Welcome to the Otis Investor Day for 2020. My name is Stacy Laszewski. I head up investor relations for Otis, and we're really happy to have you here today. Before we get going, just a few reminders. The presentation is being carried live on the internet and is being recorded for replay. Presentation materials are available at download.utc.com. Please note, the company will speak to results and expectations from continuing operations and adjusted for restructuring and other significant items, except where otherwise noted. The company also reminds listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from the anticipated results.
Otis's registration statement on Form 10 and the reports of UTC's SEC filings, including its 10-Q and 10-K reports, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. With that out of the way, let's talk a little bit about the agenda today. We're going to start with Judy, who'll give us an overview of Otis. Robin Fiala will come up after that and give us an overview of the business segment. We'll take a break for about 15 minutes, and then we'll come up, and we'll have a deeper dive into Europe and China, and Rahul will finish up the day. I would ask if you hold all questions till the end. We'll have plenty of time for questions at the end. With that, I'd like to welcome Judy Marks, President and CEO of Otis.
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Good morning, and welcome to our Investor Day for the Otis Worldwide Corporation. Today, you'll hear from several leaders of our Otis leadership team. I'll give an introduction. I'll be followed by Robin Fiala, 30 years Otis employee, working in many of our elements, many of our responsibilities, a deep domain knowledge of our business and our customers. She'll be followed by Mark Eubanks. Mark joined us in the spring of last year. Comes to us with extensive P&L experience from both Eaton and Cooper Industries. Mark leads our largest service region, 43 countries in the EMEA region. We'll then connect Perry Zheng. Perry is our President in China, where we have over 15,000 colleagues in the midst of returning to work. He's focused and has been focused in country on our number one absolute, the health and safety of our employees, but he's also focused on business continuity.
I think it's important that everyone understands that while our manufacturing is ramping back up and our branch offices are opening, our frontline service technicians have been on duty since the Chinese New Year in hospitals, in infrastructure. It shows the resiliency and the demand on our service business, even as our customers face times of need. My partner, Rahul, will join me, but he'll close first before we take Q&A, walk you through our financial outlook, after I give a little of that at the beginning. Rahul comes to us an experienced public company CFO, someone who, together with myself, will drive capital allocation to align management with shareholders. I am so excited to be here with you today to reach this milestone, and there's probably no place more fitting than to be in Freedom Hall at the New York Stock Exchange.
Not just because it's Freedom Hall, as we return to our roots as a public independently traded company, but because in April 1920, 100 years ago, Otis first listed right here on the New York Stock Exchange. As we target a spin that we are ready for, that we have spent time since November 2018 preparing for, that we are operating today as a company within UTC, a company within a company, we will return to our roots and list here with the ticker you see hanging up, OTIS, to celebrate our centennial anniversary of first listing on the stock exchange. Our vision is we provide people the freedom to connect and thrive in a taller, faster, smarter world. Our founders started this industry, and we take great responsibility in the 2 billion people a day who touch our product.
We take our heritage as the leading elevator and escalator industry manufacturer and installer and service provider. We marry that up to strong performance we had, proven performance in 2019. We accelerate that as we start our journey as a new company. Otis is an incredible company. It's a people enterprise made up of 69,000 colleagues. We talk about ourselves being globally local. Those two terms are a really important balance for us. We have tremendous reach going to market in 200 countries and territories throughout the world. 40,000 of our 69,000 employees are our field professionals, and they spend every day at customer sites earning that customer trust and driving, 33,000 of them, driving our service business. $13.1 billion in revenue last year, n umber one by far in the industry. We maintain over 2 million units globally. We do that locally through 1,400 branches and offices.
It's that balance, it's that local knowledge, it's that local customer relationship, it's that local ability to handle economic headwinds in local territories that gives us our strength. That 2 million portfolio, though, gives us scale, it gives us density, and gives us reach. In this business, having that density on routes and in cities is what's critical to our success, and it's what drives our profit premium above our nearest competitor. Our next closest competitor service portfolio, we are 25% larger than them, and scale and density matter in a service business, especially a service business that's migrating from a purely mechanical business to a far more digital business. We look back 167 years, we don't rest.
One of the key elements that I brought as I joined Otis a little over two years ago, was a focus on pace, was a focus on digital, was a focus on bringing us in to the taller, but more importantly, the faster and smarter world. We are building on this leadership and building on performance. Let me share with you why I am so excited about Otis, why I believe this has an incredible, not just market thesis, but investor thesis. Number one in our industry for 167 years running. Largest sales, highest profit margins, largest service portfolio. Largest number of employees, best coverage in industry. We are a global leader in a $75 billion very attractive market. As units continue to get added in the new equipment segment, today about 900,000 units a year, the install base grows.
The install base alone grew 50% over the last six years. With another 900,000 units getting added every year, our service opportunity continues to grow. It gives us the ability to leverage. It gives us the ability to apply the Internet of Things, and we'll take you through that as we go. It's that unparalleled service portfolio, though, that is our strength. It's our strength by city, it's our strength by region, and it's our strength holistically. It gives us the ability to drive supply chain optimization. It gives us the ability to have spare parts where we need them, when we need them, so that we can service our customers. The other wonderful thing that our service portfolio brings us is predictable, recurring revenue, even at times of economic headwinds. For example, in China.
We don't know that this is a black swan event, but our employees, our frontline colleagues, have been providing services since the coronavirus broke out. We'll continue to provide those services, again, to keep people moving safely. We take that responsibility seriously. 2 billion people a day touch our product, and we need to keep them safe. Our best-in-class margins are showing the results of investments that started a few years ago. We made strategic investments. We changed our R&D profile, and we're more focused on bringing more products to market and really driving a connected elevator for smart cities and smart buildings. You're going to hear more about that as we go on today. These margins, again, for the last six straight quarters, we have had service contribution growth, and we see far more productivity as these investments are paying off.
We also see SG&A reduction opportunities, as well as global supply chain opportunities to continue to show earnings growth and margin growth. We are not a capital-intensive business, as you can imagine. We have incredible, robust free cash flow. Last year, we had a stellar year, 119% free cash flow over net income. You'll see both in the 2020 outlook and in the midterm, we're forecasting 110%-120% return on free cash flow. Our CapEx as a % of sales averages about 1.3%, and our working capital is extremely efficient at about 2.6%. Both of those significantly under our multi-industry peers that we compete with. What's really important to Rahul and I and to this leadership team is ensuring that management is aligned with our shareholders. You'll see when we get to our capital allocation model, we've got a 40% dividend ratio.
Once we de-lever and repay back some of the debt over the next two years that we've committed to at $250 million a year, we will then turn to share buybacks and bolt on M&A as well. This is an exciting time in our history, again, in a $75 billion growing market where Otis is number one. In terms of revenue, we are number one with 17% share. You'll see the top five. This is a consolidated industry where the top five represent 70% of the revenue and sales volume globally. We're in the life-safety business here. Each of you rides our product probably every day. That happens in cities across the world, not just in high-rises, but in schools, in hospitals, in churches. It happens everywhere you turn, in malls, in airports. All of that continues to drive a market thesis of sustained growth.
The industry itself remains attractive with 53% of the industry revenue tied to service and 47% of the industry revenue tied to new equipment. Very strong fundamentals. Those fundamentals are built on urbanization. 50% of the world's population today, 50% of about 7.5 billion people live in cities today. It's a great target market for us and for this entire industry as buildings grow taller. By 2050, 70% of the world's population, over 7 billion of the 9.8 billion people will be living in cities and will be demanding more buildings. They will be demanding older buildings getting modernized and upgraded, there's just incredible opportunity on the new equipment segment side over time.
The middle class is demanding more, and we see that in cities in China where buildings were built 20 years ago, up to seven stories with no elevators, where now they're demanding more. We're going to see that throughout the globe, and it's that demand signal that's going to drive the segment for both new equipment and then service. Even though we're a long-cycle industry, we are a long-cycle industrial. We have the ability, this industry, to see construction trends about 18 months out. We have the ability to weather, obviously, service and maintenance trends. This industry absolutely has the need to move digital the way all other industrials are. We take that responsibility seriously, and we'll be talking about what that means.
With more connected devices, with all elevators and escalators eventually being connected, providing us with sensor data, we'll have the ability to be more predictable, more proactive, and more transparent. People will demand it, both passengers in a connected mode as well as customers to understand, "Is my elevator working?" We want elevators to move quickly, to take the least amount of space in a building, to move safely, and to transport people as effectively as possible. The business model has been consistent for well over 100 years in this industry. It's a beautiful business model that starts by selling new equipment. Again, about 900,000- 1 million units a year get sold throughout the globe. More than half of those in China for the past few years. The new equipment is sold, we then have a warranty period, and then we go into service.
That service includes scheduled maintenance and repair. Our typical service contract globally is about four years in duration. Through that time period, we measure conversion rates to make sure we convert to service, and then we measure retention rates. We have an industry-leading retention rate of 93%. Those customers re-sign with us 93% of the time, and we're working to continue to raise that retention rate through relationships, through data, and through performance. At about the 20-year point, those buildings with those elevators, as you can imagine here in the city, are competing with new buildings. They need to modernize. They choose to modernize for aesthetics inside the cab, but they also choose to modernize for technology insertion, for new controllers, for new systems of propulsion.
That modernization business offers us tremendous opportunity in the future, and several of our presenters will take you through exactly how large that opportunity is. The opportunity alone is exciting, but what I love about it is it resets the clock for another average 20 years of maintenance and service, and that's why the maintenance and service business continues to grow rapidly. Over the last six years, the new equipment market has grown about 9%. Over those same six years, the install base has grown 50%. That's the opportunity. We ended last year with 16 million units in the world. Otis has 2 million of those on our portfolio. Every dollar in this market of new equipment profitability generates 2.5x that over the life cycle of the installed unit.
Again, with a very attractive cash flow portfolio in terms of advanced payments, both on the new equipment side and on the service side. Within this attractive industry, we are the leader. We've been the leader for 167 years. Over $13 billion in annual revenue last year, 14.3% adjusted profit margin after we've included the corporate costs that will now be part of an independent Otis, and again, over 2 million units giving us density and scale where scale matters. As opposed to the market itself, we are more heavily skewed in terms of our revenue to service, 57/43. As we've now shared in the Form 10 filing and sharing here today, we have an 80/20 breakout for our adjusted profit. Our service business drives 80% of our profit, which is why we made significant investments several years ago in service productivity and service transformation.
The proof, again, six straight quarters of service contribution, and the last four quarters, every quarter in 2019, every one of our region had service contribution growth every quarter. we absolutely have found that productivity lever, and we're going to continue to expand on it. It's important to note, as opposed to a lot of other industries, our new equipment business is also profitable. it contributes at the beginning, and then again, with that 2.5x ratio, just creates a business model that's very attractive for the industry, but more importantly, for Otis. Our portfolio and our people and our revenue have a beautiful spread in terms of diversity, both geographically as well as revenue. We cover the world, and we take that responsibility seriously. You can see the sales numbers here, very balanced between EMEA, the Americas and Asia.
What you do see here are two things. One is in the more mature markets, not surprisingly, our service revenue is higher. That will also drive the modernization that I spoke about. We will also record as a sub-segment in our service segment, and we'll report on that as we go forward. You'll see modernization broken out. In EMEA and the Americas, where you have more primarily developed markets, you've got more mature markets and far larger service portfolios. In the higher growth markets in Asia, in China, in India, in Southeast Asia, we're at an earlier stage in many of the countries, and our new equipment sales are much higher. The other attribute about Otis you need to be aware of is we have no single customer, no single project that is large or impactful or can really be significantly material.
