Freedom Holding Corp
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
FRHC$178.85+0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-09.
0000924805-24-000014
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000924805-24-000060
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 356 previous paragraphs and 228 current paragraphs.
95 unchanged; 57 reworded; 71 added; 183 removed; 21 previous and 5 current paragraphs rearranged.
Tables are not compared: 27 previous and 20 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (71)
Current report
The main market of our operations is Kazakhstan. Our operating subsidiaries are located in Kazakhstan, Cyprus, the United States, Armenia, the United Arab Emirates, Uzbekistan, and Turkey, and we also have a presence in Austria, Azerbaijan, Belgium, Bulgaria, France, Germany, Greece, Italy, Kyrgyzstan, Lithuania, The Netherlands, Poland, Spain and the United Kingdom. We divested our Russian subsidiaries in February 2023. Our subsidiaries in the United States include an SEC- and FINRA-registered broker dealer. As of June 30, 2024, we had 6,819 employees, 132 offices (of which 49 offered brokerage services, 60 offered insurance services, 20 offered banking services and 47 offered other financial and non-financial services).
Current report
Change in Reportable Segments
Current report
Effective from the beginning of fiscal 2024, we underwent a strategic realignment in our business management and reporting structure. Our Chief Executive Officer, Chief Financial Officer and President, collectively acting as the Chief Operating Decision Maker (CODM), have initiated a new approach to managing our operations. This approach is based on a segmented analysis based on our business activities, allowing for more precise operating decisions and performance evaluations. All prior period segment information has been recast to reflect this change in reportable segments.
Current report
Our business is organized into four segments: Brokerage, Banking, Insurance, and Other. Additional information regarding our segments can be found in the narrative and tabular descriptions of segments and operating results under this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this quarterly report; and Note 23 "Segment Reporting" of the notes to our condensed consolidated financial statements included in Item 1 of this quarterly report.
Current report
Our Brokerage segment primarily focuses on retail brokerage and investment banking. Our Banking segment encompasses lending, deposit services, payment card services, money transfers, and correspondent accounts, supporting both individual and corporate clients with innovative digital financial solutions. Our Insurance segment offers life and general insurance services. Our Other segment includes payment processing services, online ticket sales, and new business areas including telecommunications and media services. We also engage in proprietary securities trading activities through each of our four segments.
Current report
The expansion of our retail clients’ activity has been a major driver of our growth, particularly in Kazakhstan, Europe and other Central Asian jurisdictions. Over recent years, we have observed a significant increase in retail clients’ activity across these key markets, which has been instrumental in scaling our business. Below is the table with number of our customer for our key segments:
Current report
Freedom KZ and Freedom Global are professional participants on the KASE and the AIX. Foreign Enterprise LLC Freedom Finance ("Freedom UZ") is a professional participant on the Republican Stock Exchange of Tashkent ("UZSE") and the Uzbek Republican Currency Exchange ("UZCE").
Current report
As of June 30, 2024, we had 1,510 employees in our Brokerage segment, including 1,219 full-time employees and 291 part-time employees.
Current report
Our Banking segment consists of the operations of Freedom Bank KZ which is a pioneer in digital retail and commercial banking services in Kazakhstan, offering a large variety of deposit, debit and credit cards allowing its customers to make purchases around the world in multiple different currencies, pay in installments or on credit, save their funds, manage their investment accounts, or get an increased cashback that is transferred to the International Fund for the Salvation of the Aral Sea. Freedom Bank KZ provides digital mortgages, digital car loans, digital business loans, and payment acquiring services for individual entrepreneurs.
Current report
As of June 30, 2024, Freedom Bank KZ's assets decreased by 3%, its loan portfolio decreased by 5%, its deposit portfolio increased by 11% and its trading portfolio decreased by 8%, in each case in comparison with March 31, 2024. During the three months ended June 30, 2024, the banking segment continued to exhibit growth. In particular, interest income increased in comparison to the three months ended June 30, 2023. However in the three months ended June 30, 2024, the trading portfolio in the banking segment deteriorated to the negative revaluation of quasi-governmental bonds which were stipulated by current temporary market conditions.
Current report
We have 20 office locations in Kazakhstan that provide banking services to our customers. As of June 30, 2024, we had 2,309 employees in our Banking segment, all of which were full-time employees.
Current report
We have two insurance companies in Kazakhstan, a life insurance company, Freedom Life, and a direct insurance carrier, excluding life, health and medical, Freedom Insurance.
Current report
Freedom Life provides a range of health and life insurance products to individuals and businesses, including life insurance, health insurance, annuity insurance, accident insurance, obligatory worker emergency insurance, travel insurance and reinsurance. As of June 30, 2024, Freedom Life had 888,787 active contracts, as compared to 616,301 active contracts as of March 31, 2024. As of June 30, 2024, Freedom Life had total assets of approximately $389.8 million and total liabilities of approximately $304.9 million, as compared to total assets of approximately $371.5 million and total liabilities of approximately $290.0 million as of March 31, 2024.
Current report
Freedom Insurance operates in the "general insurance" industry and is the leader in online insurance in Kazakhstan and offers various general insurance products in property (including automobile), casualty, civil liability, personal insurance and reinsurance. As of June 30, 2024, Freedom Insurance had 276,234 active contracts, as compared to 190,872 active contracts as of March 31, 2024. As of June 30, 2024, Freedom Insurance had total assets of approximately $156.1 million and total liabilities of approximately $106.4 million, as compared to total assets of approximately $158.0 million and total liabilities of approximately $112.8 million as of March 31, 2024.
Current report
As of June 30, 2024, we had 60 offices and 944 employees, including 920 full-time employees and 24 part-time employees, providing consumer life and general insurance services in Kazakhstan.
Current report
As of June 30, 2024, in our Other segment we had 47 offices and 2,056 employees, including 1,908 full-time employees and 148 part-time employees, providing a range of services including payment processing, entertainment ticketing sales, online air and railway ticket purchase aggregation and an online retail trade and e-commerce services. In addition, we have recently established subsidiaries in Kazakhstan with a view to launching a telecommunications business and a media business, respectively, each of which is in the developmental stage. This revenue of this segment is currently mainly derived from provision of payment processing services, retail online ticket sales and online aggregation of purchasing air and railway tickets.
Current report
Operating under the "Freedom" brand, our comprehensive suite of digital products and services enables our customers to engage in electronic trading and to monitor their accounts. Our flagship online trading platform Tradernet is designed for a wide range of investors featuring a comprehensive and user-friendly interface and secure infrastructure. The platform allows users to trade a diverse array of financial instruments, including stocks, options, and ETFs from major global exchanges such as KASE, AIX, NYSE, Nasdaq, ATHEX, the London Stock Exchange, the Chicago Mercantile Exchange, the Hong Kong Stock Exchange and Deutsche Börse.
Current report
In addition to trading capabilities, we have expanded our digital solutions to include mortgages, auto loans, and insurance products. We also operate Ticketon Events LLP ("Ticketon"), the largest online ticket sales company in
Current report
Kazakhstan and Paybox platform, the digital payment aggregator which enables our customers to accept payments from buyers using a wide range of payment methods, including bank cards, online banking, electronic money, and more.
Current report
In April 2024, Freedom Bank KZ launched its mobile application, SuperApp, marking a significant milestone in the Kazakhstan financial technology sector. This innovative app consolidates all essential financial services into one platform, offering clients a seamless and convenient way to manage their finances. With SuperApp, clients can easily check their account balances, review transaction histories, make transfers and payments, open and manage deposits, and obtain and repay loans. The app also provides real-time portfolio monitoring, along with access to analytical reports and recommendations, empowering users to make well-informed investment decisions. SuperApp's payment services enable users to pay utility and internet bills, mobile phone charges, and other expenses effortlessly. SuperApp not only enhances the user experience but also aligns with our strategic goals. Customer satisfaction is improved through easy access to all banking and investment services in a single app, coupled with an intuitive interface and personalized recommendations.
Current report
Changes in Credit Ratings
Current report
On July 2, 2024, S&P Global Ratings revised its ratings outlook on Freedom Life to stable from negative. At the same time, S&P Global Ratings affirmed their 'BB' long-term issuer credit and financial strength ratings on Freedom Life. S&P Global Ratings also raised the Kazakhstan national scale rating on Freedom Life to 'kzAA-' from 'kzA+'. S&P Global Ratings consider that Freedom Life remains a strategically important subsidiary of the Group. This is based on Freedom Life's increasing importance to the Group's operations and track record of collaboration with other Group members. S&P Global Ratings continue to view Freedom Life as an insulated entity due to strong regulatory oversight and its operational independence from the parent.
