General Electric late Thursday filed a long-awaited form with the Securities and Exchange Commission that provides investors with key details about the upcoming breakup of the company into GE Aerospace and GE Vernova.
The Form 10 filing is used to register new securities. In this case, the securities are for GE Vernova — the power generation company inside of GE that officially is being spun off.
The Form 10 runs 272 pages. Here are a few things Barron’s took from the filing along with a little context.
No Debt
GE Vernova will start life with more cash than debt. In fact, it won’t have any debt at all.
The cash balance should be about $4.2 billion at the time of the spinoff. That will leave GE Aerospace with about $15 billion in cash and $18 billion in debt.
GE also is, essentially, paying back about $1 billion in debt using its holding of GE Healthcare Technologies it retained when that business was spun out in 2023.
There is still an underfunded pension. General Electric reported a pension deficit of about $8 billion at the end of 2023. Underfunded pensions aren’t exactly debt. There are differences in which liabilities and assets are accounted. Still, Vernova will take about $1.6 billion of the deficit and Aerospace will retain the rest.
GE Aerospace expects to generate about $6.3 billion in 2023 operating profit. Based on recent deprecation levels, that works out to about $7.4 billion in earnings before interest, taxes, depreciation, and amortization, or Ebitda. GE Aerospace’s debt, less cash, and with the pension deficit added in, will be less than two times the Ebitda. That isn’t significant financial leverage for a manufacturing company.
Three Segments
When Vernova starts life as a separate company in a few weeks — the final date has not been set — it will operate with three business segments: Power, wind, and electrification. Investors are familiar with the power and wind businesses. Power is the gas turbine business, and wind is the wind turbine business. The spinoff brings more segment detail with electrification including GE’s electricity grid, power conversion, solar, storage, and related software businesses.
Business Performance
Total Vernova revenue for 2023 was $33.2 billion, up about 11% on a comparable basis from 2022. Power generated about $17.4 billion in sales and an Ebitda margin of about 10%.
The average Ebitda margin for non-financial companies in the S&P 500 is roughly 20%.
Wind generated $9.8 billion in 2023 sales and an Ebitda loss of $1 billion. The margin was minus 10.5%. That isn’t great, but the loss in 2022 was $1.7 billion. The electrifcation business generated $6.4 billion in sales and an Ebitda margin of 3.7%.
Vernova’s overall 2023 Ebitda was $807 million. The bottom-line loss was $474 million. That’s not great but a huge improvement from the 2022 net loss of $$2.7 billion. Free cash flow in 2023 was positive, however, coming in at $422 million.
Overall, GE said sales of services and products are split about 50/50 for the entire Vernova business.
The Vernova Opportunity
GE is positioning Vernova as the American company that can lead in the energy transition away from more carbon-intensive fuels. Natural gas generates less carbon dioxide — the main gas blamed for global climate change — than an equivalent amount of coal or oil. What’s more, turbines also can burn hydrogen which generates no carbon dioxide when burned.
GE believes power and power use markets generate some $1.4 trillion in annual sales that grow between 4% and 5% a year, on average. Vernova’s addressable portion of that is about $265 billion in annual sales giving the company a market share of about 12%. Vernova’s goal will be to increase market share — and profit margins in each of its businesses.
The Stock
GE stock wasn’t reacting much to the filing in premarket trading Friday. Coming into the session, GE shares have risen about 77% over the past 12 months outperforming the Nasdaq Composite by about 43 percentage points.
The number of shares outstanding for Vernova — and how many Vernova shares that GE shareholders will get for every share of GE held — hasn’t been finalized yet.
Write to Al Root at allen.root@dowjones.com