We have a diversity of customers, we have a diversity of projects, and we have an internal process to ensure that anything, even our regional presidency over any bid over $5 million. Rahul and I see those at a little higher threshold, as you can imagine. We don't have a lot of those. This $13.1 billion comes together a few thousand dollars at a time in our service business, and then with installs throughout the globe. Nice diversity, nice stability, great predictability, recurring revenue, that even when there are construction or real estate headwinds in parts of the world, our service portfolio carries us through. We can't do this without being an innovator. Our founder was an innovator. He founded this industry in 1853, right here in Yonkers in New York. Elisha Graves Otis started this industry. I have a photo of him in my office.
I recall as I look at that, the guts and the innovation this person had to cut the rope at the World's Fair in 1854 many times a day to prove that his product was safe. It's that safety and quality that's in our DNA, but also the innovation, the need to continue to drive forward in this long cycle, fairly traditional mechanical business. We made some changes and we've made some commitments. We've increased over the past five years our R&D spend. After some years where we probably were not investing as much as we needed to about 10 years ago. We've changed that R&D and the strategic investment spend now to be about 1.6% of sales.
We think that's about the right level, and I think if you convert that to absolute dollars versus our sales, you'll find it's pretty close to our elevator and escalator peers. We believe that's about the steady state level to drive us forward, not just with our next generation elevator you'll hear about today, our Gen360, but we've hired 300 software engineers, data analysts, people who specialize in artificial intelligence. Again, with the largest install base, we have tremendous information available to us. By advancing our investments in IoT sensors and the Internet of Things sensors in our Otis ONE program, we absolutely will continue to grow our service portfolio significantly. We've changed the mindset from a fairly mechanical product, a robust product, but a fairly mechanical product to make it electronic.
Beyond all the speed advantages and data advantages that gives us, think of the service advantages that's going to give us. Think of your vehicle that you buy today and the fact that pretty much now you take it back to the OEM because it's got a smart computer in it, and that's what's going to be part of our IoT offering. In that portfolio where we have 2 million of the 16 million last year, 9 million of that portfolio was held by independent service providers. Over 50% of the install base is serviced by smaller independent service providers. We're going after that market.
We're going after the 3.5 million units that have Otis controllers in them that we have about 1.5 million in our 2 million portfolio. Because we'll be able to take fault codes off of those, we'll be able to use that data more effectively than any other service provider. as we move to that IoT Otis ONE offering, that digital offering is going to be a discriminator and is going to allow us to accelerate our portfolio. We talk about smarter and faster. We're going to show you products today that do that. Our Destination Dispatch product, our Compass 360, our Gen360 elevator, which is being piloted right now in Europe, that provides significant features that Robin will take you through. faster is not just about moving people every day. Faster is also our customers telling us they want to construct faster.
We have our new SkyBuild elevator that allows, instead of the construction elevator you see rented on the side of a building, actually allows the end-use elevator to be used during construction to move construction workers faster and actually get buildings raised faster. as we think about connecting the elevator to passengers, connecting the elevator to customers, connecting the elevators to our field technicians, it is all about using data, having it being personalized, and we're going to talk about our digital apps and Otis ONE and what that drives as we go on. We can't do this without disrupting ourselves and becoming a digital company, a digital industrial in a long-cycle industrial business. That's the journey we've been on for a few years. That's the journey that is absolutely returning the results we saw in 2019 in terms of service productivity.
That's the journey that will take us into the future. We have the skills, we have the technology, we have the reach, and we have the scale to drive that better than any competitor in this industry. You're going to hear more about that. It's going to drive conversion rates and retention rates. It drives stickiness, that enhancement in that customer relationship where they say, "Yes, Otis, I want to do business with you over and over again." The reason we do that is because very few of our customers actually buy service when they buy the equipment. Our new equipment customer set is primarily architects, general contractors, developers. Our service customer set is different. It's building managers, facility owners.
With the exception of infrastructure type or government opportunities, we have two sales forces, and that's why we operate in two segments focused on two different customer sets. We can't do this without our people, 69,000 colleagues who show up every day, the majority of them showing up at a customer location, if not multiple customer locations every day, representing us and representing our brand. They are the heart and soul of our company, and I'm pleased to report that our attrition rates have decreased 25% in the last three years to where we're in the mid-single digits on voluntary attrition in terms of our employee base.
I think it's because of the culture we've created, a culture that empowers people in 1,400 branch offices to make decisions real-time, that empowers our field professionals to be able to serve customers real-time and say yes and get their elevators back up and running. We're based and our culture is really based on our three absolutes. First and foremost, we want every employee to go home every day safe, back to their family. This is a life safety industry, and we take that responsibility seriously. In parallel, 2 billion people, including yourselves, trust us every day with our product, and we want every one of you to be safe and not think about stepping onto our escalators or stepping into our elevators. We will always do the right thing, and we will ensure the same quality that started this company is pervasive throughout the globe.
Innovation and our core values are what drive us. We will continue to drive with a pace I'm not sure you've seen in Otis in a long time, but there's an excitement building in this company. I'm excited. I'm confident. The employees are confident. We're here to deliver, and we will be aligned with you. We do this in the communities we live and work, and we take that responsibility not just for the rider's safety, but for also the impact we have in the communities where we serve. We're focused on reducing our environmental footprint, not just in our manufacturing plants, but also in our products, making our products more energy efficient. If you go to the iconic Empire State Building, you'll see our regen product there driving 75% energy efficiency.
We are not a large energy consumer in buildings, but we can all do better, and you'll see we'll continue to drive that. Because we're a distributed workforce, it's important to us that we look like and hire the best talent and represent the best talent in every place we serve. I'm delighted to lead a diverse leadership team because all voices are important, and we want the best ideas. We've brought in some people, some experts from the outside to help us with our pace, to help us become a digital industrial, to help us grow to drive better shareholder value. We'll continue to do that. A third of our executives are female. We have diversity. Whether you go to any country in Otis, we look like the country we're doing business in, and we want the best talent every day for those 69,000 colleagues.
I'm really pleased with our Board of Directors. Again, another diverse group, five diverse of the nine. More importantly, the diversity of the backgrounds they bring, the knowledge they bring, the experiences they bring across a myriad of industries to help us govern. Before I turn it over to Robin, I'd like to share with you an early look at our 2020 outlook, as well as our midterm outlook. Rahul will go into more details, but this is what we've put together, our first view going forward, and obviously our intent to meet our commitments the way we did in 2019 as well. 2020 expected to be a solid year for us. We are obviously taking on the corporate costs, which we have an SG&A commitment between us to continue to drive down.
We expect sales to grow organically 2% to 3%, in line with our expectation for global market growth. Our operating profit will be up $40 million to $70 million by continued growth in service contribution as a result of our investments and our service transformation activities. Our free cash flow will be about $1 billion-$1.1 billion at a conversion rate of 110% to 120%. Again, we'll go into more details on our financial initiatives and our capital allocation strategy in Rahul's presentation. In the midterm, we've got a strong outlook. We're targeting organic sales growth of low to mid-single digits, low single-digits on the new equipment side, again, with a flattish China market that's over half of the accessible market, and mid-single digits on the service side.
Building on our best-in-class margins that already exist at 14.3%, we're going to have consistent margin expansion every year as a result of our investments. Operating profits will be up mid-single digits, but there will be margin expansion starting in 2020 and every year ensuing. Our EPS will grow in high single-digits. earnings will be up, earnings growth will continue, but EPS will be up even more because we have opportunities and we'll talk about our tax situation and some of the opportunities in terms of the effective tax rate for us to drive high single-digit EPS for our shareholders. our free cash flow, again, just an incredible cash profile, 110% to 120% conversion. This is an exciting time. Best-in-class margins, recurable predictable revenue, high single-digit EPS growth, robust free cash flow.
It's an exciting time to be part of Otis and it's an exciting time for investors. We're ready and we look forward in early April to becoming our own publicly traded company. With that, I'll ask Robin Fiala to come up and take you through the two segments.
Well, good morning, everyone. I'm Robin Fiala, the Vice President of Sales and Marketing for Otis. As you heard Judy mention, I started my career 30 years ago at Otis in the local operation, doing almost every job on the front line, selling, supervising technicians, running the P&L, and really learning the business from the ground up. In fact, I started my career right here on Wall Street selling for Otis. As the song goes, if you can make it here, you can make it anywhere. It's especially true in the elevator industry. I was later able to leverage that experience and go on and do many different roles, including leading the Americas sales and marketing organization, and now doing it at a global level.
During my tenure, I've traveled to every major market around the world, and I've been part of every part of the sales and marketing cycle. Being responsible for releasing some of the industry's most innovative products, like our Gen2 offering and our Compass Dispatching system. Today, and as we lead up to spin, it's certainly a very historic time for Otis. As a result, the focus of the organization on ensuring that we execute our strategy has never been stronger. It's why I'm really excited to be able to share with you today the transformation that's well underway in both our service and our new equipment segment. I'll share with you both the things that are going well, as well as our opportunities for future growth. Let's talk about Otis.
We operate in over 200 countries and territories around the world, arguably one of the most global companies with over 1,400 branch locations. It's our ability to leverage our scale to deliver the highest quality products and services in each one of our branches that truly sets Otis apart. Whether you're in Kuwait at the airport or in Chicago at the Willis Tower, where we're currently performing the largest modernization in the world, customers across the different verticals, the geographies, and across these two different segments choose Otis Elevator Company because of our industry-leading reputation for quality, safety, and reliability. While we report our results separately for our new equipment and our service business, these businesses are closely intertwined. Whether it's from a business model perspective that you heard from Judy or from our customers' decision-making process.
Our strength across both segments is what is a key competitive advantage for Otis in the market and will continue to allow us to differentiate our business performance going forward. Let me start with our view of industry growth over the next five years. This chart shows our forecast of both new equipment and the installed base growth over all major regions around the world, and we're using the installed base as a proxy for growth for the service business. We're expecting the global new equipment market to be relatively flat to slightly up, driven primarily by our expectations that the market in China will be flat over the same period of time. In China, new equipment installs will remain around 550,000 units or so, and while this is a strong base, it pulls down the overall growth rate.
Other major markets are expected to grow low single-digits. The global install base should grow around mid-single digits, considering the industry typically installs about 1 million units a year on a base of 16 million as of the end of 2018. China's install base will be in high single-digits. At the install base, there is about 6 million units growing a little more than 500,000 units a year. Let me review now our plan of how we're going to grow faster than the market in new equipment. Of the approximately 1 million units sold globally, Otis has a very strong position, winning a little more than 16% share. Supporting these sales are our industry-leading products.
Whether it's in our volume business with our Gen2 offering, the most energy-efficient, flexible product on the market, to our SkyRise system, the product of choice in many premier installations, whether it's the renovation of the Empire State Building or the new installation here in New York at 30 Hudson Yards. As Judy mentioned, our focus on sustaining new equipment growth is a key part of our strategy, not only because it provides incremental profit to new equipment, but it's a key driver of our service portfolio and thus our recurring service revenue. To drive new equipment, we're focused in three key areas. First, identifying pockets of opportunity to better cover the market with our sales channel. From the product side, it's looking for opportunities to expand our industry-leading product portfolio. Finally, it's about introducing new innovative solutions focused on meeting customer needs.
Let me start by looking at how we can improve sales coverage to drive growth. We're identifying opportunities where our current sales channels aren't fully covering the market. To do this, we're assessing each one of the top markets, looking at both our coverage and our share of segment. Directionally, the higher our coverage or the more projects that we're bidding in any given market, the higher our share. Globally, we miss about 20% of the global market. While there's opportunity, the good news is we're making progress. You see an example here with Germany. Germany is the fifth-largest country from an elevator perspective in the world, the largest market in Europe. Over the last five years, you see that we've improved our coverage in Germany by five points, and as a result, have improved our share there by two.