Current report
Our operations have been, and may continue to be, affected by certain key factors as well as certain historical events. For additional information on these factors and other risks that may affect our financial condition and results of operations, see“Management's Discussion and Analysis of Financial Condition and Results of Operations”in Part II Item 7 of the 2024 Form 10-K and “Risk Factors” in Part I, Item 1A, of the 2024 Form 10-K.
Current report
FINANCIAL HIGHLIGHTS
Current report
The highlights of our consolidated results for the three months ended June 30, 2024 are as follows:
Current report
We had total revenues, net of $450.7 million for the three months ended June 30, 2024, as compared to $316.2 million for the three months ended June 30, 2023. The increase between the two quarters was primarily attributable to the following:
Current report
•Our interest income for the three month ended June 30, 2024 was $226.0 million, representing an increase of $76.7 million, or 51%, compared to the three months ended June 30, 2023. The increase in interest income was primarily attributable to increases in interest income on margin loans to customers, loans to customers and trading securities.
Current report
•Our insurance underwriting income for the three months ended June 30, 2024 was $129.4 million, an increase of $84.5 million or 188%, compared to the three months ended June 30, 2023. The increase was driven by the expansion of our insurance operations such as pension annuity and accident insurance classes between the two quarters.
Current report
•Our fee and commission income for the three months ended June 30, 2024 was $115.5 million, an increase of $16.8 million, or 17%, compared to the three months ended June 30, 2023. The increase was mainly attributable to an increase in fee and commission income from brokerage services, which increase was offset in part by decreases in fee and commission income from bank services, payment processing and underwriting and market-making services.
Current report
•We had a net loss on trading securities of $52.1 million for the three months ended June 30, 2024, as compared to a net gain on trading securities of $31.8 million for the three months ended June 30, 2023. The majority of the net loss for the three months ended June 30, 2024 was attributable to declines in the market prices of Kazakhstan sovereign bonds held in our proprietary portfolio during the quarter.
Current report
Our total assets stayed relatively constant at $8.5 billion as of June 30, 2024 as compared to $8.3 billion as of March 31, 2024.
Current report
We had approximately 532,000 total retail brokerage customers as of June 30, 2024 as compared to approximately 530,000 as of March 31, 2024. We had approximately 1,000,000 banking customers at our Freedom Bank KZ subsidiary as of June 30, 2024 as compared to approximately 900,000 as of March 31, 2024.
Current report
The operating results for any period are not necessarily indicative of the results that may be expected for any future period.
Current report
For the three months ended June 30, 2024, total fee and commission income was $115.5 million, an increase of $16.8 million, or 17%, as compared to fee and commission income of $98.7 million for the three months ended June 30, 2023.
Current report
Fee and commission income from brokerage services for the three months ended June 30, 2024 was $93.2 million, representing a 69% increase as compared to $55.1 million for the three months ended June 30, 2023. This increase was primarily due to an increase in the number of retail brokerage customers from 399,000 as of June 30, 2023 to 532,000 as of June 30, 2024. The increase in the number of customers was attributable in part to the migration of customers from FST Belize to brokerage companies within our Group between the two quarters. The increase was offset in part by a decrease in fee and commission income from brokerage services generated from FST Belize between the two quarters, as our omnibus brokerage arrangement with FST Belize was wound down and customers of FST Belize closed their accounts at FST Belize and opened accounts with brokerage companies within our Group. During the three months ended June 30, 2024, we earned fee and commission income from a market maker customer at our Freedom Global subsidiary in an amount of $64.9 million, representing 56% of our total fee and commission income for that quarter.
Current report
Fee and commission income from payment processing decreased to $8.6 million for the three months ended June 30, 2024 from $18.0 million for the three months ended June 30, 2023. The $9.5 million decrease is attributable to a significant reduction in transaction volumes between the two quarters, which was in turn due to the cessation of operations of one of our counterparties, which previously contributed a substantial transaction volume.
Current report
Fee and commission income from banking services decreased by $10.3 million or 80% to $2.5 million in the three months ended June 30, 2024 from $12.8 million in the three months ended June 30, 2023. The decrease in fee and commission income from banking services was primarily due to a $9.6 million decrease in commissions generated on transfer and payment processing, which was a result of a lower volume of transfer and payment processing transactions between the two quarters.
Current report
Fee and commission income from underwriting and market-making activities decreased by 47% to $4.7 million, driven by a lower volume of underwriting transactions for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.
Current report
Other fee and commission income increased by 67% to $6.5 million for the three months ended June 30, 2024 as compared to $3.9 million for the three months ended June 30, 2023, largely due to an increase in agency fees generated by our online travel ticket aggregator subsidiary between the two quarters, which was in turn due to an increase in usage and demand of such services.
Current report
During the three months ended June 30, 2024, we had a realized gain on trading securities of $12.8 million, which is attributable to Kazakhstan sovereign bonds sold during the three months ended June 30, 2024. However, we also incurred an unrealized net loss of $64.9 million during the same period due to the decline in the value of securities positions we held as of June 30, 2024. The majority of the unrealized net loss is attributable to Kazakhstan sovereign bonds, as a consequence of market price declines.
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Removed paragraphs (183)
Previous report
•the residual impacts of the Covid-19, including viral variants, future outbreaks and the effectiveness of measures implemented to contain its spread;
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Geographic Regions
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Our business is currently comprised of the following four regional geographic segments: Central Asia and Eastern
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Europe, Europe Excluding Eastern Europe, the United States, and Middle East/Caucasus.
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Central Asia and Eastern Europe
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Our Central Asia and Eastern Europe segment consists of our operations in Kazakhstan, Kyrgyzstan and Uzbekistan, including our headquarters in Kazakhstan. We operate under various licenses in these jurisdictions. Our operations in Kazakhstan include two brokerage companies, a bank, two insurance companies and several ancillary businesses. We have recently established subsidiaries in Kazakhstan to establish a telecommunications business and a media business, each of which is in the developmental stage. The Central Asia and Eastern Europe segment accounted for approximately $361.3 million, or 86% of our total revenue, net and approximately $258.6 million, or 84.2% of our total expense, for the three months ended December 31, 2023.
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Europe, Excluding Eastern Europe
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United States
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Middle East/Caucasus
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As of December 31, 2023, our Middle East/Caucasus segment consisted of five offices in Azerbaijan, Armenia Turkey and the United Arab Emirates ("UAE"), of which one office (located in Armenia) provided brokerage services. For the three months ended December 31, 2023 total revenue of the Middle East/Caucasus segment generated approximately $12.2 million, or 3%, of our total revenue, net and approximately $3.4 million, or 1%, of our total expense.
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Securities Brokerage
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institutions seeking to diversify their investment portfolios to manage economic risks associated with political, regulatory,
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margin lending, investment research, and investor education. Our securities brokerages also conduct proprietary investment activities, and facilitate repurchase and reverse repurchase agreements, both to support the funding of our proprietary investments and to act as an intermediary between third party purchasers and sellers.
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Capital Markets and Investment Banking
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banking team focuses on multiple sectors including consumer and business services, energy, financial institutions, real
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estate, technology, media and communications. In the equity capital markets area, we provide capital raising solutions for corporate customers through initial public offerings and follow-on offerings, including listings of companies on stock exchanges. We focus on companies in growth industries and participate as market makers in our underwritten securities offerings after the initial placements of shares. In the debt capital markets area, we offer a range of debt capital markets solutions for emerging growth and small market companies. We focus on structuring and distributing private and public debt for various purposes including buyouts, acquisitions, growth capital financings, and recapitalizations. In addition, we participate in bond financings for both sovereign and corporate issuers in the emerging markets. We also provide a structured products offering to our clients through our Freedom Structured Products PLC subsidiary in Cyprus.
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Commercial Banking
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We provide banking services in Kazakhstan through our Freedom Bank KZ subsidiary. We generate banking service fees by providing services that include lending operations, deposit services, money transfers, opening and maintaining correspondent accounts, renting safe deposit boxes, e-commerce money transfer services for legal entities, tender guarantees, and payment card services. As of December 31, 2022, we had 17 office locations in Kazakhstan that provide banking services.
