Brown Advisory US - Annual Financial Report
18/09/2023 07:00
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RNS Number : 6824M Brown Advisory US Smaller Cos. PLC 18 September 2023
Brown Advisory US Smaller Companies PLC (the 'Company')
Legal Entity Identifier: 549300HKKL9K1NY4TW55
Annual Financial Results for the year ended 30 June 2023
Financial Highlights for the year ended 30 June 2023
Ordinary Share Performance
30 June 30 June
2023 2022 % change
Net asset value (pence) 1,431.9 1,303.9 +9.8
Closing price (pence) 1,220.0 1,105.0 +10.4
Russell 2000 Index (sterling adjusted) 7,860.0 7,308.5 +7.5
Discount to net asset value (%) (14.8) (15.3) -
Ongoing charges ratio (%) 1.00 0.97 -
Ten year record
Year ended 30 June Net assets Net asset value per Ordinary share Year-on-year change in net asset value per Ordinary share Year-on-year change in benchmark index
£'000 p % %
2014 164,957 686.3 +11.0 +9.8
2015 174,033 724.1 +5.5 +15.8
2016 174,163 787.3 +8.7 +9.7
2017 181,687 911.1 +15.7 +28.2
2018 163,339 1,103.4 +21.1 +15.7
2019 161,520 1,152.7 +4.5 +0.3
2020 145,011 1,116.3 -3.2 -3.8
2021 181,426 1,516.3 +35.8 +45.1
2022 155,840 1,303.9 -14.0 -15.2
2023 171,147 1,431.9 +9.8 +7.5
Contact:
Brown Advisory US Smaller Companies InvestmentTrustEnquiries@brownadvisory.com
(mailto:InvestmentTrustEnquiries@brownadvisory.com)
Chris Berrier, Portfolio Manager
+44 203 301 8130
FundRock Partners Limited, Company Secretary ukfundscosec@apexfs.com
Inderpreet Kaur Bedi +44 (0) 7766 081 197
TB Cardew, Financial PR to BASC brownadvisory@tbcardew.com (mailto:brownadvisory@tbcardew.com)
Tom Allison 07789 998020
Tania Wild 07425 536903
Henry Crane 07918 207517
Introduction to Brown Advisory US Smaller Companies PLC
What does Brown Advisory US Smaller Companies PLC (the "Company") do?
The Company aims to achieve long-term capital growth by investing in a
diversified portfolio of quoted US smaller and medium-sized companies.
Who is it suitable for?
Brown Advisory manages the Company's portfolio on behalf of individual
investors and wealth managers. The Company provides a cost-effective way to
access the large, entrepreneurial group of smaller companies in the world's
largest economy - the United States of America. For individuals who are
willing to invest over the long-term, these companies often outperform their
large-cap peers so make for a compelling investment opportunity.
How is Brown Advisory US Smaller Companies invested?
Managed by Chris Berrier and George Sakellaris, CFA, of the US-based
investment manager, Brown Advisory, the Company focuses on businesses with
strong growth potential, scalable go-to-market strategies and well-aligned
management and shareholder interests. The resulting portfolio is diversified
across sectors, business models and economic cycles.
The power of compounding - the managers recognise the potential of compounding
in order to achieve long-term, risk-adjusted returns. Therefore, they seek to
invest in companies that present above average capital growth rates.
Harnessing their local knowledge and innovative research approach, they aim to
capitalise on market inefficiencies in valuations and invest in businesses
that exhibit what they refer to as "3G" qualities.
Out of a universe of over 2,000 companies, this process reduces the available
market to around 500 companies, while the portfolio itself is typically made
up of 70-80 of these companies.
Benchmark agnostic - while the Company's performance is measured against the
sterling adjusted Russell 2000 Total Return Index, the managers are not
beholden to this benchmark - individual sector and security weightings are
driven by their rigorous stock selection process.
Why invest in US smaller companies?
· US-based smaller companies include an exciting and dynamic group
of growing businesses that typically demonstrate high innovation and strong
entrepreneurial cultures.
· Over half of global smaller companies - more than 2,000 companies
- are listed in the US, creating a huge opportunity.
· US smaller companies offer a deep and liquid market but are
typically not as well covered by sell-side research analysts as their larger
counterparts, creating inefficiencies and missed opportunities that Brown
Advisory aims to exploit.
· A US stock market listing means there are high governance hurdles
relative to some of their global peers, considerably reducing the risk profile
of US smaller companies.
Why have the directors of Brown Advisory US Smaller Companies PLC appointed
Brown Advisory as the Portfolio Manager?
Chris Berrier and George Sakellaris, CFA, the portfolio leads between them
have more than 44 years' experience investing in US small and mid-caps and are
supported by a large team of fundamental, investigative and environmental,
social and governance (ESG) analysts. Based in the US, the team have direct
access to the companies in which they invest.
Brown Advisory has more than 25 years' experience of investing in small and
medium-sized companies in the US and within its broader US Small-Cap Growth
strategy it manages $6.6bn. The firm benefits from an extensive network of
venture capital, private equity and corporate relationships, which helps
provide a strong overview of the broader small to mid-sized company market.
Brown Advisory believes that disciplined, bottom-up research, coupled with
teamwork and the free exchange of ideas amongst colleagues, are the keys to
achieving long-term outperformance. The combination of its investment
philosophy and its client-first culture were important factors in the Board's
decision to appoint Brown Advisory as the Company's Portfolio Manager.
Chairman's Statement
Dear Fellow Shareholder
I am pleased to report that for the year ended 30 June 2023, your Company's
net asset value (NAV) per share rose from 1,303.9p to 1.431.9p, an increase of
9.8%. This compares favourably with the 7.5% gain in the Company's benchmark,
the sterling adjusted Russell 2000 Total Return Index, over the same period.
It was encouraging to see the US smaller company sector generate a positive
return again after a very disappointing performance in the previous year, even
if it still lagged those of its larger peers, the S&P500 and the
tech-heavy Nasdaq.
Over the twelve months under review, the Company's share price rose from
1,105.00p to 1,220.00p, an increase of 10.4%. This resulted in a small
narrowing of the discount to NAV from 15.3% on 30 June 2022 to 14.8% on 30
June 2023. No shares were bought in or issued during the year, as touched on
below.
Market Review
In the first nine months of our financial year, US equity markets lost ground.
The geopolitical background worsened as China/US relations deteriorated and
the war in Ukraine ground on with no signs of resolution. Supply chain
problems remained an issue, while at home in the US the inflation numbers
continued to come in stubbornly above expectations. This persuaded the Federal
Reserve to stick firmly to its policy of raising interest rates to rein in
inflation. Despite the Federal Reserve's actions, the US economy continued to
hold up well, supported by better- than-expected employment numbers and by the
willingness of consumers to spend savings accumulated during the pandemic.