To close these gaps globally, we're expanding our sales force and our sales channel, and you're going to hear a little bit more from Perry Zheng on what we're doing specifically in China to expand our agent and distribution network to cover the China market more. At the same time, we continue to drive sales efficiency through new tools and technology. In fact, let me give you an example of how we're leveraging technology to reach more customers, particularly customers that we don't cover well today. Based on size of the largest segment of customers in many countries have only one unit in their projects. Yet today, these are the customers typically engaging with us online. To help these customers, we've created easy-to-use online tools, and you see an example of the Otis Create digital configurator. Feedback on these enhancements have been great.
We see this as opportunity to enhance our coverage through more effective means, particularly for the customers that we don't reach well today. Let me talk more about product now. Just like in sales coverage, we're looking to identify areas where we have gaps in our product offerings that are preventing us from covering the entire market. To understand the full opportunity, we've segmented each one of our top countries. Here you see an example of the Indian market. If I orient you to the chart on the left for a second, when we look at product coverage in our industry, it's typical to slice the data based on speed and size of the elevator.
In this case, we're using vertical as a proxy for size. The box in green shows the significant progress we've made on closing the gap from 1 m/s and above in the Indian market, which is a significant portion of their market, allowing us to gain five points of share in India. The remaining opportunity in the lower left of the chart is the entry-level market, less than 1 m/s. This also exists in other countries like Southeast Asia, Turkey, Middle East, and Africa. It represents about 5% of the global market. Closing this gap will allow us to increase our global share by about a point. Of course, it isn't just about expanding our current product offering. It's also about bringing innovation. In fact, over the last four years, we've increased our investment spend by channeling it in a few strategic areas.
First, we focused on making our systems smarter. That includes IoT and sensors. Next, we've invested in helping customers build their building faster. You heard Judy talk about the Otis SkyBuild system that allows customers to use the permanent elevator and hoistway to move construction workers three to four times faster than the hoist that you typically see on the outside of the building. This allows them to build their building faster, get tenants in sooner, and overall reduces the total cost of capital. Finally, we're focused on the entire passenger journey, making it more personalized, faster, and seamless. You'll hear more about those products throughout the day. I'm going to shift for a minute and talk about our next generation system. Otis has been inventing since Elisha Otis cut the rope to demonstrate the safety brake in 1854.
Our latest innovation, the Gen360 system, is a digitally native platform. It allows us to move from a more mechanical system to an electronic architecture, similar to what you see in the airline and automotive industries. This architecture itself gives us significantly more information about what's happening with that elevator on the job site, and also allows us to do far more remotely. Whether it's fixing issues or it's allowing us to activate subscription services over the air. It also gives us a compact design. As a result, we're going to see step function change, not just in productivity and reliability, but in the value we can provide our customers.
Based on our experience with other connected products, we not only expect to see improvement in our new equipment business, but also in our service business, and improvement in our service rates, both our retention rate as well as our conversion of new equipment units into our service portfolio. Gen360 is currently in pilot phase now with units up and running in Europe. The bottom line is our strategy for growth in new equipment is demonstrating results. We've been able to grow our share by two points over the last couple of years. This strategy is really a balance of tactical elements combined with new innovation that's driving significant value for our customers. The focus and investment that you just heard about will allow us to grow faster than the market.
I'm going to just underscore the fact that the growth in the new equipment business helps us grow our service portfolio and is really a key piece of it. I'm going to turn now to talk about our service business. The service business itself is more fragmented than new equipment due to the lower barriers of entry. In fact, independent service providers are estimated to have 50% share of the new equipment business. However, our over 2 million units in our portfolio makes Otis the clear leader in service by nearly 25%, the second largest player. The more units in our portfolio, the more opportunity we have to sell modernization and repair. Thus, accelerating the growth of our portfolio is a key piece of our strategy, and we have momentum. Our industry-leading retention rate of 93% has improved over the past four years.
At the same time, our conversion of new equipment units into our service portfolio finished 2019 at an 11-year high. Keeping the customers at the center of everything we do is a key piece of our service transformation, and the recurring nature of our service business makes our service portfolio size key. let me share with you now some of the drivers driving the growth in service. First, it's leveraging the data from our expanding portfolio of connected units. It's putting technology in the hands of our frontline employees. It's adding additional revenue streams through subscription services, and it's earning our share of the modernization market. let me start with talking about our experience with connected elevators and why the introduction of Otis ONE gives us a unique advantage in the market.
Just as Otis enabled the modern skylines of today. We are reinventing the services of tomorrow with our Otis ONE connected platform. In 1985, over 30 years ago, we launched the industry's first connected elevator. As technology has evolved, so has our connected product. Our experience has taught us not only what data to collect, but more importantly, how to turn that data into action. That's what gives us the unique advantage in the market. In fact, our portfolio of almost 400,000 connected units, we have fewer shutdowns, we have better uptime, and we're able to fix issues faster. More importantly, our customers see the value. As a result, we have higher retention rates. Because we have to spend less time on the job site fixing issues, our costs are less.
With the introduction of Otis ONE and our cloud-based IoT system, we can now provide real-time actionable information to our entire service network at once, whether it's our customers, our technicians, or our call center, giving us the ability to further drive productivity, customer satisfaction, as well as find ways to monetize data. Let me drive home the power of Otis ONE. Today, on a unit without Otis ONE, a customer has to call us when there's an issue with the elevator. When the technician arrives on the job site, they have very little information about what's going on with that elevator. Maybe they know it's the east side elevator that shut down. They have to begin the comprehensive troubleshooting process from the beginning. Where's the elevator? Why did it shut down? What was it doing before it shut down?
With Otis ONE, the elevator notifies us when it has an issue. No need for the customer to call us. The technician on their app in real-time, away from the building, is able to see exactly what's happening with that elevator. Is it shut down? What's been happening to it? Where is it located? Is the doors open or not? Allowing them to be far more efficient. At the same time, the customer can see through our customer portal also exactly what's happening at the same time. Otis ONE is a game changer for us. Proactive, predictive, and transparent information. Later in the presentations, we'll share with you on what we're doing to further roll out this product. Let's talk about other ways we're leveraging technology.
We've also made significant headway in putting technology in the hands of our frontline employees, and we're doing that through our iPhone deployment and our suite of applications focused on productivity, growth, and improving customer satisfaction. On the left is an app that allows the technician to use their iPhone and simply put it on the ground of the elevator or an escalator. Through the technology of the iPhone, they're able to pick up vibration and sound. Through our proprietary algorithms, we're able to diagnose the issue. More importantly, tell them what they need to do to fix it. That's what you see up here on the screen. It's truly a win-win. For our customers, the elevators are back up and running faster, and for us, because we can fix it faster, our costs are lower.
On the right, you see the upgrade app. This is an application that we give to all of our service technicians, who, by the way, are trusted advisors of our customer. It allows them to be able to sell parts and upgrades directly to our customers, allowing us to expand our channel by tenfold here. Let me now switch to discuss our progress with selling subscription services. This is a key opportunity for us going forward. The good news is we have success today, but we're just beginning to scratch the surface here. Historically, we've sold upgrades as really one-time purchases, one-time fees. Today, we have several products out on the market where we're changing the strategy.
In fact, over the last three years, we've been selling products using the software as a subscription service model, charging a monthly fee for things like content on the elevator screens, ability to call the elevator from an app on your iPhone, access to APIs, all providing incremental value to our customers, and as a result, we're able to get incremental monthly recurring revenue above and beyond the maintenance contract for these services. Mark's going to share some more details about the success he's having in Europe here. Clearly, customers see value as we're seeing a threefold benefit. We're seeing higher profitability on these units, but we're also seeing higher service rates, both retention rates as well as conversion of new equipment into service. The upside here could be upwards of 30% more monthly recurring revenue.
This is just another example on how the size of our portfolio matters. It gives us more opportunity to sell things like subscription services. Again, this is a big opportunity for us going forward, and we've just begun to scratch the surface. Now let me talk about the last part of service transformation, which is modernization. It's certainly another key part of our strategy for several reasons. The modernization market is growing. It allows us to start that business cycle over again, and we use it as a way to also grow our service portfolio. If we look at the opportunity, the optimal time to modernize an elevator is 20 years. 60% of our units over 20 years old are in EMEA, and you'll hear Mark Eubanks talk about how he's capturing that opportunity. Moving forward, you see the emerging opportunity in China.
Modernization is a key piece of our business strategy as it starts that business cycle over again, leading to another couple of decades of service revenue. With our strong capabilities in modernization, we're able to use this as a strategy to recapture units not in our portfolio, helping us accelerate not just the modernization business, but our portfolio as well. Let me give you a couple of recent iconic examples. The renovation of the Empire State Building and the modernization of the Willis Tower in Chicago. Truly two of the most iconic retrofit projects in the world, some of the most complex modernizations. In both cases, customers chose Otis because of our unique technology and innovation, as well as our track record to deliver in both service and modernization. As you've heard, the service transformation is well underway.
In fact, after decades of decline, we now have six quarters of profitable service contribution growth. The transformation is well underway in both segments, both our new equipment and our service segment. The pace and focus under Judy's leadership has been key to this. Clear progress to date and runway for future growth. Thank you.
Thanks, Robin. As we said, we'll take about a 15-minute break, but before we get going, I just want to introduce a few other members of management that we have with us today. We have Tom Vining, our President of the Americas business, Stéphane de Montlivault, our President of Asia Pacific, and Todd Glance, our Senior Vice President of Operations. With that, we'll see everyone back in about 15 minutes.
[Break]
All right. Good morning. I'm Mark Eubanks, and I'm responsible for Otis' Europe, Middle East, and Africa region. As Judy mentioned, I joined Otis back in April of last year after spending 13 years with Cooper Industries and Eaton, most recently as the President of the Electrical Products Group, where I had a chance to meet many of you. I'm extremely excited to join Otis and the entire Otis family up here at the front at an exciting and momentous time in our history. What I didn't realize beyond the brand, the market share, and the size of the business was how great the business fundamentals were once I landed in Europe. First and foremost, our size and scale of our service portfolio is second to none, providing recurring revenue models that allow us to stay focused on investment and execution through all economic cycles.
The low capital intensity, as well as the strong cash flow conversion, give us significant investment optionality in the long-term. Third, since Judy arrived, a significant and intense focus on digital, both in digitizing our back-office processes, enabling connectivity in our field mobility applications for our service technicians, but also most importantly around our new product innovation and hardware, securing Otis' spot in smart building, smart city, and seamless mobility of urban landscapes. Now let's talk a little bit about the business. The region across EMEA is vast in geography, stretching from London to Moscow to Dubai to Johannesburg, where we operate in over 43 countries across 14 time zones. This region is highly diverse in terms of market structures as well as maturity, with both developed and developing economies. This makes up almost 20% of the global new equipment market and 45% of the installed base.
The region has always been very important to Otis, where we have a long and rich history. First of all, it's our second-largest new equipment market in the company and is home to more than 50% of our service portfolio. Because of this, the mix of our business is highly leveraged towards our service business, where we derive 65% of our revenues. The strength of this operations is built on more than 700 branch service centers, as well as our more than 12,000 skilled service technicians. These skilled service technicians for many of our customers are the face of Otis, ensuring daily reliability and providing safety for building occupants and riding passengers for our elevators and escalators. This infrastructure is key to support the industry's largest service portfolio in the region, as well as understanding what that responsibility is of over 1.1 million units.
