Montreal bicycle sharing company hitting financial deficit

09/21/2012 07:15 EDT | Updated 11/21/2012 05:12 EST
Montreal Bixi bicycles are not bringing in profits and the company that is organizing the bike share network is in financial deficit.

Bixi's are bicycles made available to the public at low cost by the Société de vélos en libre-service (SVLS) – or self-serve bicycle society.

SVLS is counting on international sales to recover the sums invested in the Montreal bike network.

In 2011, the SVLS needed more money to continue its expansion.

"Montrealers and the self-serve bicycle system benefit of the fact that we export bicycles outside of the country," said SVLS president Roger Plamondon at the time. "It is urgent that we have the financial leverage to continue our operations."

The company was granted $108 million in financial aid from the Montreal municipal council.

In 2012, the SVLS expected revenue of $91 million and profits nearing $11 million. According to Radio-Canada, the revenues in question are more likely to reach $49.6 million and the profits are projected to tank with the company losing $2.8 million.

According to the company's president, the provincial government opposed the sale of Bixi products outside of Quebec stating that it did not want Montreal to fund the commercial endeavours of Bixi in foreign countries.

The company's falling out with Montreal-based technology enterprise 8D, the company that provided the SVLS with its technologies, is another element that could have impacted the company's bottom line.

8D created the office technologies, payment terminals, bike docks, solar energy control and the overall bike sharing system for SVLS.

SVLS had decided to develop its own technologies in June 2011 and hired American tech developers, Personica with a $2.3 million contract. Personica used a company located in India for a part of the programming.

Delays in New York City

SVLS' American partner, Alta Bicycle Share, increased its efforts to sell Bixi bicycles in large markets like Chicago and San Francisco.

New York City announced large project; 10,000 Bixis would hit the streets of the Big Apple – but New York was unaware the SVLS had to change all of its technologies.

Bixis were intended to roll around New York in July but Personica was running late on the project.

New York City Mayor Michael Bloomberg announced the project would not be launched until the system worked properly. The following spring, New York Transport Commissioner Janette Sadik-Khan announced that the SVLS' technology would have to be completely redevelopped.

Plamondon maintains that the New York City administration had all of the information required when it signed the contract with the Montreal enterprise.

As it stands, the SVLS' new bike sharing systems are being tested in New York for conformity. The project is expected to launch in March 2013.

SVLS will have to wait to receive a part of the revenues from its contract with New York.

A lack of liquid assets

Radio-Canada reports that the Montreal enterprise had to ask some of its suppliers to retain payments since the SVLS lacked liquid assets to pay its bills. Plamondon confirmed this.

"I recognize the cooperation and participation of all of our suppliers who recognized that we had to respond to a punctual need," said Plamondon.

Plamondon said he also takes a part of the blame for the technology let-down.

"Mea culpa, because we shouldn't have found ourselves in this situation and [we should have] taken measures to assure we were able to deliver," he said.

Plamondon said the SVLS has reimbursed its $37 million loan to Montreal, but adds that the uncertainty of the company's future makes potential clients harder to come by.

The company is currently attempting to sell some of its assets outside of Montreal.

"In the actual context, where every decision is object of political debate [...] we are 100 per cent better off saying, look, we'll stop this adventure. Sell the company," said Plamondon.

Unavailable $60 million

The SVLS was hit with another financial dilemma in recent months. The factoring capacity the SVLS was expecting to get from the National Bank, its financial institution, would not be accessible for the project launching in New York.

The factoring would have allowed the SVLS to transfer a part of its receivable account to the National Bank in order to open up more liquid assets.

The $60 million were part of the $108 million financial plan supported by the City of Montreal in 2011.

According to the SVLS, the National Bank was concerned with unlocking this type of financing since the history with the New York client was so short.

"It was a surprise during negotiations for the 'financial package' with the National Bank, the $60 million in factoring was destined to be used on the New York contract if we had won it," said Michel Philibert, communications director for the SVLS.

Members in Montreal

In a report issued in August 2012, the SVLS said it counted 49,227 Bixi users in Montreal.

The company has often said it needed 50,000 users in order to remain financially afloat.

Radio-Canada reports that the number of users has declined over the last month. Philibert confirmed this by email with the station.

"The Bixi membership is not fixed and varies all season long. Currently, our membership holds about 42,000 users," he wrote.

He says that the SVLS always sees a decline of 15 to 20 per cent at the end of July during the membership renewal season.

"We then work to gain back what we lost through campaigns, such as the ones we did with the STM, Groupon and an early bird membership towards the end of the season."