11. Risk analysis

Set out below is an analysis of the following key risks associated with this Initiative:

site risks
financial risks
commercial risks
legislative risks.

11.1 Site risks

There are significant risks in terms of the bin sites and maintenance considerations involved in this Initiative.

11.1.1 Site tenure

There may be possible advertising restrictions from some site owners who may be concerned about competing advertising on their premises. This can be managed by maintaining an accurate site database and good communication with site owners.

Additionally, many metropolitan councils have granted long term exclusive rights to Adshel for advertising on street furniture or there may be planning restrictions to work around. This means that bins may be limited to private sites in many areas and access to sites will be dependant on the goodwill of site owners. It may be possible to gain long term tenure to bin sites by offering site owners a fixed percentage of the actual site rental achieved on their site.

11.1.2 Vandalism

Vandalism can substantially increase maintenance costs. The level of vandalism will vary depending on the area where bins are sited. Mitigating factors include the use of robust, hard to mark materials (e.g. stainless steel) and avoiding poorly lit areas for site placement.

11.2 Financial risks

11.2.1 Revenues and costings

The success of the Initiative is dependent on the ability to achieve advertising revenues as the value of recyclables will, at best, only cover the collection. It is clear from Cranleigh's discussions with advertisers that there is wide variation in advertising, commission and occupancy rates. As with any new business, predicting the level of demand is always difficult, although our market analysis in section 4, including taking into account international experience, suggests advertisers will find the format attractive. The risk may be further mitigated if stakeholders are prepared to direct part of their advertising budgets to the Initiative particularly in the first one to two years.

We have reasonable confidence in the cost of producing the bins, with an estimated capital cost of $2,000 per bin. The operational costs are more difficult to assess, particularly if the people recruited are ineffective.

11.2.2 Sensitivity analysis

The key risks with the development scenario are the following:

Insufficient advertising demand or recyclables generated to support bins in some areas.
Potential impact of deposit legislation on reducing the amount of glass that is recycled. In Germany, bins are open to enable others to reach into the bin to gather any non-recycled bottles so that they claim the bottle deposit.

11.2.3 Funding risks

The business will be capital intensive in the early years as the business grows, particularly as all available funds are likely to be reinvested into building more bins. The key to addressing this problem is to ensure that there is access to adequate capital to fund the business as it grows.

An associated funding risk is a potential increase in interest rates although this risk can be mitigated by funding on a long term basis.

11.3 Commercial risks

11.3.1 Management

The key to the success of this Initiative is to recruit well trained and experienced people who have the drive and energy to make the Initiative a success.

11.3.2 Operational issues

Lack of suitable collection facilities in some areas.
Lack of recycling facilities in some areas.
High transport costs for remote areas.

Essentially these issues can be best addressed by not placing bins in remote or poorly serviced areas.

11.3.3 Competition

Other advertising media.
Other outdoor advertisers.
Internet advertising.
Broadband TV.
Household recycling collections.

As set out in section 4.0, trends favour further growth in outdoor advertising.

11.3.4 Change in consumer tastes

Increased consumer demand for alternative, difficult-to-recycle packaging, such as cardboard and milkshake-style cartons, could potentially have an impact on the yield and mix of recyclables. However, as these types of packaging are generally less convenient to consumers, this is not considered highly likely.

11.4 Legislative risks

There are two key legislative risks which may jeopardise the success of the Initiative.

Firstly, Container Deposit Legislation (CDL), otherwise known as a deposit refund scheme, is being promoted by some groups. This involves consumers receiving a cash refund if they return a beverage container for recycling. Schemes of this type currently operate in South Australia and Germany among other places. Without debating the benefits and disadvantages of such a scheme, there is no doubt that its introduction would have a negative impact on the Initiative in that it would encourage some people to divert their recyclables away from the Initiative bins. One possible way of reducing the impact would be to have a bin design that allowed people to remove containers from the bin. Consumers not interested in receiving the deposit refund could place their containers in the bin. Others who found the deposit attractive could then remove the containers and seek the refund.

Secondly, waste levies. Various forms of waste levies have been proposed by councils, industry groups and some political parties. For example, the Green Party currently has the Waste Minimisation (Solids) Bill before Parliament. While many industry groups are not against waste levies per se, they are against an overly bureaucratic and burdensome approach. If poorly developed legislation was passed it could discourage stakeholders from supporting voluntary initiatives such as the Out and About Initiative.

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