Acuity Brands
Annual Report 2017

Plain-text annual report

WE’RE CREATING A WORLD OF POSSIBILITIES 1 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T IN 20 1 7 WE LAUNCHED CREATE BRILLIANT EXPERIENCES 1 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T Indoors or out, wherever there are people, there are lights. By leveraging this ubiquity, our new Atrius brand makes greater human interaction and productivity possible. HOW IT WORKS Unlock the power of a building’s data. With its expansive network of intelligent luminaires, lighting, controls, and software, the Atrius IoT framework represents a major breakthrough in scalable technology infrastructure. Unlocking data such as occupancy and location, Atrius addresses a broad range of critical business challenges. 1 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T Atrius Navigator Delivers precise indoor positioning (IPS) and location-based services (LBS), enabling applications that redefine customer journeys and enhance business operations. Atrius Assets Combines asset tracking services with Bluetooth® low energy technology tags to manage critical equipment and resources for easy, real-time location and status monitoring. Atrius Insights Provides rich visualization of spatial analytics acquired from IPS data to gain understanding of how visitors interact with your space, optimize customer journeys, analyze and predict traffic and behavioral patterns, and improve conversions. Atrius Spaces Transforms occupancy data into accurate insights into your space utilization to efficiently allocate and plan for your spatial requirements – optimizing facility operations, budgeting and life cycle management – across your building or campus portfolio. 2 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 01 To Our Stakeholders 2017 was another year of record financial performance for Acuity Brands as we reported all-time highs for net sales, operating profit, net income, and diluted earnings per share. During the past year, we continued to successfully execute our strategy to extend our leadership position in the North American lighting and building management solutions market by providing our customers with differentiated value from our industry-leading portfolio of innovative products and solutions along with superior service. ACUITY BRANDS 2 01 7 FINANCIAL RE SULTS INCLUDE : • Record net sales of $3.5 billion, an • Net cash provided by operating activities increase of over 6% compared with of $316.2 million, a decrease of 9% fiscal 2016; compared with fiscal 2016; and • Record operating profit of $518.8 • Fiscal 2017 year-end cash balance of million, an increase of 9% compared $311.1 million, while investing $67.3 with fiscal 2016; • Record net income of $321.7 million, an increase of 11% compared with fiscal 2016; • Record diluted earnings per share of $7.43, an increase of 12% compared with fiscal 2016; million in capital expenditures, repurchasing $357.9 million of the Company’s common stock, and paying $22.7 million of dividends to stockholders. 3 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T On the strategic front, we accomplished several items during fiscal 2017. We extended our leadership position in North America through the continued expansion of our product portfolio of innovative and energy-efficient lighting and building management solutions, including software and services. As a result, we believe we generated net sales that meaningfully exceeded the growth rate of the overall lighting market in North America, our primary addressable market, which was estimated to be flat to modestly up during fiscal 2017. We created the Atrius™ brand, which encompasses the Company’s portfolio of Internet of Things (IoT) business solutions and software platform. The transition to solid-state lighting provides the opportunity to expand our addressable market because lighting now provides an ideal platform for enabling IoT, which supports the advancement of smart cities and the smart grid. Despite record financial performance in fiscal 2017, the share price of the Company’s common stock declined year-over-year as our results were potentially below the expectations of investors. In fact, our results were below our own expectations due primarily to the lighting market being softer than originally forecast, as well as higher quality and customer service related costs. At