Previous report
Insurance
Previous report
We provide consumer life and general insurance products and services in Kazakhstan through our Freedom Life and Freedom Insurance subsidiaries. As of December 31, 2023, we had 38 offices in our consumer life and general insurance businesses in Kazakhstan.
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A component of our business strategy is to build a digital fintech ecosystem through which our products and services can be provided to our customers. The execution of this strategy is centered on building a robust technological infrastructure, fostering innovation, and enhancing user experiences. As part of this strategy, on September 30, 2022 we expanded our digital product portfolio with the acquisition of Ticketon Events LLP ("Ticketon"), the largest online ticket sales company in Kazakhstan, and in February 2023 we acquired the Paybox payment platform as part of our acquisition of Paybox Technologies LLP (now called Freedom Pay LLP) and its subsidiaries.
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On November 27, 2023, our Board of Directors approved a plan to expand our business by entering the telecommunications market in Kazakhstan, pursuant to our strategy to build a digital fintech ecosystem. The newly adopted plan provides for us to establish a new independent telecommunications operator in Kazakhstan to provide high-quality mobile communication, broadband internet access, Wi-Fi and digital services to customers. The new business will be operated by Freedom Telecom Holding Limited (“Freedom Telecom”), a wholly-owned subsidiary of Freedom Holding Corp. incorporated under the laws of the Astana International Financial Center. An experienced core management team has been appointed to Freedom Telecom, and a broader team of specialists with experience in creating successful technology projects in Kazakhstan is currently being assembled. Our Chairman and CEO, Timur Turlov, served as a member of the board of directors of Kcell, one of the leading providers of mobile telecommunications services in Kazakhstan, from 2019 until October 2023. Based on Mr. Turlov’s experience and knowledge of the market, he and the other members of the Board believe that there is currently an attractive opportunity for a new entrant in the Kazakhstan telecommunications market and that the formation of an ecosystem offering combining financial services and telecommunications in Kazakhstan, if successfully implemented, will create significant synergies for us and significant growth in our customer base.
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Credit Ratings
Previous report
On August 24, 2023, S&P Global Ratings placed the ratings of FRHC, Freedom KZ, Freedom Europe, Freedom Global and Freedom Bank KZ on CreditWatch with negative implications. Reasons provided by S&P Global Ratings for the CreditWatch designation included the risk that certain disclosures in the Company's annual report and recently published allegations by a third party could lead to a loss of critical counterparties and potentially weaken the Company's franchise. On October 31, 2023, S&P Global Ratings removed the ratings of FRHC and its core subsidiaries from CreditWatch on the basis that the immediate fallout from the allegations published by a third party was relatively contained.
Previous report
Freedom Life has a long-term issuer credit and financial strength rating of of "BB-" (stable outlook) and a rating on the Kazakhstan national scale of "kzA-" with a stable outlook, and Freedom Insurance has a "B+" rating (stable outlook) and "kzBBB" Kazakhstan national scale rating with stable outlook, in each case from Standard & Poor's. These ratings were affirmed by Standard & Poor's on August 24, 2023.
Previous report
Our operations have been, and may continue to be, affected by certain key factors as well as certain historical events. The key factors affecting our business and the results of operations include, in particular: the effects of the Russia-Ukraine conflict, market and economic conditions, the growth of retail brokerage activity in our key markets, acquisitions and divestitures, the entry into new business areas and markets, our transactions with our affiliate FST Belize and governmental policies. Each of these factors is discussed in more detail below.
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Russia-Ukraine Conflict
Previous report
In February 2022, Russia launched a military offensive against Ukraine, which has resulted in a protracted conflict. The war is ongoing, and it is difficult to predict how long it will last. The economies of Russia, Ukraine and the surrounding region, the global economy generally and the Company specifically have been adversely affected by the conflict.
Previous report
In response to the Russia-Ukraine conflict, numerous governments, including those of the United States, the EU and the United Kingdom have imposed an extensive range of additional economic sanctions on Russia, certain financial institutions, business enterprises, and key persons in Russia or deemed to be enabling the Russia-Ukraine conflict. The imposed sanctions significantly expand the sanctions first imposed on Russia following the 2014 Russian invasion of Ukraine and its annexation of the Crimea region of Ukraine. In addition, many businesses are adopting a cautious approach to sanctions and export compliance matters, implementing internal policies that are more restrictive than strictly required by the applicable rules. The Russian government has issued countersanctions as a defensive measure targeted at "unfriendly states" which include the United States and most countries that have imposed sanctions on Russia, as well as imposed restrictions on currency transactions of its own citizens.
Previous report
After careful consideration of the needs of our employees, customers and shareholders and the best interests of our company, shortly after the onset of the Russia-Ukraine conflict we decided to divest our Russian subsidiaries, Freedom RU and Freedom Bank RU. Prior to the divestiture of our Russian subsidiaries, our subsidiary Freedom RU owned approximately 90% of our Kazakhstan securities brokerage company, Freedom KZ, with the remaining interest in Freedom KZ being owned by us directly. In 2022, we decided to undertake a corporate restructuring as a result of which Freedom KZ (together with its wholly owned subsidiaries Freedom Bank KZ, Freedom Life and Freedom Insurance) became wholly owned by us directly. The transfer of ownership from Freedom RU to our direct ownership required approval by the Kazakhstan financial sector regulator, which was received on November 11, 2022. On October 17, 2022, we entered into an agreement with Maxim Povalishin for the divestiture of 100% of the share capital of our two Russian subsidiaries. Maxim Povalishin, the purchaser, was at the time of the transaction the Deputy General Director and a member of the Board of Directors of Freedom RU. The divestiture of our Russian subsidiaries was approved by the Central Bank of the Russian Federation on February 10, 2023, and was completed on February 28, 2023.
Previous report
Historically, a large portion of our trading volume has been derived from individuals and institutions in Russia, through accounts at our Russian subsidiaries and through accounts at our non-Russian subsidiaries, including indirectly through accounts they hold with FST Belize. Although we have divested our Russian subsidiaries, we continue to generate fee and commission income from trading activity engaged in by Russian persons (including former clients of our former Russian subsidiaries) who are not subject to any sanctions prohibitions or other legal restrictions through their accounts at our non-Russian subsidiaries or indirectly through accounts they hold with FST Belize. As of the date of this quarterly report, the Russia-related economic sanctions that have been imposed generally do not target our Russian client base, most of whom are members of the emerging Russian middle class population. However, certain of our non-US subsidiaries have provided brokerage or banking services to certain individuals and entities who are subject to sanctions imposed by OFAC, the European Union or the United Kingdom. These transactions either did not involve any nexus with the United States, the European Union or the United Kingdom, as applicable, or were conducted pursuant to licenses from the relevant sanctions authorities allowing them, and accordingly such transactions were not in violation of applicable sanctions. As of December 31, 2023, our aggregate customer liabilities relating to such sanctioned individuals and entities were $96.6 million, representing approximately 4.3% of our total customer liabilities as of such date, as compared to $17.8 million, or 0.92% of our total customer liabilities as of March 31, 2023. A significant amount of the increase of such customer liabilities from March 31, 2023 to December 31, 2023 was attributable to an omnibus customer whose parent, a brokerage firm that provides access for investors to the international stock markets, was sanctioned by OFAC on November 2, 2023. The brokerage accounts of such omnibus customer currently hold a significant volume of securities but have not historically accounted for a material part of our revenue. We are currently taking appropriate action to identify and block and/or freeze the accounts which are affected by the sanctions affecting this omnibus customer where required and are evaluating and assessing the potential consequences of such sanctions for our business with this entity, including the implications of any applicable wind-down general license and other specific licenses or guidance in the form of FAQs or otherwise that may be issued by OFAC in the future.
Previous report
Even before the Russia-Ukraine conflict began in February 2022, our clients were required to conform to strict anti-money laundering regulations and to undergo ongoing sanctions screening to assure us that they were subject to United States, EU or UK sanctions that would restrict our ability to do business with them or require us to take regulatory compliance actions in response to their activities. However, the evolving sanctions and countersanctions in connection with the Russia-Ukraine conflict expose us to heightened risks and challenges. The Russia-Ukraine conflict has also exposed us to a range of other heightened risks stemming from our actual or perceived connections with Russia, including risks related to our business relationships with counterparties outside of Russia, including commercial banks, settlement banks, stock exchanges and regulators. From time to time, we have been, and in the future may be, subject to investigations, audits, inspections and subpoenas, as well as regulatory proceedings and fines and penalties brought by regulators. We are subject to regulation from numerous regulators, which include, but are not limited to, the AFSA, the ARDFM, CySEC, OFAC and the SEC, from which we received various inquiries and formal requests for information on various matters, with which we have cooperated and will continue to do so. If we are found to have violated any applicable laws, rules or regulations, formal administrative or judicial proceedings may be initiated against us that may result in censure, fine, civil or criminal penalties.