Today, we're super proud of that position, but we're not satisfied. We want more, and we expect to get there. The growth dynamics as well as the opportunities in our European service business will be the focus of the discussion going forward. The transformation of our service business is well underway. Over the last few years, you've heard us talk about some of the technology investments, the market trends, and even some of the high-level performance indicators. Today, we're going to show you that both our customers as well as Otis are benefiting from these investments. On the left side, you'll see the four key strategies we're using to drive transformation across the business.
First, we're leveraging our customer data as well as advanced analytics tools to create tailored pricing strategies and service plans to make sure that we're offering the right service for the right price to the right customer and at the right time in the cycle. This is key to ensuring not only that we migrate our new equipment installations into our service portfolio, but that we also continue to retain the relationships that we already have. The second is an intense focus on improving our customer experience with service excellence. We're doing this by leveraging more information and more data coming off of our connected systems as well as our Otis IoT platform. We're doing this to enable our service technicians to ensure greater uptime, higher reliability, and faster response rates.
The third area of focus is on arming our technicians with better mobility tools in the field, better mobility applications to ensure that we're not only eliminating non-value-added work, but that we're increasing the velocity of services to our customers. On the right, you'll see some of the proof points where we think these investments are paying off. The first is our ultimate measure of customer loyalty, is our customer retention rates. As you can see, this year, we provided a 40 basis point improvement on an already high service retention rate at 94%. As well, we're increasing productivity of our technicians in our field applications around maintenance. We're doing this in the last two years with an increasing rate reaching up to 4% this year in 2019. We really like the trajectory of this.
We're doing this by eliminating idle time on job sites, optimizing our travel routes between customer sites, eliminating other non-value-added work, and improving the quality of our preventative maintenance visits to ensure we don't drive too many callbacks. Third, as you can see here in the bottom, a significant step up in our services revenue per unit. This has been a result of creating a higher mix of higher value contracts, improved productivity that we're seeing on our maintenance side being redeployed to activities around upgrade and repair, as well as increasing the stickiness of our customers, eliminating cancellations. Lastly, we're transforming and energizing our modernization business. This is the key to making sure that we extend our customer relationships. As Robin mentioned, we're going to see low single-digits for new equipment installations in the coming couple of years.
Modernization is a great lever to drive incremental organic growth, as well as extend the value and life of our customer relationships. All of these activities are focused, again, on creating a higher value, higher health service portfolio. Otis has been investing in connectivity and IoT solutions for decades. As you can see from Robin's presentation, we have a high focus here in this area. We rolled out our first connected systems that really were focused on remote monitoring as well as storing data for remote diagnostics, and root cause analysis after the fact. Today, we have over 400,000 units globally that are connected to our Otis monitoring systems. Two-thirds of those units today are in Europe. These systems provide not only system health, remote diagnostics, but also remote intervention to allow us to put our customers' systems back in service more quickly.
A simple but powerful case study is here in this chart, in Spain, regarding the increasing adoption of connected systems across our portfolio. In the last three years, we've seen an acceleration rate, and certainly in 2019, another inflection point of growth on this portfolio. Across the 250,000 units today, more than 25% of these systems are connected and continues to grow. It first started with remote diagnostics and simple remote monitoring, and then has evolved into an improved customer experience through streaming personal passenger infotainment into the cab. Our latest connected systems are leveraging cloud connectivity not only to deliver cab personalized content, but passenger personalized content, as well as leveraging real-time data to increase uptime as well as system reliability. Today, across the region, our 275,000 units are really delivering results.
The first, as we talked about, improving our customer retention rate, we actually see a higher customer retention rate in the customers that are connected. We're also seeing that our latest EVU system in our new equipment installations are creating this 8%-9% increase in conversion rates from construction into our service portfolio. At the same time, on average across the region, we're seeing a 19% increase in services revenue per unit for these systems. This technology is a key enabler as we go forward with our Otis ONE technology platform. We think that these systems can continue to provide rich data sets that allow us to better predict system failures and make sure that our customers are realizing data-driven business outcomes. We also believe that this improved passenger experience not only will be focused on entertainment, but also on safety.
You'll have a chance to see one of the use cases of our interactive video in-cab for entrap passengers in some of the demos outside. Then lastly, this technology will allow us to become a key building block in the smart city, smart building infrastructure of the future. You heard Judy and Robin both talk about empowering our technicians, and we're doing this with digitization as a key component of our strategy. We're making significant investments, not only in iPhones, but in mobile applications that are customized to allow our field service techs to avoid the inconvenience of having to drive back to a branch service center to complete paper or PC-based workflows like our repair work order or a parts requisition or even their own time sheets.
By the end of 2020, we will have deployed iPhones with this connectivity to more than 85% of our mechanics before the end of the year. Two examples, one that was already mentioned, here is our upgrade app. This really demonstrates the power of mobility. We're able to generate repair and upgrade proposals directly on the job site. Recently, I was on a ride-along in the Paris area with one of our mechanics on our preventative service visit. We took the opportunity to replace a burned-out fluorescent light bulb in the cab. As soon as we were done, the mechanic pulled out his iPhone, opened up the upgrade app, scanned the QR code in the elevator, took a picture of the elevator control cab, used the pull-down menu to select LED lighting upgrade, and hit submit.
Less than five minutes, we created not only a warm lead, but a hot lead for our service sales reps to follow-up on. This is the kind of activity that generated what we saw as a 2x increase of repair orders from our maintenance technicians in 2019. This was an incremental $20 million worth of repair orders, resulted just from the mechanics that received this in 2019. The other significant time saver and productivity lever is our parts app. This is an application that allows our field service technicians to order spare parts directly on the job site over six times faster than the previous processes. This not only reduces the administrative burden and also allows us to order the part faster, but more importantly, gets our customer's unit back up and running. We are continuing to innovate in this area of mobile apps.
Today in EMEA, we have over 10 of these applications deployed and empowering our service technicians to not only create a more satisfying work experience during their day, but also to solve more customer pain points efficiently and drive revenue growth across the portfolio. Across the region, modernization will be a significant opportunity going forward, actually one of the largest. As Robin mentioned, more than 3 million units in the installed base across the EMEA are over 20 years old and are ready for modernization. With the largest installed base and the largest share of portfolio and the largest share in the mod business, we think we're well-positioned to outgrow the competition in this area. The investment thesis is straightforward. Modernization is a lever to increase the health, the longevity, and the value of our service portfolio.
We have the opportunity not only to use these mod solutions to extend the life of our agreements with our existing customers, but also capture other units into the portfolio. Beyond the business model of modernizing existing elevators, there are other fundamentals underlying this investment thesis. One of these is the missing elevators in many of the buildings across Europe. In Spain and France alone, there are 630,000 buildings that have four floors or more and don't have elevators. Couple this with the aging demographics that's been well chronicled, we know that the demand for vertical accessibility will continue in existing buildings without mobility.
To capture the opportunity, we built an end-to-end strategy with a dedicated organization, digitalized selling tools and proposal configurators, and a comprehensive product offering that allows us to offer real value propositions to our customers that are not only saving energy, but also providing more visibility and uptime. Our modernization strategy will continue to be focused on bringing these units into the portfolio to not only grow, but extend our sticky relationships. Our track record is improving. We're making consistent gains across the service business in EMEA. As you can see, 2019 was the first year since 2010 where we demonstrated contribution margin growth in our service business. This wasn't from a one-off event that allowed us to put this data point out there. As you can see, it was four consecutive quarters of increasing growth.
Not only did we demonstrate a full year of growth, but we like the trend as it extends into 2020. This growth all came from being in tune with our customers, understanding the data, how to offer the right service, the right price, the right time, and the right customer to maintain the health of our existing portfolio. We're also leveraging data to create a better customer experience, as well as empowering our field sales and field service organization to extend touchpoints with our customers. All of this was built under the premise of supporting growth in our service portfolio to strengthen our recurring revenue and strong cash flow model to continue to support a growth-oriented investment strategy for the future of EMEA. Thank you. I'd like to now turn the floor over to Perry to discuss China.
Good morning, everyone. I apologize for not being there due to the coronavirus outbreak. Otis China management and I are actively monitoring the situation, and our obvious priority at this moment is to ensure the health and safety of our employees, and at the same time, support our customers as needed. Our service team is still on duty and is focused on responding to customer calls and ensuring that we fulfill our maintenance contract obligations. We are allowed to reopen our offices this week gradually, and employees are beginning to come back to work where possible. As soon as the situation is getting back to normal, we will be running full speed to catch up the business. Let me start with the first page. China is the largest market for elevator industry in the world.
2019, for new equipment units, China represent around 60% of the global volume, and 6 million units installed base, which was around 40% of the global installed base. All the global players are in this market with another over 300 local companies. Competition is always very active. The trend in last 10 years is that new equipment market keeps consolidating to top players, while service market remains fragmented with over 13,000 individual service providers. Otis China is a leading player in this market. We established the first JV 36 years ago, and it was one of the earliest JV in China elevator industry. We've built strong local partnership since then, and still are very effective now. In the last 10 years, we underperformed slightly on unit term for new equipment and service, as we always wanted to focus on profit growth.
However, we gained the share nicely in recent four years. Today, we have a strong presence in this market with over 15,000 employees, including 8,000 service mechanics, and more than 650 locations to serve our customers in both new equipment and service. Next page. China market is a market with quick changes. In the last 10 years, since 2009, there were two phases with regard to the market situation, and coming five years is going to be a very different period. The first phase was after 2008 financial crisis. The investment in infrastructure and the property market were boosted to stimulate the economy. Elevator market grew very quickly with less price pressure. The second phase was from 2015, while the property market was cooled down. Competition was heavily price-focused, while input cost increased due to the commodity headwinds.
This situation improved slightly since 2018, as the infrastructure investment increased and the real estate market became more active to offset the economy growth pressure from U.S.-China trade war. The commodity price stabilized due to decline of the demand as well. As we look forward five, six years from 2019, the market will be quite different, but still have lots of opportunities. China urbanization will continue. The first three mega city clusters have been approved. Infrastructure and the real estate investment in those areas will be expected to continue, and the quality of those investments will be a key focus. However, the cooling measures are expected to remain, and we anticipate the new equipment segment size will be stable and flat at current very high level. Real estate developers are consolidating, and they will more prefer to work with big OEMs and international brands for both new equipment and service.
Building maintenance code is changing, and the regulators are driving towards IoT and condition-based maintenance. It will significantly change the current service practice and profitability in China. Installed base will continue to grow high single-digit with increased aged portfolio. The refurbishment of existing properties becomes a great opportunity for modernization. To conclude, next five years is going to be a new phase for elevator industry in China. We are very exciting about industry growth opportunities. Next page. Otis China has a strong team and talent with rich experience. We had solid performance in each of those phases in new equipment business by adapting right strategy at the time. In the fast growth phase, Otis China leveraged the multi-brands to better penetrate each segment. With strong cost reduction efforts to offset the price erosion, we grow sales and profit at the same pace during this period.
When the market becomes saturated with commodity price headwinds, we focus on taking cost out of our system. We rationalize the brands and the manufacturing footprint, invested in engineering and product rationalization, and invested in service digitalization. At the end, we stabilized the new equipment pricing in 2018, and significantly improved it in 2019. At the same time, we increased the shares through tiers three to six cities. In each phase, we always carefully balance the share growth with sales and profit in order to have a healthy and sustainable financials to support future growth. All this solid performance, the transformation and investment we made in last five years, make Otis China well-positioned for next five years.
