Dear Shareholders,
2022 was a year marked by resilience, excellence and strong financial performance in the face of many macroeconomic challenges. For the third consecutive year, we capitalized on our experience as the industry leader to meet the needs of our customers, passengers and communities while continuing to execute on our long-term strategy, supported by our Service-driven growth model.
I am extremely proud of our 69,000 passionate colleagues and their unwavering focus on delivering for our customers, developing innovative products, growing our Service portfolio and driving operational excellence. Together, we navigated continuing impacts from COVID-19, supply-chain disruptions, financial market volatility, broad-based strengthening of the U.S. dollar, commodity price swings, rising inflation and conflict in Eastern Europe.
STRONG EXECUTION AND RESULTS
New Equipment orders grew by 7.1%, supporting 1 point of share gain, and organic sales increased by 2.5%, resulting in adjusted net sales of $13.6 billion, led by strong Service performance in both maintenance and repair and modernization. Adjusted operating profit grew by 6% at constant currency with 30 basis points of margin expansion, driving 7.5% growth in adjusted earnings per share. We generated $1.45 billion of free cash flow, approximately 115% conversion of GAAP net income.
Our strong cash flow performance and shareholder-driven capital allocation strategy enabled us to return significant value to shareholders while investing for the future. From the $1.45 billion of free cash flow generated, we distributed $465 million in dividends and repurchased $850 million of shares, while paying down $500 million in long-term debt. In March 2022, the Board of Directors raised our dividend rate by 20.8%, to a quarterly rate of $0.29, the second annual increase. In total, dividends have increased by nearly 50% since Otis became a public company in April 2020. In addition, we used €1.6 billion in debt raised in 2021 to complete the acquisition of the remaining Zardoya Otis SA minority interest, and we made 26 bolt-on acquisitions in 2022 for $46 million, supporting the growth of our Service portfolio. We continued to invest in the business, with $115 million in capital expenditures to support our long-term growth. We achieved all of this while maintaining our investment-grade credit rating.
NEW EQUIPMENT ACROSS REGIONS
Global New Equipment units declined to roughly 900,000, down from approximately 1 million in 2021, largely related to headwinds in China. This decline was somewhat offset by strong growth in Asia Pacific, and modest growth in the Americas and Europe/Middle East/Africa (EMEA). Our strategy and investment in the business over the past few years continues to drive share gain globally, and we grew our New Equipment adjusted backlog by 11% at constant currency, entering 2023 with confidence.
In 2023, we expect to see the Asia Pacific New Equipment market grow at a solid pace, the Americas and EMEA to be roughly flat and China to decline by 5% – 10%, leading to a market down modestly, to below 900,000 units. In addition to our strong backlog growth in 2022, we expect to support our New Equipment growth and margin goals with a continued focus on new product innovation, expanded salesforce coverage and efficiency, and additional productivity in the factory and field.
SERVICE PORTFOLIO GROWTH
Units in our industry-leading Service portfolio increased by 4.1%, the fastest rate in more than a decade. Globally, the industry installed base continues to grow at a mid-single-digit pace, and Otis is harnessing the power of digitalization to improve our Service presence and transform our industry with leading technology. A top priority for the company is deployment of our connectivity solution, Otis ONE, which is now active in 30 countries and territories. Approximately 800,000 units in our Service portfolio, including those under warranty, are connected through our various product offerings. Our new application programming interfaces (APIs) are showing good traction with fresh applications for customers, and technology is driving benefits such as improved conversion and stickiness while also improving our productivity and Service profitability. Management is keenly focused on ensuring a sustainable portfolio growth rate to support our long-term sales and profit trajectory. In addition, we see notable growth in our modernization business as elevators globally continue to age.
COMMITMENT TO CREATING VALUE FOR ALL
We made strong progress on our 13 Environmental, Social and Governance (ESG) goals and regularly share updates with our customers, colleagues and communities about sustainability best practices; diversity, equity and inclusion; colleague welfare; health and safety; and good governance.
Looking ahead, our management team remains committed to operational excellence, driving growth, improving margins and creating value for shareholders.
WITH GRATITUDE
I deeply appreciate the hard work and dedication of every one of our colleagues who deliver with excellence. I am grateful for our leaders who execute as one team, for strong and committed directors, for customers who put their trust in us every day, and for you, the shareholders who back our strategy.
Thank you for your support.
JUDY MARKS
Chair, Chief Executive Officer and President
Executive Leadership*
Read the original letter here.