Corporate results were also largely positive. Unsurprisingly, with interest
rates rising sharply, merger and acquisition activity fell off, and with many
investors preferring to sit on the side-lines and merely add to their money
market funds, volumes on the exchanges dwindled. For much of this period, as
interest rates rose there was some rotation within the markets back towards
more 'value' stocks and away from the highly rated names, notably those in
tech, that had led the earlier bull market. The smaller company asset class
followed a similar trend.
However, the mood changed in the last four months of our financial year as a
potential financial crisis erupted in the regional banks. With rising interest
rates encouraging depositors to look elsewhere for higher yields, several
regional banks suffered significant outflows of liquidity, which could only be
met through realising their loan and bond portfolios at a loss. Most notable
of these was Silicon Valley Bank which effectively collapsed. Only through
swift action by the authorities with injections of liquidity and takeovers by
stronger peers was the turmoil brought to heel. Given the potential risks to
the economy from such a situation, bond yields eased again as investors
speculated on whether the peak in rates was nearing, despite continuing
Federal Reserve rhetoric to the contrary. With hopes of an imminent peak in
interest rates and news on the economy remaining generally positive, the stock
market enjoyed another lift in the run up to our financial year end. That
said, the major winners were again the narrow group of technology mega-caps
that had led the market before, rather than the broader market or the smaller
company asset class.
Over the year, in US dollar terms, the Russell 2000 Index returned 12.3%, the
S&P 500 returned 19.6% and the Nasdaq Composite returned 26.1%. Although
the pound suffered a weak patch last autumn at the time of the unsettling
changes in British Prime Minister, it recovered thereafter to end the
financial year slightly higher, thus eroding some of the equity market gains
for sterling-based investors.
Portfolio Manager and Continuation Vote
A more detailed coverage of the development of the US smaller company sector
over the past twelve months and our activity and performance is included in
the Portfolio Manager's Review.
As I mentioned in our most recent half yearly report, the Board was pleased in
October to visit the Baltimore offices of our Portfolio Manager, Brown
Advisory, and to review in detail with Chris Berrier and his team their
investment process and strengthen our knowledge of the portfolio. The visit
gave us an enhanced insight into the investment operations in Baltimore.
Between 31 March 2021, the date on which Brown Advisory took over the
management of the portfolio, and 30 June 2023, a mixed period for markets, the
decline in the Company's NAV was held at 1.6%, compared to a negative return
of 4.9% from the Company's benchmark over the same period.
In accordance with the three-year cycle prescribed in the Company's Articles
of Association, there will be a continuation vote at this year's Annual
General Meeting (AGM). The Board has considered the Company's investment
remit, strategy, performance and ongoing viability and believes that the
Company's offering remains attractive. Accordingly, the Board strongly
recommends that shareholders vote in favour of the continuation of the Company
in its present form, which as fellow shareholders they will be doing
themselves.
Revenue and Capital Returns
The net gain per Ordinary share was 128.07p, split (6.82p) to Revenue and
134.89p to Capital. Dividend income was higher as some companies raised
pay-outs again as confidence returned and interest income benefited from the
rise in rates. With management expenses broadly unchanged, the net revenue
loss was thus marginally lower. We still believe it appropriate to allocate
all expenses to the Revenue account. No distributable revenue is available for
the payment of dividends.
Share Price and Discount
After careful consideration, the Board has amended the Company's share buyback
policy that has been in place for several years. The revised policy will see
the Board committed to using share buybacks with the aim of reducing discount
volatility and working to reduce any discount should it become significantly
wider than those of similar investment trusts. It believes this to be in
shareholders' interests. In determining whether to buy back shares, the Board
will consider, amongst other factors, and at its discretion, the size of the
Company, general market conditions and sentiment, the liquidity in the shares
and discounts in the investment trust sector overall.
Alongside this share buyback policy, the Board believes that the Company's
discount will also be driven by demand for the Company's shares, reflecting
its long-term investment performance, its relevance to investors, the
appropriate marketing of the Company and general market conditions.
Given the continuing volatility in markets during the period under review and
to allow further time for our Portfolio Manager to build and market its
performance record, we considered it inappropriate to buy in any shares in
this period.
As at 30 June 2023, the number of shares held in treasury was unchanged at
6,271,254 and the total number in public hands was also unchanged at
11,952,159.
Gearing
As an investment trust, the Company may use gearing for investment purposes to
enhance returns. However, over the past year the Board, taking into
consideration the views of the Portfolio Manager regarding investment
opportunities and outlook, did not feel it appropriate to deploy gearing given
the continuing unsettled geopolitical and economic background and resultant
market volatility. Should conditions improve and the outlook become more
certain, the Board will review its decision to gear, as it is mindful that the
ability to gear to enhance returns is considered one of the advantages of a
closed-end vehicle.
Environmental, Social and Governance ('ESG')
The Board has continued to engage with the Portfolio Manager on ESG matters.
Governance has been a key focus within the Portfolio Manager's investment
process for many years and it uses its regular meetings with management to
discuss and challenge them on their adherence to best practice. Further
information on the Portfolio Manager's approach to ESG matters is set out in
the ESG Report.
Board Composition
In our half yearly report, I noted that we would be looking for a replacement
non-executive director for Tina Soderlund-Boley, who had accepted a senior
position at a Swedish real estate investment company. In view of the time
commitments required by this role, Tina decided to step down from the Board
once a replacement non-executive director had been appointed. This she did at
the end of June. I should like to thank Tina for her outstanding contribution
to the Company over the past three years and wish her every success for the
future.
I was therefore pleased to announce in March that, with the help of search
firm Nurole Limited, we had appointed Jane Routledge as a replacement
independent non-executive director with effect from 1 April. Jane is a
non-executive director of M&G Credit Income Investment Trust plc, having
previously had a long career in the investment management sector, holding
several senior marketing positions, including at Schroders, Invesco, Hermes
and Seven Investment Management. Her considerable marketing knowledge and
experience in this field will be of great use to the Board.
As a result of Tina's resignation, the Board has revisited its succession
planning arrangements. Previously, the Board had anticipated that Tina would
replace Clive Parritt as Senior Independent Director (SID) at this year's AGM
when Clive was due to retire. The Board believes that Jane Routledge has all
the necessary skills for this role, and she has agreed that, after allowing
for a period of getting to know the Company, she will become SID on 1 April
2024.
In view of this, we have asked Clive Parritt to stay on the Board for a
further period in order to help smooth the transition. He will retire during
2024 as Jane takes on the role of SID. Although a long-standing Board member,
we deem Clive to be independent and the Company has benefited hugely from his
continuity, knowledge and experience. The Board believes that it is in the
interests of shareholders that he be re-elected for this period.
In February, Jasper Judd took on the role of audit chair from Lisa Booth. My
thanks again to Lisa for her work as previous audit chair and her help in
organising a very smooth handover, as well as to Jasper for taking on his new
role. All five directors will be representing themselves at the AGM.
