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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2024 |
| |
| OR |
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ________ to _________ |
Commission File Number 001-33034
| | | | | | | | |
| FREEDOM HOLDING CORP. | |
| (Exact name of registrant as specified in its charter) | |
| | | | | | | | | | | | | | |
| Nevada | | 30-0233726 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
| | | | |
| 40 Wall Street, 58th Floor New York, NY | | 10005 | |
| (Address of principal executive offices) | | (Zip Code) | |
(212) 980 4400
(Registrant's telephone number, including area code)
“Esentai Tower” BC, Floor 7, 77/7 Al Farabi Ave., Almaty, Kazakhstan
(Former address, if changed since last report)
Securities registered under Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | FRHC | The Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | x | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | o |
| | | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ☐ No x
As of November 7, 2024, the registrant had 60,612,417 shares of common stock, par value $0.001, issued and outstanding.
FREEDOM HOLDING CORP.
FORM 10-Q
TABLE OF CONTENTS
| | |
FREEDOM HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | |
| September 30, 2024 | | March 31, 2024 |
| | | |
ASSETS | | | |
Cash and cash equivalents (including $1,915 and $203 from related parties) | $ | 569,179 | | | $ | 545,084 | |
Restricted cash (including $6,669 and $— with related parties) | 895,651 | | | 462,637 | |
Trading securities (including $1,231 and $1,326 with related parties) | 3,601,118 | | | 3,688,620 | |
Available-for-sale securities, at fair value | 284,580 | | | 216,621 | |
Margin lending, brokerage and other receivables, net (including $162,066 and $22,039 due from related parties) | 1,623,962 | | | 1,660,275 | |
Loans issued (including $141,290 and $147,440 to related parties) | 1,368,656 | | | 1,381,715 | |
Fixed assets, net | 142,446 | | | 83,002 | |
Intangible assets, net | 46,112 | | | 47,668 | |
Goodwill | 53,166 | | | 52,648 | |
Right-of-use asset | 37,028 | | | 36,324 | |
Insurance contract assets | 24,982 | | | 24,922 | |
Other assets, net (including $14,914 and $5,257 with related parties) | 169,375 | | | 102,414 | |
TOTAL ASSETS | $ | 8,816,255 | | | $ | 8,301,930 | |
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Securities repurchase agreement obligations | $ | 2,584,131 | | | $ | 2,756,596 | |
Customer liabilities (including $191,607 and $44,127 to related parties) | 3,329,133 | | | 2,273,830 | |
Margin lending and trade payables | 303,411 | | | 867,880 | |
Liabilities from insurance activity | 364,156 | | | 297,180 | |
Current income tax liability | 27,844 | | | 32,996 | |
Debt securities issued | 267,341 | | | 267,251 | |
Lease liability | 37,664 | | | 35,794 | |
Liability arising from continuing involvement | 506,091 | | | 521,885 | |
Other liabilities (including $729 and $9,854 to related parties) | 133,248 | | | 81,560 | |
TOTAL LIABILITIES | $ | 7,553,019 | | | $ | 7,134,972 | |
Commitments and Contingent Liabilities (Note 23) | — | | | — | |
| | | |
SHAREHOLDERS’ EQUITY | | | |
Preferred stock - $0.001 par value; 20,000,000 shares authorized, no shares issued or outstanding | — | | | — | |
Common stock - $0.001 par value; 500,000,000 shares authorized; 60,557,801 shares issued and outstanding as of September 30, 2024, and 60,321,813 shares issued and outstanding as of March 31, 2024, respectively | 61 | | | 60 | |
Additional paid in capital | 209,249 | | | 183,788 | |
Retained earnings | 1,147,798 | | | 998,740 | |
Accumulated other comprehensive loss | (96,869) | | | (18,938) | |
TOTAL FRHC SHAREHOLDERS’ EQUITY | $ | 1,260,239 | | | $ | 1,163,650 | |
| | | |
Non-controlling interest | 2,997 | | | 3,308 | |
TOTAL SHAREHOLDERS’ EQUITY | $ | 1,263,236 | | | $ | 1,166,958 | |
| | | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 8,816,255 | | | $ | 8,301,930 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
| | |
FREEDOM HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE INCOME (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Six Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
Revenue: | | | | | | | |
Fee and commission income (including for the three months ended $837 and $20,022, for the six months ended $1,703 and $35,917 from related parties) | $ | 121,051 | | | $ | 111,703 | | | $ | 236,540 | | | $ | 210,406 | |
Net gain on trading securities | 68,317 | | | 50,771 | | | 16,215 | | | 82,587 | |
Interest income (including for the three months ended $375 and $9,731, for the six months ended $644 and $15,084 from related parties) | 210,324 | | | 213,063 | | | 436,328 | | | 362,412 | |
