Active management of our contract portfolio
Nobina is active in markets that are very similar to each other. Each country has a similar business logic and an integrated leadership structure that helps create economies of scale in tender efforts, vehicle utilization and business development. We actively manage our contract portfolio. We identify the right types of contracts, influence the contract conditions, perform careful calculations during the tender process and have an efficient management system that ensures delivery quality. All of this optimizes the benefits, profitability and contract mix for Nobina.
Risk management is the foundation for our portfolio strategy
The key to Nobina’s success is maintaining a careful balance between a contract’s identified risk level and its estimated return. Over recent years, Nobina has improved its risk analy- sis efforts by, for example, staff additions, continual skill devel- opment and systematic exchange of experiences.
Nobina has a well proven model for calculating risks from several perspectives. Evidence that our risk management efforts are successful exists in the fact that the performance of our contract portfolio holdings has steadily increased at the same time that the number of incorrect assumptions in tender pro- cesses has decreased. Simply stated, Nobina classifies each con- tract as low, medium or high risk. Simultaneously, Nobina is moving towards a contract portfolio that contains more in- centive contracts with a higher risk level and higher possible returns. Nobina’s extensive portfolio has a good risk spread simply because of its size as well.
Contracts won in a tender process to operate public transport services for a PTA run for long periods of time. Typically, the contract period ranges from five to ten years, including any extension period. Nobina strives to maintain a good balance between younger and older contracts in its portfolio, since revenue and expenses are unevenly distributed over the contract duration.
The right contract mix helps balance risks and returns
Nobina’s extensive contract portfolio, which in itself lowers risk for Nobina, must consist of contracts that generate both good profitability and growth potential. Nobina’s prospecting efforts are still substantial, in that all potential new contracts in the market are carefully analyzed. We are also currently engaged in more active prospecting of high return incentive contracts. Over the last few years, Nobina’s risk management efforts have improved such that the company is ready to win more incentive contracts at a lower level of risk.
Continual contract improvement efforts
Each contract is evaluated and analyzed continually based on several criteria. One of the most important criterion is share of the total paid working hours that our drivers spent with passengers in the vehicle. Every month, there is follow-up on the latest estimates and actual performance. When we identify deviations, we act quickly to implement selective measures or, when necessary, more comprehensive changes in operations. Continual improvement efforts with each contract begin when traffic services start up and they don’t end until the contract period has terminated.