Finally, as part of our refreshment of the Board and ahead of next year when
both Clive and Lisa will be stepping down, we will begin a new search for a
fourth independent non-executive director. Going forward, we expect the size
of the Board to oscillate between four and five members.
The Board is aware of the FCA's Diversity and Inclusion Policy and notes and
supports their targets. Accordingly, two out of the five non- executive
directors presenting themselves at the forthcoming AGM are female, while one
of the three senior positions will be occupied by a female when Jane becomes
Senior Independent Director early next year. As the Board going forward will
only comprise four to five members, it may not be big enough for us to ensure
that at least one member will be from a minority ethnic background. That said,
we look to create and
maintain a Board that has the correct mix of skills, diversity of thought and
a collegiate culture drawn from as wide a range of sources as possible.
Annual General Meeting
This year's AGM will be held on Monday, 6 November 2023 at 2.00pm at the
offices of Brown Advisory, 18 Hanover Square, London W1S 1JY. It will include
a short presentation via video-link by Chris Berrier, covering the performance
of the Company over the past year as well as his outlook for the future. The
Board and Portfolio Manager would welcome questions which shareholders may
submit to: InvestmentTrustEnquiries@ brownadvisory.com. Subject to
confidentiality, we will respond to any questions submitted either directly or
by publishing our response on the Company website.
Electronic proxy voting is now available, and shareholders are encouraged to
submit voting instructions using the web-based voting facility
www.eproxyappointment.com and www.proxymity.io for institutional shareholders.
In order to use electronic proxy voting, shareholders will require their
shareholder registration number, control number and pin. If you do not have
access to these details please contact the Company's Registrar, Computershare.
Shareholder Communications
The Board encourages shareholders to visit the Company's website
(www.brownadvisory.com/basc) for the latest information, podcasts and monthly
factsheets.
Outlook
So far in 2023, both the US economy and the US stock market have defied
expectations on the upside. Despite major headwinds comprising a huge jump in
interest rates, persistent inflation, the depletion of pandemic era savings,
concerning geopolitical tensions and a minor regional banking crisis, the US
consumer has remained resilient and continued to drive the American economy.
As a result, the recession forecast by many a year ago has failed so far to
materialise. The stock market has responded positively, and it has been
supported further by hopes that the peak in interest rates is within sight.
Given the market's rise to date, some setback should not, of course, be ruled
out. While the Federal Reserve may have paused its rate increases in June,
this was done merely in order to take stock and assess the impact so far. With
the resilience of the economy and still high inflation numbers, the trajectory
for interest rates remains upwards in view of the Federal Reserve's
determination to bring inflation back into its target range. The difficulty
for the Federal Reserve is in determining at what point the rise in rates will
achieve this, without putting the economy severely at risk. With the Federal
Reserve putting inflation restraint before economic activity, there is a risk
that investors underestimate the extent and duration of tightening potentially
to come.
At the same time, the geopolitical concerns remain, the economy may slow if
the consumer finally becomes more cautious and corporate earnings may be
impacted.
As we look further out, we become more optimistic. We expect the Federal
Reserve's tough medicine to work and for the inflation numbers as we enter the
autumn to trend lower, allowing interest rates to ease back too. Although
possibly somewhat softer, we still expect the domestic US economy to hold its
own, with demand supported by recent wage growth and still high levels of
employment. We see this as a generally favourable background for the US
smaller company sector which should again draw investors given its attractive
valuations and extended period of underperformance relative to its larger
peers.
Any period of weakness in the short-term will thus be welcome and offer our
Portfolio Manager the opportunity to add to positions at attractive prices,
having cash on hand and the ability to gear.
Stephen White
15 September 2023
Portfolio Manager's Review
Performance Review
During the year ended 30 June 2023, the Company's NAV increased by 9.8%,
compared to the benchmark Russell 2000 Index return of 7.5%.
Overall, we are pleased with the Company's absolute and relative returns over
the last financial year, representing a solid rebound from the challenging
market conditions experienced toward the end of 2021 and most of 2022. Our
emphasis on quality has certainly helped results more recently. However, we
see this condition as temporary considering current economic and market
dynamics. If current conditions persist, we think there could be an increased
reliance on idiosyncratic successes to drive relative outperformance.
Nonetheless, our overall approach remains steady as we continue to wait
patiently for opportunities to introduce new ideas and increase our investment
in a select group of existing portfolio holdings.
Portfolio Review
For the twelve-month period, the largest absolute contributors to the
Company's overall performance were the information technology, healthcare and
industrials sectors. However, on a relative basis, the financials sector was
the primary driver as our eclectic list of holdings outperformed the
bank-laden benchmark. Consumer discretionary and industrials saw relative
weakness due to their comparative lack of cyclicality.
At the individual stock level, EVO Payments, ChampionX Corporation and Workiva
were the strongest contributors. EVO Payments Inc, which operates a global
merchant acquirer and payment processor servicing company, entered into a
definitive agreement to be acquired by Global Payments for $34 per share in an
all- cash transaction. ChampionX Corporation is a chemicals company
specializing in delivering solutions that optimize the extraction and drilling
of oil and gas. The company continues to benefit from the positive energy
cycle, breathing new life into a new capital deployment strategy that includes
both dividends and share repurchases - at the end of 2022 the company
committed to returning more than 60% of free cash flow to shareholders going
forward. Workiva Inc. provides a cloud-based software platform that enables
organisations to collect and analyse data for compliance and management
reporting. The company is seeing continued improvement in profitability both
in the short and long-term. There have also been rumours that the company may
be garnering interest from private equity suitors.
The negative side of the ledger included Clarus Corporation, Azenta Inc. and
BlackLine Inc. Clarus Corporation, a manufacturer of outdoor sporting
equipment, was the victim of inventory rationalization at several national
account customers, which prompted them to lower their forecast of future
profits. Azenta Inc. provides gene sequencing and gene synthesis services and
develops automated ultra-cold storage systems. The company lowered its full
year profitability guidance due to a weaker than anticipated rebound in what
we view as a highly profitable product category. BlackLine Inc. provides
cloud- based solutions for accounting and finance operations. It has recently
announced a CEO transition that has prompted investor concerns around its
product roadmap and go-to-market strategy.
There were roughly an equal number of additions and deletions to the portfolio
over the twelve- month period. A substantial amount of the portfolio turnover
was due to M&A activity and our desire to eliminate positions where our
investment thesis appeared violated or we believed a poor risk/reward dynamic
necessitated a redeployment of capital. For example, Biohaven Pharmaceutical
Holdings, CMC Materials, EVO Payments, IAA Inc., ManTech International
Corporation, and Terminex were all acquired. Catalent, Nevro Corp, and Progyny
were situations that fell into the latter bucket. We were pleased that the
team was able to re-deploy the vast majority of the proceeds into a diverse
collection of businesses that we hope to own for the next several years.
