%.
Higher core income, strong retail revenues, real estate sales more than offset the impact of lower assets. We ended the year with $419,000,000,000 of ending net investment. That's down $26,000,000,000 from 20 11, driven by the shrinkage of non core platforms and over $20,000,000,000 lower than our $440,000,000,000 goal that we set back in 2,009. GE Capital earned $1,800,000,000 in net income, which was up 9%. That's driven by great results in real estate, growth in consumer and that more than offset the $200,000,000 lower income from lower assets.
On the right side, asset quality metrics showed continued improvement across the board, driven largely by improved portfolio performance. Our net interest margin was 4.9%, up 49 basis points and we had strong volume of $54,000,000,000 in the quarter, up 11% from last year. Commercial volume was up 18%, consumer volume was up 8% and new business volume averaged 3% returns. One other point that's not on the page in the supplemental deck that we posted this morning, you're going to see reserves at G Capital declined by $400,000,000 versus the prior quarter. This decline is driven by a modification to our write off policy in line with regulatory guidance, where we now write off loans against specific reserves that we were carrying for more than 12 months.
So the change had primarily impacted real estate and CLL. It has no impact on our income statement and the net impact on the balance sheet is 0, but we had higher write offs and lower reserves at the end of the quarter because we had about $400,000,000 So if I go highlights by business here, first I'll start with CLL. Net income of $544,000,000 was down 30%, driven by lower assets and prior year dispositions and also the non repeat of last year's IRS settlement. In the Americas, net income of $455,000,000 was down 20%. That's driven by the non repeat of the tax item in the Q4 as well as lower assets.
We did see strong volume growth in the Americas. In the 4th quarter, volume was up 31% at 2.4% returns. And in Europe, European CLL earned 83,000,000 dollars was flat with last year. Our consumer business had another positive earnings quarter. We ended the year with assets of $139,000,000,000 flat with last year.
Net income of $755,000,000 was up 22% as driven by growth across the in U. S. Retail in Europe and in Asia. U. S.
Retail finance earned $477,000,000 which was up 3%. That's driven by higher assets and better margins, partially offset by higher credit costs as we continued our reserve segmentation that we talked about in the Q4. U. S. Retail finance volume was up 9% over last year and core Europe earned $154,000,000 in the quarter.
For real estate, commercial real estate had another quarter with significant improvements over last year. Assets of $46,000,000,000 were down $15,000,000,000 That's down 24% from last year. It's down $9,000,000,000 or 16% from the end of Q3. So we do a good job of reducing our exposure to real estate. The business earned $309,000,000 in net income, which was $460,000,000 better than last year.
That's driven by lower losses and impairments, higher tax benefits, higher gains. During the quarter, we sold 282 properties for $2,600,000,000 realizing $136,000,000 in after tax gains. And we also closed on the sale of the business properties of book to Everbank, resulting in $82,000,000 of gains and $5,400,000,000 less real estate. Our unrealized loss on the equity portfolio is down to $1,100,000,000 at the end of the year and the outlook is that real estate is going to continue to deliver improved performance in 2013. Next is GECAS.
They had a solid 4th quarter. Net income of $343,000,000 was up 9%. That's driven by higher gains and lower losses and impairments. Asset quality remained strong. We ended the year with 2 aircraft on the ground.
And finally, Energy Financial Services also had a solid quarter with earnings of $107,000,000 down 3%. So overall a great year, dollars 6,400,000,000 of dividends paid back to the parent. And with that, let me turn it back to Jeff. Great, Keith. Thanks.
Just to wrap up on 2012 investor commitments, one last time on 2012. We really hit all the major goals that we set out with you a year ago. We targeted strong industrial growth and we hit 12% in the 4th quarter and 10% for the year. We said we would grow margins and we hit 120 basis points in the 4th quarter, 30 basis points for 12 and we're on track for 70 basis points in 2013. We said we wanted to get cash out of GE Capital and we received a $6,400,000,000 dividend to the parent.
We said we would make GE Capital smaller and our E and I ended the year at $419,000,000,000 down 6%, even while we grew income by 12%. And we said capital allocation would be disciplined and balanced and we returned more than $12,000,000,000 in dividends and buyback and announced the $4,300,000,000 Avio acquisition. So 2012 was the year where we really hit all of our financial commitments to investors. Looking forward in 2013, there's no change to our 2013 operating framework that we talked about in December. If anything, we start the year with a higher backlog and more cash.
Our commitments are similar to 12. We plan to achieve double digit industrial earnings growth. We plan to receive a substantial dividend from GE Capital. We plan to grow margins while driving solid organic growth and our 4th quarter orders support this growth and we plan to return substantial cash to investors through dividend and buyback. So our 4th quarter performance gives us confidence for 2013.
I think the GE team has done a great job of execution. And Trevor, now back to you for some questions.
Great.
Thanks, Jeff and Keith. Deanna, let's open up the phone lines for questions.
Our first question comes from the line of Scott Davis, Barclays.