Insurance underwriting income | 160,344 | | | 57,976 | | | 289,752 | | | 102,865 | |
Net gain/(loss) on foreign exchange operations | 6,479 | | | (3,696) | | | 14,568 | | | 15,605 | |
Net gain/(loss) on derivative | 6,308 | | | 1,378 | | | 18,802 | | | (29,227) | |
Other income | 8,077 | | | 4,386 | | | 19,410 | | | 7,143 | |
TOTAL REVENUE, NET | $ | 580,900 | | | $ | 435,581 | | | $ | 1,031,615 | | | $ | 751,791 | |
| | | | | | | |
Expense: | | | | | | | |
Fee and commission expense | $ | 90,837 | | | $ | 31,614 | | | $ | 170,984 | | | $ | 60,298 | |
Interest expense | 124,665 | | | 139,381 | | | 270,383 | | | 234,427 | |
Insurance claims incurred, net of reinsurance | 66,684 | | | 33,988 | | | 113,993 | | | 55,502 | |
Payroll and bonuses | 66,210 | | | 39,998 | | | 123,734 | | | 71,628 | |
Professional services | 8,245 | | | 11,951 | | | 15,513 | | | 18,576 | |
Stock compensation expense | 12,056 | | | 1,031 | | | 22,671 | | | 2,264 | |
Advertising expense | 20,049 | | | 8,639 | | | 37,250 | | | 16,739 | |
General and administrative expense (including for the three months ended $6,247 and $5,229, for the six months ended $8,971 and $7,561 from related parties) | 53,240 | | | 29,630 | | | 98,345 | | | 54,105 | |
Provision for allowance for expected credit losses | 10,427 | | | 4,662 | | | 8,657 | | | 18,988 | |
TOTAL EXPENSE | $ | 452,413 | | | $ | 300,894 | | | $ | 861,530 | | | $ | 532,527 | |
| | | | | | | |
INCOME BEFORE INCOME TAX | 128,487 | | | 134,687 | | | 170,085 | | | 219,264 | |
| | | | | | | |
Income tax expense | (13,999) | | | (19,208) | | | (21,338) | | | (35,864) | |
| | | | | | | |
NET INCOME | $ | 114,488 | | | $ | 115,479 | | | $ | 148,747 | | | $ | 183,400 | |
| | | | | | | |
Less: Net loss attributable to non-controlling interest in subsidiary | (170) | | | (368) | | | (311) | | | (549) | |
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 114,658 | | | $ | 115,847 | | | $ | 149,058 | | | $ | 183,949 | |
| | | | | | | |
OTHER COMPREHENSIVE INCOME | | | | | | | |
Change in unrealized gain on investments available-for-sale, net of tax effect | 4,306 | | | 2,168 | | | 7,680 | | | 4,407 | |
Reclassification adjustment for net realized (gain)/loss on available-for-sale investments disposed of in the period, net of tax effect | 185 | | | (306) | | | 167 | | | (1,264) | |
Foreign currency translation adjustments | (19,967) | | | (29,933) | | | (85,778) | | | (31,693) | |
OTHER COMPREHENSIVE LOSS | (15,476) | | | (28,071) | | | (77,931) | | | (28,550) | |
| | | | | | | |
COMPREHENSIVE INCOME BEFORE NON-CONTROLLING INTERESTS | $ | 99,012 | | | $ | 87,408 | | | $ | 70,816 | | | $ | 154,850 | |
| | | | | | | |
| | |
FREEDOM HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND STATEMENTS OF OTHER COMPREHENSIVE INCOME (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | | | | | | | | | | | | | |
Less: Comprehensive loss attributable to non-controlling interest in subsidiary | (170) | | | (368) | | | (311) | | | (549) | |
| | | | | | | |
COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | 99,182 | | | $ | 87,776 | | | $ | 71,127 | | | $ | 155,399 | |
| | | | | | | |
EARNINGS PER COMMON SHARE (In U.S. dollars): | | | | | | | |
Earnings per common share - basic | 1.93 | | | 1.97 | | | 2.51 | | | 3.13 | |
Earnings per common share - diluted | 1.89 | | | 1.95 | | | 2.46 | | | 3.09 | |
| | | | | | | |
Weighted average number of shares (basic) | 59,363,122 | | | 58,581,332 | | | 59,310,891 | | | 58,546,963 | |
Weighted average number of shares (diluted) | 60,460,173 | | | 59,291,832 | | | 60,358,442 | | | 59,292,757 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | |
FREEDOM HOLDING CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | | | | |
| For the Six Months Ended September 30, | | | |
| 2024 | | 2023 | | | |
| | | | | | |
Cash Flows From Operating Activities | | | | | | |
Net income | $ | 148,747 | | | $ | 183,400 | | | | |
Adjustments to reconcile net income used in operating activities: | | | | | | |
Depreciation and amortization | 8,065 | | | 6,611 | | | | |
Amortization of deferred acquisition costs | 107,266 | | | 12,161 | | | | |
Noncash lease expense | 6,196 | | | 4,023 | | | | |
Change in deferred taxes | (3,623) | | | 3,312 | | | | |
Stock compensation expense | 22,671 | | | 2,264 | | | | |
Unrealized gain on trading securities | (974) | | | (30,664) | | | | |
Unrealized gain on derivatives | (4,053) | | | (434) | | | | |
Net realized loss/(gain) on available-for-sale securities | 167 | | | (1,264) | | | | |
Net change in accrued interest | 12,558 | | | (68,173) | | | | |
Revaluation of purchase price of previously held interest in Arbuz | — | | | (1,040) | | | | |
Gain from sale of ITS tech | (4,201) | | | — | | | | |
