Nobina's business model generates multi-faceted value
Providing contracted public transport services to society
Nobina ensures that more than one million individuals get to work, school or other activities each day. We do this by providing contracted public transport services to society. We create the highest possible value for our clients, passengers, owners and employees by having a long-term business strategy, i.e. one that covers the entire contract period.
1. Identifying appropriate contracts – prospecting
Nobina has a long-term business strategy and we are active in
a market that is relatively predictable. Therefore, careful sur- veying and analysis efforts, well in advance of when a tender is made public, are very important. Prior to a tendering process, Nobina prioritizes the tender based on its business potential, where the goal is to deliver as many benefits as possible and thus create the highest possible value. Nobina does this by sim- plifying travel for passengers while the increased mobility that is generated, and minimal environmental impact, lowers the costs to society. By identifying the right contracts, we have an easier time reaching the overall financial goal for our business, which is to generate stable, profitable growth.
2. Actively influence the contract conditions and selection
At both local and national levels, there is huge potential for influencing how public transport is tendered. For this reason, there is continual dialogue with politicians, PTAs and industry organizations in order to interpret the content and point out certain aspects all aimed at achieving efficient, stable operations that attract more passengers. Contract design plays a crucial role in determining how well the region’s tendered public transport solution will work. This has a major impact on the economy, which is why more and more PTAs are starting to realize the value of discussing long-term, sustainable regional transport solutions with the public transport service provider. As the Nordic regions largest, most experienced public transport service provider, Nobina is thus a sought-after partner in such discussions. This strengthens confidence in Nobina as a competent partner that has the ability to deliver services based on the various stakeholders’ changing needs. Highest priority is placed on benefits derived by passengers from public transport in relation to the costs.
When there is continual dialogue with stakeholders, it also creates valuable infor- mation used in the selection of prioritized tenders. In competitive situations, Nobina has a high level of insight into the PTA’s underlying needs and requirements, and good contacts for the ongoing dialogue.
3.Winning the right contracts – key to high profitability
There is a great deal of variation in the design, terms and con- ditions for regionally tendered traffic contracts. Therefore, once the initial prospecting and selection process is underway, work begins on everything from identifying risks and opportunities, to competitive traffic planning, with detailed cost calculations for primarily fuel, wages and maintenance. An evaluation of how effective the indexation terms are is also critical in order to know whether risk coverage needs to be included in the price. Operational risks and contract risks are identified and an optimal structure for the bus fleet is also defined. In addition, third party contracts for such things as rental of depot facility are contracted in parallel with the traffic contract so that the company is not dependent on winning the tender again after the traffic contract has expired.
Preparations typically begin one to three years before the tender is made public. Over the last decade, Nobina has accu- mulated considerable intellectual capital from its systematic and very successful work with tenders. This puts us in an excellent position for continuing to win more of the right kinds of contracts.
Economies of scale in tender processes
Nobina is able to act decisively in tender processes, thanks to its presence in all four countries and the priority given to ten- der processes within the organization. Because of this, and our vast accumulation of experience, we are able to win more contracts, which are more profitable, than our competitors. Additionally, our size and strength means that we have the resources for appointing a special team, which is dedicated to follow-up and analysis of each individual tender. The assumptions and profitability of each contract is analyzed. When actual results do not match the original expectations, the learning from it is stored by those responsible for contract management and business support. This ensures continual improvement of Nobina’s tendering efforts.
4. Active contract improvement efforts optimize value, profitability and contract length
A successful start-up of traffic services is an important and relatively complex process because it often involves a takeover of personnel and properties, which requires very careful planning. Over the life of a contract, various types of risks become reality depending on the terms and conditions of the contract. For further information about risks associated with tender pricing, see the chapter on page 52 about “Assumptions and risks associated with tender pricing in the contract tender process”. We therefore engage in efforts to optimize benefits for our passengers, clients and other stakeholders continually over the entire life of the contract. We call that active contract management.