A thought on investing
Investment management is a straightforward, yet challenging profession.
Success hinges upon an empirically derived philosophy, a committed team with
clear roles, a culture fostering open and honest communication, and decisive
actions informed by collected data and evidence. Time, attention and energy
should be allocated towards analysing and refining the investment process -
the controllable aspect - rather than towards the outcomes. Learning and
growth should be the focus of both investment successes and failures.
Unlike more predictable professions, where following certain procedures
guarantees certain outcomes, investing demands similarly precise methods but
success is never guaranteed. We would all prefer it to be straightforward.
Legendary NFL coach Bill Parcells once said, "You are what your record says
you are." While football teams are judged by a season, investment teams should
be assessed over an "investment cycle." A 3- to 5-year investment record
represents a culmination of all the bottom-up capital allocation decisions
made during this time. We make numerous decisions every day, guided by one
primary thought: what potential action is most likely to benefit long-term
returns? As such, we must always consider any factors that might distort or
obscure our perspective.
Being aware of our human fallibility, we foster a collaborative
investment-decision-making process. Each of us is influenced by several
behavioural or cognitive biases such as anchoring, authority, confirmation,
disposition effect, egocentricity, endowment effect, familiarity, framing,
hindsight, loss aversion, mental accounting, narrative bias, overconfidence,
recency, and survivorship.
Conclusion
"Toto, I've a feeling we're not in Kansas anymore." - Dorothy, The Wizard of
Oz
Much like Dorothy's transition from Kansas to the fantastical Land of Oz, we
too have been transported to a different world in the equity markets. The last
decade has seen zero interest rate policy (ZIRP), a global pandemic, a surge
in inflation and a dramatic policy reversal by the Federal Reserve. The advent
of passive capital (index funds, ETFs, etc.) has further altered the structure
of the stock market.
This journey has led to dramatic changes in investment sentiment, capital
flows, and market leadership. Our portfolio's active share is high, which can
cause significant shifts in short-term relative performance. Despite an
interesting investment environment in the first half of 2023, our core
elements have stood the test of time over the last 17+ years and will continue
to guide us in the future. We anticipate volatility will remain prevalent and
intend to leverage it to our advantage. We remain pleased with our long-term
performance and will strive to continue to drive solid risk-adjusted returns
going forward.
Portfolio Manager
Brown Advisory LLC
15 September 2023
Strategic Report
The Strategic Report has been prepared in accordance with the Companies Act
2006 (Strategic Report and Directors' Report) Regulations 2013.
The Strategic Report seeks to provide shareholders with the relevant
information to enable them to assess the performance of the Board during the
period under review.
Business and Status
During the year the Company carried on business as an investment trust with
its principal activity being portfolio investment. The Company has been
approved by HM Revenue & Customs as an investment trust subject to the
Company continuing to meet the eligibility conditions of sections 1158 and
1159 of the Corporation Tax Act 2010 ('CTA 2010') and the ongoing requirements
for approved companies as detailed in Chapter 3 of Part 2 of the Investment
Trust (Approved Company) (Tax) Regulations 2011. In the opinion of the
Directors, the Company has conducted its affairs in the appropriate manner to
retain its status as an investment trust.
The Company is an investment company within the meaning of section 833 of the
Companies Act 2006.
The Company is not a close company within the meaning of the provisions of the
CTA 2010 and has no employees.
The Company was incorporated in England & Wales on 15 January 1993.
There has been no significant change in the activities of the Company during
the year to 30 June 2023 and the Directors anticipate that the Company will
continue to operate in the same manner during the current financial year.
Gearing
The Company was not geared during the year.
Key Performance Indicators
At quarterly Board meetings, the Directors consider a number of performance
indicators to assess the extent to which the Company is meeting its objective.
The key performance indicators used to measure the performance of the Company
over time are as follows:
· Net Asset Value changes;
· The discount or premium of share price to Net Asset Value;
· A comparison of the absolute and relative performance of the
Ordinary share price and the Net Asset Value per share relative to the return
on the Company's Benchmark Index and of its peers;
· Ordinary share price movement; and
· The Company's ongoing charges ratio.
In addition, a history of the Net Asset Value, Ordinary share price and
Benchmark Index are shown on the monthly factsheets which can be viewed on the
Portfolio Manager's website www.brownadvisory.com/basc
(http://www.brownadvisory.com/intl/investment-trusts/brown-advisory-us-smaller-companies-plc)
.
Discount to Net Asset Value
The Directors regularly review the level of the discount or premium between
the closing price of the Company's Ordinary shares and the Net Asset Value.
The Company will issue shares when there is sufficient demand. Such issues are
always at a price which is in excess of the NAV. No shares were issued during
the year under review.
The Board will apply its revised policy of buying back shares with the aim of
reducing discount volatility and maintaining any discount such that it is not
significantly wider than those of similar investment trusts. It believes this
to be in shareholders' interests. In determining whether to buy back shares,
the Board will consider, amongst other factors, and at its discretion, the
size of the Company, general market conditions and sentiment, the liquidity in
the shares and discounts in the investment trust sector overall.
The Directors had powers granted to them at the last Annual General Meeting
('AGM') held on 31 October 2022 to purchase Ordinary shares and either cancel
or hold them in treasury as a method of controlling the discount to Net Asset
Value and enhancing shareholder value. No shares were bought back during the
year under review.
Under the Listing Rules, the maximum price that may be paid by the Company on
the repurchase of any Ordinary shares is 105% of the average of the middle
market quotations for the Ordinary shares for the five business days
immediately preceding the date of repurchase. The minimum price will be the
nominal value of the Ordinary shares. The Board is proposing that its
authority to repurchase up to approximately 14.99% of its issued share capital
(excluding treasury shares) be renewed at the AGM. The new authority to
repurchase will last until the conclusion of the AGM of the Company in 2024
(unless renewed earlier). Any repurchase made will be at the discretion of the
Board in light of prevailing market conditions and within guidelines set from
time to time by the Board, the Companies Act, the Listing Rules and the Market
Abuse Regulation.
Treasury Shares
In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares)
Regulations 2003 (the 'Regulations') which came into force on 1 December 2003
any Ordinary shares repurchased, pursuant to the above authority, may be held
in treasury. These Ordinary shares may subsequently be cancelled or sold for
cash. This gives the Company the ability to reissue shares quickly and cost
effectively and provides the Company with additional flexibility in the
management of its capital.
At 30 June 2023 there were 6,271,254 Ordinary shares held in Treasury.
Management
The Company has no employees and most of its day-to-day responsibilities are
delegated to Brown Advisory LLC which acts as the Company's Portfolio Manager
and FundRock Partners Limited which acts as the Company's Alternative
Investment Fund Manager ('AIFM') and Company Secretary.