Previous report
The sanctions imposed in relation to the Russia-Ukraine conflict have had a significant impact on the global economy. They have led to an increase in the prices of hydrocarbons and agricultural products produced by both Russia and Ukraine, which has further fueled inflationary pressures in Europe and elsewhere. The sanctions have also had an indirect impact on consumer confidence and spending, which could potentially harm financial markets and businesses worldwide. The Russia-Ukraine conflict and responses to it have materially and adversely impacted the macroeconomic climate in Russia and the surrounding region, resulting in significant economic uncertainty, currency exchange rate volatility, the imposition of currency controls, capital flight, materially increased interest rates and inflation, and the withdrawal of or reduction of business by a number of Western businesses from the Russian market. The fluid and evolving nature of the current Russia-related sanctions gives rise to continuing political, economic and business risks for the Russian government, its economy, and its citizens, which may lead to reduced investment confidence and investment spending by affected Russians.
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There is a risk that new international sanctions and new countersanctions measures may curtail the ability of our brokerage customers who are Russian persons to trade through non-Russian accounts or in non-Russian securities, or our ability to facilitate any trading through our non-Russian subsidiaries or indirectly via FST Belize. If investment activity by Russian holders of foreign trading accounts is restricted, this could have a material adverse effect on our revenues.
Previous report
The Russia-Ukraine conflict has also had, and may continue to have, adverse effects on our results of operations related to proprietary trading. For example, during the fiscal year ended March 31, 2023 we sold 7,500,000 shares in the SPB Exchange that we owned and realized a loss from the divestiture in the amount of $73.4 million. We attribute this loss to a combination of factors, including the heightened market uncertainty and increased volatility caused by the Russia-Ukraine conflict and its geopolitical consequences.
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On October 19, 2022, the President of Ukraine signed a decree enacting a decision of the National Security and Defense Council of Ukraine (NSDC) on the application of personal special economic and other restrictive measures
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(sanctions) against more than 1,300 companies and more than 2,500 individuals. Freedom UA's brokerage license was suspended for a period of five years and its assets frozen by the Ukrainian authorities following its inclusion on the sanctions list. The lists of companies and individuals sanctioned included both Freedom UA and Timur Turlov, in his personal capacity. In addition, the list included our two former Russian subsidiaries, which have since been divested. We note that all persons on the Russian list of Forbes entrepreneurs for 2021 were included. In 2021 Mr. Turlov was on this Forbes list and still had Russian citizenship (in the appendix to the presidential decree there is a reference to Mr. Turlov’s Russian citizenship. We note that, prior to June 2022, Mr. Turlov was a Russian citizen. As from June 2022, Mr. Turlov renounced his Russian citizenship and is now a citizen of Kazakhstan. We have made a series of efforts seeking to have Freedom UA and Mr. Turlov removed from the sanctions list. In addition, we have contributed approximately $11.7 million to humanitarian relief efforts in Ukraine through charitable funds. In view of the ongoing uncertainty related to Freedom UA, the management of the Company has determined that starting from April 1, 2023 the Company does not maintain effective control over Freedom UA. Accordingly, Freedom UA has not been consolidated in the Company's consolidated financial statements in this quarterly report.
Previous report
Other than the Ukrainian sanctions described above, none of FRHC, nor any of our group companies, nor any of our current directors or senior management, is a target of sanctions imposed by the United States, the EU or the UK. Nevertheless, we are indirectly impacted by the designation of numerous parties in Russia as sanctioned parties and the restrictions placed on international businesses in Russia as a result. The sanctions imposed on Russia in 2014 as well as the sanctions imposed beginning in 2022 make Russia a high-risk jurisdiction for potential sanctions. As a result, when doing business with Russian persons and legal entities it is necessary for us to conduct enhanced due diligence to ensure that no persons designated on any applicable sanctions lists conduct prohibited transactions with us or through our facilities, and to ensure that neither we nor any of our executive officers facilitate any prohibited business as defined under the laws and regulations to which we are subject.
Previous report
In February 2023, we divested our Russian subsidiaries, including all of their offices and employees. As of March 31, 2022, our Russian subsidiaries had 43 offices and branches and 1,717 employees. Despite the divestiture of these subsidiaries, the scale of our overall business increased from fiscal 2022 to fiscal 2023. As of March 31, 2022, our total number of employees was 1,704 and our total number of offices was 66. As of March 31, 2023, the number of employees increased to 3,689 and the number of our offices increased to 126. The increase in the scale of our operations between the two fiscal years, despite the divestment of our Russian subsidiaries, was mainly attributable to our growth during fiscal 2023 through several acquisitions. In addition, in connection with divestment of our Russia subsidiaries, 19 analysts, 21 investment consultants, 18 Tradernet specialists and 13 public relations specialists moved from our former Russian subsidiaries to our Freedom Global subsidiary, and certain customers of our former Russian subsidiaries opened accounts at our non-Russian subsidiaries, which mitigated the effects of the divestment of our Russian subsidiaries.
Previous report
As of the date of this quarterly report, the Russia-Ukraine conflict is ongoing and its effects on us continue to evolve. As such, we expect there will be further impacts and unknown risks related to our business, the substance and reach of which we cannot fully anticipate.
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Previous wording
The following discussion and analysis is intended to assist you in understanding the results of operations and present financial condition of Freedom Holding Corp. ("FRHC") and its consolidated subsidiaries. Except where the context otherwise requires or where otherwise indicated, references herein to the "Company," "Freedom," "we," "our," and "us") mean Freedom Holding Corp. together with its consolidated subsidiaries. References to "fiscal year(s)" means the 12-month periods ended March 31 for the referenced year. Our unaudited condensed consolidated financial statements and the accompanying notes included in this quarterly report on Form 10-Q contain additional information that should be referred to when reviewing this material and this document should be read in conjunction with our financial statements and the related notes contained elsewhere in this report and in our other filings with the Securities Exchange Commission ("SEC") including our annual report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on August 4, 2023.
Current wording
The following discussion and analysis presents management’s perspective on financial condition and results of operations of Freedom Holding Corp. ("FRHC") and its consolidated subsidiaries. Except where the context otherwise requires or where otherwise indicated, references herein to the "Company," "Freedom," "we," "our," and "us") mean Freedom Holding Corp. together with its consolidated subsidiaries. References to "fiscal year(s)" means the 12-month periods ended March 31 for the referenced year. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this quarterly report on Form 10-Q, and it should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included in this quarterly report on Form 10-Q and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities Exchange Commission ("SEC") on June 14, 2024 (the “2024 Form 10-K”).
Previous wording
•the direct and indirect effects on our business stemming from Russia's large-scale military action against Ukraine (the "Russia-Ukraine conflict");
Current wording
•the direct and indirect effects on our business stemming from Russia's large-scale military action against Ukraine;
Previous wording
•information technology, trading platform and other system failures, cyber security threats and other disruptions;
Current wording
•information technology, trading platform and other system failures, cybersecurity threats and other disruptions;
Previous wording
•other factors discussed in this quarterly report, as well as in our annual report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on August 4, 2023.
Current wording
•other factors discussed in this quarterly report, as well as in the 2024 Form 10-K, including those listed under Part I, Item 1A. “Risk Factors” of the 2024 Form 10-K.
Previous wording
You should not place undue reliance on forward-looking statements. Forward-looking statements are based on the beliefs of management as well as assumptions made by and information currently available to management and apply only as of the date of this report or the respective dates of the documents from which they incorporate by reference. Neither we nor any other person assumes any responsibility for the accuracy or completeness of forward-looking statements. Further, except to the extent required by law, we undertake no obligations to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, made by us or on our behalf, are also expressly qualified by these cautionary statements.
Current wording
You should not place undue reliance on forward-looking statements. Forward-looking statements are based on the beliefs of management as well as assumptions made by and information currently available to management and apply only as of the date of this quarterly report or the respective dates of the documents from which they incorporate by reference. Neither we nor any other person assumes any responsibility for the accuracy or completeness of forward-looking statements. Further, except to the extent required by law, we undertake no obligations to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, made by us or on our behalf, are also expressly qualified by these cautionary statements.