Change in insurance reserves | 93,241 | | | 38,032 | | | | |
Revaluation of investments in associates | (1,960) | | | — | | | | |
Change in unused vacation reserves | 474 | | | 1,800 | | | | |
Provision for allowance for expected credit losses | 8,657 | | | 18,988 | | | | |
Changes in operating assets and liabilities: | | | | | | |
Trading securities | (187,941) | | | (1,264,940) | | | | |
Margin lending, brokerage and other receivables (including $(140,027) and $294,985 changes from related parties) | 3,584 | | | (656,755) | | | | |
Insurance contract assets | (6,085) | | | 3,412 | | | | |
Other assets | (160,073) | | | (30,959) | | | | |
Brokerage customer liabilities (including $(147,480) and $(130,210) changes from related parties) | 916,550 | | | 354,720 | | | | |
Current income tax liability | (5,152) | | | 17,947 | | | | |
Margin lending and trade payables (including $(485) and $(3,239) changes from related parties) | (549,368) | | | 39,701 | | | | |
Lease liabilities | (5,227) | | | (4,728) | | | | |
Liabilities from insurance activity | 2,608 | | | (262) | | | | |
Other liabilities | 13,945 | | | 21,159 | | | | |
Net cash flows from/(used in) operating activities | 416,072 | | | (1,351,689) | | | | |
| | | | | | |
Cash Flows Used In Investing Activities | | | | | | |
Purchase of fixed assets | (33,641) | | | (19,446) | | | | |
Net change in loans issued to customers | (95,076) | | | (443,901) | | | | |
Purchase of available-for-sale securities, at fair value | (144,767) | | | (134,002) | | | | |
Proceeds from sale of available-for-sale securities, at fair value | 69,849 | | | 174,277 | | | | |
Consideration paid for Arbuz | — | | | (13,281) | | | | |
Consideration paid for Internet Tourism | — | | | (31) | | | | |
Consideration paid for Aviata | — | | | (690) | | | | |
Consideration paid for Ticketon | — | | | (3,003) | | | | |
Cash, cash equivalents and restricted cash disposed as a result of deconsolidation of Freedom UA | — | | | (1,987) | | | | |
Cash, cash equivalents and restricted cash received from acquisitions | — | | | 2,461 | | | | |
Cash received from sale of ITS Tech | 2,000 | | | — | | | | |
Capital contribution to investment in associate | (2,479) | | | — | | | | |
Cash, cash equivalents disposed from sale of ITS Tech | (542) | | | — | | | | |
| | |
FREEDOM HOLDING CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
| | | | | | | | | | | | | | |
Consideration paid to SilkNetCom | (11,183) | | | — | | | | |
Cash received at acquisition of SilkNetCom | 54 | | | — | | | | |
Prepayment on acquisitions | (7,652) | | | (10,550) | | | | |
| | | | | | | | | | | |
Net cash flows used in investing activities | (223,437) | | | (450,153) | |
| | | |
Cash Flows From Financing Activities | | | |
Net proceeds from securities repurchase agreement obligations | 30,269 | | | 1,367,948 | |
Proceeds from issuance of debt securities | — | | | 5,801 | |
Repurchase of mortgage loans under the State Program | (26,771) | | | (19,526) | |
Funds received under state program for financing of mortgage loans | 40,793 | | | 53,400 | |
Net change in bank customer deposits | 308,669 | | | 279,939 | |
Purchase of non-controlling interest in Arbuz | — | | | (3,228) | |
Net proceeds from loans received | 17,355 | | | 410 | |
| | | |
Net cash flows from financing activities | 370,315 | | | 1,684,744 | |
Effect of changes in foreign exchange rates on cash and cash equivalents | (106,027) | | | (59,098) | |
Effect of expected credit losses on cash and cash equivalents and restricted cash | 186 | | | — | |
| | | |
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 457,109 | | | (176,196) | |
| | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 1,007,721 | | | 1,026,945 | |
| | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 1,464,830 | | | $ | 850,749 | |
| | | | | | | | | | | |
| For The Six Months Ended September 30, |
| 2024 | | 2023 |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 252,860 | | | $ | 220,299 | |
Income tax paid | $ | 30,312 | | | $ | 13,484 | |
| | | |
Supplemental non-cash disclosures: | | | |
Operating lease right-of-use assets obtained/disposed of in exchange for operating lease obligations during the period, net | $ | (218) | | | $ | 3,771 | |
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
| September 30, 2024 | | September 30, 2023 |
| | | |
Cash and cash equivalents | $ | 569,179 | | | $ | 463,875 | |
Restricted cash | 895,651 | | | 386,874 | |
Total cash, cash equivalents and restricted cash shown as in the statement of cash flows | $ | 1,464,830 | | | $ | 850,749 | |
| | |
FREEDOM HOLDING CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands of United States dollars, unless otherwise stated) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | |
