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$174.60-2.4%Stored close · as of Nov 9, 2026
What changed in Risk Factors?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-09.
0000924805-24-000014
Item 1A. Risk FactorsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000924805-24-000060
Item 1A. Risk FactorsThe 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 43 previous paragraphs and 2 current paragraphs.
1 unchanged; 1 reworded; 0 added; 41 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 0 previous and 0 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.
Removed paragraphs (41)
Previous report
We may not be able to manage our growth effectively.
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We have experienced recent rapid growth in our business over a short period. Our number of total brokerage
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customer accounts increased from approximately 170,000 as of March 31, 2021 to approximately 458,312 as of December 31, 2023. Our total number of employees increased from 2,546 employees as of March 31, 2021 to 5,372 employees as of
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December 31, 2023. Our total assets increased by 73% from $2.3 billion as of March 31, 2021 to $7.4 billion as of December 31, 2023. We have made a number of recent significant acquisitions, including the acquisitions of Freedom Bank KZ and PrimeEx in December 2020, and Freedom Life and Freedom Insurance in May 2022. In addition, on November 27, 2023, our Board of Directors approved a plan to expand our business by entering the telecommunications market in Kazakhstan through our Freedom Telecom subsidiary, pursuant to our strategy to build a digital fintech ecosystem. Pursuant to the newly adopted plan, we will establish a new independent telecommunications operator in Kazakhstan to provide high-quality mobile communication, broadband internet access, Wi-Fi and digital services to customers. Execution of the new plan is expected to require significant capital investment. Total capital expenditures in connection with Freedom Telecom over the next five years are projected to be approximately $650 million for, among other things, the acquisition of a 5G band license, construction of a backbone network, establishment of a data center and acquisitions of smaller companies in the sector. We currently plan to finance these expenditures with a combination of domestic bond financing in Kazakhstan and vendor financing. Also in furtherance of our strategy to build a digital fintech ecosystem, on January 25, 2024, Freedom Telecom established a subsidiary, Freedom Media, in Kazakhstan for the purposes of providing media content to customers in Kazakhstan. Freedom Media is currently in a developmental stage. Total capital expenditures required in connection with Freedom Media over the next five years are estimated to be approximately $54 million. We project that Freedom Media will incur losses for the years 2024 and 2025 with profitability forecasted to commence from 2026 onwards, based on assumptions included in our financial model.
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There can be no assurance that we will be able to achieve a positive return on the investment we make in the general expansion of our business. Moreover, our overall growth has required and will continue to require significant allocation of capital and management resources, further development of our financial, internal controls and information technology systems, continued upgrading and streamlining of our risk management systems and additional training and recruitment of management and other key personnel. At the same time, we must maintain a consistent level of client services and current operations to avoid loss of business or damage to our reputation. If we fail to adequately manage growth, such failure may have a material adverse effect on our business, results of operations, financial condition and cash flows.
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Competition in the markets in which we operate may result in a decrease in our market share and/or
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We face intense competition in each of the markets where we offer our services. We compete with international,
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regional and local brokerage, banking, and financial services firms that offer an array of financial products and services. As part of our strategy to enter the telecommunications and media markets in Kazakhstan, we will compete with various telecommunications operators and other participants in the telecommunications market and with various media providers, respectively. Many of the firms with which we currently compete, or will compete in the future, are larger, provide additional and more diversified services and products, provide access to more international markets, and have greater technical, and financial resources. If we fail to compete effectively with other retail brokerage and financial services firms, or potential new entrants to the market, this could have a material adverse effect on our business, results of operations, financial condition and cash flows.
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We plan to incur losses in our new telecommunications and media businesses.
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Our recently established telecommunications subsidiary, Freedom Telecom, is expected to be loss-making for each of the calendar years 2024, 2025 and 2026 and to become profitable starting in the calendar year 2027, based on assumptions included in our financial model. While our financial model provides that the successful execution of our plan to establish our telecommunications business will begin to have a significant positive impact on our consolidated net income starting in 2028, such losses, and increased debt service costs associated with funding the implementation of the strategic plan, will have an adverse effect on our consolidated net income in the relevant periods. In addition, we project that our recently established Freedom Media subsidiary will incur losses in the calendar years from 2024 to 2026 with profitability forecasted to commence from the 2027 calendar year onwards, based on assumptions included in our financial model.
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We may be unable to implement our digital fintech ecosystem strategy successfully.
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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. Our ability to execute this strategy could be affected by a number of factors, including but not limited to, the factors described in our annual report on Form 10-K for the fiscal year ended March 31, 2023.
