Smart Buildings

Acuity Brands Annual Report 2021 Examined

While lighting makes up 95% of Acuity Brands Inc revenue (they are now the largest lighting manufacturer in North America) it is their Intelligent Spaces Group (ISG) business segment that focuses on smart buildings technology. In this research note, we examine their recently published 2021 Annual Report. Acuity's ISG business segment offers building management systems and location-aware applications, and sells predominantly to system integrators. Their building management system includes products for controlling HVAC, lighting, shades, and access control to deliver end-to-end optimization of building systems. ISG products and solutions are marketed under numerous brand names, including Distech Controls, Atrius, and Rockpile Ventures. Acuity’s overall net sales for the 2021 fiscal year 2021 were $3.5 billion, an increase of $134.7 million or 4.0%, as compared to fiscal 2020. Gross profit of $1.5 billion increased $72.6 million, or 5.2%, in fiscal 2021, as compared to fiscal 2020. Net income of $306.3 million increased $58.0 million in fiscal […]

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While lighting makes up 95% of Acuity Brands Inc revenue (they are now the largest lighting manufacturer in North America) it is their Intelligent Spaces Group (ISG) business segment that focuses on smart buildings technology. In this research note, we examine their recently published 2021 Annual Report.

Acuity's ISG business segment offers building management systems and location-aware applications, and sells predominantly to system integrators. Their building management system includes products for controlling HVAC, lighting, shades, and access control to deliver end-to-end optimization of building systems. ISG products and solutions are marketed under numerous brand names, including Distech Controls, Atrius, and Rockpile Ventures.

Acuity’s overall net sales for the 2021 fiscal year 2021 were $3.5 billion, an increase of $134.7 million or 4.0%, as compared to fiscal 2020. Gross profit of $1.5 billion increased $72.6 million, or 5.2%, in fiscal 2021, as compared to fiscal 2020. Net income of $306.3 million increased $58.0 million in fiscal 2021, or 23.4%, as compared to the prior year.

ISG segment net sales for the year ended August 31, 2021 increased 21.0% to $190 million compared with the prior-year period driven primarily by strong demand for general building control technologies, most significantly for HVAC controls. 

ISG operating profit was $9.9 million for the year ended August 31, 2021 compared with a $3.9 million operating loss in 2020, an increase of $13.8 million, and a significant increase on the $18.1 million operating loss in 2019. The increase was due primarily to higher sales, partially offset by increased employee costs.

Adjusted operating profit for ISG, meanwhile increased $10.7 million to $25.6 million for the year ended August 31, 2021 compared with the prior-year period.

The COVID-19 pandemic caused reduced construction and renovation spending as well as a disruption in supply chain for certain components of Acuity’s product portfolio. During 2020 the firm experienced a number of temporary facility shutdowns due to government-mandated closures, while the facilities have largely remained operational in 2021 the company has warned of further potential closures due to ongoing waves of the virus. 

Acuity has sought out multiple opportunities to strategically expand their portfolio of solutions during 2021, investing $75.3 million, however this is a significant drop on the $303.0 million invested during the 2020 fiscal year. Key acquisitions included:

  • On May 18, 2021, Acuity acquired all of the equity interests of Rockpile Ventures, an accelerator of edge artificial intelligence startups. Rockpile Ventures helps early-stage artificial intelligence (AI) companies drive co-engineering and co-selling partnerships with major cloud ecosystems, enabling faster adoption from proof-of-concept trials to market scale.
  • On July 1, 2021, certain assets and liabilities of ams OSRAM’s North American Digital Systems (OSRAM DS) business were acquired to; enhance the firm’s LED driver and controls technology portfolio, expand access to markets through a more “fulsome OEM product offering”, and provide more control over their supply chain after the challenges of COVID-19.

These acquisitions in 2021 build on acquisitions made in the fiscal year 2020:

  • On September 17, 2019 (fiscal 2020), Acuity acquired all of the equity interests of The Luminaires Group (TLG), a provider of specification-grade luminaires for commercial, institutional, hospitality, and municipal markets, to complement their current broad lighting portfolio. 
  • On November 25, 2019 (fiscal 2020), Acuity acquired all of the equity interests of LocusLabs Inc., the providers of a software platform that supports navigation applications used on mobile devices, web browsers, and digital displays in airports, event centers, multi-floor office buildings, and campuses.

Prior to fiscal year 2020, the company made a number of strategic acquisitions in the lighting and buildings spaces, including Lucid Design, an energy management software that was acquired in February 2018. In 2016, Acuity acquired IoT application platform provider DGLogik, in 2015 the firm acquired smart lighting player ByteLight, and building management systems manufacturer Distech Controls, and in 2013 Acuity acquired smart lighting specialists Adura Technologies. 

Acuity Brands’ M&A activity over the past decade demonstrates the firm’s strong intentions to become a major player in the broader buildings technology space. The acquisition of Rockpile Ventures in particular, shows Acuity’s strong ambition to seize AI innovation from the progressive startups in Rockpile’s current portfolio, while also positioning Acuity to support and gain from new innovation in the edge AI space.

The company expects a 42% plus annualized gross profit margin for the full year of 2022, and believes that it can continue to leverage its operating costs as net sales grow. Its ISG smart building division could deliver net sales growth in “the mid-teens” as the segment moves from a development phase into a growth phase within the emerging smart buildings market. Acuity’s solid financial position and smart building ambitions makes further acquisitions a strong possibility, especially for supply chain security and new innovation.

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