Sustainability
Risk management is a fundamental component of corporate governance. Welhunt firmly believes that a company’s profitability should primarily come from financial management rather than opportunistic gains. The ability in risk management will determine a trader’s competitiveness in international trade operations.
By establishing clear internal control mechanisms, adhering to regulatory requirements set by authorities, and actively identifying, measuring, and responding to risks, Welhunt proactively manages various operational risks. This enhances Welhunt’s resilience in facing risks and reduces the potential impact of risk-induced losses.
Financial Risk Management
Welhunt primarily uses letters of credit for payment in international trade, while transportation services are mainly paid via cash telegraphic transfers. The Finance Department monitors forecasts for the liquidity needs of the whole group to ensure that we have sufficient funds to support our operations and always maintains sufficient undrawn trade financing and credit limits so that we can minimize liquidity risk.
To ensure the smooth operation of our business activities, Welhunt maintains clear communications with financial institutions and enhances the quality of information disclosure through the provision of financial reports, business outlook, sustainability reports, and sustainable development strategies, thereby enhancing their confidence in our operations and establishing solid partnerships.
Internally, Welhunt has formulated exchange rate risk management policies to reduce the impact of exchange rate fluctuations on the income statements through forward exchange contract and foreign exchange swap. Regarding our business activities, we have enhanced our hedging mechanism by actively matching buyers and sellers and agreeing on payment terms. This significantly reduces price volatility risks at the operational front and actively hedge commodity risks through the use of derivatives. At present, about 70-80% of the contracts are natural hedging internally, reducing cash flow volatility and capital needs caused by relying on external reverse operations.
Data Protection and Network
Welhunt is committed to maintaining the security of its corporate information, uninterrupted operations of systems and equipment, as well as the safekeeping of business secrets, customer privacy, and employees’ personal information.
To this end, we appointed the functional role of Chief Information Security Officer (CISO) in 2023 to be responsible for planning and implementing relevant tasks.
In 2024, the “IT&CS” was officially established. This department oversees system and network security, cloud services, cybersecurity compliance, and more, signaling Welhunt’s strong commitment to information security and its ongoing dedication to external stakeholders.
In 2024, Welhunt did not experience any confirmed incidents of information leakage, theft, or loss of customer data within the current observable scope. Looking ahead, we will further optimize our IT infrastructure, strengthen cybersecurity defenses, and enhance business stability and security. We aim to enhance our technical capabilities and protective measures, propelling the Company toward higher standards in digital transformation and information security.
Supply Chain Risk Management
We believe that supply chain risks may come from the organization’s internal operating procedures, external counterparties, as well as geopolitical and regional conflicts at the macro level. To mitigate the impact of different risks along the value chain on our operations, we have developed rigorous management practices for each of the issues detailed below:
Counterparties risk and credit risk
Details
- The performance capabilities of both upstream and downstream entities are of paramount importance to us. Suppliers are evaluated based on criteria such as delivery accuracy, product quality, supply stability, and compliance with local government export regulations. Customers are assessed in terms of their ability to make timely payments, receive goods, provide storage facilities, and comply with local government import and energy utilization permit regulations.
- As Welhunt is an intermediate trader, we rely on miners or other traders for the supply of products and does not maintain an inventory of products. In the event of price fluctuations, we may be faced with the possibility that upstream and downstream parties may be less willing to honor agreements due to price volatility.
- Avoid trading with counterparties involved in sanctions, money laundering, corruption, bribery, and other illegal activities.
- When clients or financial counterparties are unable to fulfill their contractual obligations, it poses a credit risk to us.
Management measures
- Improvement of internal risk control mechanisms and processes
- Welhunt has a trading compliance policy at the group level for internal compliance.
- We have established a credit risk management mechanism to assess each client’s financial position, experience of cooperation, and other factors and evaluate its credit quality.
- Enhanced due diligence and screening of counterparties
- We update the KYC questionnaire, which includes company basic information, shareholder register, credit ratings, transactions records, financial reports, and ESG performance and more. We conduct KYC checks before engaging in transactions with a new counterparty or those we haven’t dealt with for an extended period (one year). At the same time, we utilize the OFAC sanctions system, Dow Jones Risk & Compliance, and Risk Center to verify whether counterparts are subject to sanctions.
- Experienced commercial team selects first-tier suppliers with good reputations and stable supply in the market, as well as end-users with actual demand for traditional energy to ensure the solidity of upstream and downstream supply and demand.
- We regularly gather information on supplier product manufacturing dynamics, inventory levels, logistics and shipping status, as well as changes in buyer energy demands, status of taking delivery of the goods, warehouse levels, and payment status, among other operational aspects, to ensure the performance capabilities of both buyers and sellers.
- As for the financial institutions, they must be in the top 1,000 banks in the world to become our financing counterparties.
- Enriching the contents of the contracts to protect the rights and obligations of both parties
- Sanction clauses, anti-money laundering clauses, anti-bribery clauses, and other legal clauses are specified in the contracts, and it is clearly stipulated that if a trading counterparty is suddenly placed on the sanctions list or found to be involved in violation of international money laundering laws, the Company may suspend or terminate the contract while being exempted from the liabilities stated therein.
- It is agreed in the contract that international law, such as English, Australian, or Singapore law, will be used as the governing law of the contractual terms and conditions, so as to minimize the risk of different regional laws and regulations affecting the interpretation of the terms and conditions as well as legal rulings.
- The contract contains a default clause that specifies what constitutes a default, and if the buyer and seller are unable to fulfill the contract, the defaulting party shall bear the losses incurred by the other party and the spread for re-procurement or re-sale to minimize the risk of a breach of contract.