FREEDOM HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional paid in capital | | Retained earnings | | Accumulated other comprehensive loss | | Total equity attributable to the shareholders' | | Non- controlling interest | | Total |
| Shares | | Amount | | | | | | |
| | | | | | | | | | | | | | | |
At June 30, 2024 | 60,721,010 | | | $ | 60 | | | $ | 197,205 | | | $ | 1,033,140 | | | $ | (81,393) | | | $ | 1,149,012 | | | $ | 3,167 | | | $ | 1,152,179 | |
| | | | | | | | | | | | | | | |
Delivered stock based compensation from previous quarter | 3,648 | | | — | | | 290 | | | — | | | — | | | 290 | | | — | | | 290 | |
Forfeited stock based compensation | (310,700) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Undelivered stock based compensation | (12,816) | | | — | | | (302) | | | — | | | — | | | (302) | | | — | | | (302) | |
Stock based compensation | 156,659 | | | 1 | | | 12,056 | | | — | | | — | | | 12,057 | | | — | | | 12,057 | |
Foreign currency translation adjustments, net of tax effect | — | | | — | | | — | | | — | | | (19,967) | | | (19,967) | | | — | | | (19,967) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 4,491 | | | 4,491 | | | — | | | 4,491 | |
Net income/(loss) | — | | | — | | | — | | | 114,658 | | | — | | | 114,658 | | | (170) | | | 114,488 | |
| | | | | | | | | | | | | | | |
At September 30, 2024 | 60,557,801 | | | $ | 61 | | | 209,249 | | | $ | 1,147,798 | | | (96,869) | | 0 | $ | 1,260,239 | | 0 | 2,997 | | 0 | $ | 1,263,236 | |
| | | | | | | | | | | | | | | |
At March 31, 2024 | 60,321,813 | | | $ | 60 | | | $ | 183,788 | | | $ | 998,740 | | | $ | (18,938) | | | $ | 1,163,650 | | | $ | 3,308 | | | $ | 1,166,958 | |
| | | | | | | | | | | | | | | |
Delivered stock based compensation from previous year | 215,878 | | | — | | | 3,092 | | | — | | | — | | | 3,092 | | | — | | | 3,092 | |
Forfeited stock based compensation | (310,700) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Undelivered stock based compensation | (12,816) | | | — | | | (302) | | | — | | | — | | | (302) | | | — | | | (302) | |
Stock based compensation | 343,626 | | | 1 | | | 22,671 | | | — | | | — | | | 22,672 | | | — | | | 22,672 | |
Foreign currency translation adjustments, net of tax effect | — | | | — | | | — | | | — | | | (85,778) | | | (85,778) | | | — | | | (85,778) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 7,847 | | | 7,847 | | | — | | | 7,847 | |
Net income/(loss) | — | | | — | | | — | | | 149,058 | | | — | | | 149,058 | | | (311) | | | 148,747 | |
| | | | | | | | | | | | | | | |
At September 30, 2024 | 60,557,801 | | | $ | 61 | | | $ | 209,249 | | | $ | 1,147,798 | | | $ | (96,869) | | | $ | 1,260,239 | | | $ | 2,997 | | | $ | 1,263,236 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| | |
FREEDOM HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional paid in capital | | Retained earnings | | Accumulated other comprehensive loss | | Total equity attributable to the shareholders' | | Non- controlling interest | | Total |
| Shares | | Amount | | | | | | |
| | | | | | | | | | | | | | | |
At June 30, 2023 | 59,659,191 | | | $ | 59 | | | $ | 165,395 | | | $ | 691,302 | | | $ | (34,479) | | | $ | 822,277 | | | $ | 3,459 | | | $ | 825,736 | |
| | | | | | | | | | | | | | | |
Stock based compensation | — | | | — | | | 1,031 | | | — | | | — | | | 1,031 | | | — | | | 1,031 | |
Purchase of ReKassa shares | — | | | — | | | — | | | — | | | — | | | — | | | 256 | | | 256 | |
Foreign currency translation adjustments, net of tax effect | — | | | — | | | — | | | — | | | (29,933) | | | (29,933) | | | — | | | (29,933) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 1,862 | | | 1,862 | | | — | | | 1,862 | |
Net income/(loss) | — | | | — | | | — | | | 115,847 | | | — | | | 115,847 | | | (368) | | | 115,479 | |
| | | | | | | | | | | | | | | |
At September 30, 2023 | 59,659,191 | | | $ | 59 | | | $ | 166,426 | | | $ | 807,149 | | | $ | (62,550) | | 0 | $ | 911,084 | | 0 | $ | 3,347 | | 0 | $ | 914,431 | |
| | | | | | | | | | | | | | | |
At March 31, 2023 | 59,659,191 | | | $ | 59 | | | $ | 164,162 | | | $ | 647,064 | | | $ | (34,000) | | | $ | 777,285 | | | $ | (6,549) | | | $ | 770,736 | |
| | | | | | | | | | | | | | | |
Cumulative adjustment from adoption of ASC 326 | — | | | — | | | — | | | (22,772) | | | — | | | (22,772) | | | — | | | (22,772) | |
Stock based compensation | — | | | — | | | 2,264 | | | — | | | — | | | 2,264 | | | — | | | 2,264 | |
Disposal of FF Ukraine | — | | | — | | | — | | | (6,549) | | | — | | | (6,549) | | | 6,549 | | | — | |
Purchase of Arbuz shares | — | | | — | | | — | | | 5,457 | | | — | | | 5,457 | | | 3,640 | | | 9,097 | |