J.P. Morgan Europe Limited ('JPMEL') acts as the Company's Depositary. The
Company has also entered into an outsourcing arrangement with J.P. Morgan
Chase Bank N.A. ('JPMCB') as Custodian and for the provision of accounting
services.
Viability Statement
In accordance with Provision 36 of the Code of Corporate Governance as issued
by the Association of Investment Companies in February 2019 (the 'AIC Code'),
the Board has assessed the prospects of the Company over a longer period than
the twelve months required by the 'Going Concern' provision, by reviewing the
next three years and assessing the implications of the next required vote on
the continuation of the Company at the 2023 AGM. The Board has confirmed that,
following consultation with key stakeholders, it considers the continuation
vote will be approved by the shareholders.
The Board has considered the Company's business model including its investment
objective and investment policy, the principal and emerging risks and
uncertainties that may affect the Company, the size threshold below which the
Company would be considered uneconomic or unviable, and the Company
performance and attractiveness to investors in the current environment. The
Board has noted that:
· the Company holds a liquid portfolio invested predominantly in US
listed equities;
· the Company is not geared;
· the Company has maintained a reasonable performance and share
price discount to NAV;
· the portfolio management fee is the most significant expense of
the Company. It is charged as a percentage of the Company's net asset value
and so would reduce if the market value of the portfolio were to fall. The
remaining expenses are modest in value and predictable in nature;
· no significant increase to ongoing charges or operational
expenses is anticipated; and
· the Board is satisfied that Brown Advisory LLC and the Company's
other key third-party suppliers maintain suitable processes and controls to
ensure that they can continue to provide their services to the Company.
The Board has also considered the market outlook, both for US smaller company
equities and for investment trusts, and has concluded that these remain an
attractive opportunity for investors.
The Board has therefore concluded that there is a reasonable expectation that
the Company will be able to continue in operation and meet its liabilities as
they fall due over the next three years.
Principal and Emerging Risks and Uncertainties
The Board, through the Audit and Risk Committee, carries out a regular review
of the risk environment in which the Company operates, changes to the
environment and individual risks. The Board also considers emerging risks
which might affect the Company. During the year, the continued conflict in
Ukraine and tensions between China and the US have created geopolitical
uncertainties which have increased market risk and volatility.
There are a number of other risks which, if realised, could have a material
adverse effect on the Company and its financial condition, performance and
prospects. The Board has carried out a robust assessment of the Company's
principal and emerging risks, which include those that would threaten its
business model, future performance, solvency, liquidity or reputation.
The principal risks and uncertainties facing the Company at the current time,
together with a description of the mitigating actions the Board has taken, are
set out in the table below.
Risk Mitigating Action
Investment objective - the Company's objective becomes unattractive to Board review: the Board formally reviews the Company's objective and related
investors which could result in a lack of demand for the Company's shares, strategies on an annual basis, or more regularly if appropriate.
leading to a widening of the discount of the share price to its underlying NAV
and a fall in the value of its shares.
Shareholder communication: the Board is cognisant of the importance of regular
communication with shareholders. The Chairman offers meetings with the
Company's largest shareholders, and the Board meets with shareholders at the
Annual General Meeting. Additionally a shareholder presentation with questions
and answers is available at the AGM. The Board reviews shareholder
correspondence and investor relations reports and also receives feedback from
the Company's broker.
Discount monitoring: the Board, through the Portfolio Manager and AIFM, keeps
the level of discount under constant review. The Board is responsible for the
Company's share buyback policy and is prepared
to authorise the use of share buybacks to provide liquidity to the market and
to try to limit any widening of the discount, to the extent that it is wider
than those of similar investment trusts.
Investment strategies - the Company adopts inappropriate investment strategies Adherence to investment guidelines: the Board sets investment guidelines and
in pursuit of its objective which could result in decreased demand for the restrictions which the Portfolio Manager follows, covering matters such as
Company's shares, leading to a widening of the discount and poor investment asset allocation, diversification, gearing and currency exposure. These
performance. guidelines are reviewed regularly and reports on compliance with them are
reviewed at Board meetings.
In order to ensure adequate diversification, the Board has set absolute limits
on minimum holdings and maximum exposures in the portfolio at the time of
investment.
Investment performance - the appointment or continuing appointment of a Monitoring of performance: the Board keeps performance under continual review.
portfolio manager with inadequate resources, skills or expertise, or which It meets the Portfolio Manager on a regular basis and keeps under close review
makes poor investment decisions. This could result in poor investment (inter alia) its resources and adherence to investment guidelines. The Board
performance, a loss of value for shareholders and a widening discount. discusses with the Portfolio Manager reasons for over or under- performance at
every Board meeting.
A detailed formal appraisal of the Portfolio Manager is carried out annually
by the Board. The Board also keeps under review the adequacy of risk controls.
Financial/market - insufficient oversight or controls over financial risks, Management controls: the Portfolio Manager has a range of procedures and
foreign currency risk, market price risk, interest rate risk, liquidity risk, controls relating to the Company's financial instruments and maintains a
credit and counterparty risk, and insufficient revenue forecasting and closed 'approved broker' list.
monitoring, could result in losses to the Company.
Board review: as stated above, the Board sets investment guidelines and
restrictions which are reviewed regularly and the Portfolio Manager reports on
compliance with them at Board meetings.
Revenue forecasting and monitoring: the AIFM presents detailed forecasts of
income and expenditure covering both the current and subsequent financial
years at Board meetings.
Regulatory - changes to, or failure to comply with, relevant regulations Board awareness: the Directors have an awareness of the more important
(including the Companies Act, the Financial Services and Markets Act, the regulations and are provided with information on changes by the Association
Alternative Investment Fund Managers Directive, accounting standards,
investment trust regulations, the Listing Rules, Disclosure Guidance and of Investment Companies. In terms of day to day compliance with regulations,
Transparency Rules and Prospectus Rules) could result in fines, loss of the Board is reliant on the knowledge and expertise of the AIFM and
reputation, reduced demand for the Company's shares and potentially the loss
of an advantageous tax regime. Company Secretary. However, where necessary, the Board engages the services of
external advisers.
Management controls: the Company Secretary and accounting teams use checklists
to aid compliance and these are supported by the AIFM's compliance monitoring
programme and risk-based internal audit investigations.
Operational (including cyber-crime) - the Company is reliant on services Agreements: written agreements are in place defining the roles and
provided by third parties (in particular those of the Portfolio Manager, AIFM, responsibilities of all third-party service providers.
custodian and depositary) and any control gaps and failures in their
operations could expose the Company to loss or damage.
Internal control systems of the AIFM and Portfolio Manager: the Board receives
reports on the operation and efficacy of IT and control systems, including
those relating to cyber-crime and internal audit and compliance functions.