- Most procurement contracts include provisions for product quality re-inspection and rejection clause. If there is a concern about the quality of the goods delivered, the buyer can submit a request for re-inspection to the supplier to re-inspect the quality. When the inspection result reaches the standard for rejection, the buyer can return the goods without liability. Any loss and return costs are borne by the seller.
- The buyers and sellers sign medium- and long-term trading contracts to stabilize the value chain and reduce the risk of default.
- Procurement of external third-party professional services
- Welhunt has procured the services of HFW’s international maritime legal advisory team to assist in conducting vessel vetting procedure for years. This collaboration has contributed to expediting the confirmation of vessel qualification safety within the limited vessel nomination time. It ensures that the vessels we use, their owners, or captains have not been involved in unlawful activities or transactions with prohibited countries or individuals. Simultaneously, it guarantees that the vessels have not berthed at prohibited countries.
- To benchmark with international first-class shipbrokers, the IMOS system has been adopted by Welhunt to manage the real-time movement of vessels.
- For first-time suppliers of deliveries, in addition to personal visit by Welhunt’s commercial team to the supplier’s operational sites, an international third-party inspection agency is appointed to enter the operational sites and warehouses to conduct pre-shipment product inspection and ensure that the products meet the contractual quality specifications. For each shipment, an international third-party inspection agency is also appointed to board the vessel for supervision, sampling and inspection to ensure that the shipped products meet the contractual quality specifications.
- In the event of exceptional circumstances, Welhunt will consult with external international legal advisory to understand the risk factors and obtain recommendations for drafting contract terms to ensure contract security.
- Enhancing the security of payment methods
- Letters of credit are used as the main payment method. Letters of credit must be issued and received by reputable international banks before shipment to strengthen the trust between the supply and demand sides. At the same time, we avoid open account(O/A) payments by buyers. In cases where open account payment terms are provided due to business requirements, we will negotiate with the buyer to pay a deposit and the related interest cost to avoid the risk of default.
Annual performance
- In 2023, we continued to work with HFW and activated Dun & Bradstreet’s Dow Jones Risk and Compliance service to extensively and effectively reinforce counterparty background and market activity checks to manage trading risks.
- There were no losses due to counterparty non-performance in 2023.
Geopolitical and regional conflict risks
Details
Any regional politics and international norms have a direct impact on international trading companies. These include the global sanctions against Russia, resulting in a shortage of anthracite and traditional energy; the Indonesian government’s urgent ban on traditional energy exports; the China-Australian trade war, and implementation of international money laundering prevention programs.
Management measures
- Establishment of overseas sites to access first-hand information faster
- Establish subsidiaries or representative offices in major traditional energy supply countries (such as Australia, Indonesia, etc.) and demand markets (such as China, Vietnam, India, South Korea, etc.), employing local personnel to form professional teams for intelligence gathering. This intelligence should include regional factors such as the rainy season and Ramadan in Indonesia, hurricane season in Australia, frozen ports in Russia during winter, and local political and economic conditions. Closely monitor traditional energy price trends and fluctuations in each region, and integrate analysis of global trends to ensure a stable delivery process.
- Collaborating with numerous suppliers for risk diversification
- With a wide supply base covering more than eight to nine countries, we are able to utilize flexible scheduling capabilities to resolve risk of supply chain disruptions in the event of problems in a single region due to political factors or changes in international norms.
- Leveraging external third-party professional agencies
- We have appointed a team of legal consultants (HFW) to provide insights into and guidance on the latest international situations, laws and regulations, targets and contents of sanctions, as well as trading contracts that companies need to execute.
- Real-time and flexible scheduling capabilities
- With highly flexible cargo scheduling ability, we are able to quickly respond to unexpected events. With the professionalism of the Documentation Department in international trade regulations and L/C, we are able to quickly amend contracts and L/C, and assist customers in solving their problems.
Annual performance
- Our trading counterparties are from diverse backgrounds, including more than 100 first-tier suppliers and more than 300 large corporate clients.
- After the outbreak of the Russia-Ukraine war in early 2022, Welhunt reacted swiftly to stop trading Russian traditional energy and continued to help clients stabilize their energy demand through multiple suppliers. So, we were not significantly affected by the war.
- In early 2023, trade between Australia and China resumed. Since Welhunt has been operating in the Chinese and Australian markets for a long time, it has seized market opportunities and become the first mover in the new wave of the China-Australia traditional energy trade.
Operational risk
Details
International commodity prices fluctuate due to a variety of factors. If internal operations are delayed or operational errors require restarting the process, such as re-contracting or L/C amendment, the transaction progress may be delayed, resulting in the risk of market price fluctuations.
Management measures
- Familiarity with operating procedures and regulations
- We provide educational training for our staff members handling International Commercial Terms (Incoterms), The Uniform Customs & Practice for Documentary Credits (UCP 600), International Standard Banking Practice (ISBP), English contract reviews, and special case studies. This training aims to enhance our team’s understanding of credit terms and familiarity with documents, preventing discrepancies in letter of credit documents and ensuring secure payments. It ultimately improves the quality and efficiency of our document handling operations.
- The internal review of contracts must be jointly conducted by the Commercial Department, Trade Operations Department, Finance Department, and Shipping Operations Department to manage potential risks.
- Reducing price volatility
- The Shipping Operations Department is set up to observe international shipping spot and future market trends on a daily basis, and at the same time, maintain inquiries with a number of reputable shipping parties and freight brokers, so as to enter the shipping market at the right time and obtain preferential freight rates. For medium- and long-term contracts, we can also choose to carry out forward trading of freight rates so as to lock in preferential rates and reduce transportation costs.
- Hedging in the financial markets through freight rates and commodity futures.
Annual performance
In 2023, the Trade Operations Department staff participated in 3 training sessions, totaling 18.5 hours.
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