Hi, good morning guys.
Hey, Scott. Hi, good morning.
It looks like most of the full year margin expansion came from value gap. Can you talk more specifically about 4Q? The 120 basis points is a pretty big number, if there's a way to think of that in terms of value gap versus maybe mix or costs?
Sure. I'll give you both actually, because I think it's helpful to look at the pieces. You said it in the Q4, value gap was big, was 80 basis points of the growth came from value gap. We had very strong pricing. We saw material deflation.
And you can see that the changes in order pricing are flowing through into revenue. We had equipment service mix was a drag. As you know, that's been a drag all year long. It was 50 basis points, the same as what we've had for the total year as we had higher revenues on equipment growth than on services. And also the wind story, higher wind revenues at the lower margins has been a drag all year long.
We offset that with 2 things. 1, we did have the dispositions that was about 60 basis points in the quarter and we had strong productivity, which was 30 basis points in the quarter as we offset the impact of the negative mix. So overall 120 basis points. And for the year, it's really a similar story. Value gap was 20 basis points of that 30 basis points growth.
We had a real drag on mix and other that was in total 60 basis points, but we offset that with strong productivity. A lot of that is simplification. Our SG and A as a percent of revenue went down a full point. We have done a good job with costs and we've got great programs in place that will help us as we go forward into 2013 as you know. And the gains in total for the total year were low about 7 basis points on the impact for the margin.
So, pretty good performance. The strength really value gap and productivity driving margin improvement both in the quarter and the total year.
Okay, helpful. Keith, thanks. And kind of stepping back to a little bit of a bigger picture question, the Abeo deal seemed pretty interesting and for many reasons. But when you think about taking a step backwards and is this part of a bigger trend and opportunity to start to buy in some of the supply partners that you have that I mean there's multiple positives that can come out of that I guess in risk reduction and controlling intellectual property and things like that. I mean is there other things out there that you can do that are similar to this type of transaction?
Scott, we did a couple other joint ventures that you probably saw last year that enhanced our position in controls and fuel nozzles and additive manufacturing and things like that. We think Avio made a ton of sense just given the amount of GE content and things like that. I would say we don't have a bunch more on the drawing board. But what I would say is we've got an incredible backlog and skyline of aircraft engines coming at us for the next 5 to 10 years. And we believe that actually being able to drive real productivity in the supply chain and innovation in the supply chain is will likely be one of the real margin enhancers as we look at the Aviation business in the next 3, 4, 5, 10 years.
So it is part of a bigger productivity play. I don't think there's necessarily things like Abbio on the drawing board per se, but we continue to look at productive manufacturing of a well identified backlog as being a major source of margin benefit for our investors going forward.
Helpful. Thanks, Jeff. Thanks, guys. I'll pass it on.
Thanks, guys.
Your next question comes from the line of Steve Tusa, JPMorgan.
Hey, good morning. Hey,
Steve. Good morning, Steve.
The China growth of close to 20% remains pretty strong. Could you maybe talk about what was above and below that average? And how you see that playing out in 2013? I mean, you guys have skated through the weakness there pretty nicely.
So Steve, I'd say the we definitely saw China strengthen again at the end of the year. The big drivers of China continue to be healthcare and aviation. And we believe that the China momentum will likely continue into 2013. So, I don't know, Keith, do you want to Well, Savi's, I'll give you for the quarter, Power and Water had a big quarter. They were up over 30%.
Healthcare had a big quarter, up 15% for the year, they were up over 20%. Aviation continues to be very important to us for the year, up 18%. There were some orders that we had pushed out of the 3rd quarter, still pushed out of the 4th quarter. So, we expect some more orders in aviation in China in the Q1. So those three are really the strength and we continue to see investments by the government in those industries and we're benefiting from the move to gas in China a bit, the great emphasis on healthcare and certainly on transportation with the aviation position we have.
And how big is that?
I think there's a knock on Steve as well as China grows. You see more activity in Africa and Brazil and places like that as well. So it's it has a knock on effect that's also positive.
How big is your China business going to be at year end now?
The revenue for the year was just a little under $6,000,000,000 in 2012. Yes.
Got you.
Okay. Great. And then one last question just on margins. I guess, the value gap obviously is ramping here. I mean, that doesn't seem like that's lumpy.
So you had your biggest quarter obviously in the Q4, which means you should probably start the year with a pretty decent value gap in the first half. And then maybe if you could talk about how those other swing factors like mix, the other things you talked about in the bridge progress as we move through first half twenty thirteen, if there's anything lumpy that you need to call out that may impact the 70 basis points first half to second half type of thing?
Steve, again, if I look at margins, I think value gap is pretty well dialed in. Structural cost, what Keith talked about SG and A as a percentage of revenue that should continue to get better. That's not those 2 aren't necessarily lumpy. Service margins aren't really lumpy. We continue to get good progress there.