Despite the new equipment market might be flat in next five years, our strength in engaging strong sales network, expanding coverage, working innovatively with top developers and infrastructure customers, introducing new products and solutions, will allow us to gain shares in this market while improving new equipment profitability. Next page. China new equipment go-to-market strategy is a hybrid strategy as we leverage agent and distributor network where it is impactful, and invest the direct sales in where it works. Our agent and distributor's coverage and productivity is the key for the success. In last five years, we consolidated two lower-end brands into one of the larger brand, Otis Electric. This change allowed us to better attract agent and distributors, and we doubled our network in lower-tier cities, where the market was more active as cooling measures were less restrictive. Our shares in lower-tier cities increased nicely.
This change also helped us to stabilize and improve new equipment pricing in 2018 and 2019. In next five years, the playing field changes back to Tier 1 and Tier 2 cities, especially for Tier 1 cities, where lots of top developers headquarters are. The success with those top developers will help us to increase shares in all tier cities through frame agreement. There is a clear trend that top 100 national developers are consolidating the real estate market. Their shares in sales are moving towards 50% now. Their demand in elevator will be doubled in 10 years from 2016. Otis are well-positioned in this top developer segment, especially with top 30 developers. We have been working with most of them, and in any given time, we have frame agreements with around 60% of them since 2015.
Our coverage for rest of 70 can be improved, but even though our volume from top 100 developers doubled in last four years. We have made investments and changes to support top developer business, including develop and enhance channel partnership to better connect with top developers. Tailor-made product for top developers in order to respond their specific needs with big volume, and achieve cost competitiveness at the same time. Collaboration model. One interface with their headquarters and local reach to their branches. Good installation and service quality, which will be measured in their very sophisticated measurement system. Our goal is to keep 20% CAGR in next five years by focusing on shares of the wallet and acquisition of new top developers. In 2024, our volume from top developers will be five times of 2015. Next page.
At the same time, the infrastructure investment is expected to continue along with the mega city cluster planning for China organization in next phase. We believe urban transportation mileage in railway and the metro will continue to grow at 17% CAGR. You may not be aware that China is even a bigger escalator market than elevator. 70% of annual escalator volume is in China. Otis China always did well in infrastructure segment. Our share in this segment is one of the highest. We have two reputable brands with good track record in metro and railway segment. They can join the bid together in most of the case, which increase our chance of winning. Our new platform escalator product, good reputation in project execution and service, made us stronger in this segment. With increasing knowledge and experience with infrastructure customers, we expected to continue our success in this segment.
All the successes in different segment are going to be supported by new products and innovative solutions. In last five years, we rationalized the China product offerings. The rationalization projects covered all existing products and converted 15 product platforms into five, which are named as new platform products. The new platform products are more modular-based, reflecting latest customer requirements and quality enhancement. Much more field-friendly. You can imagine how much complexity removed from operation side for cost, quality, and efficiency. By the end of 2019, 95% of the new bookings were new platform products already. We also invested in product customization capabilities to better support emerging customer needs, enhance the modular-based new platform products, 3D modeling design, plus newly enhanced contract engineering capability, allows us to quickly generate account-based solutions with competitive cost. It gives confidence to customers, mainly top developers.
Other innovative solutions are also welcome by customers, including new equipment IoT solution, modular aesthetics, eCall, and other seamless security features. With right sales network, focus on right segment. With new products and innovative solutions, we are confident that we can gain shares in a flat market with sustainable profit. Next page. While we are optimistic in new equipment opportunities, the service opportunities are even more significant and exciting. With recent market development trends, we believe these opportunities are accelerating to materialize. China elevator installed base reached to 6 million units in 2019, and expect to reach to 9 million units in 2024, even with the assumption that new equipment market size will be flat in next five years. In the total installed base, there will be 1.2 million units aged than 15 years in 2024, which likely to be modernized or replaced. Great opportunity.
China service market is still very fragmented, with more than 13,000 individual service providers, while major OEM share is very low. With expansion in infrastructure and the top developer segment, the conversion rate of the big OEMs is able to be improved dramatically. We can also be selective based on service pricing to achieve both portfolio and profit growth at the same time, which has been proven in recent years in Otis, China. New equipment share growth will also be helpful. China code is developing to condition-based maintenance, which will reward investment we made in service digitalization and IoT in last few years. With increasing service portfolio, there is nice recurring sales with improving profit ahead of us. Next page. To be more specific, there are two drivers allowing Otis to grow service portfolio and profit. The first one is improving conversion rate through customer mix and other traditional actions.
New equipment volume expansion in infrastructure and top developer segment will largely help the conversion rate for service. This trend drives consolidation of property management industry, who are our service customers. Large property management companies require elevator maintenance companies with national coverage, standardized quality, and a management system. All these will be favorable to large OEMs like us. As you can see that we have around 80% conversion rate in infrastructures and top developer portfolio, while others' conversion rate is around 30%. These customers care about the service quality and would like to pay for the service. There will be a significant shipment mix change in next five years. The volume from infrastructure and the top developers would reach to 50% in 2024, along with our growth strategy in new equipment.
Combined with high conversion rate in these segments, new equipment volume increase and other traditional conversion efforts, the service portfolio mix will be changed as well. The pricing of the portfolio will be improved with higher conversion rate at a bigger base. Next page. The second driver is leveraging IoT and service digitalization for customer stickiness and service productivity. Chinese regulators are experimenting condition-based maintenance with IoT, and intend to change the code to promote this new service model. Otis, as an industry leader, is actively participating in such experiments in the launched end-to-end IoT solution named Otis ONE. Robin has talked about the capability of Otis ONE. I won't repeat it. What I only want to emphasize is that the core of Otis ONE is data analytical capability. Which has unlimited potential for customer value and service quality and productivity.
It was interesting that with IoT, we even can quickly capture the safety rule violation of our service mechanics in their operation. China code is likely to allow service companies to reduce number of the visits if they can prove effectiveness of IoT. Some cities already started. It will dramatically reduce the maintenance visits and hours, improve callback rates, and first-time fix rates. Otis Value will help on conversion and cancellation reduction. It will help Otis service profit growth while providing more value to customers. We are excited to believe it is the path to change the China service market and practice. The goal is to connect more than 30% of Otis service portfolio with IoT in 2022, and more than 50% in 2024. Overall, we are more confident to accelerate the portfolio growth pace and improve the quality of the portfolio.
We expect the service revenue and the profit growth significantly in next five years. Next page. To conclude, we are excited about the opportunities we see in next five years in China for both new equipment and service. We believe we have a good position and a reputation in this market. Our team and experience, our customer centricity culture, allows us to accelerate our performance. We are comfortable with the strategies and initiatives we laid out for next five years, supported by the transformation and investment in last few years. We are confident to continue growth momentum and deliver sustainable financials in coming five years. This is the end of my presentation. Thank you.
All right. Thank you, Perry. Good morning, everyone. I'll talk about three things today. I'll talk about our 2020 and medium-term outlook, actions that we're taking to drive Otis margins, and tax and capital deployment strategy. Before I do that, let's take a longer-term view of Otis's performance as a segment of UTC. Historically, Otis has shown tremendous revenue resilience and has grown its revenue through several economic cycles, partially due to the strong recurring revenue base. However, as you all recognize, the last decade has been challenging for Otis's margins. Now, the premium that Otis was commanding over its peers was unsustainable and led to a share loss. In addition, the downturn in Europe post the financial crisis, the China market since 2015, and the investment in Otis that UTC made that did not bear results till 2019, also contributed to the earnings downtrend.
One other thing that was there was that as a division of UTC, there was less pressure on Otis to turn around its margin and earnings performance than there would have been had Otis been a standalone company. Now, the good news is that we have turned the corner. As you heard from both Mark and Perry, the European and the Chinese markets are stable. The investments that we have made are delivering results. We are focused on every single key performance criteria. We grew earnings in 2019 for the first time since 2014. 2019 was a good year for us. Organic growth was over 5%, our best organic growth performance in last five years. Better than the guidance that UTC had provided of low to mid-single digit growth. We have now reported 12 straight quarters of organic growth.
Both new equipment and service grew last year, and service margins expanded, driving 5% operating profit growth. The other good news was that the growth was broad-based. All four major regions drove both sales and profit growth last year. The momentum continued to build as we went through the year. The earnings growth, which we had raised at the top end of the range in October, we beat that guidance on both constant and actual FX. We plan to build on this momentum in 2020 and report both top and bottom-line growth. We will drive another solid year of earnings growth, and earnings growth at constant FX will be similar to the range that we delivered last year. At actual FX, will be twice what we did in 2019, driven by both the operating actions that we are taking and by reduced FX headwind.
We'll grow margins by at least 20 basis points, our first margin expansion in over eight years. Cash will continue to be strong and between 110%-120% of net income. We are focused on managing our capital expenditures prudently and driving working capital improvement to drive robust free cash flow. Now, in terms of deployment of this cash flow, as our parent has indicated, 2020 and 2021 will be focused on debt repayment, and we will repay about $250 million of debt in 2020. We'll pay a solid dividend of about 40% of our net income, which is comparable to our broader industrial peers. We also have a placeholder of about $50 million of bolt-on M&A transactions. This is in the typical range of what we do in any given year. Let's talk about margin expansion.
2020 should be the year when we finally turn around our margin trajectory and start driving margin expansion again. We believe that we can continue to drive margin expansion by 20 to 30 basis points every year over the medium-term. There are three key elements that we are working on to drive this margin expansion. One, continue to drive our field productivity. Second, reduce our factory material cost. Third, rationalize and leverage our SG&A spend. Let me spend one minute on each. As you can see from the pie on the left, installation and field cost makes up about 2/3 of our total cost of sales, and driving efficiency in this area is absolutely critical.
As the speakers before me, Robin, Mark, and Perry, all touched on it, the investments that we have made in this area to not only reduce the number of visits that we make, but also the time that we spend per visit, is working. We have reduced the number of visits by 3% since 2017, and the amount of time per visit is down 2% since 2017 and 4% since 2016, driving six straight quarters of service contribution growth. There's additional opportunity to make continued progress in this area through the investments that we are making and the IoT benefits that will ensue to us once we fully deploy that capability. In addition to addressing the field cost that we have tackled over the last couple of years, another big opportunity for us is to reduce our factory material cost.
Material makes up about 70% of our total manufacturing cost base, and it is very fragmented. Only 1/3 of our spend is with global suppliers. Given our scale, there's a significant opportunity to drive cost reduction in this area, not only through consolidation of the number of suppliers, but also driving incremental and better collaboration between engineering and manufacturing by introducing e-auctions and other analytical tools in our negotiations with our suppliers. We are targeting a 3% material cost reduction every year through the medium-term. Some of this reduction may be used to offset the price pressures that we may feel in the market, depending on the conditions, and the rest will flow through to the bottom line. SG&A. Otis has invested in SG&A over the last few years to create capabilities and implement systems that were needed.
We are reaching steady state of investments, and our goal over the medium-term is to reduce our SG&A cost by 100 to 150 basis points as a percentage of revenue through several actions that we are taking, implementing a common ERP and CRM tool, centralizing several back-office functions into a shared services center in Bangalore, and reducing the number of layers that we have in the organization by decreasing the number of P&Ls. Now, in addition to addressing the existing cost base, there will be an opportunity to address the incremental cost as well as we get on to become a public company. To stand up Otis as an independent company, the initial focus to create the systems and the processes that are needed has been on speed rather than efficiency, and there will be an opportunity to streamline these applications.
We've already identified several things that we can work on post-spin to reduce these costs. For example, taking our IT infrastructure and migrating that to a software-defined architecture where we pay by the drink rather than paying for a fixed bandwidth. Migrating several proprietary applications that we are inheriting and putting them on the cloud. Taking a lot of the processes that we are getting, simplifying them, and taking cost out. This will be our priority day one, and reduction of SG&A will be a key margin growth driver over the medium-term.