August 31, 2017, the 1-year total return on the Company’s common stock was meaningfully below that of the respective benchmark indexes, which include the S&P 500 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index. However, the Company’s 3-year annualized return exceeded all but the Dow Jones U.S. Building Materials & Fixtures Index, and for the 5-year period exceeded the annualized total returns of all the respective benchmark indexes as noted in the following table: Annualized Total Returns 1-Year 3-Years 5-Years Acuity Brands, Inc. Dow Jones U.S. Electrical Components & Equipment Index Dow Jones U.S. Building Materials & Fixtures Index Standard & Poor’s 500 Index (36%) 25% 5% 16% 13% 9% 15% 10% 23% 15% 19% 14% Our Future: Growth, Innovation, Excellence This is an extraordinary time to be in the lighting and building management industries, particularly for a company of the caliber of Acuity Brands. Rapid advancements in technology, along with the need for greater energy efficiency, changes in public policy, and demand for environmental sustainability, continue to drive profound changes in our industry creating exciting opportunities. Acuity Brands is capitalizing on these profound changes to provide lighting and building management solutions that are efficient, elegant, and sophisticated, while at the same time simple to install, maintain, and use. We are at the forefront of transforming the lighting and building management industries. Our experience, knowledge, and skill as lighting experts allow us to deliver superior lighting solutions for virtually any application, a promise best captured in our tag line: “Expanding the Boundaries of Lighting™.” 4 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T As we enter 2018, our mission is to continue to build on our rich legacy of excellence, growth, and innovation to provide great returns for our shareholders, superior value for our customers, and growth opportunities for our associates. Our passion and intense focus continue to be centered on creating lighting and building management solutions that deliver superior quality, energy efficiency and performance. We know that superior quality of light enhances how we live and interact, whether it is increasing students’ learning ability in schools, improving worker productivity and comfort in offices and industrial facilities, enhancing the shopping experience in retail establishments, or accelerating patient healing in hospitals. The possibilities of what can be achieved by the use of intelligent lighting solutions are still being explored. Our associates are rapidly exploiting new technologies and aggressively expanding our industry-leading portfolio by developing intelligent lighting and building management solutions that represent significant advancements over traditional technologies and easily network with other systems, improving energy efficiency, health & safety, and productivity. As the market leader in North America, we believe our deep expertise in technology, optics and thermal management, our understanding of the art and science of lighting, and our ability to provide tailored lighting and building management solutions for numerous applications have positioned the company to excel. Our key strategies and tactical focus have remained consistent over the last few years. We expect to continue to execute our profitable growth strategy by focusing on the three mission-critical areas of operational excellence that we refer to as the 3 Cs. THE 3 C’S • Providing unparalleled customer service. • Pursuing world-class cost efficiency by eliminating non-value added activities and transaction costs. • Creating a culture that demands excellence in everything we do through continuous improvement. On behalf of Acuity’s management team and its Board of Directors, I would like to thank our 12,500 associates for making possible the record success we experienced in 2017 and for their continued contributions and dedication to our vision. I would also like to thank our customers for their business, our suppliers for their support, and our stockholders for the partnership we share in our enterprise. Sincerely, Vernon J. Nagel Chairman, President, and Chief Executive Officer 5 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 02 2017 Financial Highlights (in millions of dollars, except earnings per share) for the year ended