My view is wind will be lumpy, right? As you think about how it plays through the balance of 2013. And the one that we don't really control so much is how mix goes through. So I'd say a lot of the levers should continue with pretty good progress. And the one that we'll manage as the year goes on is just the impact of there's a there will be a $0.03 headwind in wind.
We don't see that necessarily changing and that's something to play through. But we feel confident in the 70 basis points for the year. We're not really giving quarterly margin guidance. But as Jeff said, for the year based on those factors, we feel pretty confident. We have internal plan that's above the 70%.
We don't have any gains that are in the plan to get to that 70%. And we've got some good momentum as we come out of the Q4 on the margin improvement.
Great. Thanks a
lot. Thanks, Steve.
Your next question comes from the line of Jeff Sprague, Vertical Research Partners.
Thank you. Good morning, everyone.
Hey, Jeff. Hey, Jeff.
Hey, just looking for a little more color around orders. Just first at a high level, you're calling the quarter flat at 11.8%, but I see 12.5% last year in the quarter. What's going on there?
I think it's the energy recast and eliminations.
Yes. And I'm talking about service in particular actually.
Yes. That's what we have. We have a recast from some of the services went into equipment, I believe.
Okay.
And some came up to corporate. I'll have to we gave you the split. It's a little bit of decoder ring. I don't have the details with me, Jeff.
Okay. And then just on the power related stuff. So power and water and aggregate price was down 20 bps. But I think you said, Keith, just trying to keep up with your thermal was up 1. Is that thermal number just equipment or is that service?
And can you provide any color on service pricing in the business?
Yes. The number I gave was the total business thermal and PGS up 1 in the quarter. If you look at I don't have a separate breakout for services for the Q4. I have thermal in total. But if you look, we've all year long, we've in thermal, it was positive in the 1st and second quarter.
It was a little negative in 3rd quarter. Total year is up 0.5 point for thermal equipment and service.
And then just finally flipping over to aero. So the ADOR stabilized, do you have visibility you think that the aftermarkets kind of found the bottom in inflecting or is it early to kind of determine that?
Yes. I think the way the team has talked to us about it in the market, you've continued to see pretty good revenue passenger miles. Freight declines were lumpy in 2012, but recovered a little bit at the end of the year. And for us to have flat ADORs given that there was an awful lot of working capital management in the supply chain and some mix for us with the old CF6s on freight was a positive sign. Right now, the team is forecasting a little bit of improvement off of that 4th quarter rate in the Q1.
And we're going to have to see as we go through the quarter. It's too early in the quarter right now to know in a couple of weeks in, but they're forecasting it will be improving over the Q1 levels.
And any concern about your Gen X productivity ramp with maybe things backing up at Boeing, if you got any thought on how things might play there as it relates to you?
Well, we're going to have to see right now. We haven't had any schedule changes from them. Actually as you know if there are a few less engine shipments that's not a bad thing in terms of margins based on the margins on the initial Gen X shipments. So we had a great year on Gen X, Jeff. We came down the learning curve.
Obviously, some of the pricing that you're seeing in aviation is coming through on Gen X. There was an improvement on margins per units in those shipments. So we don't anticipate it to be a big deal, but again, we got to see Boeing kind of work their way through the problem. Just a little number on our engines. On the 1B, we've had 35,000 flight hours with 99.97 dispatch reliability.
And on the 2B, on the 747, we have 310,000 flight hours with 99.94 percent dispatch reliability. I mean, the engine is performing very well in the fleet and customers love it. So, we got to work through Boeing and we're trying to help them with whatever they're working through and we will. But so far for us, we're very pleased and our customers are very pleased with the Gen X.
Great. Thank you very much.
Thanks, Jeff.
Your next question comes from the line of Andrew Obin, Bank of America Merrill Lynch.
Yes. Good morning. Good morning. Good morning. Question, a broader question.
Given the resolution, partial resolution of the fiscal cliff, are you seeing any improvement in sentiment from your customers in the U. S?
Well, I mean, I think there's certain tangible things like the production tax credit, Andrew. So that basically opens up a 2 year window. So I would say on balance that's more positive and we hear more positive comments coming out of the renewable energy sector. Other than that Andrew, I wouldn't say that we're necessarily picking up whether or not that's been liberating or not. The shorter cycle business in GE is our appliance business.
We get appliance market data every week. And the industry itself was about flat in December and the industry itself was about flat through the 1st couple of weeks of January. So if that's helpful.
And just a question on GE Capital. Do you think these ROIs are sustainable? Are you seeing more competition reentering the space? And any more color by segment on ROIs on new business? Thank you.
Yes. It does vary. I think on some things like asset backed lending, we've seen some more competition. But in other places, we've had less competitors. Overall for CLL, to do $14,500,000,000 in the Americas at a 2.4 in the quarter, that's pretty good volume and at a pretty good rate.
So the team has been very disciplined on pricing and margin hurdles. And so far we've been able to get the volume we wanted at the return hurdles that we've set. And we expect to see that continue in 2013. I think we saw a little bit of a bubble in the Q4 from some of the fiscal cliff activity as people did a lot of refinancing and try to get gains done sales of their properties out in the quarter. But other than that, we've been pretty disciplined on pricing and we expect it to continue to be reasonably good.