Cash flow. Free cash in 2020 will be between $1 billion-$1.1 billion, lower than the $1.3 billion that we delivered in 2019, driven by as earnings growth and reduction in working capital gets offset by the incremental public company cost, interest expense on the $6.1 billion of debt that we are getting, and one-time cost to exit the TSA, and lastly, to stand up the IoT capability. Otis is not a capital-intensive business. Our CapEx typically runs between 1.1%-1.3% of revenue. Now, there will be a step-up this year in 2020 to exit these transition service agreements that we will sign with UTC to create the systems that we needed so we can get out of these TSAs, and second, to invest in IoT. as we go into the medium-term, starting 2021, it should start trending back down into the 1.2%-1.3% range.
Similarly, our working capital hovers between 2.5%-2.6% of revenue, but there is huge variability in performance across several businesses. There are certain businesses in our portfolio that have negative working capital, and there are others that have 100+ days of working capital, and that is what we need to work on. This is what gives us confidence that we'll continue to drive robust free cash flow over the medium-term. We'll deploy that cash flow to meet the needs of various stakeholders. Now, we will spin with about $6.1 billion of debt, $1.3 billion of cash, and 2.3x debt to EBITDA ratio at spin. Most of the $1.3 billion of cash that we will get will be offshore. To maintain an investment-grade rating, our discussion with the credit rating agencies has been that we'll repay about $500 million of debt between 2020 and 2021.
There'll be no debt repayment beyond that. During this period, we'll continue to pay a strong, robust dividend at about 40% of net income. again, as I said earlier, we believe that is comparable to our industrial peer group. The excess cash will be used to do bolt-on M&A transactions, and these transactions are typically accretive by year two, and buyback shares. Both these actions should drive EPS growth. The other thing that will drive EPS growth is the tax rate. We'll start with about a 33% tax rate. That is higher than the 21% that we have in the U.S., driven by a few things. Profits that we generate in jurisdictions that have a higher tax rate than U.S. Cash deployment needs in the U.S.
80% of free cash that we generate is outside U.S., but most of our capital deployment needs are in U.S., interest payments, debt repayments, dividends. The cost to repatriate that cash adds about two to three points to our tax rate. The rest is due to state tax payments and provisions of U.S. tax code that makes some of our foreign tax payments undeductible. Now, we fully recognize that a 33% tax rate does not reflect the optimal tax rate for a standalone Otis. We've already initiated several actions to reduce this tax rate. Optimizing our value chain, deciding what activities need to take place in which part of the world from a business perspective, and as we do that, reducing our tax rate.
Offshoring the debt, placing the debt where our cash is generated, not only reducing the need for repatriation of cash, but also to reduce our interest cost. Taking full benefit of the tax deductions that are available in jurisdictions outside U.S. That is not something we do today. Some of these actions will be more near-term than others, and we'll provide additional details on this downward glide path of this tax rate during our quarterly updates in 2020 as we understand the benefit and the timing of some of the actions that we are taking. Reduction in tax rate will be a driver of EPS growth over the medium-term. Let me wrap by spending a couple of minutes on both our 2020 outlook and medium-term outlook.
We're guiding to 2020 earnings growth of between $60 million-$90 million, driven primarily by the improvement in our service business, higher volume, better pricing and mix, and continued benefits from productivity. Our new equipment business will grow, and we will drive material productivity this year. That will get offset by the pricing pressures that we saw in North America in 2019 that led to a lower starting backlog margin, and the investments that we're making in R&D to bring the next generation of products to market. At actual FX, we think it will be about $40 million-$70 million because we're penciling in about $20 million of FX headwind, and you can see the euro and the renminbi assumptions that we have made to get to the $40 million-$70 million of growth at AFX.
We've assumed in this outlook that our factories in China will be back online in March, and the impact from coronavirus is fully mitigated during the year, with negative Q1 performance being offset in the remaining three quarters of the year. As we get into the medium-term, we believe we can drive revenue low to mid-single digits, grow operating profit at mid-single digits or higher, with 20-30 basis points of margin expansion. Operating profit growth combined with a lower tax rate and reduced share count should drive high single-digit EPS growth. We'll continue to drive robust free cash flow between 110%-120% of net income, and we'll deploy that for the benefit of our shareholders. Now, with that, let me ask Judy to come in and make some closing remarks, and then we'll open it up for Q&A.
Thanks, Rahul. Confidence. Confidence in the $75 billion market, confidence in a portfolio and a segment, a service segment that's going to continue to grow. Confidence in our investments and the productivity runway we're going to continue to see. Confidence that this management team is aligned with shareholders in terms of our capital investment strategy and our capital allocation strategy. We are looking forward to early April, because we believe we have the iconic brand known throughout the globe, with the largest portfolio, with proven performance, with investments in both new equipment and service that will pay off for many years to come. We've stopped looking back. We are looking forward. We're looking forward to leading this company into the future and aligning ourselves with you, driving EPS growth, earnings growth, top-line growth, and margin enhancement. All while we're serving customers and the traveling public every day.
We do this with the strength of our organization, our 69,000 colleagues that we turn to. We do this with a recurring sales and a recurring revenue model that's predictable. We do this with conviction that we will move the world. Thank you.
[inaudible] I would just ask that you please state your name and the firm you're with, and we'll get started. Jeff?
Thank you. Good morning. It's Jeff Sprague from Vertical Research. One for Judy and one for Rahul, if I could. First, just on the aftermarket opportunity. Everything you said makes sense, but I'd like to understand a little bit more, like what actually has to happen in the field, right? You have 1.5 million Otis units that are not in your service bank, that theoretically belong to you. How do you propagate the technology in the field to drive that transition in the business? How long does that take to play out? Rahul, based on what you know now about the de-leveraging glide path and other things that you can do, can you hazard a rough framework of where you think the tax rate would head over kind of a three to five-year timeframe?
Well, let me take the first one. Thanks, Jeff. There are actually 2 million Otis units that are not on our portfolio at the moment because of our 2 million, about 1.5 million are ours, and 0.5 million are other OEMs that we maintain. We know those units better than anyone. We understand how they work. The challenge is literally challenging our sales force, our service sales force. We have 2,700 dedicated Otis-employed service sales force to go after those with the right pricing, and simultaneously for us to have availability in Otis ONE sensors to be able to deploy those immediately. The Otis ONE sensors come in two types of sensor packages. One, which is fast to install and has a lower cost point, is driven by data.
The second, which has a higher cost point but is attractive to many of our high-rise customers, has much more functionality, voice, multimedia, data, et cetera. It's that data sensor that we believe we can offer competitively and install in under 15 minutes. We need to get those out there, and we need to prioritize how to go after that portfolio that's not on our portfolio, but that was Otis manufactured. For us, it's a prioritization. We're going to deploy 100,000 of those data sensors in 2020 across the globe. How we prioritize those is what management needs to determine, and we'll share updates with you as the quarters go on.
Jeff, I thought that you touched on capital deployment and tax. On capital deployment, I think the strategy is absolutely clear. I think there's no ambiguity in our minds on what we need to do on capital deployment. We have to repay $500 million of debt this year and next. Dividends, we've kind of spoken about 40% net income, which we believe is the right ratio because we do have very steady, predictable free cash flow. We want to make sure that we share that with our shareholders. The rest is between M&A, which is kind of bolt-on M&A that typically do and buyback. That part, in our minds, is absolutely clear. Now the tax piece, again, as I said, there's high degree of confidence that we'll work this tax rate down. I listed some of the actions that we're taking.
Lots of management team is working this right now. Again, I can spend a lot of time on the near-term opportunities that we see. Taking full benefit of the tax reductions around the world. I mean, just the fact that as we are digging under the covers, we're finding that we don't do that today. Right? Again, part of that is just having greater focus. Otis' tax rate was not optimized under UTC. As we're working it, we see clear opportunity. In terms of the timing and the number, I hesitated to give that just today. We just started this project a couple of months ago, so I don't want to overcommit or undercommit.
I think we'll definitely provide more clarity by the time we get to May, when we give our EPS outlook, and then more in September, and then more by the time we get to this year. I think by the time we wrap-up 2020, I think we'll be able to put a longer-term target. I just hesitant to throw out a number that we don't fully understand and don't want to over or underpromise.
Julian.
Thanks. Julian Mitchell at Barclays. Maybe two questions. The first one just around, we heard a lot about the OE share gain efforts in China. Maybe help us understand, in other emerging markets, how you feel that Otis is positioned in terms of share, and whether you think you have a big enough local footprint to maximize share. That would be sort of the first question. The second one would be around pricing. Your plan for 20-30 basis points of margin expansion, what do you assume for pricing in OE and aftermarket within that?
Well, let me take the first one, then we'll both probably share in the pricing. in emerging markets, it's very important, and Otis has an incredible tradition of getting in emerging markets early. When you look at, as Perry mentioned, first JV in China in 1984, as we look back when we came to India and all the emerging markets. I believe we are investing from both a sales coverage and by putting branches in emerging markets so that we can gain our fair share. We're talking Southeast Asia, which has significant growth. Brazil had a strong comeback for us last year, and we gained share there. We actually gained share in all of Latin America last year. Every country we serve, with the exception of Mexico, which had a down market, I think, for everyone. I think share was flat.
As we look at emerging markets and the rank order on new equipment, India, second largest market, we believe we've got share plans there. You've seen some of the results with Robin. Southeast Asia, high growth. Latin America, high growth. We have branches in Africa, but we've not seen the segment growth in Africa that you would expect to see based on population growth. We remain invested in Africa, we remain having legal entities in Africa, but we do cover some of Africa through agents and distributors as we continue to monitor that situation.
I just want to add one thing to Judy, and then I'll get back to the second question on pricing, Julian. Maybe I'll ask Stéphane to jump in here as well, because a lot of the emerging markets are in Asia. The other thing, Southeast Asia obviously is huge. The other part which is not well appreciated is Japan and Korea in terms of the modernization markets. There's a huge amount of aging infrastructure in both Japan and Korea. If you look at Korea, for example, there are 140,000 units, that Otis units, that are more than 20 years old, and we have only modernized 30,000 of those units. There's a huge modernization opportunity in Korea, and almost same things in Japan. I think our modernization revenue is up 3x, and yet we're only one third of the way there.
I don't know, Stéphane, if you want to say anything before we move on to Julian's second question.
Yeah. Stéphane de Montlivault, I'm in charge of the Asia Pacific business. I think Japan and Korea is a great example of the modernization opportunity. These markets where we've been long operating in, we've built a very strong new equipment business in the 1980s up to the early to mid-1990s. Today, we're reaping the benefit of that with very significant portfolio that are driving very strong after-sales organic growth. Japan and Korea in combined, those have 1.9 million units installed. Otis has 300,000 of these units installed and 200,000 of which we maintain. These portfolios are aged, and their aging is accelerating. We are really at the bottom of the aging curve, and we have already started really taking full benefit of that. In the last three years, we fielded up to 35 modernization solutions, to address these portfolio needs.
Just as Rahul was saying, we also have 100,000 units of our units, which we don't maintain, largely maintained by ISPs, and for which we have sophisticated mod solutions that we utilize to generate these modernization revenue opportunity, but also to capture back some of these units and bring them back into our portfolio.
Okay. on your second question, Julian, on pricing for new equipment, what we've assumed in our medium-term outlook that we provided today is that almost all of that 3% material cost productivity is kind of given back. We're not assuming a huge margin expansion in our new equipment outlook over the medium-term. To the extent that the pricing conditions are better and we don't need to pass that on, our EPS growth and our operating profit growth will be higher.