Previous wording
Freedom Holding Corp. is organized under the laws of the State of Nevada and acts as a holding company for all of our operating subsidiaries. Our subsidiaries engage in a broad range of activities in the securities industry, including retail securities brokerage, securities dealing, market making, investment research, investment counseling, investment banking and underwriting services. We also own a bank and two insurance companies operating in Kazakhstan as well as several ancillary businesses which complement our core financial services businesses, including telecommunications and media businesses in Kazakhstan that are in a developmental stage.
Current wording
Freedom Holding Corp. ("FRHC") is organized under the laws of the State of Nevada and acts as a holding company for all of our operating subsidiaries. Our subsidiaries engage in a broad range of activities including securities brokerage, securities dealing for customers and for our own account, market making activities, investment research, investment counseling, investment banking services, retail and commercial banking, insurance products, payment services, and information processing services. We also own several ancillary businesses which complement our core financial services businesses, including telecommunications and media businesses in Kazakhstan that are in a developmental stage.
Previous wording
Our business was founded in order to provide access to the international capital markets for retail brokerage clients in our core markets, the most important of which to date have been Kazakhstan and Russia. Our business has grown rapidly in recent years. We are pursuing a strategy to become a leader in the financial services industry, serving individuals and institutions desiring enhanced market access to international capital markets using state of the art technology platforms for their brokerage and other financial services needs. We are committed to further developing our digital fintech ecosystem going forward by integrating our core financial services businesses with our ancillary business offerings. Our strategic objective is to provide customers with a comprehensive and user-centric digital experience, offering them convenient access to a wide array of products and services through a single platform. By leveraging cutting-edge technology and fostering continuous innovation, we strive to enhance our digital offering and meet the evolving needs of our diverse customer base.
Current wording
Our business was founded in order to provide access to the international capital markets for retail brokerage clients. Our business has grown rapidly in recent years. We are pursuing a strategy to become a leader in the financial services industry, serving individuals and institutions desiring enhanced market access to international capital markets using state of the art technology platforms for their brokerage and banking needs.We are committed to further developing our digital fintech ecosystem by integrating our core financial services businesses with our ancillary business offerings. Our strategic objective is to provide customers with a comprehensive and user-centric digital experience, offering them convenient access to a wide array of products and services through a single platform. By leveraging cutting-edge technology and fostering continuous innovation, we strive to enhance our digital offering and meet the evolving needs of our diverse customer base.
Previous wording
We provide a comprehensive range of securities brokerage services to individuals, businesses and financial
Current wording
As of June 30, 2024, in our Brokerage business segment we had 49 offices that provided brokerage and financial services, investment consulting and education, including offices in Kazakhstan, Cyprus, Armenia, United States, Uzbekistan and Kyrgyzstan and representative offices in a number of other European countries. We provide a comprehensive range of securities brokerage services to individuals, businesses and financial institutions. Depending on the region, our brokerage services may include securities trading and margin lending. Our investment banking business consists of investment banking professionals in Kazakhstan, Uzbekistan and the United States who provide strategic advisory services and capital markets products.
Previous wording
Our Cyprus subsidiary Freedom EU oversees our Europe Excluding Eastern Europe operations (covering Cyprus, the United Kingdom, Germany, Spain, Greece, France and Poland). Our Cyprus operations are based in Limassol, Cyprus. In Cyprus, we are licensed to receive, transmit and execute customer orders, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio. Through Freedom EU we provide transaction processing and intermediary services to our regional customers and to institutional customers, including our affiliate Freedom Securities Trading Inc. (formerly known as FFIN Brokerage Services, Inc.) (“FST Belize”), that may seek access to the securities markets in the United States and Europe excluding Eastern Europe. FST Belize’s customers execute brokerage transactions indirectly through Freedom EU via several omnibus accounts held by FST Belize with Freedom EU. All trading of United States and European exchange traded and OTC securities by all Freedom group securities brokerage firms, excluding PrimeEx, are also routed to and executed through Freedom EU. As of December 31, 2023, our business in the Europe Excluding Eastern Europe segment consisted of 9 total offices providing brokerage and financial services, investment consulting, education or that serve an administrative function, including a tied agent of Freedom EU in Germany and representative offices of Freedom EU in Greece, France and Spain. Prime UK, formed in 2021, is a financial intermediary company which was incorporated for the purposes of obtaining the necessary licenses to conduct brokerage operations in the United Kingdom, which licenses have not yet been obtained. For the three months ended December 31, 2023, our Europe Excluding Eastern Europe segment generated approximately $39.5 million, or 9%, of our total revenue, net and approximately $31.7 million, or 10%, of our total expense.
Current wording
Freedom EU oversees our European region operations (including Austria, Belgium, Bulgaria, Cyprus, France, Germany, Greece, Italy, Poland, Lithuania and Spain). In Cyprus, it is licensed to receive, transmit and execute customer orders, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio. Freedom EU serves as a hub for our Group's brokerage operations, providing transaction processing and intermediary services to our regional customers and to institutional customers that may seek access to the securities markets in the United States and Europe.
Previous wording
Our United States segment consists of Freedom Holding Corp. and our subsidiaries PrimeEx, Freedom U.S. Markets LLC and LD Micro. PrimeEx is a registered agency-only execution broker-dealer on the floor of the New York Stock Exchange ("NYSE") and is a member of the NYSE, Nasdaq, FINRA and the Securities Investor Protection Corp ("SIPC"). PrimeEx conducts investment banking and equity capital markets business under the name Freedom Capital Markets. PrimeEx provides its corporate and institutional customers with a full array of investment banking, corporate finance, and capital markets advisory services. Through LD Micro, we own the largest conference platform for small-cap companies in the United States. For the three months ended December 31, 2023, the United States segment generated approximately $5.6 million, or 1.3%, of our total revenue, net and approximately $13.3 million, or 4.3%, of our total expense.
Current wording
PrimeEx is a New York corporation that is a registered agency-only execution broker-dealer on the floor of the New York Stock Exchange ("NYSE"). PrimeEx is a member of the NYSE, Nasdaq, FINRA and the Securities Investor Protection Corp ("SIPC"). PrimeEx conducts investment banking and equity capital markets business under the name Freedom Capital Markets ("FCM").
Previous wording
We are committed to further developing our digital fintech ecosystem going forward by integrating our online and mobile brokerage services, banking offerings, insurance products, payment processing systems, and online commercial ticketing services. Our strategic objective is to provide customers with a comprehensive and user-centric digital experience, offering them convenient access to a wide array of financial products and services through a single platform. By leveraging cutting-edge technology and fostering continuous innovation, we strive to enhance our digital offerings and meet the evolving needs of our diverse customer base.
Current wording
Going forward, we prioritize further expanding our digital fintech ecosystem by integrating our online and mobile brokerage services, banking offerings, insurance products, payment processing systems, and online commercial ticketing services. Our strategic objective is to provide customers with a comprehensive and user-centric digital experience, offering them convenient access to a wide array of financial products and services through a single platform. When achieving our strategic objectives, we rely heavily on information technology and its continuous development and innovation to offer our users a seamless customer interaction, meet their diverse needs, and ensure stringent adherence to regulatory requirements and information security standards.
Previous wording
In alignment with our digital fintech ecosystem strategy, we have established Freedom Media LLP ("Freedom Media") as a subsidiary of Freedom Telecom. We intend for Freedom Media to become a national media platform in Kazakhstan offering media content to customers. Our establishment of Freedom Media marks a significant milestone in our endeavor to diversify our global presence and offer tailored streaming services to the Kazakhstan and Central Asia market. This platform is expected to provide unlimited access to a diverse collection of TV shows, movies, documentaries, and exclusive content across multiple genres. In addition to streaming, Freedom Media will enable content downloads for offline viewing, catering to the convenience of our users.
Current wording
In alignment with our digital fintech ecosystem strategy, we plan to expand our business by entering the telecommunications market in Kazakhstan and regional media industry. We seek to establish a new independent telecommunications operator in Kazakhstan to provide a diverse range of telecommunications and telecommunications-related services to customers which may include, among others, high-quality internet connectivity, mobile virtual network operator (MVNO) services, WiFi access, over-the-top (OTT) streaming, internet protocol television (IPTV), traffic transit for operators and cloud solutions, subject to obtaining applicable licenses, acquisitions of telecom assets or entering into partnerships where required. Our new telecommunications business will be operated by Freedom Telecom, a wholly-owned subsidiary of Freedom Holding Corp. incorporated under the laws of the AIFC. Our strategy and budget for Freedom Telecom are currently being reassessed and are subject to revisions, which may be material. During fiscal 2024, we established Freedom Media LLP ("Freedom Media") as a subsidiary of Freedom Telecom that is intended to become a national media platform in Kazakhstan offering tailored streaming services to the Kazakhstan and Central Asia market. This platform is expected to provide unlimited access to a diverse collection of TV shows, movies, documentaries, and exclusive content across multiple genres.