Jeff, any comments on it? No. All I would add is exactly what Keith said is that some of this is our own discipline about where we're going to write business and we've been exceptionally disciplined. And I think the fact that volume was pretty good in the quarter kind of lets us get the sense that we're in the market and that our disciplines are appropriate.
And on asset quality, we've seen changes to consumer. We've seen changes to CLL. Any more policy changes down the line?
Well, those are the 2 that we're working through. I think we're significantly through the consumer as far as the segmentation. There may be a little more in the Q1. And on the write offs, this was just a there is regulatory guidance and we are complying with it. I'm not aware any others besides those 2 right now.
Thank you very much.
Yes. Thanks.
Your next question comes from the line of Deane Dray, Citi Research.
Thank you. Good morning, everyone. Sticking with GE Capital, a question on provisions. It looked like you absorbed at least $0.01 more than what we were looking for. But now that I look at the consumer delinquencies, they're at an 18 year low.
So it raises the question, I know this is completely formulaic and it's out of your discretion, but when might we start seeing some releases of reserves?
Well, I don't anticipate that. I can tell you right now what we're basically, I think a simple rule of thumb to look at, I think consumers, you're probably going to be looking at 12 months of reserves of provisions for losses in that book. While we've seen delinquencies come down, I know you're right, we have a tremendous asset quality there. It's the best we've seen as you said. We have increased the segmentation of the portfolio to be more granular on different loss types and that's added to provisions.
You can see in the Q4 provisions are up. Some of that's volume and about $50,000,000 $60,000,000 after tax of that is additional segmentation on the reserves to get to the 12 month kind of proxy here for loss levels. Great. And then,
can you comment on the MetLife Bank integration? Any changes to the business model there? And a related question is, as you start increasing this alternative financing, where alternative funding, you're expected to issue less commercial paper and maybe that the aggregate amount of commercial paper coming down might actually give you better spreads, better financing and maybe if you can comment on that
as well? Well, we're thrilled with getting MetLife closed. Obviously, we've put it in the consumer bank. The objective here is to grow our deposits online and they give us a franchise and a capability to be able to do that. Our expectation is that we're not only going to do that in the consumer bank, but we're going to migrate that over to the commercial bank and we're going to do more online deposits.
As you said, our objective is to get the CP down in the 30s this year and continue to reduce CP and we've been very successful at doing that and we'll continue. I think you look at the trade off of cost of deposits versus CP plus the bank lines and whatever backup cash you carry, I think that this can be a good trade off over time for us as we continue to diversify our funding.
But is it too early to quantify what the spreads might be?
Yes. I think you're not going to see that from I mean CP is at 20 basis points, Dean. So you're not going to see a big number on that in 2013 for GE Capital. I think you will get a benefit from having less negative carry on the cash. If you look at last year, we took the cash from $70 plus 1,000,000,000 we'll have a carry around somewhere between $50,000,000 $60,000,000 this year.
That'll probably be the biggest increase in sort of the financing margins. Last year, we had net maturities of $48,000,000,000 reduction in GE Capital. So it was a fantastic year for capital on a balance sheet basis to kind of lower the amount of debt and improve their future debt maturity profile. As you know, we go down to $30,000,000 to $35,000,000 of long term debt issuance a year now from a significantly higher level. So I think the capital team has done a great job and the biggest benefit you'll see will probably be on little less negative carry the cash.
Great. Thank you.
All right.
Your next question comes from the line of Steven Whittaker, Sanford Bernstein.
Thanks. Good morning. Good morning, Steve. Just first follow-up question to an earlier one. The question was around the order report today versus a year ago in the Q4 2011 press release and you talked about moving from services to equipment.
If you look at the total, so just trying to understand it, the total, I guess, a year ago was $28,600,000,000 in the press release and this year it's $28,500,000,000 and you talk about just 2% increase. So when you look at the overall level, how much is it? Or how should I understand that? What's the gap?
On the recast, the orders are basically flat. They're up $56,000,000 ex wind and FX 5%, sorry. They're up 5% ex wind and FX. So the recast, we put a little bit more in corporate out of the energy infrastructure recast, but I think it's insignificant.
Okay.
All right. Fine. And then secondly, on the on Avio, just so I understand this, they produce the gear system obviously for the GTF on the A320neo and the C Series. I think they're pretty deeply involved in the development program and you're also calling out $200,000,000 of synergies. Just how are you thinking about how does that handle how do you handle that going forward?
Well, look, there are a ton of different developmental programs inside the industry that people work on together. We do engines for Sikorsky. We buy from Goodrich and Hamilton Sunstrand. So there's always, I'd say a certain amount of developmental work that goes on inside the industry. I think what was most appealing about Avio for us was really the amount of content they had of GE engines.
I think getting more control over our own supply chain, building capability, more reliability, leveraging sourcing and manufacturing skills things like that, that's really where we see Avio paying off for investors.