Yeah, just one other addition. As you may have heard, Perry, he wasn't as specific, but he's had seven straight quarters of price in China on the new equipment side to the tune of about 5%. That is seven straight running, and we see that sticking for now.
Nigel.
Thanks. Nigel Coe from Wolfe. Just want to kind of dig into the comments on the margin framework. SG&A reduction is driving the 20, 30 basis points over the next five years. Anything we get from price productivity in the field, material productivity, will be additive to that framework, or are there some offsets that we need to consider?
I think on the material cost, we did say that we've kind of assumed the fact that is offset, right? To Judy's point, the fact is that we're not seeing the market pricing pressure today. Other than North America, I think our price and mix was favorable in all other major regions of world, especially in China, with seven straight quarters of price mix favorability. We're not seeing that. In the medium-term outlook, we've assumed the fact that, okay, we will drive material cost productivity that is offset by the pricing pressure that we face. That's the assumption. You're right. The fact is we will drive SG&A between 100 to 150 basis points over the medium-term, and then the service productivity will flow through as well.
Yeah, I think we have not overpromised, but if all these things that we're kind of putting in place continue to deliver results, we should do better than what we laid out here today.
On the tax rate, obviously matching the debt, offshore on the debt, matching that with the cash flow is an important driver of lower tax rates. What's the framework of getting to being a foreign issuer of debt? What needs to happen and what sort of timeframe?
We should be able to do some of that in 2020. We should at least start the process this year. The reason we didn't do it at the outset was because the only place that is rated is the U.S., Otis Worldwide Corporation, as Judy introduced the business. The other companies are not rated right now, so we should be able to do that starting this year. We'll do more next year. The process should start this year.
I think we focused rationally to be able to pull the dual spin and merge that United Technologies has gone through in, one would offer, record time. We really did focus on ensuring we would all be ready. With that, we didn't have the opportunity to rate, from a debt rating agency perspective, any of our other activities and legal entities, because we've been going through so much legal entity separation work appropriately to be able to separate the three companies. We've got it on our list. You're looking at the two people who looked across at the rating agencies and made these commitments. We intend to meet these commitments with our capital strategy, and tax is number one on our list for EPS.
Steve?
Thanks, Steve Tusa from J.P. Morgan. Last year on that earnings bridge you guys gave for Otis, there was - $50 million from investments. I don't know how that ultimately ended up. That was at the beginning of the year. You said your R&D is at a comfortable level, but you have a bit of a headwind dialed in for next year. What's the rough number on that investment part of the bridge for 2020?
Our investments are kind of steady state. There's a little bit of step-up in R&D. It's about 10 basis points, Stacy. You saw that on Judy's chart. We're going from like 1.5% to 1.6%-ish of revenue. Stacy, correct me if I'm wrong here. We are reaching kind of steady state investments levels. The fact is, we're not expecting a big tailwind, Steve, but the fact is we feel that we should maintain this level.
back to Nigel's question, I think on what is the kind of commodity cost. Is that a headwind or a tailwind? it seems like with your productivity, it actually could be a bit of a tailwind on its own commodity costs.
Commodity is long, difficult to predict, and Todd's here, he can jump in. For 2020, commodities are kind of flat. At this point, we've not assumed a tailwind or a headwind for 2020. Commodities are behaving themselves. As you go into the medium-term, we don't know that. The 3% that we're targeting is gross. If there is commodity headwind, that will eat into that. If there's tailwind, it will contribute to that.
You guys guided last year to I think $25 million-$75 million. You beat that. You were above that, I think $90 million+ ?
$97 million.
Right. I'm just struggling with $60 million- $90 million this year. What's worse year-over-year in this bridge? Because it's not investments, it's not necessarily commodities. Is there something that we're missing that's actually more of a headwind? I know there's a little bit of corporate costs that's going up a little bit, but that doesn't seem like there's much that's going really against you relative to 2019.
The new equipment growth, Stephen, is lower. Last year, our new equipment growth was up 4%. This year, with China getting flat, we're guiding to about 1% growth on new equipment, or it's kind of low single-digits. That's the difference. That's what's working against us. New equipment is not going to contribute as much as it did last year.
It's the volume side, which is [crosstalk]
It's the volume side that's kind of working against.
Okay, great. Thanks.
I think, again, last year we started with $25 million- $75 million. We did better. This year we're starting with $60 million- $90 million, so we'll see where that goes.
Is that SG&A target back-end loaded, or are you pretty consistently going to be able to work that down?
We'll keep guiding to that as we go through, but we should keep working it every year [inaudible]
No, I agree. We've talked as we set this out and as we briefed our new Otis board, that we're talking 20 to 30 basis points of margin expansion every year, reliably, and SG&A going the opposite every year reliably to get to that 100 to 150 basis points.
Thanks.
Nathan's there.
Thank you. It's Sheila Kahyaoglu from Jefferies. Judy, Rahul, you mentioned margin expansion in your comments, and you talked about field productivity, SG&A rationalization, and commodity costs. Those are some things we've known about Otis for a long time, and they've been standard. What do you think are undiscovered opportunities as a standalone organization that we didn't know within UTX as one company?
On material costs, Sheila?
All three of the opportunities you mentioned.
Again, I'll let Judy comment and Tom's here. Honestly, Sheila, I just keep coming back, and I was talking with some people at the break. I just think it's a question of focus. I really do believe that as we are spinning to become our own independent public company, there is greater focus, and there's a greater need to drive performance. You're right. The opportunities have always been there, except the fact is it hasn't been as much of a need, I would say, to deliver. Now, there's certain things that we have worked on. One thing we didn't talk about today is taking our manufacturing to lower cost because the fact is that 25%-30% of our manufacturing is in high-cost areas, and that's very deliberate. That's not a huge opportunity for us. That is something we've worked on.
I think everybody's worked on these things over the years, but I think there's lots more to go.
Yeah, I think it's this balance between what we do globally and what we do regionally that gives us opportunity. First, we've looked at every process we inherited from UTC and said, "What do we need as an agile standalone company to implement for ourselves?" Let's not decrement from where we started with an absolute world-class company as UTC. Let's start from we're a startup. What's the minimal we need to drive our business processes globally? I think you're going to see that as well. As we look around the globe, just what does our branch of the future look like? We talk about 1,400 branches. What excites our team is they were all created, I'll just say it, in an analog world decades ago, right? This is where we set up the territories.
While there's always an opportunity in real estate management, these are not large offices in the most elite locations. You'll find us in industrial parks where you would expect us to be. The challenge is, what is the role of all those personnel when we move to a more digital world? If we don't need to bring our field professionals in to train them because we have the ability to do that with our apps and with Yammer and with all the modern technology available. If we want our sales reps, again, 2,700 service direct sales reps and about 1,500 new equipment sales reps, we want them to be with customers. We don't want people gathering.
if we are truly driving a shared service in a back office hub in Bangalore, a tremendous amount of the work that's happening in countries won't need to be done in countries in terms of payments, in terms of collections, et cetera. We actually think there's tremendous opportunity. We'll share more with you as we go. We are going to, as we reinvent Otis, really reinvent how we can be more customer-focused, drive more shareholder value, and engage and empower employees by doing all that.
Did I answer your question, Sheila? I'm not sure we addressed you. Carter's been trying to go, Stacy.
Okay, Carter, go ahead.
Yeah.
Thanks. Carter Copeland, Melius Research. Just to expand on that a little bit, Judy, you emphasized this point of pace. Several of these initiatives are not new. We've heard of them before, but they take a considerable amount of time to really impact the business. I wondered if you thought that there's an opportunity to transform that. If so, how should we think about that? Is it truly going to be different than what we've seen over the last several years?
Well, I think over the last several years, you've seen some pace. I mean, for us to deploy to 25,000 mechanics who never had email previously, who never had access to technology at their fingertips at the job site, that's a huge difference. Now, we're not finished there for our service mechanics. To be able to do that country by country, language by language, at the same time we're driving a new supply chain and doing everything else, I think you've started to see that. I'm not satisfied that we're at the pace we need. One of the challenges, we think it's a great opportunity to have the scale and reach, but you also have to obviously win change management and win the hearts and minds of all of our personnel throughout the organization.
I think you'll see, again, with 100,000 units going out in addition to the 400,000 we already have connected, that doesn't count the customers who actually want to compensate us for the multimedia Otis ONE solution that'll become a subscription service. I mean, we are ready to turn the page and to really drive the pace. Now, we're not going to risk life safety. Let me be really clear. We understand the business we're in, and when there's a decision that drives performance of our equipment, absolutely, out to I don't care how many decimal points, every decision's going to be taken with the right speed. So much of what we do doesn't take that same approach and doesn't require that same level of real discipline and rigor. We're going to try. We're going to do value propositions.
We're going to try pricing where we can and see what the market will take. We've come up with these modernization solutions because the mod market moves at a different pace. I think you're going to see a lot more when we're focused, and I can tell you we're focused.
Yeah. Just a little bit for one soundbite out there, which to me was just fascinating. I was looking at this Tune app that Robin shared earlier. Our use of Tune app went from 16,000 users in 2018 to 266,000 users in 2019. You can think of the talk about pace, and Judy spoke about the deployment. As you're deploying that, if you think if this app saves 10 minutes every time a technician uses it, you can just multiply that by hours and the dollars. There is pace, and the fact is it's up. Same thing with the parts app or the upgrade app, right? The upgrade app, I mean, the revenue's up 2X. I mean, it's $100 million a year now that is coming through this upgrade app.
Thank you. Justin Bergner from Gabelli Funds. Two questions on the service economic model. Thinking about your retention rate of 93% on 2 million units, you're sort of losing 140,000 units per year, 16% share on a million units. You're gaining 160,000, so that's plus 20,000. That suggests at the current rate, your install base is growing 1% per year. To get to that 5% service revenue growth, maybe you could help me dissect the drivers between lower, or I guess better retention, increased conversion, and higher service dollars per unit, which are sort of the most important in that stack.
Yeah, I like to tell the team we actually start the year out neutral. With your math, you gave us 20,000 extra. I like to tell the team when you look at what we lose versus what we gain, so we convert, then obviously we have people take off of our portfolio. They take some units. Some buildings get demolished. There's some of that, but not significant amounts of that. We have to step up our portfolio gain, and we recognize that as a business. The single largest place we can do that, well, there's 6 million units in China. Perry has a focused strategy on making sure we add profitable units to those portfolios. Some of the sales force additions that Robin spoke about, they'll be in China. They'll be very focused, as well as our relationship. You saw the 50% with the key developers.
We see that changing, as everything does in China, fairly rapidly. Perry, are you on the line?
Yes, I am.
Would you like to comment on what we're doing to drive, just net out how we're going to get more portfolio gain in China?
The portfolio gain is always our priority. We have been continuing to grow the service portfolio very rapidly in number of the years. However, the challenge was how do we get the drop through along with the portfolio growth. We've become a little bit more selective in the past couple of years and tried to sustain the profit growth along with the portfolio growth. As I said in the presentation, our opportunity is from the customer mix, which we're going to be much more focused with the consolidation of the top developers and infrastructure customers in the next five years. Those customers care about the service, and our conversion rate has been proven quite high. The second driver is, of course, the technology. The IoT and condition-based maintenance gives us opportunity to better serve our own units.
With these two drivers, I believe that acceleration of the portfolio growth along with the profit growth in service is achievable in next five years.
