Capex vs opex

Published 19 June 2017

In the last year the moderator has been reviewing numerous existing cement facilities and proposals for new cement plants or production lines. In this process, compromises have to be made between the conflicting objectives of minimising the capital expenditure (capex) to establish a cement factory while minimising the operating expenditure (opex) when running the cement factory.

The need for the fastest-possible return on investment can lead to cement producers focussing

excessively on capex savings at the expense of future profitability and competitiveness

When an investor is establishing a cement factory, or expanding an existing facility, there is naturally an objective to minimise the size of the investment. Once the decision to make the investment has been made, at least three years will pass before any revenues are earned by the sales of the plant’s cement output. Tens or hundreds of millions of dollars of capital will need to be raised by equity or loans to fund the investment. There will be significant costs associated with raising that capital. The greater the size of the investment, the greater the cost of capital before any revenues are earned. Once revenues are being earned, the time required to generate a payback and then a return from that investment will also be longer.

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