Okay. And then maybe just lastly, I guess aviation is now up to about half of the backlog. And as Boeing and Airbus orders start to decelerate at this point, is the thought that that backlog that oil and gas and do you see that backlog maintaining or now starting to come down as you start running it off a little bit and getting it into revenues?
Well, you're going to obviously, you're right, you're going to see and we've talked about it the last 6 months that with the aviation backlogs of 3 to 4 to 5 years of equipment, you're going to see lumpiness in those orders. We feel great about the position and obviously as the Airbus and Boeing airframers increase their production run rates, we're going to continue to see volume growth as you see in 2011 to 2012 and 2012 to 2013, we expect more commercial volume growth, but I'd expect the orders to be lumpy. The one offset to that is you're starting to see the LEAP MAX orders come in. And so that will be an offset. As you know, there's been pretty good success in the marketplace from the 7 37 MAX.
Look, I think it's a great question. I don't think either Keith or I ever thought we'd have $210,000,000,000 of backlog in GE. But I would say in the kind of volatile environment we live in today, having that kind of visibility is actually quite a strong aspect. And maybe aviation tails off a little bit. But in oil and gas, our orders in oil and gas are $500,000,000 or $1,000,000,000 at a crack.
So it's easy to see how that order rate might continue at the rate it's on today and add to the backlog.
Okay. And then Jeff, you mentioned that you still expected $0.03 impact on when the tax credit extension obviously got moved into through 2013. So that's not changing your thinking about the end of the year?
Really not yet. It's just there's a it really opens up a 2 year window. So I think in aggregate over the next 2 years, it's going to increase the number of wind shipments we're going to have. But exactly which quarters and stuff like that is hard to predict. As you know, the PTC extension is a little different this time, Steve.
It's the units will have to be in production by the end of the year and that's yet to be defined. Yes. But it's not the same as last year where they had to be actually operating. So that I think it's all good for 2013 2014.
Okay, great. Thanks.
Thanks, Steve.
The next question comes from the line of Shannon O'Callaghan, Nomura.
Good morning, guys. Hey, Shannon. How are you? Hey, Shannon.
Good. So just in terms of the back to the orders FX and ex win being up 7%. I mean, at the December meeting, I think you had said up a smidge and this sounds better than a smidge. What finished stronger I guess in December than you thought at the meeting?
Sheila, look, I think the there is a little bit of volatility going on out there. And we always try to give you guys a range of outcomes. 1 of our biggest industrial businesses went from having orders down 24% in October to having orders up 27 percent in December and the total being up 7% for the quarter. So that's a big swing. That's a big swing.
So I would say Shannon on balance, we closed the quarter very strong. I would say all the businesses had good order books as we closed the quarter, probably above even what our expectations were. I think that's good news. What that means or is it lumpy or things like that, I think it's too soon to call victory, but clearly the momentum built during the quarter.
Okay. And healthcare was probably the biggest swing?
Yes.
And Power and Water Margins, so you're saying ex wind, they were up 300 bps. I mean, the wind mix should be actually favorable from here. I mean, but that seems like an awfully high year over year run rate. So I mean, are there things that prevent us from continuing to track at that kind of a rate?
Well, the services business had a great quarter. So we really a lot of what we've talked about in terms of services kind of I'd say Q4 was fantastic. And there's the mix for the business ought to be great for 2,000 or better for 2013. So we'll just see how the shipments work and all that stuff. You look at 2012, I mean, wind revenue was up close to 50% and the margins are down a couple of points and they're already below average for the company.
So this had a huge 20 basis point impact on the total year on the total company. And I think as you go into 2013, you're going to have a couple of $1,000,000,000 less of wind revenue. So we do expect that to be a positive. I don't know if you get the full 20 basis points and we'll have to see how the PTC impacts that, but it will be a net positive versus what we certainly saw in 2012, Shannon.
Okay. And then just your M and A plans have been fairly modest, but if you get NBCU proceeds sort of sooner than the base plan, I mean, are there enough things out there that you see opportunities to redeploy very quickly into industrial deals? Or would you look for something else to do with the cash?
Shannon, I just don't even want to speculate on how that plays out. I think we've talked about balance and discipline, capital allocation. I think that's really the way I feel. We like having a good yield. We like the fact that we returned more than $12,000,000 of cash to shareholders last year.
We like having kind of a focused approach to acquisitions. And if our world changes, we'll come back and talk more about it. But right now, you shouldn't assume any change.
Okay. All right. Thanks a lot. Good.
Your next question comes from the line of Julian Mitchell, Credit Suisse.
Hi, thanks a lot. Hey, Julian. Hey. So my first question is really just on the value gap. I mean, you mentioned it's not really lumpy, but if I look at your mid December presentation, you had a double plus from value gap as a margin driver in 13%.
Today, it's a single plus. I just wondered if that was because of something like healthcare pricing in the quarter being worse than you thought in orders or what drove that?