Previous wording
On October 31, 2023, S&P Global Ratings affirmed the long-term credit rating of Freedom Holding Corp. at the "B-" level and long-term and short-term credit ratings of Freedom Finance JSC, Freedom Finance Europe Ltd., Freedom Finance Global PLC and Freedom Finance Kazakhstan Bank JSC at the "B/B" level. The ratings of Freedom KZ and Freedom Bank KZ on the national scale were confirmed at the level of "kzBB+". S&P Global Ratings revised the outlook on Freedom Holding Corp. and its core subsidiaries to negative.
Current wording
On June 28, 2024, S&P Global Ratings affirmed the long-term credit rating of Freedom Holding Corp. at the "B-" level and long-term and short-term credit ratings of Freedom KZ, Freedom EU, Freedom Global and Freedom Bank KZ at the "B/B" level. The ratings of Freedom KZ and Freedom Bank KZ on the national scale were increased from "kzBB+" to "kzBBВ-", and S&P Global Ratings revised the outlook on Freedom Holding Corp. from negative to stable and the outlook on its core subsidiaries from negative to positive. The positive outlooks on the Freedom Holding Corp.'s subsidiaries reflect S&P's view that easing financial system risk in Kazakhstan and a further strengthening of the Group's risk management and capitalization could support its franchise over the next 12 months. The stable outlook on Freedom Holding Corp. reflects S&P's expectation that an upgrade on the holding company is unlikely even if it views the Group's creditworthiness overall as having strengthened.
Previous wording
Net gain on foreign exchange operations
Current wording
•We had a net gain on derivatives for the three months ended June 30, 2024 in the amount of $12.5 million, an increase of $43.1 million, or 141%, compared to the three months ended June 30, 2023. This increase was due to revaluation of currency swaps.
Previous wording
Insurance claims incurred, net of reinsurance
Current wording
We had total expense of of $409.1 million, for the three months ended June 30, 2024, as compared to $231.6 million for the three months ended June 30, 2023. The increase was mainly attributable to increases in interest expense, payroll and bonuses, fee and commission expense, general and administrative expense and insurance claims incurred, net of reinsurance.
Previous wording
As a result of the foregoing factors, for the nine months ended December 31, 2023, we had net income of $279.5 million compared to $148.7 million for the nine months ended December 31, 2022, an increase of 88% .
Current wording
We had net income of $34.4 million for the three months ended June 30, 2024, as compared to $68.1 million for the three months ended June 30, 2023.
Previous wording
Net (Loss)/Gain on Derivatives
Current wording
Net (loss)/gain on trading securities
Previous wording
Net loss on trading securities was $5.1 million for the three months ended December 31, 2023, a decrease of $30.5 million as compared to $25.5 million gain for the three months ended December 31, 2022. The following table sets forth information regarding our net gains and losses on trading activities for the three months ended December 31, 2023 and 2022:
Current wording
We had a net loss on trading securities of $52.1 million for the three months ended June 30, 2024, a decrease of $83.9 million as compared to a net gain of $31.8 million or the three months ended June 30, 2023. The following table sets forth information regarding our net gains and losses on trading activities during the three months ended June 30, 2024 and 2023:
Previous wording
During the nine months ended December 31, 2023, we had a realized gain on trading securities of $61.3 million, which is attributable to debt securities of the Ministry of Finance of the Republic of Kazakhstan sold during the nine months ended December 31, 2023. We had an unrealized net gain in the nine months ended December 31, 2023, due to securities positions we continued to hold at December 31, 2023, having appreciated by $16.2 million. The majority of the unrealized net gain was attributable to appreciated debt securities of the Ministry of Finance of the Republic of Kazakhstan, which appreciation was primarily due to a decline in the National Bank's base interest rate during the nine months ended December 31, 2023.
Current wording
During the three months ended June 30, 2023, we had a realized gain on trading securities of $10.9 million, which is attributable to Kazakhstan sovereign bonds sold during three months ended June 30, 2023. We had an unrealized net gain in the three months ended June 30, 2023, due to securities positions we continued to hold at June 30, 2023, having appreciated by $21.0 million. The majority of the unrealized net gain is attributable to appreciation in the value of debt securities issued by the Ministry of Finance of the Republic of Kazakhstan. The appreciation can be primarily attributed to increased demand for government securities issued by Kazakhstan during the three months ended June 30, 2023.
Previous wording
For the three months ended December 31, 2023, interest income was $226.4 million, representing an increase of $146.2 million, or 182%, compared to the three months ended December 31, 2022. The increase in interest income was primarily attributable to a $68.1 million, or 152% increase in interest income from trading securities, as a result of an increase in the total size of our trading portfolio and an increase in the amount of bonds we held as a percentage of our total trading portfolio between the two periods. Interest income on loans to customers increased by $37.2 million, or 302% due to the growth of Freedom Bank KZ's loan portfolio, compared to the quarter ending December 31, 2022. In addition, we recognized a $39.2 million, or 316%, increase in interest income on margin loans to customers, resulting from an increase in the usage of margin loans for trades by our clients between the two periods.
Current wording
For the three months ended June 30, 2024, we had interest income of $226.0 million, representing an increase of $76.7 million, or 51%, compared to the three months ended June 30, 2023. The increase in interest income was primarily attributable to increases in interest income on margin loans to customers, loans to customers and trading securities. Interest income on trading securities increased by $20.3 million, or 23%, as a result of an increase in the total size of our trading portfolio and an increase in the amount of bonds we held as a percentage of our total trading portfolio between the two periods. Interest income on loans to customers increased by $21.0 million, or 67%, compared to the quarter ending June 30, 2023 due to the growth of Freedom Bank KZ's customer loan portfolio between the two quarters. Interest income on margin loans to customers increased by $33.9 million, or 197%, compared to the three months ended June 30, 2023, due to an increase in the usage of margin loans for trades by our clients between the two quarters. For the three months ended June 30,
Previous wording
For the three months ended December 31, 2023, we had net loss on derivatives of $42.6 million compared to a net loss of $21.5 million for the three months ended December 31, 2022. The change was primarily attributable to negative revaluation of currency swaps of our subsidiary, Freedom Bank KZ, resulting in an realized loss of $41.8 million for the three months ended December 31, 2023. During the three months ended December 31, 2023, Freedom Bank KZ entered into currency swaps to diversify its funding sources.
Current wording
For the three months ended June 30, 2024, we had net gain on derivatives of $12.5 million compared to a net loss of $30.6 million for the three months ended June 30, 2023. The change was primarily attributable to our subsidiary, Freedom Bank KZ, which had an unrealized net gain of $8.2 million for the three months ended June 30, 2024 due to a positive revaluation of currency swaps, as compared to a realized net loss of $27.5 million for the three months ended June 30, 2023 due to a negative revaluation of currency swaps. Freedom Bank KZ engages in currency swaps to diversify its funding sources.
Previous wording
For the nine months ended December 31, 2023, we had insurance underwriting income of $181.9 million, an increase of $102.9 million, or 130%, as compared to the nine months ended December 31, 2022. The increase was primarily attributable to a $103.7 million, or 119%, increase in insurance underwriting income from written insurance premiums for the nine months ended December 31, 2023, as compared to the nine months ended December 31, 2022, due to the expansion of our insurance operations between the two periods. This increase in income from written insurance premiums was partially offset by a $2.5 million decrease in reinsurance premiums ceded for the nine months ended December 31, 2023, as compared to the nine months ended December 31, 2022. The following table sets out information on our insurance underwriting income for the periods presented.
Current wording
For the three months ended June 30, 2024, we had insurance underwriting income of $129.4 million, an increase of $84.5 million, or 188%, as compared to the three months ended June 30, 2023. The increase was primarily attributable to a $93.8 million, or 175%, increase in insurance underwriting income from written insurance premiums for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to the expansion of our insurance operations such as pension annuity and accident insurance classes between the two quarters. This increase in income from written insurance premiums was partially offset by a $1.0 million increase in reinsurance premiums ceded for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The following table sets out information on our insurance underwriting income for the periods presented.