Purchase of ReKassa shares | — | | | — | | | — | | | — | | | — | | | — | | | 256 | | | 256 | |
Foreign currency translation adjustments, net of tax effect | — | | | — | | | — | | | — | | | (31,693) | | | (31,693) | | | — | | | (31,693) | |
Other comprehensive income | — | | | — | | | — | | | — | | | 3,143 | | | 3,143 | | | — | | | 3,143 | |
Net income/(loss) | — | | | — | | | — | | | 183,949 | | | — | | | 183,949 | | | (549) | | | 183,400 | |
| | | | | | | | | | | | | | | |
At September 30, 2023 | 59,659,191 | | | $ | 59 | | | $ | 166,426 | | | $ | 807,149 | | | $ | (62,550) | | | $ | 911,084 | | | $ | 3,347 | | | $ | 914,431 | |
| | |
FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
NOTE 1 – DESCRIPTION OF BUSINESS
Overview
Freedom Holding Corp. (the "Company" or "FRHC" and, together with its subsidiaries, the "Group") is a corporation organized in the United States under the laws of the State of Nevada that through its operating subsidiaries provides securities brokerage, securities dealing for customers and for its own account, market making activities, investment research, investment counseling, investment banking services, retail and commercial banking, insurance products, payment services, and information processing services. The Company also owns several ancillary businesses which complement its core financial services businesses, including telecommunications and media businesses in Kazakhstan that are in a developmental stage. The Company is the holding company of subsidiaries incorporated in Kazakhstan, Cyprus, the United States, the United Kingdom, Armenia, the United Arab Emirates, Uzbekistan, Kyrgyzstan, Tajikistan, Azerbaijan, and Turkey, and the Group also has a presence in Austria, Belgium, Bulgaria, France, Germany, Greece, Italy, Lithuania, The Netherlands, Poland and Spain. The Company's subsidiaries in the United States include a broker-dealer that is registered with the United States Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA"). The Company's common stock trades on the Nasdaq Capital Market, the Kazakhstan Stock Exchange ("KASE"), and the Astana International Exchange ("AIX").
As of September 30, 2024, the Company owned, directly or indirectly, the following companies:
| | |
FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
| | | | | | | | | | | | | | | | | |
Name of subsidiary | | Jurisdiction of Incorporation | | Number of subsidiaries | Business Area |
Brokerage Segment | | | | | |
Freedom Finance JSC ("Freedom KZ") | | Kazakhstan | | 3 | Securities broker-dealer |
Freedom Finance Global PLC ("Freedom Global") | | Kazakhstan | | — | Securities broker-dealer |
Freedom Finance Europe Limited ("Freedom EU") | | Cyprus | | 2 | Securities broker-dealer |
Freedom Finance Armenia LLC ("Freedom AR") | | Armenia | | — | Securities broker-dealer |
Prime Executions, Inc. ("PrimeEx") | | USA | | — | Securities broker-dealer |
Foreign Enterprise LLC Freedom Finance | | Uzbekistan | | — | Securities broker-dealer |
Freedom Broker LLC | | Kyrgyzstan | | — | Securities broker-dealer |
Banking Segment | | | | | |
Freedom Bank Kazakhstan JSC ("Freedom Bank KZ") | | Kazakhstan | | 2 | Commercial bank |
Insurance Segment | | | | | |
Freedom Finance Life JSC ("Freedom Life") | | Kazakhstan | | — | Life/health insurance |
Freedom Finance Insurance JSC ("Freedom Insurance") | | Kazakhstan | | — | General insurance |
Other Segment | | | | | |
Ticketon Events LLP ("Ticketon") | | Kazakhstan | | 3 | Online ticket sales |
Freedom Finance Special Purpose Company LTD ("Freedom SPC") | | Kazakhstan | | — | Issuance of debt securities |
Freedom Finance Commercial LLP | | Kazakhstan | | — | Sales consulting |
Freedom Technologies LLP ("Paybox") | | Kazakhstan | | 5 | Payment services |
Aviata LLP ("Aviata") | | Kazakhstan | | — | Online travel ticket aggregator |
Internet-Tourism LLP ("Internet Tourism") | | Kazakhstan | | — | Online travel ticket aggregator |
Arbuz Group LLP ("Arbuz") | | Kazakhstan | | 4 | Online retail trade and e-commerce |
Comrun LLP ("ReKassa") | | Kazakhstan | | — | Mobile and web application |
Freedom Telecom Holding Limited ("Freedom Telecom") | | Kazakhstan | | 4 | Telecommunications |
Freedom Kazakhstan PC Ltd | | Kazakhstan | | 8 | Holding company |
Freedom Advertising Ltd | | Kazakhstan | | — | Advertising |
Freedom Shapagat Corporate Fund | | Kazakhstan | | — | Non-profit |
FRHC Fractional SPC LTD | | Kazakhstan | | — | Issuance of debt securities |
Freedom Holding Operations LLP | | Kazakhstan | | — | Human resources |
Freedom Horizons LLP | | Kazakhstan | | — | Business consulting and services |
Freedom Finance Azerbaijan LLC | | Azerbaijan | | — | Financial educational center |
Freedom Finance FZE. | | UAE | | — | Consulting |