No. I think it's still there's really no change in how I feel about value gap for next year. It's good solid $330,000,000 this year. It will be better than that next year. And I think if you look at orders pricing overall, you look at our total orders price index for the company, it's been positive all year long in 2012 in total.
It was a positive half half a point half a 50 basis points in the 4th quarter and for the total year it's positive 60 basis points. So I don't think I think pricing has not been a change in our view. We continue to see strong growth. No, Julien, we think it's going to be above 12. Okay.
Got it. And then secondly, in mid December, you talked about 5% services revenue growth in 2013. If I just look at the orders in services, they were down 2% year on year in Q2, down 4% year on year in Q3, flat in Q4. So are you still comfortable with that 5% services revenue growth of 13% just given that the orders haven't been that strong for 9 months or so?
Julien, these are lumpy. The orders here are probably lumpier than others, particularly with the CSAs. So I would say we have a huge backlog. And then our estimate of 5% organic revenue growth in services really assumes that Aviation Spares has a better 2013. So I think the combination of the fact that you've got $157,000,000,000 backlog, sometimes what goes into orders are 10 or 15 years of commitments, right?
So those go based on shop visits and stuff like that that we can model that makes us feel good about it. And some pieces really we're expecting aviation spares to bounce back. And that's those two things I think really lead you to the 5% service organic growth. If you look, we had 4% revenue this year with Aviation flat. And Jeff's point is really one of the key differences what we expect in 2013 in Aviation.
Got it. Thanks. And then just lastly on gas turbine shipments
for
13, I mean, I'm thinking they should be down maybe around 10% or so year on year. Does that sound about right?
Basically, right now, if you look, we had 108 orders for the year. We're forecasting somewhere around 100 gas turbines for 2013, and we'll see how the market plays out. So they're going to be down versus 2012. I think the factors to think about the thermal business itself on the equipment side is about 9% of the op profit for the energy business. So really the dynamic for us is going to be how does service perform?
We got a big growth forecast in for services. How does distributed energy perform? We've got a nice orders performance in the quarter and we've got a good outlook for 2013. And how do they do on controlling their costs? Those are going to be really the dynamics that the energy team is going to be working their way through.
And the megawatts will be bigger. The unit mix is higher on that.
Great. Thank you.
Thanks,
Joanne. Your next question comes from the line of Christopher Glynn, Oppenheimer.
Thanks. Good morning. Hey, Chris. So with backlog building nicely and orders better than expected as of December, I guess sort of the lowering of the organic growth in December and that played out as you predicted was maybe a bit of an abrupt deferral of backlog conversion. Can you characterize how you see that unfolding from here?
Does that tend to favor the first half? And where does that focus your bias in the 2% to 6% organic range?
Well, look, I don't want to change the necessarily the 2% to 6%, Chris. What I would say is that the way we finish the year, the building of the backlog, I'd say the strength of orders makes us feel good about next year. It makes us feel good about the momentum we have going into next year. And then the only thing I'd add to that vis a vis organic growth and how it splits, again, we don't do single point estimates. It's just wind is lumpy and wind is going to continue to be lumpy in the future.
But if you take that out, the rest of the company, I'd say you feel pretty good about where we're positioned going into next year. And that you had pretty good data really you had 5 of 6 businesses with what I would call robust order growth in the quarter from an industrial standpoint.
Okay. And then just one on GE Capital regarding the systematically important financial institution and the buffer needed for capital. Can you give any updates on the limitations on capital payout? And with respect to if you're shrinking the balance sheet, is there any reason GE Capital would need to retain any earnings at some point in the future?
Well, it's a good question. I think for us, what we have to make sure is that we're meeting what we need to have to be from a regulatory perspective and from a rating agency perspective and from a management perspective, safe and secure. We expect to be well capitalized in any scenario under Basel I or Basel III. We're going to meet the liquidity requirements that regulators have. And our objective is to be able to release capital as we continue to shrink the book, as you say, continue to generate profitability.
And for us, we think we're in pretty good shape on that. You saw our success in 2012. We've got number 1, strong earnings. Number 2, we have strong liquidity with over $60,000,000,000 of cash, less than $35,000,000,000 of long term debt we're going to issue this year and we already completed 9 of that. We have strong capital ratios.
You saw we ended the year with the Tier 1 common at 10.2 on Basel 1. We reduced our overall debt by over $45,000,000,000 last year. We've got strong portfolio quality, delinquencies are down, non earnings are down. And we continue to make strategic progress on running off the red assets and reinvesting in the green assets. So I think when we look at what's going on from a regulatory perspective, we have not been designated as a systemically important institution yet.
We are in discussions. And the main issue that happens when you are designated is that you're going to be supervised by the Federal Reserve, and we're already supervised by the Federal Reserve. So we'll see how that plays out, but we believe that we have a pretty good framework against the regulatory guideposts and we're continuing to operate in a way that runs the company from a safe and secure perspective while also being able to be mindful of returning cash back to the parent and get that back investors. So I think we're doing a pretty good job of this. I think Mike Naylor's team had a great year against those objectives and we'll have to see how that continues to play out.
