Letter from the CEO
In this, our first year as a newly independent company, we delivered strong performance thanks to the focus, agility and resilience of our colleagues at every level of the organization. These are the same qualities that will keep us at the forefront of our industry and an essential part of people’s lives in the years ahead.
We successfully executed a complex separation, innovated quickly to meet the critical needs of our customers and passengers, and created significant value for you, our shareholders. All this during a pandemic that tested all of us.
I could not be prouder of our 69,000 Otis colleagues – or more appreciative of their passion and commitment to the safe, reliable and dependable movement of passengers.
FINANCIAL PERFORMANCE AND BUSINESS HIGHLIGHTS
Despite the disruptions of 2020, we demonstrated our ability to deliver on our near-term commitments while executing our long-term strategy as an independent, publicly traded company.
We continued to grow New Equipment share, expand Service margins, increase adjusted earnings and build backlog while generating strong free cash flow and paying healthy dividends to our shareholders. Net sales for the year were $12.8 billion and adjusted earnings per share was $2.52.1
We also grew the Service portfolio by 2% to approximately 2.1 million customer units, roughly 25% larger than our closest competitor.2 The core of our business model, Service represents approximately 80% of our profit and provides a reliable source of recurring revenue. We remain intensely focused on growing the number of customers we serve, modernizing the world’s elevators and escalators, and delivering enhanced customer value.
New Equipment installations contribute to portfolio growth as they convert into maintenance contracts, and in 2020, we grew share by approximately 60 basis points, with share gain in all major regions.2
Our teams achieved these results while managing our separation after nearly a half-century as part of a corporate conglomerate – a massive undertaking under unprecedented conditions that required disentangling facilities; transferring knowledge; moving more than 1,500 total processes, contracts and systems; and standing up new functions, including Tax, Treasury, Investor Relations and Payroll.
In our industry scale and reach matter, and one of our greatest strengths is our ability to serve customers in more than 200 countries and territories. We have 33,000 experienced mechanics in the field, trained to service our own equipment and that of other manufacturers. Our local workforce can be found in major metropolitan areas as well as community neighborhoods. This presence makes us especially well-equipped to understand the distinct needs of our diverse customers the world over.
For example, in 2020 we released our new Gen2® Prime elevator to address the entry-level, low-rise segment in India and other emerging markets. This elevator is the latest member of our iconic Gen2 family of elevators, which surpassed 1 million units sold in 2020, making the Gen2 our bestselling elevator ever.
Our global scale also allows us to leverage our production capacity, supply-chain resilience, buying power and back-office systems to improve productivity and benefit our customers. The advantages of scale were especially evident when the coronavirus brought many aspects of life to a standstill. We mobilized our global supply chain to ensure components reached and met global customer demand. Our field professionals and colleagues in Otis manufacturing facilities joined other essential workers across various industries to ensure that critical work was completed and vital services continued uninterrupted.
In China, our teams mobilized to support the emergency expansion of the Shanghai Public Health Clinical Center, installing the elevators for the new facility in a matter of days. In St. Petersburg, Russia, our engineers joined the factory assembly line, filling in for operators on sick leave to keep production going. Our customers let us know how much they appreciated the heroic efforts of all our team members to keep them safe and moving during the pandemic.
Being recognized as an essential service inspired a sense of unity. It empowered all of us. It also reaffirmed the strength of our entrepreneurial, people-first, ideas-can-come-from-anywhere culture. It is how we are fulfilling our mission as a world-class, customer-centric, service-oriented company.
RAPID, MEANINGFUL INNOVATION
We are living during a time when change is perpetual, pervasive and exponential. To stay ahead, we are accelerating the pace of our own innovation, focusing on areas like data analytics, machine learning and cloud computing to support the evolution of our products from mainly mechanical systems to systems that are more electronic, digitally native and connected.
Our investments in research and development, along with investments in digital and strategic initiatives, have increased by approximately 60% since 2015. Among our 1,300 R&D engineers around the world is a growing number of software engineers, data scientists and experts in the design of user interface (UI) and user experience (UX).
Otis ONE,™ our digital service platform, is an exciting example of innovation that has emerged from these investments. Leveraging the Internet of Things, Otis ONE uses cloud-based algorithms to aggregate and analyze real-time performance data to help predict and prevent shutdowns. At the end of 2020, more than 100,000 customer units were equipped with Otis ONE, bringing our total connected units to approximately 540,000. We expect adoption rates to accelerate over the next several years.