Safekeeping of assets: the depositary is ultimately responsible for the
safekeeping of the Company's assets and holds cash and securities in
segregated accounts with J.P. Morgan Chase Bank N.A. The depository reconciles
these accounts daily against the records of the Portfolio Manager.
Monitoring of other third-party service providers: the AIFM closely monitors
the control environments and quality of services provided by third parties,
including those of the depositary. This includes controls relating to
cyber-crime and is conducted through service level agreements, regular
meetings and key performance indicators. The Directors review reports on the
AIFM's monitoring of third-party service providers on a periodic basis.
A detailed formal appraisal of the AIFM, Portfolio Manager and other key third
party providers is carried out annually by the Board.
Geopolitical (including a pandemic, climate change and the conflict in Board and Portfolio Manager awareness: geopolitical events over which the
Ukraine) - the impact of geopolitical events could result in losses to the Company has no control are always a risk. The Board and Portfolio Manager do
Company. what they can to address these risks where possible.
Directors
At 1 July 2023 the Board comprised two female and three male directors.
Employees, Environmental, Social and Human Rights issues
The Company has no employees and, therefore no disclosures need to be made in
respect of employees. The Board has delegated the day-today management and
administration functions to the Portfolio Manager, the AIFM, JPMEL, JPMCB and
other third-party service providers.
Integration of Environmental, Social and Governance ('ESG') considerations
into the Portfolio Manager's Investment Process
A report from the Portfolio Manager is included in the Annual Report &
Accounts for the year ended 30 June 2023.
Modern Slavery Act
The Modern Slavery Act 2015 requires certain companies to prepare a slavery
and human trafficking statement. As the Company has no employees and does not
supply goods and services, no statement is required.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations as
its day-to-day management and administration functions have been outsourced to
third parties and it neither owns physical assets or property nor has
employees of its own. It therefore does not have responsibility for any
emissions-producing sources under the Companies Act 2006 (Strategic Report on
Directors' Reports) Regulations 2013.
Section 172 Statement
Under Section 172 ('S172') of the Companies Act 2006, the Directors have a
duty to act in good faith and to promote the success of the Company for the
benefit of its shareholders as a whole. This includes taking into
consideration the likely consequences of their decisions in the long-term and
in respect of the Company's stakeholders such as its shareholders, employees,
if any, and suppliers, while acting fairly as between shareholders.
The Directors must also consider the impact of the Company's decisions on the
environment, the community and its reputation for maintaining high standards
of business conduct.
The Company ensures that the Directors are able to discharge this duty by
providing them with relevant information and training on their duties. The
Company also ensures that information pertaining to its stakeholders is
provided, as required, to the Directors as part of the information presented
in regular Board meetings in order that stakeholder considerations can be
factored into the Board's decision-making. The Directors' responsibilities are
also set out in the schedule of matters reserved for the Board and the terms
of reference of its Audit and Risk Committee, both of which are reviewed
regularly by the Board. At all times the Directors can access, either
collectively or individually, advice from its professional advisers including
the Company Secretary and independent external advisers.
The Company's investment objective, to achieve long-term capital growth by
investing in a diversified portfolio primarily of quoted US smaller and
medium-sized companies, supports the Directors' statutory obligations to
consider the long-term consequences of the Company's decisions. How the
long-term focus of the Company is achieved is set out in more detail in the
above section on the Portfolio Manager's approach to ESG considerations. This
approach is fundamental to the Company achieving long-term success for the
benefit of all stakeholders.
The Company is aware of its own potential impact on the environment and has
practical policies in place to reduce that impact. Examples include the use
and sharing of electronic Board materials and the provision of electronic
copies of the annual report and financial statements to shareholders and via
the Company website. Where physical copies of the annual and half yearly
financial reports are made, materials and processes are used which are
designed to both minimise the environmental impact and to maximise the
recycling potential.
Engagement with suppliers, customers and others and the effect on principal
decisions
The Shareholders - The shareholders of the Company are both institutional and
retail and details of those with substantial shareholdings are provided in the
Annual Report & Accounts for the year ended 30 June 2023.
The Board believes that shareholders have a vital role in encouraging a higher
level of corporate performance and is committed to listening to the views of
its shareholders and giving useful and timely information. The Board provides
open and accessible channels of communication including those listed below.
The AGM - The Company encourages participation from shareholders at its AGMs,
where they can communicate directly with the Directors and Portfolio Manager.
The upcoming AGM will include a short presentation by the Portfolio Manager on
the performance of the Company over the past year, as well as an outlook for
the future. The Board and Portfolio Manager welcome questions which
shareholders may submit to InvestmentTrustEnquiries@ brownadvisory.com.
Subject to confidentiality, we will respond to any questions submitted either
directly or by publishing our response on the Company website. All views of
the shareholders will be taken into consideration and action taken where
appropriate.
Online Information - The Company website contains the Annual and Half Yearly
Financial Report along with monthly factsheets and commentaries from the
Portfolio Manager. The daily NAV per share, monthly top ten portfolio listings
and other regulatory announcements can be found on the regulatory news service
of the London Stock Exchange.
Shareholder Communications
Shareholders can raise issues or concerns at any time by writing to the
Chairman or the Senior Independent Director at the Registered Office.
The AIFM and the Portfolio Manager
Brown Advisory LLC acts as the Company's Portfolio Manager and FundRock
Partners Limited has been appointed as the Company's AIFM.
The portfolio management function is critical to the long-term success of the
Company. The Board and the Portfolio Manager maintain an open and constructive
relationship, with meetings taking place a minimum of four times per annum,
with monthly updates and additional meetings as required.
The 'Management of the Company' section details the Board's consideration of
the Portfolio Manager's performance, its terms of appointment and their annual
assessment of its continued stewardship of the portfolio and its oversight of
the administrative functions.
The Audit and Risk Committee meets at least twice a year and as part of its
role considers the reports on the internal control objectives and procedures
of the Portfolio Manager, the AIFM, and other third party service providers
together with independent, external reviews where appropriate.
The AIFM also supplies company secretarial services to the Company. The AIFM
oversees the activities of the Company's other third-party suppliers on behalf
of the Company and maintains open and collaborative relationships to maintain
quality, efficiency and cost control through regular communication with
operational teams. The Board regularly reviews reports from the Portfolio
Manager, the AIFM and Company Secretary, the depositary, the Company's broker,
the investor relations research provider and the Independent Auditor.
These provide vital information concerning changes in market practice or
regulation which affect the Company and assist the Board in its
decision-making process. Representatives from these providers attend Company
Board meetings and give presentations on a regular basis enabling in depth
discussions concerning their findings and performance.
Other Third-Party Service Providers
As an externally managed investment company with no employees or physical
assets, the principal stakeholders of the Company are its shareholders,
Portfolio Manager, AIFM, depositary, custodian, administrator and registrar.
The continuance, or otherwise, of engagement of key third-party service
providers are principal decisions taken by the Board every year.
