Acuity Brands
Annual Report 2018

Plain-text annual report

2018 ANNUAL REPORT TRANSFORMING BUILDINGS INTO STRATEGIC ASSETS ACUITY BRANDS, INC. CRAFT CUSTOMER JOURNEYS Atrius Navigator delivers precise indoor positioning (IPS) and location-based services (LBS), enabling applications that redefine customer journeys and enhance business operations. 2018 ANNUAL REPORT 1 ACUITY BRANDS, INC. MAKE ROOM FOR INTELLIGENT DATA 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 2 ACUITY BRANDS, INC.2018 ANNUAL REPORT 3 3 2018 ANNUAL REPORTACUITY BRANDS, INC. MONITOR EQUIPMENT & REOURCES 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. 4 4 ACUITY BRANDS, INC.2018 ANNUAL REPORT 5 5 2018 ANNUAL REPORTACUITY BRANDS, INC. TRANSFORM CUSTOMER JOURNEYS INTO BUSINESS INTELLIGENCE Atrius Insights enables greater understanding of how visitors interact with retail or office space so businesses can optimize customer journeys, analyze traffic and behavioral patterns, and improve conversions. 6 6 ACUITY BRANDS, INC.2018 ANNUAL REPORT 7 7 2018 ANNUAL REPORTCREATE BRILLIANT EXPERIENCES Wherever there are people, there are lights. And when enabled with the right technology, lighting networks can become a powerful sensory network capable of capturing the building-wide data needed to enhance customer experiences and optimize business operations. With its rich, flexible suite of software services, Atrius IoT Solutions unlocks the power of that location-aware sensory data – allowing businesses and developers to create a wide range of mobile and web-based applications. From indoor posi- tioning and spatial analytics to space utilization, Atrius IoT Solutions are helping transform IoT data into a world of infinite possibilities. 8 ACUITY BRANDS, INC.A MESSAGE FROM THE CEO TO OUR STAKEHOLDERS 2018 was another year of record financial performance for Acuity Brands as we reported all-time highs for net sales, 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 2018 financial results included: • Return on shareholders’ equity of 21% compared • Record net sales of $3.68 billion, an increase of 5% with 19% in fiscal 2017. compared with fiscal 2017; While we achieved record financial performance on • Record net income of $349.6 million, an increase various measures, fiscal 2018 was a difficult operating of 9% compared with fiscal 2017; environment characterized by continued overall weak • Record diluted earnings per share of $8.52, an increase of 15% compared with fiscal 2017; • Record net cash provided by operating activities of $353.2 million, an increase of 5% compared with fiscal 2017; • Fiscal 2018 year-end cash balance of $129.1 million, while funding $163.2 million for acquisitions, investing $43.6 million in capital end market demand, aggressive price competition for certain basic, lesser featured fixtures, and significant input cost inflation. Fiscal 2018 operating profit declined $64.2 million to $454.6 million, or 12.4% of net sales, compared with prior year’s operating profit of $518.8 million, or 14.8% of net sales. The increase in diluted earnings per share was due primarily to the benefits of lower tax expense and stock repurchases, which more than offset the negative impact of the expenditures, repurchasing $298.4 million of the decline in operating profit. Company’s common stock, and paying $21.4 million of dividends to stockholders; and 9 2018 ANNUAL REPORT $3.68B NET SALES Record net sales of $3.68 billion, an increase of 5% compared with fiscal 2017. $349.6M NET INCOME Record net income of $349.6 million, an increase of 9% compared with fiscal 2017. $8.52 EARNINGS PER SHARE Record diluted earnings per share of $8.52, an increase of 15% compared with fiscal 2017. $353.2M NET CASH PROVIDED BY OPERATING ACTIVITIES Record net cash provided by operating activities of $353.2 million, an increase of 5% compared with fiscal 2017. On the strategic front, we had many significant accomplishments, including the following key items during fiscal 2018: • Extended our industry leading portfolio of innovative and energy-efficient lighting and building management solutions