Previous wording
For the three months ended December 31, 2023, we had a $79.2 million, or 152%, increase in interest expense as compared to the three months ended December 31, 2022. The increase in interest expense was primarily attributable to a $70.8 million, or 177%, increase in interest expense on short-term financing through securities repurchase agreements due to an increase in the volume of such financing, and a $4.5 million, or 40%, increase in interest expense on customer deposits. Compared to the three months ended December 31, 2022, we increased our volume of short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio. The increase in interest on customer deposits was a result of growth of our banking client base due to the expansion of the operations of Freedom Bank KZ between the two periods.
Current wording
During the three months ended June 30, 2024, we had a $50.7 million, or 53%, increase in interest expense as compared to the three months ended June 30, 2023. The increase in interest expense was primarily attributable to a $17.0 million, or 22%, increase in interest expense on short-term financing through securities repurchase agreements due to an increase in the volume of such financing, and a $7.5 million, or 48%, increase in interest expense on customer deposits. Compared to the three months ended June 30, 2023, we increased our volume of short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio. The increase in interest on customer deposits was a result of growth of our banking client base due to the expansion of the operations of Freedom Bank KZ between the two periods.
Previous wording
For the three months ended December 31, 2023, we had a $23.6 million, or 135%, increase in insurance claims incurred, net of reinsurance, as compared to the three months ended December 31, 2022. The increase was primarily attributable to a $23.4 million or 4526% increase in expenses for insurance reserve, which increase correlates with the premiums received for the period.
Current wording
For the three months ended June 30, 2024, we had a $25.8 million, or 120%, increase in insurance claims incurred, net of reinsurance, as compared to the three months ended June 30, 2023. The increase was primarily attributable to the general expansion of our insurance operations between the two quarters.
Previous wording
For the nine months ended December 31, 2023, we had payroll and bonuses expense of $116.7 million, representing an increase of $61.5 million or 111% compared to payroll and bonuses expense of $55.3 million for the nine months ended December 31, 2022. The increase is attributable to the expansion of our operations generally and expansion of our workforce through hiring and acquisitions.
Current wording
For the three months ended June 30, 2024, we had payroll and bonuses expense of $57.5 million, representing an increase of $25.9 million or 82% compared to payroll and bonuses expense of $31.6 million for the three months ended June 30, 2023. The increase in payroll and bonus expenses is primarily attributable to increased salary and bonus amounts between the two quarters. The increase was also due to the expansion of our workforce through acquisitions, establishment of new subsidiaries and hiring.
Previous wording
We had income before income tax of $111.6 million and $51.5 million during the three months ended December 31, 2023, and December 31, 2022, respectively. Income tax expense for the three months ended December 31, 2023, and December 31, 2022 was $15.5 million and $5.1 million, respectively. Our effective tax rate during the three months ended December 31, 2023, increased to 13.9%, from 9.9% during the three months ended December 31, 2022, as a result of changes in the composition of the revenues we realized from our operating activities, the tax treatment of those revenues in the various jurisdictions where our subsidiaries operate, and the incremental U.S. GILTI tax.
Current wording
We had income before income tax of $41.6 million and $84.6 million for the three months ended June 30, 2024, and June 30, 2023, respectively. Income tax expense for the three months ended June 30, 2024, and June 30, 2023 was $7.3 million and $16.7 million, respectively. The decrease was primarily due to a decrease in our income before income tax between the two quarters. In addition, our effective tax rate during the three months ended June 30, 2024, decreased to 17.6%, from 19.7% during the three months ended June 30, 2023, as a result of changes in the composition of the revenues we realized from our operating activities, the tax treatment of those revenues in the various jurisdictions where our subsidiaries operate, and the incremental U.S. GILTI tax.
Previous wording
As a result of the foregoing factors, for the three months ended December 31, 2023, we had net income of $96.1 million compared to $62.4 million for the three months ended December 31, 2022, an increase of 54%.
Current wording
As a result of the foregoing factors, for the three months ended June 30, 2024, we had net income of $34.3 million compared to $67.9 million for the three months ended June 30, 2023, a decrease of 50%.
Previous wording
As of December 31, 2023, we held an 94.73% ownership interest in Arbuz and a 90.00% ownership interest in ReKassa. The remaining 5.27% of the ownership interest in Arbuz and 10.00% of the ownership interest in ReKassa are recognized as non-controlling interests in the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income, Condensed Consolidated Statements of Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows.
Current wording
As of June 30, 2024, FRHC held a 94.81% ownership interest in Arbuz and a 90.0% ownership interest in ReKassa. The remaining 5.19% of the ownership interest in Arbuz and 10.0% of the ownership interest in ReKassa are recognized as non-controlling interests in our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income, Condensed Consolidated Statements of Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows.
Previous wording
Net loss attributable to non-controlling interest was $0.3 million and $0.5 million for the three months ended December 31, 2023 and 2022, respectively.
Current wording
Net loss attributable to non-controlling interest was $0.1 million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively.
Previous wording
Due to a 1% depreciation of the Kazakhstan tenge against the U.S. dollar during the nine months ended December 31, 2023, we realized a foreign currency translation loss of $3.6 million for the nine months ended December 31, 2023, as compared to a foreign currency translation loss of $0.3 million for the nine months ended December 31, 2022.
Current wording
Due to a 5.5% depreciation of the Kazakhstan tenge against the U.S. dollar during the three months ended June 30, 2024, we realized a foreign currency translation loss of $65.8 million for the quarter ended June 30, 2024 since most of our Group's companies use the Kazakhstan tenge as their functional currency, as compared to a foreign currency translation loss of $1.8 million for the quarter ended June 30, 2023.
Previous wording
We organize our operations geographically into four regional segments: Central Asia and Eastern Europe; Europe excluding Eastern Europe; the United States; and Middle East/Caucasus. These operating segments are based on how our CODM makes decisions about allocating resources and assessing performance. The total revenue, net associated with our segments is summarized in the following table:
Current wording
We report our results of operations through the following four business segments: Brokerage, Banking, Insurance, and Other. These operating segments are based on how our CODM will be making decisions about allocating resources and assessing performance. The total revenue, net associated with our segments is summarized in the following table:
Previous wording
Liquidity is a measurement of our ability to meet our potential cash requirements for general business purposes. During the periods covered in this report our operations were primarily funded through a combination of existing cash on hand, cash generated from operations, returns generated from our proprietary trading and proceeds from the sale of bonds and other borrowings.
Current wording
Liquidity is a measurement of our ability to meet our potential cash requirements for general business purposes. During the periods covered in this quarterly report our operations were primarily funded through a combination of existing cash on hand, cash generated from operations, returns generated from our proprietary trading and proceeds from the sale of bonds and other borrowings.
Previous wording
We regularly monitor and manage our leverage and liquidity risk through various committees and processes we have established to maintain compliance with net capital and capital adequacy requirements imposed on securities brokerages and banks in jurisdictions where we do business. We assess our leverage and liquidity risk based on considerations and assumptions of market factors, as well as other factors, including the amount of available liquid capital (i.e., the amount of cash and cash equivalents not invested in our operating business). While we are confident in the risk management monitoring and processes we have in place, a significant portion of our trading securities and cash and cash equivalents are subject to collateralization agreements. This significantly enhances our risk of loss in the event financial markets move against our positions. When this occurs our liquidity, capitalization and business can be negatively impacted. Certain market conditions can impact the liquidity of our assets, potentially requiring us to hold positions longer than anticipated. Our liquidity, capitalization, projected return on investment and results of operations can be significantly impacted by market events over which we have no control, and which can result in disruptions to our investment strategy for our assets.
Current wording
(i.e., the amount of cash and cash equivalents not invested in our operating business). While we are confident in the risk management monitoring and processes we have in place, a significant portion of our trading securities and cash and cash equivalents are subject to collateralization agreements. This significantly enhances our risk of loss in the event financial markets move against our positions. When this occurs our liquidity, capitalization and business can be negatively impacted. Certain market conditions can impact the liquidity of our assets, potentially requiring us to hold positions longer than anticipated. Our liquidity, capitalization, projected return on investment and results of operations can be significantly impacted by market events over which we have no control, and which can result in disruptions to our investment strategy for our assets.
