Last week, the Tel Aviv Municipality surprised the owners of FSM, the company that operates the Tel-O-Fun bicycle-hire system, with its announcement of the cessation of the venture by this August, a few months before the end of FSM's first franchise period (end of January 2021). FSM is owned by listed logistics and dispatch company Fridenson Logistic Services Transport Industrial Projects Ltd. (TASE:FRDN) (45%), Eitan Shamir (45%) and Danny Spielman (10%).
The Tel Aviv Municipality gave as its reason for terminating the contract the change in market conditions. "In recent years," it said, "there has been a gradual reduction in the amount of use due to the development of the electric bicycle and scooter market." Tel Aviv mayor Ron Huldai added, "There is no justification for investing public money in a service for which there is low demand."
Fridenson itself stated in its latest financial reports, for 2019: "Several international companies operating bicycle and scooter hire systems not based on fixed stations have recently entered Tel Aviv and other cities." Bicycles and electric scooters operated by Mobike, Bird, Lime, Leo and Wind have flooded Tel Aviv's streets.
"These companies," Fridenson said, "represent competition with the company's activity." It said it was meeting this competition by improving the service and the product and through greater cooperation with other players in public transport such as transport pay card Rav Kav.
In an announcement this week, Fridenson said that it and FSM were examining the legal implications of the municipality's announcement and FSM's right to compensation. In its 2019 financials, Fridenson said that it was in advanced talks with the Tel Aviv Municipality on extending the franchise by five years "while upgrading some of the existing network to an electric bicycle network."
Even if FSM is awarded compensation for the slightly early termination of the venture, it can already be said that as far as financial results are concerned, the ten years of the venture have not been a success, to say the least.
Tel-O-Fun did not manage to grow its revenue over the years, its profitability was low, and its subscriber numbers steadily fell as the industry became more sophisticated and competition increased.
Tel-O-Fun's operating profit of under NIS 3.5 million in 2019, per Fridenson's financials, was its highest in all its years of operation, apart from the first, 2011. That year, Tel-O-Fun received one-time revenue of over NIS 40 million for setting up the system, which helped it to present an annual operating profit of NIS 7 million.
Aside from these years, Tel-O-Fun's operating results oscillated between losses and small profits. Excluding its first year of operation, Tel-O-Fun's profits over eight years total less than NIS 4 million.
Bicycle hire revenue meanwhile remained static over the years, ranging between NIS 14 million and NIS 15 million, and totaling NIS 120 million in nine years. Subscriber numbers went in one clear direction from the start- downwards. In the first two years of operation (2012-2013) there were about 17,000 annual subscribers, but this number steadily shrank, reaching just 4,000 in 2018.
FSM set up the infrastructure for the bicycle-hire service which is owned by the municipality: bicycle stations, bicycles, the computer system, a website, and service desks, and it also operates it, including maintenance, repairs, and collection from users. It offers subscriptions on a daily, weekly and annual basis, and also a one-time hourly usage fee.
Before entering the bicycle hire business, FSM mainly dealt in the management and operation of luggage trolleys at Ben Gurion Airport. In 2010, it signed a deal with the Tel Aviv Municipality to set up a bicycle-hire system, and in the years that followed its bicycle stations spread all over Tel Aviv. It also began operating in the neighboring cities of Ramat Gan and Givatayim, but the attempt to deploy beyond Tel Aviv did not succeed.
Through Tel-O-Fun, the Tel Aviv Municipality offers 1,900 bicycles for hire at 200 stations throughout the city. Despite the ending of the service, the competition, and the difficulty in generating profits, FSM continues to try to expand. Its main current project is in Jerusalem, where in 2018 it won a tender to operate a similar system for a decade in the city center, with 50 stations and 400 bicycles. The contract is subject to several conditions which have not yet been completely fulfilled.
It should be said that the bicycle-hire venture is fairly small in relation to Fridenson's total activity, which is mainly in haulage and logistics, storage, and international shipping. The company is controlled by the Fridenson family, and its chairperson is Gidi Altman, formerly a senior manager at Bank Leumi (TASE: LUMI).
Published by Globes, Israel business news - en.globes.co.il - on May 6, 2020
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