New ag corporate strategy by Hemisphere GPS
On Sept. 5, the board of directors of Hemisphere GPS initiated a restructuring mandate with the directive to implement a new profit-focused corporate strategy under the leadership of incoming CEO Rick Heiniger, formerly vice chairman of the company and founder of the Outback Guidance precision agriculture business.
“The agricultural industry is entering a period of exceptional opportunity. We’re in the early stages of transformational adoption of high definition production practices. We are a data driven society, and agriculture is no different. Agronomic specialized data-management and cloud information services, combined with a new generation of connected devices and machines, will not only enable emerging technologies, but will simplify existing workflows and deliver productivity gains for the industry,” stated Hemisphere GPS’ new CEO, Rick Heiniger. “We believe Hemisphere GPS is perfectly positioned. To that end we have launched a new corporate strategy building on our world-class positioning, guidance and steering solutions to provide seamless integration with cloud computing and information services. This integration will break the barriers which have long challenged the m ainstream adoption of precision agriculture. We will be wholly focused on the essential core technologies while at the same time assisting the industry in its adoption.”
Under Heiniger’s leadership, the company has implemented a new corporate strategy built on three core principles to achieve profitable growth and market leadership:
- Focus exclusively on the Agriculture business.
- Streamline and simplify operations.
- Implement market-driven innovation.
Focus on Precision Agriculture
For over a decade Hemisphere GPS has been a leading solutions provider to the precision agriculture market. In the first nine months of 2012, 81 percent of company revenue was derived from the agriculture business, most of which comes from the North American market. Past diversification into marine, construction and other industries increased costs, absorbed cash and distracted management focus from its core agriculture business. To focus exclusively on agriculture, the company will:
- Exit the non-agriculture-related business. An investment banking firm has been engaged to pursue strategic alternatives for the Precision Products business. Given the agricultural focus of the company, the Board believes that the Precision Products business can grow more quickly with another organization that is more strategically aligned.
- Relocate company headquarters to Hiawatha, Kan., where Hemisphere GPS’s agricultural operations are already strategically located, in the heartland of the North American agricultural industry. An abundant supply of agriculture trained and passionate talent, along with the pro-business climate in the State of Kansas, are two key factors for the site selection.
Streamline and Simplify Operations
As part of the company’s initiative to ensure profitable and sustainable growth:
- All production activities currently conducted in Calgary will be transitioned to Hemisphere GPS’ primary outsourced manufacturing partner.
- The Calgary office, which currently supports manufacturing, the Precision Products business and the corporate administration functions, will be closed following the relocation of key functions to Kansas, thereby reducing overhead.
- The two-business-unit and supporting structure will be reduced to a single business, thereby eliminating redundancies, reducing costs and achieving operating efficiencies.
- The company will rationalize products, engineering projects and geographic markets.
These initiatives will simplify the overall business and are expected to reduce manufacturing costs, improve gross margins and reduce operating overhead.
The company will adopt a market responsive product development focus with a customer-driven culture. As such:
- The marketing function will become a core competency of the company. A seasoned agriculture executive has already been hired to lead this initiative as vice president of marketing.
- Increased emphasis will be placed on focused market and customer research driving greater innovation in, and higher returns from, the product development process.
The restructuring will take place largely over the next 12 months, with the bulk of the costs being recorded in the fourth quarter of 2012. Total workforce, including employees and contractors, will be reduced from 273 to about 170. Of the reduction in workforce, approximately 40 employees are associated with Precision Products, and approximately 60 are associated with the outsourcing of manufacturing, closure of the Calgary office and streamlining of the organizational structure. The existing agricultural business will not be interrupted during this process.
Upon completion, the savings from the overall restructuring are estimated to be approximately $7 million per annum through reduced manufacturing costs, improved gross margins and reduced operating overhead.
The cash cost of the restructuring is estimated at $5.5 to $6.5 million. Non-cash costs of the restructuring are expected to be $4 to $5 million. The company believes it has sufficient capital to complete the restructuring without the need for additional capital.