with the introduction of almost 100 new product families, including the expansion of the Contractor Select portfolio to more profitably compete in the market segment for basic, lesser featured luminaires; • Increased the sales of our Atrius-based IoT- enabled solutions, providing customers with the opportunity to transform their spaces from expense items to strategic assets; • Outpaced the growth rate of our overall market and gained market share in many important product categories and sales channels; • Expanded our portfolio and access to market with the acquisitions of Lucid Design Group and IOTA Engineering; and • Initiated actions to further streamline our operations to reduce costs, accelerate investments in areas with higher growth opportunities, and improve our productivity and financial performance. At August 31, 2018, the 1 and 3-year total returns on the Company’s common stock were below that of the respective benchmark indexes, which include the S&P Midcap 400 Index, the Dow Jones U.S. Electrical Components & Equipment Index, and the Dow Jones U.S. Building Materials & Fixtures Index. However, the Company’s 5-year annualized return was in line with the respective benchmark indexes as noted in the table on page 12. 10 ACUITY BRANDS, INC.1111 2018 ANNUAL REPORT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 Midcap 400 Index (13%) 17% 6% 20% (8%) 19% 11% 15% 13% 13% 15% 13% Our Future: Growth, Innovation, Excellence a promise best captured in our tag line: “Expanding the This is an extraordinary time to be in the lighting Boundaries of Lighting™.” and building management industries, particularly As the world entered the 21st century, digital for a company of the caliber of Acuity Brands. Rapid technology was evolving in a way where many advancements in technology, along with the need for discussed the possibility of creating connected greater energy efficiency, changes in public policy, solutions where vast amounts of data could be and demand for environmental sustainability, continue collected and utilized to enhance the interface between to drive profound changes in our industry creating humans and infrastructure of all kinds ushering in the exciting opportunities. Acuity Brands is capitalizing world of “Smart Cities” through “connected, intelligent on these profound changes to provide lighting and buildings.” At Acuity Brands, we are turning this dream building management solutions that are efficient, into reality where our many solutions are creating elegant, and sophisticated, while at the same time “connected, intelligent buildings” for customers simple to install, maintain, and use. We are at the transforming their buildings into strategic assets for forefront of transforming the lighting and building owners and users alike. Our company is uniquely management industries. Our experience, knowledge, positioned to accelerate the adoption of connected, and skill as lighting experts allow us to deliver superior intelligent buildings because of our unique collection lighting solutions for virtually any application, of hardware and software assets along with our multiple 21% RETURN ON SHAREHOLDERS’ EQUITY Return on shareholders’ equity of 21% compared with 19% in fiscal 2017. channels to market that are unmatched in the industry today. Our solutions, which contain embedded sensors and software, are ubiquitous, dense, and powered, affording the opportunity to collect vast amounts of actionable data to optimize the efficiency and utilization of the space, position people, and track assets, among other activities. The value creating potential of these capabilities are endless as customers are finding out. 12 ACUITY BRANDS, INC. $129.1M CASH BALANCE Fiscal 2018 year-end cash balance of $129.1 million, while funding $163.2 million for acquisitions, investing $43.6 million in capital expenditures, repurchasing $298.4 million of the Company’s common stock, and paying $21.4 million of dividends to stockholders. 