se
SE
Sweden
en-SE
se_inst_classes
inst
Institutional
en
en
World in Motion – Global equities blog

The rise of the elevator industry

The Office for National Statistics calculates that in 2015 there were 787 deaths in England and Wales caused by a fall on steps or stairs – more than two deaths a day and a 20.5% increase since 2012. There is a fall on stairs every 90 seconds in the UK, and around 250,000 non-fatal stair accidents are treated in emergency departments each year. But this is not just the elderly – around 58,000 children have accidents on stairs every year.

Our European team has long been aware that the elevator and escalator industry isn’t just good for your health, but also your wealth, having held Finnish company Kone (Kone is Finnish for machine) more or less continuously for almost 20 years. It has provided a total return in excess of 20% a year since 2005. This year the industry is set to be a renewed focus for our global team as well, given the recent spin-off from United Technologies of its Otis subsidiary, and the sale of Thyssenkrupp’s lift business (the global number four). Investors will soon be able to choose between the four biggest standalone elevator businesses in the world. Why should we be interested in this – or at least, what has driven such positive returns in the past and what can we expect going forward?

The modern elevator industry effectively dates back to 1852 when Elisha Otis invented the elevator brake. 161 years later the company he founded won its biggest ever contract – to supply 670 elevators and escalators to the Hyderabad Metro stations. In between, the changes the elevator has wrought have been profound. It is effectively an extremely safe and environmentally friendly technology that “is best understood as part of a broader system of urban design. Without the air conditioner, modern glass skyscrapers would be uninhabitable; without either steel or reinforced concrete, they would be unbuildable; and without the elevator, they would be inaccessible”1

The modern city would simply not exist without the elevator industry, an interesting example as to how the impact of technological change might not be apparent for many years after the original invention and often has profound, unexpected consequences.

Today, the industry is globally relatively concentrated. The top four players have approximately 58% global market share (Credit Suisse, December 2018), but the new installation market is even more concentrated with Otis (global number one), Schindler, Kone and Thyssen enjoying almost 75% share. China accounts for almost 60% of the new equipment market (Credit Suisse, December 2018), but still only approximately 36% of the global installed base.

In most markets outside China the industry operates on the razor/razorblade model, in that new equipment isn’t very profitable, but lift companies are highly successful at tying their customers into long-term service agreements (and often the property developer who signs the service contract doesn’t end up as the owner of the building, let alone the tenant, and hence doesn’t always shop around for the best service contract). This service model leads to high returns (it is not a capital-intensive model) and stable cash flows whatever the state of construction markets. If the lift in a hospital or department store doesn’t work then they are in a lot of trouble, so service is mission critical.

With the explosive growth from new build in China over the past 20 years no longer such a tailwind, attention is shifting to the question of technology and Internet of Things connectivity. As smaller players are unable to make the necessary R&D investments, the big four should continue to take market share. In addition, the ability to monitor performance remotely and diagnose potential problems could lead to higher margins, thanks to a reduction in travel time for maintenance engineers and quicker, one-time resolution of any issues. No more hanging around waiting for that broken lift to start working again? Well, maybe. But the industry as a whole is far from broken, and as ThyssenKrupp Elevator sails off into the hands of private equity (Advent International and Cinven last month paid almost $19 billion for it)2 , the lift business is one industry worth keeping an eye on over the next decade.

1 May 2020
David Dudding
David Dudding
Senior Portfolio Manager, Global Equities
Share article
Apple web badge
Spotify web badge
Listen on Stitcher badge
May 2020
Share article

Sources:
1 Fifty Things That Made the Modern Economy by Tim Harford, Abacus, 2/8/2018.
2 Advent International, Cinven and RAG-Stiftung to acquire thyssenkrupp’s Elevator Technology business, Cinven, 28/2/2020.

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at Risk. The mention of any specific shares or bonds should not be taken as a recommendation to deal.
This information is not investment, legal, tax, or accounting advice. Investors should consult with their own professional advisors for advice on any investment, legal, tax, or accounting issues relating an investment with Columbia Threadneedle Investments. The analysis included in this document have not been prepared in accordance with the legal requirements designed to promote its independence and have been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This information includes forward looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any of these forward looking statements will prove to be accurate. (Include if use logos) All intellectual property rights in the brands and logos set out in this slide are reserved by respective owners.
Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com

Related Blog Posts

17 October 2024

Power hungry AI - investment implications in the era of energy transition

Understanding the options for power provision and assessing the investment opportunities resulting from AI’s thirst for energy.
23 August 2024

Neil Robson

Head of Global Equities

US election: the Inflation Reduction Act (IRA) and the risk of repeal - Implications for investors

The macroeconomic backdrop is changing, or at least uncertain. This could shift the pricing of risk assets, but it won’t change what we do, which is look for stronger competitively advantaged businesses that fit our quality growth philosophy.
Watch time - 10 mins
23 August 2024

Neil Robson

Head of Global Equities

On pause: the one-way certainty of the market is over … for now

The macroeconomic backdrop is changing, or at least uncertain. This could shift the pricing of risk assets, but it won’t change what we do, which is look for stronger competitively advantaged businesses that fit our quality growth philosophy.
Read time - 3 mins

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Woman listens to music through headphones
Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium