Investment in the Australian Space Sector January 2020 KPMG.com.au © 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. Investment in the Australian Space Sector 3 Introduction Australia has a long history in the space sector. In the 1950s and 1960s, it provided space tracking support for the Apollo missions and was an early sovereign satellite launcher. These initiatives meant that our space sector was poised to be a market leader. Despite this, a number of false starts in creating a space A number of key challenges and opportunities must be agency meant the sector lacked coordination at a federal addressed to take advantage of global growth while and international level and had a heavy reliance on northern ensuring local growth remains profitable and sustainable. hemisphere allies for intelligence and other space related These include: services. – Leveraging Australia’s space capabilities in its world- However Australia’s inherent geographic advantages, strong leading industries: agriculture, natural resources, logistics education and research infrastructure and growing start-up and medicine, to solve the sector’s challenges through community meant that momentum was built, leading to the space applications and conversely exploring opportunities establishment of the Australian Space Agency in July 2018. to leverage innovations back into the space sector. Now, over a year into operations, funding has been – Creating an ecosystem of space supply chain capabilities allocated, a ten-year strategy defined and a series of by improving communication and awareness between the commercial and inter-agency agreements signed, with the various market actors and commercialising research. ambition of tripling the sector’s revenue and employee – Supporting the underpinning workforce needs of the space numbers in the coming decade. industry through a supply of graduates with key skills and A space start-up ecosystem has been nurtured in Adelaide retention of the workforce between major projects. (Adelaide innovation neighbourhood), South Australia, – Ensuring funding allocated to government programs through the Lot Fourteen development and a number of (including Defence) for space-related projects is geared local space focussed companies are emerging as globally towards local spend, including the development of recognised brands. local capabilities. KPMG’s research highlights that Australia’s space start-up – Attracting business from other Asia-Pacific spacefaring companies can procure over 80 per cent of their products nations that have to rely heavily on other markets for and services domestically. A number of local companies products and services. have recently formed partnerships with each other as their capabilities develop and the space industry supply chain in Australia becomes more integrated – enabling companies to positively influence the growth of other businesses with their own success. © 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 4 Investment in the Australian Space Sector © 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss Allentity. rights All reserved. rights reserved. The KPMG The name KPMG and name logo and and logo are registeredare registered trademarks trademarks or trademarks or trademarks of KPMG of KPMG International. International. Liability limited by a scheme approved under Professional Standards Legislation. Liability limited by a scheme approved under Professional Standards Legislation. Investment in the Australian Space Sector 5 Australia’s Space Economy Australia’s space sector has continued its long and gradual trajectory of growth since the creation of the Agency, with industry revenue estimated to have grown by over 5 per cent in 2018-19. The sector achieved an estimated AUD$5.1b in revenues in that year, up from AUD$1.4b in 2009-10 (Figure 1). 8.0 20,000 1000 Revenue 7.0 18,000 900 Employment no. Valued added 16,000 800 6.0 Business no. (RHS) 14,000 700 s n 5.0 ent m 12,000 600 ines illio b oy $ 4.0 bus pl 10,000 500 of em 8,000 400 3.0 . of . 6,000 300 No 2.0 No 4,000 200 1.0 2,000 100 0.0 0 0 Figure 1: Revenue and value added in Australia’s space industry. Figure 2: Employment and business numbers. Source: IBIS World 2018 Source: IBIS World 2018 With technological innovation and growing consumer Sources of industry revenue and funding telecommunications services providing new opportunities, While industry revenue is growing strongly (Figure 1), business and employment numbers in the Australian and remains dominated by satellite communication and sector also continued to rise, reaching an estimated 14,000 broadcasting services (particularly Telstra and Foxtel), employees and 770 businesses in 2018-19 (Figure 2). the reliance on these two players is decreasing. Instead This represents a solid 3.4 per cent per annum average there’s been an increase in direct-to-home TV and satellite growth in business numbers and a significant 10.9 per cent communications competition, growing Australian capabilities per annum average growth in employment in the sector in manufacturing and broader satellite service offerings, over the past five years. Over the same period, growth in such as earth observation (Figure 3). value added in the sector outpaced GDP growth, achieving an average of over 10 per cent per annum over the past five years. It is estimated that industry value added in AUD 0.5b Other 2018-19 was around AUD$3.4b. Value added is expected 9% to continue to grow strongly – estimated at an average AUD 0.8b AUD 1.6b Space Satellite of 8.6 per cent per annum through to 2023. technology communications manufacturing 31% 15% AUD 0.9b Earth observation and ground station infrastructure AUD 1.4b operation Direct-to-home 17% TV 28% Figure 3: Products and services breakdown. Source: IBIS World 2018 © 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 6 Investment in the Australian Space Sector Funding from the Australian Government has also grown – AUD$6m for the Space Discovery Centre; and incrementally with over AUD$200m committed over the – AUD$150m to support Australia’s participation in NASA’s next five years, including: Artemis and Lunar Gateway missions. – AUD$41m to establish the Agency; – AUD$19.5m for the Space Infrastructure fund (including an advanced manufacturing facility in New South Wales and Mission Control Centre in South Australia); Other key funding in the sector includes: For Australian space companies to grow and develop sustainable revenue – a range of investment sources is – AUD$260m to Geoscience Australia to develop SBAS and required, as well as a strong customer base. Ground Station capabilities and fund Digital Earth Australia ; There has been growth in venture-backed investment as – AUD$8bn to AUD$11.75bn for Defence Space programs well as government grants to Australian space companies in the coming 20 years focused on SSA and Satellite in the past two years. Venture financing in Australia Communications; hit a record high in 2018. While this was dominated by – AUD$16m to CSIRO for Future Science Platforms; software and technology companies, a number of space companies had successful raises, including Gilmour Space – AUD$55m to the Smartsat CRC; and Technologies and Myriota, placing them firmly in the global – AUD$400m to Lot Fourteen innovation precinct (not market. While venture financing softened in 2019, both dedicated to space). Fleet Space and Flurosat completed successful funding While this is a substantial increase in funding to the sector, rounds. Nine Australian space companies were recently it’s small by comparison to other OECD nations. This means listed in the top 250 most admired space companies funding will need to be complemented by innovative globally, indicating the diversity and strength of the local partnerships with local industry and foreign investment to space sector achieve the Agency’s growth ambitions. The majority of investment in Australian space companies originates from venture capital, grant funding and some The current investment landscape public offering funding. Acquisition and private equity, often Australia is heavily reliant on start-up companies for its seen in the United States, is yet to feature significantly growing space economy. These businesses