Maximising capex value and reducing opex: strategy for value generation

In this blog post, we delve into the importance of capex and opex, their impact on a company's profitability and growth, and the role of digital transformation in optimising these expenditures. We had the opportunity to talk to Lynn Hoendevanger, an Investment Consultant FMCG at Royal HaskoningDHV, whose insights have greatly enriched this post.

Drawing on data from Europe's diverse industrial sector, as well as Lynn's expert input, we will explore how businesses can maximise capex value and reduce opex to generate future value.

Understanding capex and opex

Capex refers to the funds utilised by a company to purchase, upgrade, and maintain physical assets such as property, buildings, industrial plants, or equipment. On the other hand, opex represents the expenses incurred during regular business operations. Striking an optimal balance between the two can pose a significant challenge, but it is crucial for a company's financial success.

A glimpse into the European scenario

With its diverse and robust industrial sector, Europe provides a wealth of data on capex and opex. An analysis of 683 companies, representing 40% of European market capitalisation, revealed that the average share of company revenue aligned with the EU Taxonomy, a classification system for environmentally sustainable economic activities, was 8%. At the same time, for capex, it stood at 13%. This figure constitutes a significant portion of the region's GDP and spans across many industries, including manufacturing, energy, food and beverages, technology, and healthcare. Furthermore, the European insurance industry, a major contributor to the economy, pays out over €1,000 billion in claims annually, demonstrating the scale of investment and expenditure in European companies.

The value generation potential of capex

Capex is a critical factor in a company's growth and expansion strategy. Investing in new machinery or equipment translates into investing in future productivity and profitability. For instance, a manufacturing company that invests in a new production line can increase output, enhance product quality, and reduce production costs, leading to higher sales, improved market share, and increased profitability.

The impact of capex investments across industries

Historically, significant market growth has been backed by substantial capex investments. For example, companies like Uber experienced exponential growth due to significant investments in their IT infrastructure. In growing markets such as energy transition and artificial meat production, capex investments are also on the rise, signalling potential value generation and long-term growth.

Prioritising cost-saving initiatives to reduce opex

Identifying and prioritising cost-saving initiatives to reduce opex without compromising quality is complex. It requires a deep understanding of the company's processes and potential outcomes of any changes made. Companies must consider all possibilities and develop solutions proactively to mitigate potential problems.

Fostering a culture of innovation and continuous improvement

To generate value for tomorrow, businesses must foster a culture of innovation and continuous improvement. Encouraging employees to contribute ideas, embrace new technologies, and challenge existing processes can lead to breakthrough innovations and cost-saving initiatives. Creating an environment that promotes creativity and risk-taking allows businesses to adapt to changing market dynamics and seize emerging opportunities.

The pivotal role of digital transformation

In the context of capex and opex optimisation, digital transformation can involve adopting technologies such as cloud computing, artificial intelligence, machine learning, and data analytics. These technologies can help companies make more accurate forecasts about customer demands, streamline their supply chains, and adjust operations to meet consumer needs.

Navigating the path forward

In the face of increasing competition and changing market dynamics, companies must adopt a more strategic approach to capex and opex. This involves making intelligent investment decisions and finding innovative ways to reduce costs and improve efficiency. By doing so, businesses can generate more value for their stakeholders and position themselves for long-term success.

Learn more

If you're interested in delving deeper into how to maximise your capex value and reduce your opex, read more about getting the most out of your investment.