In Summary
The governance structure and decision-making process are underpinned by the
duties of the Directors under S172 on all matters. The Board firmly believes
that the sustainable long-term success of the Company is dependent upon taking
account of the interests of all its key stakeholders.
For and on behalf of the Board
Stephen White
Chairman
15 September 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable laws) including
Financial Reporting Standard 102, the financial reporting standard applicable
in the UK and the Republic of Ireland.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the return or loss of the Company for that
period. In preparing those financial statements, the Directors are required
to:
(a) select suitable accounting policies and then apply them consistently;
(b) make judgements and accounting estimates that are reasonable and
prudent;
(c) state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
(d) prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Report of the Directors, Directors' Remuneration
Report and Statement of Corporate Governance that comply with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
www.brownadvisory.com/basc (http://www.brownadvisory.com/basc) , which is a
website maintained by Brown Advisory LLP. Visitors to the website need to be
aware that legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Each of the Directors, who are listed in the Annual Report & Accounts,
confirms to the best of their knowledge that:
(a) the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company; and
(b) the Strategic Report of the Directors include a fair review of the
development and performance of the Company, together with a description of the
principal risks and uncertainties that the Company faces; and
(c) in their opinion the Annual Report & Accounts, taken as a whole,
are fair, balanced and understandable and provide the information necessary to
assess the Company's position and performance, business model and strategy.
So far as each Director is aware at the time the report is approved:
(a) there is no relevant audit information of which the Company's auditor
is unaware; and
(b) the Directors have taken all steps required of a company director to
make themselves aware of any relevant audit information and to establish that
the Company's auditor has been made aware of that information.
By order of the Board
Stephen White
Chairman
15 September 2023
Income Statement
for the year ended 30 June 2023
2023 2022
Revenue Capital Revenue Capital
Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000
Gain/(loss) on investments at fair value through profit or loss
- 16,474 16,474 - (25,401) (25,401)
Foreign exchange (loss)/gain - (746) (746) - 1,321 1,321
Investment income 873 - 873 738 - 738
Other income 111 - 111 - - -
Total income/(loss) 984 15,728 16,712 738 (24,080) (23,342)
Management fee (1,172) - (1,172) (1,192) - (1,192)
Other expenses (521) (2) (523) (475) (4) (479)
Total expenses (1,693) (2) (1,695) (1,667) (4) (1,671)
Return/(loss) before taxation (709) 15,726 15,017 (929) (24,084) (25,013)
Taxation (106) 396 290 (90) (309) (399)
Net return/(loss) after taxation (815) 16,122 15,307 (1,019) (24,393) (25,412)
Net return/(loss) per Ordinary share (6.82p) 134.89p 128.07p (8.52p) (204.03p) (212.55p)
The total column of this statement is the profit and loss account of the
Company.
The 'Revenue' and 'Capital' columns represent supplementary information
prepared under guidance issued by The Association of Investment Companies. The
Company has no other items of other comprehensive income, and therefore the
net return after taxation is also the total comprehensive income for the year.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The Notes below form part of these accounts.
Statement of Financial Position
as at 30 June 2023
2023 2022
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss 159,134 147,856
Current assets
Debtors 67 304
Cash at bank and in hand 12,444 8,218
12,511 8,522
Creditors: amounts falling due within one year (498) (538)
Net current assets 12,013 7,984
Total assets less current liabilities 171,147 155,840
Capital and reserves
Called up share capital 4,555 4,555
Share premium account 19,550 19,550
Non-distributable reserve 841 841
Capital redemption reserve 9,628 9,628
Retained earnings 136,573 121,266
Total shareholders' funds 171,147 155,840
Net asset value per Ordinary share (pence) 1,431.9 1,303.9
The financial statements were approved by the Board of Directors and signed on
its behalf on 15 September 2023.
Stephen White
Chairman
Company Registration Number 02781968
The Notes below form part of these accounts.
Statement of Changes in Equity
for the year ended 30 June 2023
Called up Non- Capital
Share Share distributable Redemption Retained
Capital Premium Reserve Reserve Earnings* Total
For the year ended 30 June 2023 £'000 £'000 £'000 £'000 £'000 £'000
1 July 2022 4,555 19,550 841 9,628 121,266 155,840
Net return for the year - - - - 15,307 15,307
Balance at 30 June 2023 4,555 19,550 841 9,628 136,573 171,147
Called up Non- Capital
Share Share distributable Redemption Retained
Capital Premium Reserve Reserve Earnings* Total
For the year ended 30 June 2022 £'000 £'000 £'000 £'000 £'000 £'000
1 July 2021 4,555 19,550 841 9,628 146,852 181,426
Repurchase of Ordinary shares to
be held in - - - - (174) (174)
treasury
Net return for the year - - - - (25,412) (25,412)
Balance at 30 June 2022 4,555 19,550 841 9,628 121,266 155,840
* Dividends are only payable from the Revenue Return element of Retained
Earnings.
Notes to the Accounts for the year ended 30 June 2023
1. General information
Brown Advisory US Smaller Companies PLC (a Public Company Limited by shares)
is an investment Company incorporated in the United Kingdom with a premium
listing on the London Stock Exchange. The Company registration number is
02781968 and the registered office is 6th floor, 125 London Wall, London, EC2Y
5AS.
The Company conducts its affairs so as to qualify as an investment trust under
the provisions of section 1158 of the Corporation Tax Act 2010.
The Company has qualified as an investment trust in respect of all relevant
years up to and including the year ended 30 June 2023. Section 1158 was
amended to allow the Company to seek approval of compliance in advance and for
all subsequent financial years. The Company received such advance approval
subject to it continuing to meet the relevant eligible conditions and ongoing
requirements. The Company intends to conduct its affairs so as to enable it to
comply with the requirements. Such approval exempts the Company from UK
corporation tax on gains realised in the relevant year on its portfolio of
fixed asset investments.
A summary of the accounting policies, all of which have been applied
consistently throughout the period is set out below.
2. Accounting policies
Basis of preparation
The financial statements for the year ended 30 June 2023 have been prepared in
accordance with UK Generally Accepted Accounting Practice ('UK GAAP')
including Financial Reporting Standard 102 ('FRS 102'), the financial
reporting standard applicable in the UK and Republic of Ireland and with the
Statement of Recommended Practice ('SORP') for Investment Trust Companies and
Venture Capital Trusts issued by the Association of Investment Companies
('AIC') in October 2019.
The Company continues to adopt the going concern basis in the preparation of
the financial statements. The financial statements have been prepared in
accordance with the Company's accounting policies as set out below. They are
presented in accordance with the Companies Act 2006 (the 'Act') and the
requirements of the SORP 'Financial Statements of Investment Trust Companies
and Venture Capital Trusts' issued inJuly 2022.
