MANAGING CRISES

How has 170-year-old Otis navigated economic downturns like the 2008 global financial crisis and the recent Covid pandemic?

Otis’ resilience lies in its service-driven business model. The service business, accounting for 60% revenue and 90% profit globally, ensures continuity and reliability during crises. We made a commitment to our people that even if sale of new equipment slowed, service business will give us the base⁽¹⁾. It did during the 2008 global financial crisis as well as Covid.

How are developed markets, particularly U.S. and Europe, faring?

Factors like interest rates and inflation have impacted the real estate industry in U.S. In Europe, Spain and Italy are progressing well, while Germany and France have slowed down. Middle East is showing high demand for new equipment⁽²⁾. The service market is vibrant globally.

There is talk of a possible recession in U.S. How can that impact your business?

It is not clear whether U.S. will be hit by a recession. However, historically, the service business has thrived during slowdowns because maintenance is critical for safety. It has grown every quarter since Otis spun off from the parent firm, United Technologies, in April 2020.

Does the company start generating service revenue immediately after installation?

We transition to maintenance services post-installation, akin to a subscription model. Our service contracts ensure maintenance, compliance and prompt repairs. Elevator modernisation, which becomes necessary after about 20 years, offers another revenue stream. Margins from services match or exceed margins on new equipment. We are aiming for 10% margins in modernisation, surpassing the 7% on new equipment. Our service margins are typically in mid-20s.

Otis has cut annual sales view on slowdown in construction in China and U.S. What are the reasons behind this?

The revised guidance projects 1-3% top-line growth, down from the initial forecast of 2-4%. This reflects slowdown in China’s property market affecting new equipment sales. However, our businesses in U.S. and EMEA (Europe, Middle East and Africa) are contributing to growth, with Asia Pacific, particularly India and Southeast Asia, emerging as key growth regions.

In China, there has been a shift from predominantly new equipment sales to service. Over past four years, the service business in China has doubled, with 70% now coming from new equipment and 30% from service. China, as a large rapidly developing market from 2000 to 2020, was mainly a new equipment market for most major original equipment manufacturers. In comparison, we have a healthy mix in India. While new equipment sales dominate, service business is a significant contributor.

Elevators And Escalators

In Conversation: Judy Marks, Chair, President & CEO, Otis Worldwide Corporation