Diversifying rental counterparty risk

For a business involved in the rental of high value assets, disciplined counterparty risk management and diversification our key aspects of our overall risk management actions.

In both the UK&I and Spain we pay very close attention to our risk profiles both at customer and industry sector levels.

Conducting full financial appraisals on prospective customers is an important aspect when assessing our potential ROI for a rental. These are primarily managed using third-party credit systems such as Experian and using the Delphi scoring criteria, together with account manager discussions.  We reflect different risk categories with appropriate and disciplined risk management approaches, including cash collection timeframes, deposits and vehicle addition limits.  

Diversification by industry and counterparty are carefully managed and we look to identify both high potential sectors and also those which on a short or long term view might be viewed as becoming higher risk, with exposures managed down accordingly. We set out our diversification profile each accounting period in the analyst presentation appendices.  No sector comprises more than 15% of our rental VoH, and most are between 2-8%.

When entering a new sector, or one with an increasing risk profile, we use a trial approach with a small number of customers before scaling if we successful and ensure we understand the key characteristics of the sector and its requirements.  With over 110,000 vehicles in our LCV fleets, we are able to flex our exposure through natural liquidity of vehicles coming on/off rent, while ensuring we continue to support our key customer needs With bad debts consistently under 1.5% in the UK and under 1% in Spain, we believe we have a strong track record in risk management through industry and economic cycles, through a disciplined approach and careful end market diversification.