We are also upgrading our smart manufacturing capabilities. Our new escalator factory in Haining, China, incorporates the latest Industry 4.0 technologies to enhance product quality and operational efficiency.
Backed by a robust engineering organization, our teams were able to quickly innovate health solutions to support safe reopening strategies and operations in the coronavirus era. These included touchless elevator technologies, purification products and new traffic-flow solutions for social distancing. We also commissioned an academic study to investigate how elevator airflow affects potential exposure to COVID-19. Researchers found that the significant amount of air exchange present in most elevators, combined with simple mitigation strategies, puts an elevator ride on the lower end of the exposure spectrum.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
At Otis, financial performance and corporate responsibility go hand in hand. That is why, as a newly independent company, we continue to build out our Environmental, Social and Governance platform. We established an executive-level ESG Council and a cross-functional working group to drive our efforts forward. Given the dynamic and evolving global landscape in which we operate, we are engaging our stakeholders to prioritize and address our top material issues. This information will help us formulate meaningful, long-term goals and define actions that enable us to contribute to a taller, faster, smarter world.
DIVERSITY, EQUITY AND INCLUSION
Upon joining Otis, I was inspired to find a company long committed to diversity, equity and inclusion. Like The Otis Absolutes, our shared beliefs – we are many voices, we are better together, we believe in us – are more than just words. Yet the events of 2020 made us all realize that even here at Otis, there is still work to be done to become the company we want to be. After careful deliberation by our leadership, we released Our Commitment to Change, publicly committing ourselves to specific actions to ensure Otis is a place where every voice feels safe, welcome and heard.
We recognized that this important work also demands that we reach beyond Otis. With our Made to Move Communities™ program, we aim to inspire student teams from around the world to apply creative, technology-based solutions to eliminate mobility challenges in underrepresented communities.
We are proud that Otis became the first company in our industry to join the Paradigm for Parity® coalition, pledging to achieve gender parity in our executive ranks globally by 2030.
We see great things ahead for our company. In the face of one of the most challenging and unpredictable years imaginable, we laid the foundation for sustained, resilient future growth in the more than $75 billion annual global elevator industry.
We are not just an essential business but an essential part of people’s lives.
The future is ours now. In a time of smart cities and the innovators that make them possible, Otis moves forward as an agile, independent and focused enterprise – globally local as we pursue tremendous opportunity in an increasingly connected world.
Thank you for joining us on this journey and for your continuing support.
1 Please refer to the Reconciliation of Non-GAAP Measures to Corresponding GAAP Measures in the financial section for additional information.
2 Based on internal estimates.
- 1852 Elisha Otis invents elevator safety brake
- 1853 Otis founds company & sells first elevator
- 1898 Otis Elevator incorporates
- 1900 Otis unveils first commercial escalator
- 1903 Gearless Traction Machine
- 1950 Automatic, operator-less electronic elevator
- 1976 Otis acquired by United Technologies Corp.
- 1979 First computer-controlled elevator
- 1983 REM (Remote Elevator Monitoring)
- 2000 Gen2 elevator with flat-belt technology
- 2018 Otis ONE digital service platform
- 2020 Otis returns to its roots as independent, publicly traded company
Message from the Executive Chairman
This is an exciting time to be part of Otis. Newly independent, we are bringing forward a rich legacy of innovation and service excellence. Taking a company with a storied history into a new phase can be difficult and exhilarating, but to do so in the face of the extraordinary challenges 2020 brought to the world, and do it well, is a remarkable achievement.
The management team and everyone who wears the Otis badge showed tremendous grit and resilience in our first year. It’s a privilege to work alongside this team and the diverse, talented Board we assembled.
Otis is a standout among our global industrial peers. For example, nearly 75% of our sales come from outside the United States, and 60% of our team is based in the field, closest to our customers. The pace of innovation is astounding in terms of customer solutions and technology for our teams. But the real differentiator is how we embrace The Otis Absolutes. These core values guide us in all our decision making.
I believe wholeheartedly in the ability of Otis to drive sustainable value creation and look forward to every step of the journey ahead.
The Otis Absolutes
We believe that being the industry leader demands that we hold ourselves to the highest standards of safety, ethics and quality. The Otis Absolutes are the core values that guide us in everything we do, every day, whatever our role.
We are in the life-safety business – and never take shortcuts. The well-being of our colleagues, customers and the riding public is always our first priority.
People trust us because they know we do business the right way. This spirit of integrity informs everything we do. It is simply who we are.
We strive to be the best in everything we do, from engineering, manufacturing, installation and service to selling, marketing and financial reporting. The Otis name is synonymous with outstanding quality.