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 three mission-critical areas of operational excellence that we refer to as the 3 Cs: • Providing unparalleled customer service; As we enter 2019, our mission is to continue to build on • Pursuing world-class cost efficiency by our rich legacy of excellence, growth, and innovation eliminating non-value added activities and to provide great returns for our shareholders, superior transaction costs; and 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 • 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 13,000 associates 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. possibilities of what can be achieved using intelligent Sincerely, 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. Vernon J. Nagel Chairman, President, and Chief Executive Officer November 19, 2018 13 2018 ANNUAL REPORTATRIUS NAVIGATOR ENHANCE CUSTOMER JOURNEYS AND BUSINESS OPERATIONS 14 ACUITY BRANDS, INC.To help deliver a wider range of location-based services to both customers and employees, the Atrius Navigator software service unlocks the power of indoor positioning data within mobile applications to improve business operations. A web-based administration tool simplifies development of applications, including setting action zones, maintaining venue layouts, and managing multi-site requirements and user roles. The Benefits Transform indoor positioning and location-based data, Enable real-time location-based interactions within acquired from Atrius Navigator into spatial analytics customer loyalty or associate services mobile with Atrius Insights, a web-based dashboard. applications, including: - point of interest search How It Works Atrius Navigator acquires data from the Atrius − Ready - wayfinding (blue-dot navigation), including point-to- Sensory Network, leveraging embedded Bluetooth point and multi-stop routing - proximity marketing and promotional offers - point of interest notifications - assistance requests and proactive customer service applications Low Energy and/or visible light communication technologies, as well as readily-available sensor fusion technologies on users’ mobile devices. 15 2018 ANNUAL REPORT ATRIUS SPACES MAKE ROOM FOR INTELLIGENT DATA 16 ACUITY BRANDS, INC.Atrius Spaces software service (APIs) and web application make it easy for an enterprise to gain accurate insights into their space utilization. The Benefits How It Works Efficiently allocate and plan for spatial requirements, Atrius Spaces leverages occupancy data from the optimizing facility operations, budgeting and life cycle nLight® lighting control platform to help building management, across your building or campus portfolio. tenants, owners, and managers achieve the optimal Access room, floor, and building plans anytime and anywhere through a browser. Leverage real-time and historical data to identify occupancy status, peak and average space utilization, and types of spaces used within one or multiple buildings. space utilization of common areas, meeting rooms, and offices. 17 2018 ANNUAL REPORTATRIUS ASSETS TAKE ACTION ON MOVEMENT 18 ACUITY BRANDS, INC.Designed to enhance business performance, Atrius Assets is a cloud-based software service that provides accurate monitoring of assets and personnel directly from a web browser or via integration with other business applications. With a thorough understanding of assets’ real-time location and movement trends, customers can optimize workflows, enhance on-demand and dispatch services, redesign space layouts, implement safety or theft prevention initiatives, and improve equipment utilization and maintenance. The Benefits Gain thorough understanding of asset utilization and Overlay 60-minutes of live data onto your venue layout trends, and view analysis of aggregated data over to locate assets, analyze movement paths and monitor customizable date ranges with Atrius Insights’ web- asset telemetry information. based spatial analytics dashboard. Create real-time alerts based on dwell time, How It Works count, health metrics, etc. and facilitate actionable Atrius Assets provides real-time indoor tracking data management of alerts through web-based visualization, of tagged assets, equipment and personnel with text and email notifications. 