Thanks, Perry. It's IoT. Let me just start and end it there. With our ability to deploy Otis ONE, which is that capital we're investing in that you saw in the R&D and the strategic investments, at least 100,000 units this year. Our field force will be more productive. When you say, "Well, why?" Our mechanic on that app, on our Otis ONE app, will be able, when that call comes in, or even if we proactively know, we'll be able to know that the unit is either down or up. We get a lot of calls. We roll a truck. The mechanic shows up, and the unit's what we call running on arrival. It's already back and operational. They will know that before they ever deploy. IoT will help us be more productive. It'll drive obviously cost reductions. The customer will be happier.
That's why we're investing in it. It will enhance retention and conversions. We're convinced. The math of the service cycle, that is, I think, our single largest leverage.
Yeah. The only other two things I would say are to get to 5% from portfolio growth. The portfolio's going to grow kind of low single-digit, right? Last year, we got a point of price as well. That gets added to it. The more the number of units we have in the portfolio, that drives the repair and the modernization business. I think that's what both Judy and Robin spoke about. If you start with the portfolio growth, add on price, add on the repair and the modernization revenue that we get because we have more number of units and incremental opportunity that we have on the base, that's what gets us from the portfolio growth to the revenue growth.
You can't just sprinkle it, though, everywhere in the world. You need it in dense areas where you have the routes, where you can gain the productivity, and where you can show the value. This isn't just deploy to every one of the countries that wants it. This is a focused deployment on where the cost pockets are as well as where the density is.
Okay. Thanks. I had a second question, but I'll get back in the queue since that was a long one.
Hi, it's John Walsh with Credit Suisse. Maybe first just a clarification question. You talked about the 85,000 units that are deployed, that are connected. How much of those units are you actually generating paid revenue on today? I don't know if I missed that number earlier.
Sorry, could you repeat the question? I'm sorry.
Oh, I'm sorry. I think you have 85,000 units deployed for eView.
[crosstalk] Yeah, for eView.
How many of those units are you generating revenue on today?
Mark and Robin, I'm guessing it's all of them. All of them, yeah. All of them.
All of those are paid?
Yeah. They'll be getting incremental subscription revenue on those units.
14%. Yeah. I think we talked about it. On average, about 14% higher services per unit, service revenue per unit with the eView.
Okay. I guess some of your peers, as they talk about their connected strategy, they're not actually generating, I don't believe, revenue on all the sensors that are out there, so that's why I was just asking about that. Maybe just a clarification, thinking about the China margins. Not new, right? We've understood the dynamics between new equipment and service in China as part of parent UTC, but just wondering as a standalone if you can put a finer point on the difference between OE and aftermarket in China relative to other parts of the world. Thank you.
The new equipment margins of China are the best in the world. That's the highest margin business. The service margins are not as profitable today, but there is room for improvement.
They did improve last year.
Yeah. They're both higher than the contribution margin in both new equipment and service is higher than our overall company ROAS.
Thank you. It's Deane Dray from RBC, and maybe we can still stay on the China topic, and if we also have Perry on the line. The point you made about the conversion rate on new equipment for infrastructure, I believe you said was 80%. Do you consider yourself to be the strongest in that segment? What about commercial and residential, and what were those conversion rates?
Perry, do you want to take that in terms of infrastructure first and then commercial and residential?
Perry, the question is, just if you got the question right, Deane. The question, Perry, is that if we are, what is our conversion rate for residential and commercial portfolio?
Yeah. Let me start with the infrastructure. Those infrastructure, our customers is always the government or state-owned enterprises. They serve the public, and they want to ensure there is absolutely no risk in maintaining those units. That's why our conversion rate is even higher than 80% at this point. That gives us a lot of good benefit. The maintenance pricing is also very attractive at this segment. When we talk about different segments, I think the conversion rate varies not because of the segmentation, but more related to the customer type and tier of the cities. The higher-tier cities, the customer tend to pay more to the service, willing to pay more to the service, and they want to hire the OEMs. While lower-tier cities or lower-tier properties, the customer doesn't care too much about the maintenance quality.
When you get into the key account business, the top developers, and they try to establish, to standardize the quality system across the country. No matter whether it's high-tier cities or lower-tier cities, they want to have a consistent quality, and they would like to apply the big OEMs to provide service with consistent quality. That's why we see a quite high conversion rate with those top developer business.
Thank you, Perry. We also think just like we've observed on the new equipment side in China, where there's been significant consolidation of so many original manufacturers and people who had licenses, the service business in China will go through that as well. Those 13,000 you've heard of, we anticipate pretty significant consolidation. The key accounts are going to force it, the infrastructure business is going to force it, and we believe the world of digital is going to force it.
Second question back to capital allocation. Could you clarify on the $50 million of placeholder, where the priorities might be? I would imagine service providers and maybe geography would be helpful. just related, why did you go out of the way to point out no more debt paydown after 2021? Was there a message there or just in terms of a limit on how far you take leverage ratio? Just kind of curious why that point would have been made.
Why don't you hit the leverage ratio?
Yeah. I can start with the last one and we'll come back to M&A. All we wanted to make sure is that we believe by the time we repay about $500 million of debt, our net debt to EBITDA will be under two, and we feel that's a comfortable, sustainable level. We just wanted to point that out to say that that's the end of our debt repayment. On M&A, I don't know if you want to talk about [crosstalk]
Yeah, let me talk about M&A. We have had a long history of acquiring small service portfolios in many countries. We try, as Rahul said, actually, we focus on making them accretive by year two, obviously year one in certain cases. We have an ability to integrate those very rapidly in certain countries, especially in Western Europe, Spain, Italy. We have alternate brands there who have the ability to integrate these and immediately make them accretive, certainly by year two. We traditionally spend about $50 million, invest about $50 million a year. That's what we put in as a placeholder, kind of plus or minus. We think that's a good rational amount for us to continue to do bolt-on portfolio gains.
Yeah. Geographically, they're kind of spread all over. There's a few in Europe, few in Asia-Pac, North America, so there's no geographical concentration.
Wherever they meet the business case.
Rob McCarthy, Stephens. On Robin's presentation, slide 24, I was struck by the increased sales coverage there. Was that an epiphany driven by data or just better insight into the market? Because it's kind of one of those questions like why was this not done before? I have a brief follow-up.
Okay. Robin, why don't you take that?
Yeah, sure. Yeah, I think we've definitely been spending more time trying to understand better our coverage in each one of the markets, especially the markets that have been growing significantly. That's really what's driving that. Look, I think at the end of the day, when we look at our sales organization, keep in mind that we go through channel partners as well. It's this combination of really trying to understand what part of the market they're covering properly, what part we need to cover, and then again, also how do we drive efficiency in our organization.
Okay. As a follow-up to that, just given you have a lot more data at your fingertips, you're making a lot of investments in technology. You have probably an Otis operating system or the ACE variant or whatever you want to call it. Do you think you're getting better line of sight for p redicting the market and predicting your financial outlook over the near to medium-term, do you think that's changed over the last five years?
I think the data that I think all the speakers spoke about was more on the data that we're getting off the elevators, right? That's definitely, we spoke about all the efficiency that's driving. Perry had that. Fewer visits, reduced time per visit, all that. That's definitely helping us ensure that we continue to drive field productivity. In terms of predicting our future and how that looks like, the markets are more stable today, both in China and Europe. If you look at China, and I think Perry touched upon this briefly. If you go back 10 years, the top 10 players had 70% of the market. Today, the top 10 players have 90%+ share of the market. Definitely, the environment is more stable. That helps us predict our performance. Our service recurring revenue base, that continues to grow. We have that.
it's marginally better today than it was a few years ago. We feel a lot more confident in our outlook as we stand here. It is subject to market conditions.
I think we're competing with other public companies who are not exhibiting irrational behavior in the market.
Yeah.
Jeff?
Just sort of a product related question, if we could. A number of your competitors talk about modular. I don't know if you have that or what your plans are there. on the flip side, SkyBuild. How meaningful is that to kind of your business proposition, and is that a product that's competitively out in front of others?
Yeah, on modular construction, we really do believe that that will continue to grow and be a contributor in the future. We actually have entered into a strategic relationship with a company in Germany where they actually form the concrete in their factories. We populate certain parts of our solution, certain elements of our solution, obviously not the guide rails and certain things you must do in the hoist way. As they're getting that hoist way ready modularly, we're actually doing it in a more controlled environment versus where the majority of our final selloff and installation takes place, which is in the field. Any given day, there's about 10,000 installations going on somewhere in the world in Otis. Any of that we can move to a less dusty, externally environmentally exposed is in our interest.
We're trying that right now in the heart of Europe to see what we can learn from that. It gives us repeatability, and we think that's the way of the future. As we go to a more common product platform, you heard Perry talk about it in China, that he went from 16 to five. We're now taking that China success and replicating that common platform in other parts of the world. I think that's somewhere we're catching up to our competition, to be quite transparent. That was on modular. The second was?
SkyBuild.
SkyBuild. Yeah. SkyBuild, it's an incredible value proposition, but you need a developer who has vision and is willing to do things differently. Our SkyBuild basically has a hydraulic piston that overnight, when you're not using the elevator, pushes it up a floor. I think you may have seen that in the video we showed at the break. It is a great value proposition we found to be a tiebreaker when we're going up against competition in some of the most iconic new jobs. That plus our SuperGroup, which we can talk more about at another time, and we'll be happy to share more information about on how we're doing dispatch differently as well. I can tell you that the SkyBuild, it's now being deployed on several continents, so it's not just one city.
You can see it in London, you can see it in the U.S., you can see it in lots of places. It's not at a substantive level yet. It helps us probably break close to a tie, because the value proposition is so strong. You won't see them in lots of cities yet. It's something new our sales force is learning about, and we bring a lot of customers to the current installations, and then they become believers. Okay. Nigel.
Digging a bit deeper in the weeds here. Non-controlling interests account for a chunk of change. Can you just maybe run through where your major minority interests are? I know Spain and China would be big markets, but where else would that be? Is there a path to maybe gaining control, to maybe a bit more M&A within kind of the Otis brands? What kind of cash payouts should we expect from these entities?
Are you asking where our minority partners are? Okay. You named the two largest ones. As we look, we've got several others in the Middle East, Kuwait, UAE, Saudi, and Qatar. I believe that they all total, you saw in the Form 10, to about $150 million. Zardoya Otis and our two China JVs are probably 80% of that.
80%, yes.
Any thought to higher interest that control those entities?
The question is, I think we're very happy with our JV partners right now. We're happy with the relationships that we have.
Yeah.
Thank you. I wanted to understand a little bit more about the EBIT margin and EBIT dollar pressures in the last five, six years. I think we know, the company's discussed at length, there have been a few buckets of pressure. FX has been one, R&D step-up, and then EMEA service and China. I guess what I wanted to ask was, could you please provide some color on how about in the Americas segment, in the Asia Pacific ex-China, how have the service margins performed in that time, please?
Why don't we let each of the leaders take that, huh?
For the Americas, over the past year or so, the overall margins are very stable on the service side. A little bit of decrease in the past, but very stable now.
Asia Pac, I would also characterize our service margins as stable. I would say today we have pockets of pressures, and certainly Hong Kong is a market that we are watching closely because of the geopolitical and of course, the coronavirus situation. We do see some pressures, the hospitality and retail segments. in the whole dimension of our Asia Pacific ex-China business, those are not very significant.
Overall, and Stacy, you probably correct me if I'm wrong here, but overall, our contribution margin in both Americas and Asia Pac has stayed relatively flat over the last several years. That is not where we have seen the margin pressure. contribution margins have been flat between both Asia Pacific and Americas.
Yeah. It was really the core of EMEA since the financial crisis.
Got it. Thank you.
Okay. I'm going to wrap-up questions for today. That'll conclude kind of our formal presentation. I thank you all for being here.