August 31 Operations Net sales Gross profit % Operating profit Operating profit % Net Income Diluted earnings per share Diluted weighted average number of shares outstanding (in millions) Return on average shareholders’ equity Cash provided by operating activities Depreciation and amortization Capital expenditures Financial Position Total assets Total cash Total debt Total stockholders’ equity Ratio of total debt to capital Operating working capital as a percentage of net sales(3) 2017(1) 2016(2) % Change $ 3,505.1 $ 3,291.3 42.3% 518.8 14.8% 321.7 7.43 43.3 19.2% 316.2 74.6 67.3 $ $ $ $ $ $ 43.6% 475.2 14.4% 290.8 6.63 43.8 19.3% 345.7 62.6 83.7 6% 9% 11% 12% (1%) (9%) 19% (20%) 2017(1) 2016(2) % Change $ $ $ $ 2,900 311 357 1,666 17.6% 14.5% 2,948 413 355 1,660 17.6% 14.2% (2%) (25%) 1% 0% $ $ $ $ $ $ $ $ $ $ (1) 2017 results include pre-tax special charges associated with streamlining initiatives of $11.3 million, pre-tax amortization of acquired intangible assets of $28.0 million, pre-tax share-based payment expense of $32.0 million, and pre-tax costs associated with manufacturing inefficiencies associated with the closing of a facility of $1.6 million, and gain on sale of investment in an unconsolidated affiliate of $7.2 million, totaling $1.02 per share. (2) 2016 results include pre-tax special charges associated with streamlining initiatives of $15.0 million, pre-tax amortization of acquired intangible assets of $21.4 million, pre-tax share-based payment expense of $27.7 million, pre-tax acquisition-related items of $10.8 million, and pre-tax impairment of intangible asset of $5.1 million, totaling $1.21 per share. (3) Operating working capital is defined as net receivables plus inventories minus accounts payable. 6 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 2017 At A Glance Revenues ($ in millions) Diluted EPS $3,505 $3,291 $7.43 $6.63 $2,707 $2,394 $2,089 $5.09 $4.05 $2.95 ‘13 ‘14 ‘15 ‘16 ‘17 ‘13 ‘14 ‘15 ‘16 ‘17 Operating Profit ($ in millions) Free Cash Flow ($ in millions) $518.8 $475.2 $376.3 $262.0 $232.4 $248.9 $197.8 $299.1 12.5% $221.5 10.6% 13.9% 14.4% 14.8% $91.7 ‘13 ‘14 ‘15 ‘16 ‘17 ‘13 ‘14 ‘15 ‘16 ‘17 Margins Free Cash Flow is defined as cash provided by operating activities minus purchases of property, plant, and equipment. 7 7 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 5-Year Cumulative Total Return* Among Acuity Brands, Inc., the S&P 500 Index, the Dow Jones US Electrical Components & Equipment Index, and the Dow Jones US Building Materials & Fixtures Index 500 400 300 200 100 0 8/12 8/13 8/14 8/15 8/16 8/17 Acuity Brands, Inc. S&P 500 Dow Jones US Electrical Components & Equipment Index Dow Jones US Building Materials & Fixtures Index Acuity Brands, Inc. S&P 500 Dow Jones US Electrical Components & Equipment Index Dow Jones US Building Materials & Fixtures Index 8/12 $100 $100 $100 $100 8/13 $134 $119 $125 $127 8/14 $195 $149 $156 $159 8/15 $308 $149 $141 $183 8/16 $436 $168 $161 $228 8/17 $281 $195 $201 $239 *Assumes $100 invested on August 31, 2012 in stock or index, including reinvestment of dividends. 8 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 03 Markets Commercial Office Education Lighting solutions that enable financial incentives, stimulate Smart solutions deliver beautifully-controlled lighting to worker productivity, ensure employee wellbeing and lower address the unique needs of each space within the campus. costs. Start mitigating risks and enjoying a more intelligent From classroom to auditorium to corridor, and even outdoor, working space. you’ll find it here. Healthcare Hospitality Enhance the healing and nurturing environment with Lighting solutions that deliver comfortable, home-like, complete solutions that make it simple to deliver the right engaging spaces which improve ambiance, hospitality lighting for each space. Enable caregivers. Improve patient provider performance, and environmental sustainability. experience and outcomes. 9 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T Industrial Infrastructure Your industrial environments need advanced solutions that Lighting solutions for municipalities, DOTs, and utilities, go beyond illumination. You need lighting and controls that encompassing the industry’s largest portfolio of smart lighting improve your operations, and deliver savings that improve and controls solutions for roadways, bridges, and tunnels. your bottom line. Residential Retail Residential lighting solutions ensure residents and property Lighting and controls that create dynamic and engaging managers have lighting that is functional, attractive, and lighting environments to help deliver on cost saving and energy-efficient. revenue enhancing goals. 