Thanks, Keith. Yes.
Next question comes from the line of John Ente, Deutsche Bank.
Thank you. Good morning, everyone.
Hey, John. Good morning, John.
Good morning, guys. Lots of moving parts between the segments and the results first the outlook in orders and pricing. Can you just is there any way to do a little bit of a quick recap in terms of pricing, particularly in thermal, but maybe you could parse that between gas, turbine or just some of the other segments, Keith, or Jeff that are noteworthy? Just what's different about 4th quarter pricing in backlog specifically on orders versus what you saw last quarter?
Well, if you look in Q3, our power and water pricing in total was down 1.9% and in the 4th quarter it's down 0.2%. I said thermal including services went from a negative 2.7% in 3rd quarter to a positive 1% in 4th quarter. Wind was down 3.6% in the 3rd quarter. It's up 4 tenths in the 4th quarter on fewer orders obviously. So those are some of the bigger pieces.
Oil and Gas, 3rd quarter 1.6 percent positive pricing, 4th quarter 1.3 percent on high orders. Aviation continued positive pricing, 2 point 3% positive in both 3rd Q4 and healthcare continues to have the negative pricing 1.7% and third, 1.8% in the 4th quarter. So overall, we went from a 10th of a point positive price in the 3rd quarter to 0.5%, 0.5%, 50 basis points positive in the 4th quarter.
And it's a big
area, focus area, obviously, is quarter. And it's a big area of focus area, obviously, as the whole team is working on improving margins. And I think they've got some pretty good traction here. I think the supply demand characteristics are what they are by business, but overall for the portfolio to have a 0.5 point of positive price is a good place for us to be as we leave Q4.
Yes. No, I agree. And is the thermal price that you're getting is that mix? Or are you actively trying to raise pricing? Or how what's going on there?
I think thermal pricing is lumpy. I would take it for the whole year, 0.5% up with equipment and services. That's kind of the way we look. We're expecting it to be flat to slightly positive for the year. Steve Ball said it was going to be a little lumpy.
And I think that's about where we are. Obviously, with the market where it is, I mean, the supply demand characteristics are tougher in thermal. And on the other hand, you look at oil and gas and the supply chain tightening, where they're better in there and they're better in aviation. So I think it varies by business, but overall we hit what Steve said a little better for the total year on thermal and a half a point up.
Hey, Jeff. With the eventual monetization of NBC and Capital's Equity Investments and Redline Assets that are going to come off, is your company between that and operating cash is going to throw off an awful lot of cash flow over the coming years? Would you be able to reaffirm your commitment not to be doing big deals or anything beyond 1 to 3? Heavio is a little bit bigger, but it's still in the zone. Or are you thinking about perhaps in a year or so perhaps stepping that up?
Or how should we think about that at this juncture?
Steve, again, I would just I would make or John, I'm sorry. John, I would make 2 comments. I just think I don't really want to make any other pronouncements other than than kind of disciplined and balanced capital allocation. So I just really we'll go over the other bridges as we get there, but let's start with that. And the second thing I'd reaffirm your first point, I think is one that's good for all investors to remember is this company is going to have a ton of cash over the next 3 years, right, between whatever happens with NBCUniversal, between kind of as we look at where we think GE Capital is versus the guidepost Keith talked about, there is going to be a lot of cash.
So let's leave it at that. Let's leave it with those two comments for right now, John.
That's okay. And I'm often confused with Steve, so no worries. Thank you.
Okay.
The next question comes from the line of Nigel Koh, Morgan Stanley.
Thanks. Good morning.
Hey, Nigel.
So speaking of the ton of cash you just mentioned, Jeff, when do you expect to have sign off for the capital allocation plan for GE Capital? Are you on the same schedule as the banks, which I think they stressed as a result of March?
Yes. Nigel, we're not one of the major banks that goes through that systemic process every year. We do go through our own process. I would say it's the best outlook would be to think of it as a mirror of 20 12. And we will go through a lot of the exact same steps with forecasts and stress tests and capital plans and all that.
But last year, we had final decisions on that in the Q2 and I would anticipate it would be the same in 2013 right now.
Okay. That's helpful. And then switching back to December, it seems that December came in stronger than your maybe your initial thoughts back in the annual meeting. Anything stand out in terms of regions U. S.
Versus growth markets versus Europe? Any one region stand out in terms of that ramp up in December?
We saw a little bit of strength in the U. S, I'd say in healthcare and appliances. And then we saw a ton of strength elsewhere, I'd say, nitrile. And we saw that in oil and gas and aviation, energy really across the board. So again, I think it fits the broader it fits the broader, I'd say, dialogue and that we kind of think the growth markets will continue to grow in 2013.
And when I think about the U. S, you've got a slow and steady housing recovery that I think is very positive. And then there's still a lot of fiscal uncertainty. And how those blend through into a U. S.
