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risk management

The Company maintains a risk management system whose primary purpose is to identify, anticipate, and formulate the appropriate and effective mitigation measures for every risk factor that the Company faces in business. This risk management system is crucial in protecting the interests and assets of its stakeholders, and is a firm manifestation of the good corporate governance (GCG) practices.

The Company's risk management practice is inherent in each business activity that it carries out, demonstrating the risk awareness culture in its parent company, PT Kresna Graha Investama Tbk. Each work unit has proper procedures and general guidelines to implement this risk management system, to safeguard the Company's interests and assets. The Company's risk management practices will be further improved in 2020, with the detailed agendas related to risk management becoming one of the key sections of the management's work programs to be rolled out in 2020. The details on all main risk factors that the Company faces, along with their mitigation measures, are provided below.

Main Risk Factors and Their Mitigation

Competition Risk
In the technology sector, players' segments are somewhat fragmented. Thus, risk of competition most likely will arise from the entry of large-scale players with global scope and leadership in technological innovation and vast capital. To mitigate this risk, the Company collaborates in the sharing economy, by forging strategic alliances with big groups in various economic sectors, to win in the Indonesian market.

Technological Risk
The rapid advance of technology is accelerating even further. Disruptions in various sectors, such as telecommunications, finance, retail and transportation, have threatened their continuous business development prospect, with some even having closed down due to this advancement. To mitigate this risk, the Company and its subsidiaries have established the research and business development division, to stay abreast with the major trends for the next 3 to 5 years as regards consumer attitude and products.

Regulatory Risk
The Company is a public entity, and therefore it is subjected to a range of regulations, among others regulations issued by the OJK as the Government's agency assigned to regulate and supervise the capital market activities, and also by the regulations issued under the capital market laws, regulations of Bank Indonesia (BI) and other government regulations that may affect the Company's business in the technology and digital segment, such as those pertinent to digital payment systems. The Company's legal division, assisted by the internal audit team and external auditors continuously forge strong relationships with the regulators, so that every action that the Company takes will be compliant with the prevailing laws and regulations.

Workforce Risk
As a company that is engaged in the technology sector, one of the most valuable assets of the Company is its human resources (HR), whose performance is to some extent affected by employee turnover rate. There are various ways with which the Company manages and mitigates the risk of employee turnover, among others: formulating employee retention programs, implementing incentives and reward mechanisms, and providing opportunities for growth and proper career paths for every employee.

Credit Risk
Credit risk is the risk of financial losses that may arise should a counterparty fail to fulfill their contractual obligations, which may then result in financial losses having to be borne by the Company. The Company faces this credit risk from its operations and funding activities, with exposed items ranging from deposits in banks, foreign exchange transactions, and other financial instruments. The main credit risk is derived from bank and cash equivalents, accounts receivable, other receivables, and restricted-use time deposits Credit risk from accounts receivable and other receivables is managed by the management in accordance with the Company's policies, procedures, and control in relation to customer credit risk management and other receivables management. Credit limits are determined for each customer, based on internal scoring criteria. Receivables' balances are monitored regularly by the management. Credit risk may also arise from cash in banks and cash equivalents as well as other deposits in banks and financial institutions. As a part of credit risk mitigation, the Company deposits its cash and cash equivalents only in reputable financial institutions

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