Previous report
There are substantial risks associated with our efforts to build a digital fintech ecosystem, including risks that (i) our unfamiliarity with new lines of business may adversely affect the success of such actions, (ii) revenue from such activities might not be sufficient to offset the development, regulatory and other implementation costs, (iii) competing products and services and shifting market preferences might affect the profitability of such activities and (iv) our internal controls might be inadequate to manage the risks associated with new activities. If any such expansions into new product markets are not successful, there could be a material adverse effect on our business and results of operations.
Previous report
In particular, we can give no assurance as to our future ability to establish a telecommunications operator in Kazakhstan in a timely fashion or on profitable terms. Our ability to do so will depend our ability to acquire of a 5G band license, construct a backbone network, establish a data center and acquire smaller companies in the sector. Our ability to accomplish these items on schedule and within budget, achieve our revenue targets or realize acceptable returns, is subject to a number of risks as a result of factors over which we have no control, including the need for regulatory approvals, the availability of equipment and labor, equipment breakdowns or accidents, adverse weather conditions, social unrest, unforeseen or uncontrollable cost increases and other risks associated with the deployment of new telecommunications infrastructure. We can give no assurance as to the commercial viability of our planned backbone network and data center or our ability to overcome any obstacles we may encounter during their construction or to complete them, or as to our ability to finance our capital expenditures in connection with their establishment. Our ability to operate our telecommunications businesses, once established, successfully and profitability will also depend on a number of factors, many of which are beyond our control. Similarly, we can give no assurance as to our future ability to establish a media business in Kazakhstan in a timely fashion or on profitable terms.
Previous report
Given the various risks to which we are exposed and the uncertainties inherent in the relevant business areas, we cannot guarantee the successful execution of our digital fintech ecosystem strategy. Additionally, the implementation of this strategy may put operational strain on our business and consume management time and focus to the detriment of our existing business operations. If we do not meet our strategic objectives or achieve the results initially expected, we may be unable to recover our investments, which may have a material adverse effect on our business, financial condition and results of operations. Furthermore, the cost of certain online and technology investments, including any operating losses incurred, could adversely impact our financial performance in the short term and failure to realize the benefits of these investments may adversely impact our financial performance over the longer term..
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Risks Related to Information Technology and Cyber Security
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Our operations are highly dependent on the continued and proper functioning of our information technology systems.
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Our brokerage, financial services and banking businesses are highly dependent on processing, on a daily basis, a
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large number of communications and increasingly complex transactions across diverse markets, in various languages.
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These communications and transactions are accomplished primarily through electronic information technology systems
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("IT") that are comprised of a wide array of computer systems, software, server and network hardware, internet
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connectivity and underlying infrastructure that enable them to function. The financial, accounting, or other data processing
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systems we or the firms that clear transactions on behalf of our customers use may fail to operate properly, become
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disabled, or otherwise become unavailable, as a result of events that are wholly or partially beyond our control.
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Events causing failures of our systems may include a disruption of electrical, communications, internet or other
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infrastructure, or related services, or our inability to access or use one or more of our facilities, as a result of any number of
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occurrences, including, but not limited to, the outbreak of a pandemic such as Covid-19, social unrest such as occurred in
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Kazakhstan in January 2022, or armed conflict such as the Russia-Ukraine conflict. For example, during the transition from the calendar year 2022 to the calendar year 2023, Freedom Bank KZ experienced a technical failure in processing transactions on its MultiInvest cards, as a result of which it incurred losses of approximately $3 million. After the error was identified, measures were taken to rectify the issue and provide for timely synchronization of the balances going forward.
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In particular, our "Tradernet" electronic trading platform is proprietary technology that plays a key role in both our
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customers' use of our services and for other important aspects of our business. Errors, failures, delays, interruptions,
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disruptions, vulnerabilities, bugs, incompatibility, obsolescence, or similar issues with Tradernet, or the software or
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systems upon which Tradernet relies for its functionality, however caused, could result in business disruptions, financial
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loss, reputational damage, and other adverse impacts on our business.
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Other businesses we currently operate, or that we will establish in the future pursuant to our digital fintech ecosystem strategy, including our planned telecommunications and media businesses, will also be highly dependent on the proper functioning of IT systems and related technology.
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If any of our systems do not operate properly or are disabled or otherwise unavailable, or if there are other
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shortcomings or failures in our internal processes, personnel, or systems related to the electronic communications and
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functionality our operations depend on, we could suffer impairment to our liquidity, financial loss, a disruption of business,
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liability to customers, regulatory intervention, or reputational damage. The inability of our systems to accommodate an
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Reworded paragraphs (1)
Previous wording
Except for the following updated risk factors and additional risk factors related to our strategy to build a digital fintech ecosystem, including establishing a telecommunications operator and media business in Kazakhstan, we believe there have been no material changes from the risk factors previously disclosed in “Risk Factors” 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
We believe that there have been no material changes from the risk factors previously disclosed in “Risk Factors” in our 2024 Form 10-K.