R&D and offshore expansion among priority growth drivers for aerospace & defence industry

Offshore focus may represent opportunity for Canadian market

TORONTO, July 6, 2015 /CNW/ - While mature aerospace and defence (A&D) markets continue to stagnate, companies are under pressure to deliver to investors and shareholders, and Canada may be an attractive option for growth. KPMG International's 2015 Global Aerospace and Defense Outlook finds organizations are looking for any opportunity to sustainably reduce costs and create new growth platforms.

Over the next two years, keeping the business model competitive is the biggest challenge for A&D organizations (38 per cent). Historically, the US and the UK have turned to China and India when looking to remain competitive through international expansion. But, from acquisition prospects to supply chain development to significant federal funding programs (as outlined in the federal Economic Action Plan), Canada may now be looking like a more promising player.

Key findings from the survey results include:

• Increasing sales and decreasing spend – to build strength, remain relevant and meet important targets, 53 per cent of respondents say sales growth is their top strategic priority over the next two years, followed by the 47 per cent who cited reducing their cost structure.
• Opportunities overseas – overseas expansion and portfolio shaping will create new growth opportunities. More than a quarter of respondents say they will enter into new geographic markets, which could represent a growth opportunity for Canada.
• Investing in research and development – investment in research and development (R&D) will increase as organizations look to new technologies and services for growth. Forty-one per cent of companies plan to spend in excess of six per cent of revenues on R&D over the next two years, a 13 per cent increase compared to the last two years. Half of all respondents say they expect new manufacturing technologies to drive future innovation.
• The supply chain of tomorrow – A&D organizations are reorganizing their supply chains to support future global growth and reduce working capital. A third of all respondents list restructuring the supply chain as a top priority this year and more than half are focused on lowering costs and working capital levels across the entire supply chain.

QUOTES

"Aerospace and defence organizations are not willing to grow at any cost. Competition is strong and prices are under increasing pressure. As a result, companies around the world are looking for strategic opportunities to reduce costs and Canada presents itself as a strong contender, offering growth potential for international players."

-     Grant McDonald, National Sector Leader, Aerospace & Defence, KPMG

"In today's fast-changing A&D environment, new threats and competitors are emerging every day. Yet, the challenge for individual organizations has less to do with spotting new threats and more to do with how those companies react and respond to them."

-     Grant McDonald, National Sector Leader, Aerospace & Defence, KPMG

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About KPMG's Global Aerospace and Defense Outlook

The Global Aerospace and Defense Outlook is based on a survey of 68 senior executives, all holding director-level or c-suite roles within their organization. Half of all respondents identify themselves as being based in the Americas, 44 per cent based in Europe and six per cent located in Asia-Pacific. Almost a quarter represent organizations with revenues of more than US$25 billion, a third with revenues of between US$10 billion and US$25 billion. The remainder represent medium-sized organizations and suppliers, with revenues of between US$1 billion and US$10 billion. The survey was conducted by Forbes on behalf of KPMG International, and was completed in early 2015.

About KPMG

KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative ("KPMG International"). KPMG member firms around the world have 162,000 professionals, in 155 countries.

The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

SOURCE KPMG LLP

Kira Froese, National Manager, Communications, KPMG in Canada, 416.777.8928, [email protected]