Freedom Management Ltd. | | UAE | | — | Consulting |
Freedom Finance Turkey LLC | | Turkey | | — | Financial consulting |
Freedom Finance Technologies Ltd | | Cyprus | | — | IT development |
Freedom Prime UK Limited ("Prime UK") | | UK | | — | Management consulting |
Freedom Structured Products PLC | | Cyprus | | — | Financial services |
FFIN Securities, Inc. | | USA | | — | Dormant |
Freedom U.S. Market LLC | | USA | | 2 | Management company |
LD Micro ("LD Micro") | | USA | | — | Event platform |
Freedom US Technologies LLC | | USA | | — | Technology services |
| | |
FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
Through its subsidiaries, the Company offers a diverse range of financial services, including banking, brokerage, and insurance, as well as lifestyle services such as online payments, travel, ticketing, e-commerce, and telecommunications and media businesses in Kazakhstan that are in a developmental stage. It operates as a professional participant in the financial markets, holding banking and insurance licenses, as well as licenses to provide various services across multiple stock exchanges, including the Kazakhstan Stock Exchange (KASE), the Astana International Exchange (AIX), the Republican Stock Exchange of Tashkent (UZSE), and the Uzbek Republican Currency Exchange (UZCE). Additionally, it is a member of the New York Stock Exchange (NYSE) and the Nasdaq Stock Exchange (Nasdaq). Freedom EU enhances the Company's offerings by providing clients with operational support and access to investment opportunities in the United States and European securities markets.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting principles
The Group's accounting policies and accompanying consolidated financial statements conform to accounting principles generally accepted in the United States of America (U.S. GAAP).
Basis of presentation and principles of consolidation
The consolidated financial statements present the consolidated accounts of FRHC and its consolidated subsidiaries. All inter-company balances and transactions have been eliminated from the consolidated financial statements.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in the Company’s 2024 Annual Report on Form 10-K. Note 2 to the consolidated financial statements in Company’s 2024 Annual Report on Form 10-K contains a summary of all of the Company’s significant accounting policies, except for the following amendments:
Non-Consolidation of Freedom Securities Trading Inc.
Freedom Securities Trading Inc. (formerly known as FFIN Brokerage Services, Inc.) ("FST Belize") is a company that is outside of the Group which has been solely owned by Mr. Turlov since July 2014. The Company does not consolidate FST Belize under either of the primary consolidation methods - the variable interest entity (“VIE”) accounting method and the voting interest method ("VOE") because (i) FST Belize is not a VIE due to the fact it has sufficient equity at risk to finance its activities without additional financial support and the control over its significant activities is held by its sole shareholder, Mr. Turlov, and (ii) Mr. Turlov has a controlling interest in FST Belize such that under the VOE model FRHC is not required to consolidate FST Belize. Other than Mr. Turlov, there are no other shareholders of FST Belize or parties with participating rights or the ability to remove Mr. Turlov from his ownership position in or to make all decisions in respect of FST Belize. While prior to the end of the Company's fiscal year ended March 31, 2024 we had an omnibus brokerage relationship with FST Belize, such relationship had been terminated as of March 31, 2024.
Deconsolidation of Freedom Finance Ukraine LLC
As at September 30, 2024, the Company owned a 9% interest in Freedom Finance Ukraine LLC ("Freedom UA"), a Kyiv, Ukraine-based broker-dealer. The remaining 91% interest in Freedom UA is controlled by Askar Tashtitov, the Company's president. The Company entered into a series of contractual arrangements with Freedom UA and Mr. Tashtitov, including a consulting services agreement, an operating agreement and an option agreement. Through March 31, 2023, the Company had consolidated Freedom UA into the financial statements of the Company. On October 19, 2022, Freedom UA was added to the Ukrainian government's sanctioned entities list, resulting in suspension of its brokerage license. Given the ongoing uncertainty surrounding the situation in Ukraine and based on the Company's management's belief that the Company does not maintain effective control over Freedom UA, the Company has accounted for the deconsolidation of Freedom UA since April 1, 2023 (the date of loss of control).