1 0 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 04 Brands 1 1 1 1 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 05 Stockholder Information Board of Directors Vernon J. Nagel(1) Chairman, President, W. Patrick Battle Managing Partner Peter C. Browning(2) Managing Director G. Douglas Dillard, Jr. Founder and Managing Director and Chief Executive Officer Stillwater Family Holdings Peter Browning Partners Slewgrass Capital, LLC Acuity Brands, Inc. Board Advisory Services James H. Hance, Jr. Operating Executive Gordon D. Harnett Former Chairman, President Robert F. McCullough(3) Former Chief Financial Officer The Carlyle Group; and Chief Executive Officer AMVESCAP PLC Julia B. North Former President and Chief Executive Officer Former Vice Chairman Brush Engineered Materials, Inc. (now known as Invesco Ltd.) VSI Enterprises, Inc.; Bank of America Corporation (now known as Materion Corp.) Former President of Consumer Services BellSouth Corporation Dominic J. Pileggi Former Chairman and Ray M. Robinson(4) Non-Executive Chairman Norman H. Wesley Former Chairman and Mary A. Winston President Chief Executive Officer Citizens Trust Bank; Chief Executive Officer Winsco Enterprises, Inc.; Thomas & Betts Corporation President Emeritus Fortune Brands, Inc. Former Executive Vice President East Lake Golf Club and Chief Financial Officer Family Dollar Stores, Inc. (1) Chairman of Executive Committee (2) Chairman of Governance Committee, Lead Director (3) Chairman of Audit Committee (4) Chairman of Compensation Committee Executive Officers Vernon J. Nagel Chairman, President, Richard K. Reece Executive Vice President Mark A. Black Executive Vice President Laurent J. Vernerey Executive Vice President and Chief Executive Officer and Chief Financial Officer and President of Acuity Brands Lighting 1 2 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T Corporate Information Corporate Headquarters Acuity Brands, Inc. 1170 Peachtree Street, NE Suite 2300 Atlanta, Georgia 30309-7676 404-853-1400 www.acuitybrands.com Acuity Brands Lighting One Lithonia Way Conyers, Georgia 30012-3957 770-922-9000 Reports Available to Stockholders Copies of the following Company reports may be obtained, without charge: - 2017 Annual Report to the Securities and Exchange Commission, filed on Form 10-K - Quarterly Reports to the Securities and Exchange Commission, filed on Form 10-Q Requests should be directed to: Acuity Brands, Inc. Attention: Investor Relations 1170 Peachtree Street, NE Suite 2300 Atlanta, Georgia 30309-7676 404-853-1400 www.acuitybrands.com Transfer Agent and Registrar Computershare Shareowner Services is the transfer agent, registrar, Independent Registered Public Accounting Firm EY dividend disbursing agent and dividend reinvestment agent for the 55 Ivan Allen Jr. Boulevard Company. Stockholders of record with questions about lost certifi- Suite 1000 cates, lost or missing dividend checks, direct deposit of dividends, Atlanta, Georgia 30308-3051 or notification of change of address should contact: 404-874-8300 Acuity Brands, Inc. c/o Computershare P.O. Box 30170 College Station, Texas 77842 www.computershare.com/investor Toll Free: 866-234-1921 (Inside the United States and Canada) 201-680-6578 (Outside the United States and Canada) Stock Listing New York Stock Exchange Ticker Symbol: AYI Annual Meeting 11:00 a.m. Eastern Time January 5, 2018 Four Seasons Hotel 75 Fourteenth Street, NE Atlanta, Georgia 30309 Direct Stock Purchase Plan Computershare Shareowner Services offers a direct stock purchase and sale plan for investors wishing to purchase Acuity Brands stock. Dividends can be automatically reinvested. The Plan is not sponsored or administered by Acuity Brands. Inquiries should be directed to: Computershare Shareowner Services. 1 3 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 1170 Peachtree Street, NE Suite 2300 Atlanta, Georgia 30309-7676 404-853-1400 www.acuitybrands.com 1 4 A C U I T Y B R A N D S , I N C 2 0 1 7 A N N U A L R E P O R T 

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