Previous wording
We maintain a majority of our tangible assets in cash and securities that are readily convertible to cash, including governmental and quasi-governmental debt and highly liquid corporate equities and debt. Our financial instruments and other inventory positions are stated at fair value and should generally be readily marketable in most market conditions. The following sets out certain information regarding our assets as of the dates presented:
Current wording
We maintain a majority of our tangible assets in cash and securities that are readily convertible to cash, including governmental and quasi-governmental debt and highly liquid corporate equities and debt. Our financial instruments and other asset positions are stated at fair value and should generally be readily marketable in most market conditions. The following table sets out certain information regarding our assets as of the dates presented:
Previous wording
(1)Of the $561.9 million in cash and cash equivalents we held at December 31, 2023, $107.3 million, or approximately 19%, was subject to reverse repurchase agreements. By comparison, at March 31, 2023, we had cash and cash equivalents of $581.4 million, of which $29.8 million, or approximately 5%, was subject to reverse repurchase agreements. The amount of cash and cash equivalents we hold is subject to minimum levels set by regulatory bodies to comply with required rules and regulations, including adequate capital and liquidity levels for each entity.
Current wording
(1)Of the $718.7 million in cash and cash equivalents we held at June 30, 2024, $151.0 million, or approximately 21%, was subject to reverse repurchase agreements. By comparison, at March 31, 2024, we had cash and cash equivalents of $545.1 million, of which $135.0 million, or approximately 25%, was subject to reverse repurchase agreements. The amount of cash and cash equivalents we hold is subject to minimum levels set by regulatory bodies to comply with required rules and regulations, including adequate capital and liquidity levels for each entity.
Previous wording
(2)Consists of cash and cash equivalents, trading securities, and margin lending, brokerage and other receivables, net of securities repurchase agreement obligations. It includes liquid assets possessed after deducting securities repurchase agreement obligations.
Current wording
receivables, net of securities repurchase agreement obligations. It includes liquid assets possessed after deducting securities repurchase agreement obligations.
Previous wording
As of December 31, 2023, and March 31, 2023, we had total liabilities of $6,409.8 million and $4,313.8 million, respectively, including customer liabilities of $2,248.0 million and $1,925.2 million, respectively.
Current wording
As of June 30, 2024, and March 31, 2024, we had total liabilities of $7.3 billion and $7.1 billion, respectively, including customer liabilities of $2.7 billion and $2.3 billion, respectively.
Previous wording
Net cash used in operating activities during the nine months ended December 31, 2023, was comprised of net cash from operating activities and net income adjusted for non-cash movements (changes in deferred taxes, unrealized gain on trading securities, net change in accrued interest, change in insurance reserves, and allowance for credit losses). Net cash used in operating activities resulted primarily from changes in operating assets and liabilities. Such changes included those set out in the following table.
Current wording
Net cash used in operating activities during the three months ended June 30, 2024, was comprised of net change in operating assets and liabilities and net income adjusted for non-cash movements (changes in deferred taxes, unrealized gain on trading securities, net change in accrued interest, change in insurance reserves, and allowance for receivables). Net cash used in operating activities resulted primarily from changes in operating assets and liabilities. Such changes included those set out in the following table.
Previous wording
(4)Resulted from increased volume of margin lending payables.
Current wording
(4)Resulted primarily from increased volume of margin lending payables.
Previous wording
Net cash flow used in operating activities in the nine months ended December 31, 2023, was attributable to net cash outflows attributable to increases in trading securities and increases in margin lending, brokerage and other receivables, which was offset in part primarily by an increase margin lending and trade payables.
Current wording
Net cash flows used in operating activities in the three months ended June 30, 2024, were primarily attributable to net cash outflows attributable to increases in trading securities and increases in margin lending, brokerage and other receivables, which changes were offset in part by an increase in customer liabilities over that quarter, which resulted from the increase of customer accounts in our Freedom Global subsidiary.
Showing the first 40 of 57 pairs. Open the source sections for the rest.
Rearranged current paragraphs (5)
Current report — wording carried from elsewhere
We regularly monitor and manage our leverage and liquidity risk through various committees and processes we have established to maintain compliance with net capital and capital adequacy requirements imposed on securities brokerages and banks in jurisdictions where we do business. We assess our leverage and liquidity risk based on considerations and assumptions of market factors, as well as other factors, including the amount of available liquid capital
Current report — wording carried from elsewhere
(2) Principally consists of cash of our brokerage customers which are segregated in a special custody
Current report — wording carried from elsewhere
accounts for the exclusive benefit of our brokerage customers.
Current report — wording carried from elsewhere
(3) Consists of cash and cash equivalents, trading securities, and margin lending, brokerage and other
Current report — wording carried from elsewhere
Any payment of cash dividends on our common stock in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual and legal restrictions and other factors deemed relevant by our Board of Directors. We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Rearranged previous paragraphs (21)
Previous report — wording carried elsewhere
currency and banking uncertainties. Depending on the region, our brokerage services may include securities trading,
Previous report — wording carried elsewhere
As of December 31, 2023, in our Central Asia and Eastern Europe region we had 43 offices that provided brokerage and financial services, investment consulting and education, including offices in Kazakhstan, Uzbekistan and Kyrgyzstan.
Previous report — wording carried elsewhere
Our capital markets and investment banking business consists of investment banking professionals in Kazakhstan,
Previous report — wording carried elsewhere
Uzbekistan and the United States who provide strategic advisory services and capital markets products. Our investment
Previous report — wording carried elsewhere
For the three months ended December 31, 2023, we had insurance underwriting income of $79.0 million, an increase of $50.5 million, or 177%, as compared to the three months ended December 31, 2022. The increase was primarily attributable to a $46.8 million, or 152%, increase in insurance underwriting income from written insurance premiums for the three months ended December 31, 2023, as compared to the three months ended December 31, 2022, due to the expansion of our insurance operations between the two periods. The following table sets out information on our insurance underwriting income for the periods presented.
Previous report — wording carried elsewhere
Foreign currency translation adjustments, net of tax
Previous report — wording carried elsewhere
Due to a 4.2% appreciation of the Kazakhstan tenge against the U.S. dollar during the three months ended December 31, 2023, we realized a foreign currency translation gain of $28.1 million for the three months ended December 31, 2023, as compared to a foreign currency translation loss of $5.6 million for the three months ended December 31, 2022.
Previous report — wording carried elsewhere
The following comparison of our financial results for the nine-month periods ended December 31, 2023 and 2022 is not necessarily indicative of future results.
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The following table sets out information or our total revenue, net for the periods presented.
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The following table sets forth information regarding our fee and commission income for the periods presented.
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The following table sets out the components of our fee and commission income as a percentage of total fee and commission income, net for the periods presented.
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The following tables set forth information regarding our revenue from interest income for the periods presented.
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Net gain on foreign exchange operations
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The following table sets out information on our total expense for the periods presented.
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The following table sets forth information regarding our fee and commission expense for the periods presented.
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The following table sets out the components of our fee and commission expense as a percentage of total fee and commission expense, net for the periods presented.
Previous report — wording carried elsewhere
During the nine months ended December 31, 2023, we had a $232.7 million or 175%, increase in interest expense as compared to the nine months ended December 31, 2022. The increase in interest expense was primarily attributable to a $197.8 million, or 188%, increase in interest expense on short-term financing through securities repurchase agreements due to an increase in the volume of such financing, and a $24.3 million or 98% increase in interest expense on customer deposits. Compared to the nine months ended December 31, 2022, we increased our volume of short-term financing through securities repurchase agreements primarily in order to fund our investment portfolio. The increase in interest on customer deposits was a result of growth of our banking client base due to the expansion of the operations of Freedom Bank KZ between the two periods.
Previous report — wording carried elsewhere
Insurance claims incurred, net of reinsurance
Previous report — wording carried elsewhere
We had income before income tax of $330.9 million and $165.3 million during the nine months ended December 31, 2023, and December 31, 2022, respectively. Income tax expense for the nine months ended December 31, 2023, and December 31, 2022 was $51.4 million and $26.6 million, respectively. Our effective tax rate during the nine months ended December 31, 2023, decreased to 15.5%, from 16.1% during the nine months ended December 31, 2022, as a result of changes in the composition of the revenues we realized from our operating activities, the tax treatment of those revenues in the various jurisdictions where our subsidiaries operate, and the incremental U.S. GILTI tax.
Previous report — wording carried elsewhere
Foreign currency translation adjustments, net of tax
Previous report — wording carried elsewhere
(3)Resulted from increased volume of margin lending receivables.