Page 16 - Australian Defence Magazine Feb 2020

16 NEWS REVIEW INDUSTRY UPDATE
FEBRUARY 2020 | WWW.AUSTRALIANDEFENCE.COM.AU
DEFENCE PROCUREMENT
DEFENCE PROCUREMENT: IT’S GOOD NEWS FOR AUSTRALIAN BUSINESS
The latest data from ADM’s Top 40 Defence contractors and Top 20 SMEs survey shows a promising change in Australian company involvement in Defence industry.
LOUISA MINNEY | CANBERRA
AFTER half a decade of sluggish increase in Australian industry in- volvement in the Australian defence industry, this year’s figures pub- lished in ADM’s December 2019/ January 2020 edition for work con- ducted in 2019 show promise.
In 2014, the Australian industry share of Australia’s Defence spend- ing was the lowest of the four main ranked groups, at 22 per cent. (Ref- erencing the ADM’s Top 40 and Top 20 SME survey rankings using four groups: Australia, the US, European Union and UK). By 2019, Australia’s share was the greatest, exceeding the EU’s by one percentage point, having risen seven points at the expense of the UK and, to a lesser extent the US.
During the same period, the num- ber of Australian companies involved in the Defence industry increased from 23 per cent to 33 per cent. This would suggest that a greater number of Australian companies are winning contracts. However, the value of the contracts is lower.
Major Projects are a useful mea- sure to validate the ADM industry rankings. An analysis of Major Projects data shows that between 2014 and 2019, the expenditure on Ma- jor Projects grew, and Australia’s share steadily increased (see in Figure 1).
The ADM data is limited because participation in the survey is voluntary. In 2019, two major industry play- ers chose not to report. These are Naval Group Australia and Raythe- on – the latter has been in the top 5 defence contractors every year since at least 2014. Meanwhile, the share of Naval Group’s contract for the Fu- ture Submarine Program is missing
in action as the company has never taken part in the survey.
These omissions could account fortheapparentmismatchingrowth (comparing the Major Projects up- wards growth trend versus the appar- ent decrease in contract value) shown by the line of Major Projects in fig- ure 1, and not reflected in the gross revenue amounts for the four main Defence contracting countries. This means that the Australian Defence in- dustry may not be enjoying the growth that ADM data suggests at first glance.
SMES
Australian SME’s are also experienc- ing participation and revenue growth. In 2019, 12 Australian SME’s (or 60 per cent) made it into the Top 40 rank- ings: a 10 per cent improvement on the average of the last five years. Most notable is the inclusion of a second SME offering ‘above the line’ services despite the heavily contested Major Service Provider (MSP) environment. (Figure 2 Top 20 SME participation)
A persistent trend is that Austra- lian companies’ share of the Defence spendislessthanitsrateofparticipa- tion. One way to interpret this could be that Australian companies are winning lower value work than their international competitors; another could be that Australian companies are sub contracting to foreign primes. (Figure 3 - Top 20 SME Revenue).
Regardless, it seems that Austra- lian government policies are starting to produce the promised returns for Australian industry.
Louisa Minney is a business analyst, CEO and sits on the Board of a number of Australian SMEs.
FIGURE 1 – TOP 40 REVENUE
6,000 5,000 4,000 3,000 2,000 1,000
0
AU Owned UK Owned EU Owned US Owned
Major Projects
2014 2015 2016 2017 2018 2019
FIGURE 2 – TOP SME PARTICIPATION
14 12 10
8 6 4 2 0
AU Owned UK Owned EU Owned US Owned
2014 2015 2016 2017 2018
2019
FIGURE 3 – TOP SME REVENUE
450 400 350 300 250 200 150 100
50 0
AU Owned UK Owned EU Owned US Owned
2014 2015 2016 2017 2018
2019
LOUISA MINNEY ON ADM TOP 40 DATA
Millions $ Number of SMEs Revenue (000:000,000,000)