Concentrations of Revenue
Revenues from one customer of the Group’s Brokerage segment represented the following amount of the Group’s consolidated revenues:
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FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 | | Three Months Ended September 30, 2023 | | Six Months Ended September 30, 2024 | | Six Months Ended September 30, 2023 |
Single non-related party | $ | 79,011 | | | $ | 69,882 | | | $ | 163,284 | | | $ | 104,956 | |
Impairment of Goodwill
Goodwill is allocated to reporting units, which are identified as the operating segments or one level below operating segments that generate separate financial information, which is regularly reviewed by management. The assignment of goodwill to reporting units allows for the assessment of potential impairment at the appropriate level within the organization.
The Company has identified its reporting units based on its organizational and operational structure, as well as the level at which internal financial information is reviewed by management to make strategic decisions. In line with this, four major reporting units have been established: brokerage, banking. insurance and other. The management team responsible for each business reviews financial information related to this reporting unit, including revenue, expenses, and market trends.
Goodwill has been allocated to each reporting unit based on its relative fair value at the time of acquisition or significant triggering events. The fair value allocation of goodwill to reporting units is periodically reassessed to ensure alignment with the Group's evolving organizational structure and operational dynamics.
Further details regarding the measurement of goodwill impairment and the results of impairment tests for each reporting unit are provided below.
The Company discloses information about its reporting units, the carrying amounts of goodwill allocated to each reporting unit, and the impairment losses recognized. The allocation of goodwill to reporting units ensures a focused evaluation of each unit's financial performance and facilitates the identification of potential impairment, enhancing the transparency and reliability of the Company's financial reporting.
As of September 30, 2024 and March 31, 2024, goodwill recorded in the Company's Condensed Consolidated Balance Sheets totaled $53,166 and $52,648 respectively. The Company performs an impairment review at least annually unless indicators of impairment exist in interim periods. The entity compares the fair value of a reporting unit with its carrying amount. The goodwill impairment charge is recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. If fair value exceeds the carrying amount, no impairment is recorded.
The amount of goodwill at September 30, 2024 increased compared to March 31, 2024, as a result of the acquisition of 100% SilkNetCom LLP by Freedom Telecom Holding, which occurred after March 31, 2024. See Note 22 Acquisitions of subsidiaries to the condensed consolidated financial statements included in this quarterly report on Form 10-Q.
The changes in the carrying amount of goodwill for three months ended September 30, 2024 and 2023, were as follows:
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| Brokerage | | Bank | | Insurance | | Other | | Total |
Goodwill, gross | | | | | | | | | |
Balance as of March 31, 2023 | $ | 2,677 | | | $ | 2,652 | | | $ | 980 | | | $ | 8,715 | | | $ | 15,024 | |
Write-off due to deconsolidation of Freedom UA | — | | | — | | | — | | | (832) | | | (832) | |
Foreign currency translation difference | (50) | | | 93 | | | — | | | — | | | 43 | |
Acquired | — | | | — | | | — | | | 37,320 | | | 37,320 | |
Balance as of September 30, 2023 | $ | 2,627 | | | $ | 2,745 | | | $ | 980 | | | $ | 45,203 | | | $ | 51,555 | |
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FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of March 31, 2024 | $ | 2,688 | | | $ | 2,746 | | | $ | 1,040 | | | $ | 46,174 | | | $ | 52,648 | |
Forex | (75) | | | (6) | | | (75) | | | (2,703) | | | (2,859) | |
Acquired | — | | | — | | | — | | | 3,377 | | | 3,377 | |
Balance as of September 30, 2024 | $ | 2,613 | | | $ | 2,740 | | | $ | 965 | | | $ | 46,848 | | | $ | 53,166 | |
| | | | | | | | | |
Accumulated impairment | | | | | | | | | |
Balance as of March 31, 2023 | $ | — | | | $ | — | | | $ | — | | | $ | 832 | | | $ | 832 | |
Impairment expense | — | | | — | | | — | | | — | | | — | |
Write-off due to deconsolidation of Freedom UA | — | | | — | | | — | | | (832) | | | (832) | |
Balance as of September 30, 2023 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | |
Balance as of March 31, 2024 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Impairment expense | — | | | — | | | — | | | — | | | — | |
Balance as of September 30, 2024 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | |
Goodwill, net of impairment | | | | | | | | | |
Balance as of September 30, 2023 | $ | 2,627 | | | $ | 2,745 | | | $ | 980 | | | $ | 45,203 | | | $ | 51,555 | |
Balance as of March 31, 2024 | $ | 2,688 | | | $ | 2,746 | | | $ | 1,040 | | | $ | 46,174 | | | $ | 52,648 | |
Balance as of September 30, 2024 | $ | 2,613 | | | $ | 2,740 | | | $ | 965 | | | $ | 46,848 | | | $ | 53,166 | |
Recent accounting pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, as clarified and amended by (i) ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date, and (ii) ASU 2020-11, Financial Services - Insurance (Topic 944): Effective Date and Early Application (collectively referred to herein as ASU 2018-12). ASU 2018-12 changed existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts. ASU 2018-12 includes: (1) a requirement to review and, if there is a change, update cash flow assumptions used to measure the liability for future policy benefits (LFPB) at least annually, and to update the discount rate assumption quarterly, (2) a requirement to account for market risk benefits (MRBs) at fair value, (3) simplified amortization for deferred policy acquisition costs (DAC), and (4) enhanced financial statement presentation and disclosures. For the Company, the Update is effective for fiscal years beginning after December 15, 2024, or interim periods after December 15, 2025. The Company will adopt ASU 2018-12 effective April 1, 2025 using the modified retrospective transition method where permitted. ASU 2018-12 will impact the accounting and disclosure requirements for all long-duration contracts issued by the Company. The Company expects the standard to have an immaterial financial impact on its consolidated financial statements and related disclosures.