2-meter or better accuracy, by leveraging the Atrius™- Integrate and use asset location, movement and telemetry data within enterprise software or third- party applications, leveraging Atrius Assets software service APIs. Ready Sensory Network and Bluetooth® Low Energy technology communication. 19 2018 ANNUAL REPORTATRIUS INSIGHTS TRANSFORM LOCATION-BASED SERVICES INTO BUSINESS INTELLIGENCE 20 ACUITY BRANDS, INC.The Atrius Insights web application and APIs transform indoor positioning and asset tracking data, acquired from Atrius Navigator and Atrius Assets, into rich contextual spatial analytics. Providing thorough analysis of indoor contextual data with reports, trends and graphical representations, Atrius Insights makes complex relationships actionable for a business. The Benefits Gain understanding of how: Aggregate and compare metrics across multi-site organizations. - visitors interact with a space to optimize customer APIs provide for integration into enterprise and journeys, analyze and predict traffic and behavioral third-party software. patterns, and improve conversions - asset utilization and trends, for space-contextual optimization of processes, layouts and equipment utilization How It Works Using indoor positioning and asset tracking data acquired from Atrius Navigator and Atrius Assets, Atrius Insights displays location-based metrics via Analyze data with map-based visualizations and web-based dashboard or integrates data within heatmaps that illustrate changes over time and exactly enterprise systems, business intelligence, point of where those changes are taking places. sale, and marketing applications. 21 2018 ANNUAL REPORT OUR BRANDS INNOVATIVE SOLUTIONS 22 ACUITY BRANDS, INC. 2018 ANNUAL REPORT $3.7 Billion FISCAL 2018 NET SALES $1.7 Billion STOCKHOLDERS’ EQUITY 97%NORTH AMERICAN NET SALES 25BRANDS 2 Million SKUs 19MANUFACTURING FACILITIES ~13,000 EMPLOYEES 23 23 2018 ANNUAL REPORTACUITY BRANDS, INC. PERFORMANCE FINANCIAL HIGHLIGHTS (dollars in millions except for diluted earnings per share) $3,680.1 NET SALES $349.6 NET INCOME $8.52 DILUTED EARNINGS PER SHARE $129 TOTAL CASH $2,989 TOTAL ASSETS $357 TOTAL DEBT 24 24 ACUITY BRANDS, INC. PERFORMANCE 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 2018 (1) 2017 (2) % Change $ 3,680.1 $ $3,505.1 5% 40.4% 42.3% 454.6 $ $518.8 (12%) $ $ 12.4% 14.8% 349.6 $ $321.7 $8.52 $7.43 9% 15% 9% 5% 8% (35%) Diluted weighted average number of shares outstanding (in millions) 41.0 43.3 Return on average shareholders' equity 20.9% 19.2% Cash provided by operating activities $ 353.2 $ $336.6 Depreciation and amortization Capital expenditures $80.3 $43.6 $74.6 $67.3 FINANCIAL POSITION: 2018 2017 % Change 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) $ $ $ $ 2,989 129 357 $1,717 $ $ $ $ 17.2% 16.3% $2,900 3% $311 (59%) (0%) 3% $357 $1,666 17.6% 14.5% (1) 2018 results include pre-tax special charges associated with streamlining initiatives of $5.6 million, pre-tax amortization of acquired intangible assets of $28.5 million, pre-tax share-based payment expense of $32.3 million, pre-tax acquisition-related items of $3.8 million, excess inventory related to the closure of a facility of $3.1 million, gain on sale of a business of $5.4 million, and discrete income tax benefits of the U.S. Tax Cuts and Jobs Act of $34.6 million, totaling $0.32 per share. (2) 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. (3) Operating working capital is defined as net receivables plus inventories minus accounts payable. 25 2018 ANNUAL REPORT 4000 3500 3000 2500 2000 1500 1000 500 0 10 8 6 4 2 0 $3,680 $3,505 $3,291 $2,707 $2,394 $518.8 $475.2 $454.6 14.4% 14.8% 12.4% $376.3 $299.1 13.9% 12.5% ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 REVENUES ($ in millions) OPERATING PROFIT ($ in millions) Margin $8.52 $7.43 $6.63 $304.2 $309.6 $261.7 $269.3 $218.8 $5.09 $4.05 ‘14 ‘15 ‘16 ‘17 ‘18 ‘14 ‘15 ‘16 ‘17 ‘18 DILUTED EPS FREE CASH FLOW ($ in millions) Free Cash Flow is defined as cash provided by operating activities minus purchases of property, plant, and equipment. Prior year amounts reflect adoption of Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. 