Costs and revenues are unevenly distributed over the contract term, which affects cash flow and profitability. Initially, the costs are high and cash flow is weak primarily because it is necessary to make significant investments in the vehicle fleet and it is difficult to run fully efficient operations right from the very start. One critical aspect of our contract improvement efforts is a successful implementation that ensures contract renewal. When a contract is prolonged for an option period, there is additional cash flow and return on equity based on the already established operations.
5. Cost control at all times
Most of the costs in contracts that Nobina takes on are vari- able. It is therefore critical to profitability that there is wide- spread cost control at all times. We achieve this via, for example, our efficient overall management system, continual follow-up on the profitability of each contract, careful traffic planning and long-term financing and utilization of our vehicle fleet. Our economies of scale with prospecting and tendering efforts also play an important role in our control of organizational costs, e.g. pertaining to operations and purchasing.
Industry leader for traffic planning
Each individual contract has specific conditions and each is affected by a variety of factors. The start-up of services is one important component. However, without efficient traffic plan- ning on a daily basis, a contract quickly risks becoming unprofitable. Nobina has centralized traffic management systems in several metropolitan areas to make this work as efficiently as possible and ensure delivery quality. Systematic traffic planning ensures cost-effective operations over the contract life in order to avoid such things as operating routes with too many empty seats. It also helps ensure that eco-fuels are used, encourages conservative driving and increases the number of passengersinbuses.Traffic planning, based on passenger needs, is continually improved in close cooperation with the PTA.
Efficient management systems enables us to deliver the right quality
Nobina engages in a very close dialogue, which involves Group management, company managers, regional managers and cen- tral traffic and operations managers. The organization is managed via a system that continually improves our processes and ensures that Nobina delivers profitable public transport ser- vices that meet or exceed the stated requirements. The main process team is responsible for creating and further developing Group-wide working methods. This effort is led by process owners, who have been appointed by the Group management team and are followed up quarterly in the joint forum, Process Performance Reviews. The main processes are broken down into various sub processes, which in turn, are broken down at different activity levels.
Nobina has various IT systems in place to manage opera- tional processes. The main systems that are used are: the industry leading system developed by Nobina, OMS (Operational Management System) for daily operational management, and HASTUS, the software used for traffic planning. Both of these systems have been integrated with each other. OMS is continually being developed with input from Nobina’s employees.
The management system also plays a central role in how we treat and develop our employees. Nobina is an organization governed by values that promote both good leadership and employeeship. While maintaining very close relations with trade unions and other industry stakeholders, we ensure that our common values create the conditions for successfully achieving our organizational goals over the short, medium and long term. Accordingly, we continually follow up on our value promotion efforts. This is a central element in everything from recruitment and introductions to performance reviews. It is also a key criteria in employee surveys and our most recent survey revealed that 94 percent of our employees who completed the survey are satisfied, or very satisfied with their work situa- tion and employer.
Optimised fleet of vehicles
Nobina’s Group-wide fleet of vehicles is provided via an orga- nization that is responsible for purchasing, management, utilization and replacement of our fleet. Nobina currently has a young bus fleet and a large proportion of new traffic contracts. The organization provides us with competitive advantages, in part because of the number of buses and in part by utilizing our skill in optimizing operations. Because of Nobina’s experi- ence and expertise in traffic planning, it is easier to reallocate buses internally, within the Group, when there are changes during the life of a contract, whether initiated by Nobina and/ or the client. Efforts are also proactive in utilizing the existing bus fleet as efficiently as possible, by mixing old and new buses when a tender is submitted for a new traffic contract.
Financing of the vehicle fleet
Nobina’s vehicles are a significant item in the balance sheet, as well as the source of significant costs in the income statement. Thoroughly considered, long-term financing thus plays an important role in our ability to achieve our profitability goals. When placing a bid, Nobina simultaneously negotiates bind- ing offers with bus suppliers, including financing, in order to ensure the company’s ability to profitably start up services if Nobina wins the tender. However, Nobina typically first explores institutional financing options, since they involve more flexibility in the choice of vehicle compared to financing via the manufacturer. A large amount of capital is tied up when starting up services. Because of this, Nobina prefers leasing arrangements for vehicles, since this evens out the cash flow over the contract period.