GDP in 2013, we'll see.
Okay. Okay. And then just finally on getting the MetLife deal done, how does those deposits how does that deposit base impact your flexibility and optionality with regard to PLCC?
Well, we'll see. I think a diversified funding base is good in that regard. Right now, we already in that business, as you know, a lot of it is already financed by deposits, alternative funding and securitization. So now we've got a kind of a different kind of deposits, more Internet bank deposits. And at the end of the day, having more diversified funding, I think, does give more flexibility for future activity.
We don't have any of that going on right now, but I think just from having a more diversified funding base, you would have more optionality.
Okay. Very helpful. Thanks, guys.
Thanks. Your next question comes from the line of Brian Langenburg, Langenburg and Company.
Hi, good
morning. Hey, guys. Good morning, Jeff. Just a couple of things. I'll do a bunch of follow ups later.
Just review for us briefly your total exposure to 787. Obviously, this is transitional or transitory. And then secondly, in terms of the power cycle, I mean, I think we're pretty much looking for a 2014 overall upturn. But how are you thinking about potentially what the impact is in that cycle from what I would call demand management either companies making their buildings 20% more efficient or using grid to make if you're a utility, using your grid to make your existing generation capacity, let's call it an ops management for utilities, if you will. Just if we could address those two things.
I'll take a shot at the Aviation first and then you can talk about Energy maybe. If you think about 787 exposure, we obviously have inventory. Our plan for 2013, we shipped 113 Gen X engines in 2012. Our plan would be to ship 200 engines. So we'll see where Boeing goes with that.
As I said, we haven't had any changes to the demand production schedule from Boeing on that yet. And a bunch of those engines are on the 47 as well. So for us, I think if there's a push out of some engines in the Q1, we may have a little more inventory and having less engines in rev rec may be a slight positive for margins. I mean, I don't really know the difference between what we're going to do this year versus what we did in the Q1 last year until we get finalized with Boeing. But I don't see a material impact on this on us at all.
And as I said, the engines are performing extremely well. So we feel good. The customers love this plane. They've had a ton of positive feedback and Boeing has to work through this issue and they will work through it. We're confident of that.
I would echo what Keith said. I think this is an immensely popular airplane, fuel efficient, passengers like it, airlines like it. So we're here to support Boeing wherever it goes on the 786, on the Dreamliner. On energy, I think, Brian, we already factor in the fact that there's going to be an impact on demand side management, on demand for electricity. And you factor that into I think an overall health of the gas portfolio visavis what happens with nuclear, what happens with the EPA.
And then demand growth in places like Saudi Arabia, Algeria, places like that that still remains I think intact. So we try to factor that all in. But we also do factor in Energy Management. But we also benefit from that in our Energy Management business.
Fair. Okay. Thank you.
Great.
It looks like your final question will come from the line of Daniel Holland, Morningstar.
Hi there, good morning.
Hey, Daniel.
Just curious what was pushing the industrial CFOA number down, I guess about 2% year over year just considering the profit growth in the overall business this year?
Yes. Billy, the biggest dynamic for us, Daniel, was in the wind business. The wind business had significant progress collections in prior periods. And in total, the wind business was a drag on working capital in 2012 of about $1,500,000,000 So the rest of the businesses with their earnings growth and the management of working capital were able to overcome that. And then as we had about $400,000,000 of pension funding that we did that we didn't have any in 2011.
So that $400,000,000 was also part of the V. But the biggest driver for us on working capital was a drag in the year was wind and the businesses overcame that.
Got you. And one last one. And just thinking about margins for next year and kind of the simplification strategy that you guys have identified. If you think about on a segment by segment basis, I mean, where are the biggest opportunities that you guys see and kind of which ones are, might have already had the biggest benefit from simplification so far?
It's pretty broadly across the company, Daniel. We have every one of our teams working on lowering their structure, so having more consolidated higher level P and Ls. We have everybody participating and putting their back offices into centers of excellence and more shared services across the company. And we have a common IT initiative across the company to reduce our general ledger and enterprise resource planning systems that is pretty much across the portfolio. So everybody is participating, everybody has cost targets and it's pretty broadly based.
We've got a lot of good restructuring projects that are a year or a year and a half or 2 year paybacks. And so we're lined up and we think we can keep the structural costs keep going down as a percentage of revenue. Our target is to really accelerate that.
Great. Thanks.
So Trevor, thanks to everybody. I just I team feels really good about how we did on delivering our commitments in 2012. We've identified very clearly our 2013 commitments, which we believe are very competitive against our peers and we're going to be off executing against that going forward.
Great. Thanks, Jeff. Just to wrap up for everyone, the replay of today's webcast will be available this afternoon on our website. We'll be distributing our quarterly supplemental data schedule for GE Capital shortly after this call. Just the one announcement, our Q1 2013 earnings webcast will be on Friday, April 19 through your calendars.
As always, we'll be available today for today's questions. Thank you, everyone.
This concludes your conference call. Thank you for your participation today. You may now