26 600 500 400 300 200 100 0 350 300 250 200 150 100 50 0 ACUITY BRANDS, INC.FINANCIAL HIGHLIGHTS 5-YEAR CUMULATIVE TOTAL RETURN* Among Acuity Brands, Inc., the Dow Jones U.S. Electrical Components & Equipment Index, the Dow Jones U.S. Building Materials & Fixtures Index, the S&P Midcap 400 Index, and the S&P 500 Index. $350 300 250 200 150 100 50 0 8/13 8/14 8/15 8/16 8/17 8/18 8/13 8/14 8/15 8/16 8/17 8/18 Acuity Brands Inc. $100 $146 $230 $325 $209 $182 Dow Jones U.S. Electrical Components & Equipment $100 $125 $113 $129 $160 $188 Dow Jones U.S. Building Materials & Fixtures $100 $125 $144 $179 $188 $199 S&P Midcap 400 Index S&P 500 Index $100 $123 $123 $138 $156 $187 $100 $125 $126 $142 $165 $197 * For fiscal year ending August 31. Assumes $100 invested on 8/31/13 in stock or index, including reinvestment of dividends. During fiscal 2018, the Company was removed from the S&P 500 Index and added to the S&P Midcap 400 Index. Copyright © 2018 Standard & Poor’s, a division of S&P Global. All rights reserved. Copyright © 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. 27 2018 ANNUAL REPORT STOCKHOLDER INFORMATION BOARD OF DIRECTORS Vernon J. Nagel(1) Chairman, President, and Chief Executive Officer Acuity Brands, Inc. W. Patrick Battle Managing Partner Stillwater Family Holdings Peter C. Browning(2) Managing Director Peter Browning Partners Board Advisory Services G. Douglas Dillard, Jr. Founder and Managing Director Slewgrass Capital, LLC James H. Hance, Jr. Operating Executive The Carlyle Group; Former Vice Chairman Bank of America Corporation Ray M. Robinson(4) Non-Executive Chairman Citizens Trust Bank; President Emeritus East Lake Golf Club Robert F. McCullough Former Chief Financial Officer AMVESCAP PLC (now known as Invesco Ltd.) Norman H. Wesley Former Chairman and Chief Executive Officer Fortune Brands, Inc. Mary A. Winston President Winsco Enterprises, Inc.; Former Executive Vice President and Chief Financial Officer Family Dollar Stores, Inc. Julia B. North Former President and Chief Executive Officer VSI Enterprises, Inc.; Former President of Consumer Services BellSouth Corporation Dominic J. Pileggi(3) Former Chairman and Chief Executive Officer Thomas & Betts Corporation EXECUTIVE OFFICERS Vernon J. Nagel Chairman, President, and Chief Executive Officer Richard K. Reece Executive Vice President and Chief Financial Officer Laurent J. Vernerey Executive Vice President and President of Acuity Technology Group (1) Chairman of Executive Committee (2) Chairman of Governance Committee, Lead Director (3) Chairman of Audit Committee (4) Chairman of Compensation Committee 28 ACUITY BRANDS, INC. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EY Suite 1000 55 Ivan Allen Jr. Boulevard Atlanta, Georgia 30308-3051 404-874-8300 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. CORPORATE INFORMATION CORPORATE HEADQUARTERS STOCK LISTING 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 New York Stock Exchange Ticker Symbol: AYI ANNUAL MEETING 11:00 a.m. Eastern Time January 4, 2019 Four Seasons Hotel 75 Fourteenth Street, NE Atlanta, Georgia 30309 REPORTS AVAILABLE TO STOCKHOLDERS Copies of the following Company reports may be obtained, without charge: - 2018 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, dividend disbursing agent and dividend reinvestment agent for the Company. Stockholders of record with questions about lost certificates, lost or missing dividend checks, direct deposit of dividends, or notification of change of address should contact: Acuity Brands, Inc. c/o Computershare By Regular Mail PO BOX 505000 Louisville, Kentucky 40233-5000 By Overnight Delivery 462 South 4th Street, Suite 1600 Louisville, Kentucky 40202 www.computershare.com/investor Toll Free: 866-234-1921 (Inside the United States and Canada) 201-680-6578 (Outside the United States and Canada) 1170 Peachtree Street, NE Suite 2300 Atlanta, GA 30309-7676 404-853-1400 acuitybrands.com 

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