In March 2023, the FASB issued ASU 2023-02, “Investments-Equity method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years and early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-02 will have on its consolidated financial statements and related disclosures.
In August 2023, the Financial Accounting Standards Board issued ASU 2023-05, Business Combinations - Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, which clarifies the business combination accounting for joint venture formations. The amendments in ASU 2023-25 seek to reduce diversity in practice that has resulted from a lack of authoritative guidance regarding the accounting for the formation of joint ventures in separate financial statements. The amendments also seek to clarify the initial measurement of joint venture net assets, including businesses contributed to a joint venture. The guidance is applicable to all entities involved in the formation of a joint venture. The amendments are
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FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
effective for all joint venture formations with a formation date on or after January 1, 2025. Early adoption and retrospective application of the amendments are permitted. The Company is currently evaluating the impact ASU 2023-05 will have on its consolidated financial statements and related disclosures.
In October 2023, the FASB issued Accounting Standards Update No. 2023-06 (“ASU 2023-06”), Disclosure Improvements - Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. ASU 2023-06 modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then ASU 2023-06 will not become effective. Early adoption is prohibited. While the Company is currently evaluating the effect that implementation of this update will have on its consolidated financial statements, no material impact is anticipated.
In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reporting requirements under Topic 280. The enhanced disclosure requirements include title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances. This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. This change will apply retrospectively to all periods presented. The Company is currently evaluating the impact ASU No 2023-07 will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets. The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. ASU No. 2023-08 requires a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of the beginning of the annual reporting period in which an entity adopts the amendments. The Company is currently evaluating the impact ASU No 2023-08 will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which would require additional transparency for income tax disclosures, including the income tax rate reconciliation table and cash taxes paid both in the United States and foreign jurisdictions. This standard is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact ASU No 2023-09 will have on its consolidated financial statements and related disclosures.
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards. This standard provides clarity regarding whether profits interest and similar awards are within the scope of Topic 718 of the Accounting Standards Codification. This standard is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact ASU No 2024-01 will have on its consolidated financial statements and related disclosures.
In March 2024, the FASB issued ASU No. 2024-02, “Codification Improvements - Amendments to Remove References to the Concepts Statements.” ASU 2024-02 removes references to various FASB Concepts Statements within the Codification. The guidance in ASU No. 2024-02 is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, and can be applied either prospectively to all new transactions recognized on or after the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. Early adoption is permitted. The Company is currently evaluating the impact ASU No 2024-02 will have on its consolidated financial statements and related disclosures.
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FREEDOM HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (All amounts in thousands of United States dollars, except share data, unless otherwise stated) |
NOTE 3 – CASH AND CASH EQUIVALENTS
As of September 30, 2024, and March 31, 2024, cash and cash equivalents consisted of the following:
| | | | | | | | | | | |
| September 30, 2024 | | March 31, 2024 |
| | | |
Short term deposits in National Bank (Kazakhstan) | $ | 185,925 | | | $ | 196,942 | |
Short term deposits in commercial banks | 166,829 | | | 127,051 | |
Securities purchased under reverse repurchase agreements | 121,493 | | | 134,961 | |
Petty cash in bank vault and on hand | 43,375 | | | 22,613 | |
Overnight deposits | 28,295 | | | 3,557 | |
Short term deposits on brokerage accounts | 9,459 | | | 2,917 | |
Cash in transit | 8,574 | | | 9,633 | |
Short term deposits in stock exchanges | 5,071 | | | 47,830 | |
Short term deposits in the Central Depository (Kazakhstan) | 451 | | | 42 | |
Allowance for Cash and cash equivalents | (293) | | | ( |