The Company has taken advantage of the exemption from preparing a Cash Flow
Statement under FRS 102, as it is an investment fund and the investments are
substantially all highly liquid and carried at fair (market) value.
In accordance with FRS 102, the Company is required to nominate a functional
reporting currency in which the Company predominantly operates. Having regard
to the Company's share capital and the predominant currency in which its
shareholders operate, pounds sterling is the nominated functional reporting
currency of the Company.
The Directors are of the opinion that the Company is engaged in a single
segment of business activity, being investment business. Consequently, no
business segmental reporting is required.
Statement of Compliance
The financial statements of the Company have been prepared in compliance with
United Kingdom Accounting Standards, including FRS 102 and the Companies Act
2006.
Significant accounting judgements, estimates and assumptions
The preparation of the Company's financial statements on occasion requires
management to make judgements, estimates and assumptions that affect the
reported amounts in the primary financial statements and the accompanying
disclosures. These assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets or liabilities
affected in the current and future periods, depending on circumstance.
Management do not believe that any significant accounting judgements have been
applied to these financial statements other than the allocations between
capital and revenue.
Further details of the Company's accounting policies can be found in the
Annual Report & Accounts for the year ended 30 June 2023.
3. Income
2023 2022
£'000 £'000
Income from investments
Dividends from United Kingdom companies 24 -
Dividends from overseas companies 849 738
873 738
Other income
Deposit interest 111 -
111 -
Total income 984 738
4. Management fee
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management - 1,172 1,192 - 1,192
fee
1,172
1,172 - 1,172 1,192 - 1,192
5. Other expenses
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors' remuneration 151 - 151 137 - 137
Auditor's remuneration - audit of the company 52 - 52 34 - 34
Directors' and Officers' liability insurance 9 - 9 12 - 12
Other expenses 309 2 311 292 4 296
521 2 523 475 4 479
6. Ongoing charges
2023 2022
£'000 £'000
Management fee 1,172 1,192
Other expenses 521 475
Total expenses (excluding finance costs) 1,693 1,667
Average net assets 168,902 173,006
Ongoing charges % 1.00 0.97
7. Taxation
(a) Analysis of (credit)/charge in year:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas tax (credit)/charge relating to the current year 106 - 106 90 309 399
Overseas tax (credit)/charge relating to the prior year - (396) (396) - - -
Total tax (see Note 7b) 106 (396) (290) 90 309 399
(b) Factors affecting current tax (credit)/charge for the year
The tax assessed for the year is lower (2022: higher) than the standard rate
of corporation tax for a company (20.50%) (2022: 19.00%). The differences are
explained below:
2023 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return/(loss) before taxation (709) 15,726 15,017 (929) (24,084) (25,013)
Corporation tax at 20.50% (2022: 19.00%) (146) 3,224 3,078 (176) (4,576) (4,752)
Effects of:
Tax free (loss)/gains on investments - (3,224) (3,224) - 4,575 4,575
Non-taxable income received (162) - (162) (126) - (126)
Capital expenses deductible for tax purposes - - - - 1 1
Overseas tax relating to the current year 106 - 106 90 309 399
Overseas tax relating to the prior year - (396) (396) - - -
Income taxed in different years - - - (1) - (1)
Unutilised management expenses for the year 308 - 308 303 - 303
Total tax (credit)/charge for the year 106 (396) (290) 90 309 399
Due to the Company's status as an investment trust and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
There is an unrecognised deferred tax asset of £5,461,000 (2022: £5,076,000)
which relates to unutilised excess expenses. The deferred tax asset would only
be recovered if the Company were to generate sufficient profits to utilise
these expenses. It is considered too uncertain that this will occur and
therefore, no deferred tax asset has been recognised.
8. Net return/(loss) per Ordinary share
The return per Ordinary share figure is based on the net profit for the year
of £15,307,432 (2022: Loss £25,412,443), and on 11,952,159 (2022:
11,955,536) Ordinary shares, being the weighted average number of Ordinary
shares in issue during the year.
The return per Ordinary share figure detailed above can be further analysed
between revenue and capital, as below.
2023 2022
£'000 £'000
Net revenue loss (815) (1,019)
Net capital return/(loss) 16,122 (24,393)
Net return/(loss) 15,307 (25,412)
Weighted average number of Ordinary shares in issue during the year 11,952,159 11,955,536
Revenue loss per Ordinary share (6.82p) (8.52p)
Capital return/(loss) per Ordinary share 134.89p (204.03p)
Total return/(loss) per Ordinary share 128.07p (212.55p)
9. Related parties and transactions with the Portfolio Manager and the
AIFM
Directors
There are no transactions with the Directors other than aggregated
remuneration for services as Directors as disclosed in the Directors'
Remuneration Report and as set out in the notes to the accounts and the
beneficial interests of the Directors in the Ordinary shares of the company as
detailed in the Annual Report & Accounts for the year ended 30 June 2023.
Transactions with the Portfolio Manager and the AIFM
FundRock Partners Limited is AIFM to the Company pursuant to an Alternative
Investment Fund Management Agreement between FundRock Partners Limited and the
Company. FundRock Partners Limited has also been appointed to provide company
secretarial services to the Company.
Brown Advisory is appointed to provide portfolio management services pursuant
to a Portfolio Management Agreement between the Company, FundRock Partners
Limited and Brown Advisory.
The management fee is calculated at an annual rate of 0.7% on the first £200
million; 0.6% of the next £300 million; and 0.5% thereafter of the Company's
adjusted net assets.
The management fee is payable by the Company to FundRock Partners Limited, who
shall deduct from the management fee the amounts due to it as AIFM and for
company secretarial services and shall pay the balance to Brown Advisory.
The management fee is calculated and payable on a quarterly basis.
The management fee payable to FundRock Partners Limited for the period from 1
July 2022 to 30 June 2023 was £1,172,000 (payable to FundRock Partners
Limited for the period from 1 July 2021 to 30 June 2022: £1,192,000) with
£298,000 outstanding as at 30 June 2023 (2022: £275,000).
The appointment of Brown Advisory and FundRock Partners Limited may be
terminated by not less than six months' notice.
10. Contingent liabilities and capital commitments
There were no contingent liabilities or capital commitments outstanding at 30
June 2023 (2022: nil).
11. Annual results
This Annual Results announcement does not constitute the Company's statutory
accounts for the years ended 30 June 2022 and 30 June 2023 but is derived from
those accounts. Statutory accounts for the year ended 30 June 2022 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 30 June 2022 and the year ended 30 June 2023 both received an audit
report which was unqualified and did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying the
report and did not include statements under Section 498 of the Companies Act
2006 respectively. The statutory accounts for the year ended 30 June 2023 will
be delivered to the Registrar of Companies.
12. Other information
The Annual General Meeting of the Company will be held on 6 November 2023.
A copy of the Annual Report & Accounts for the year ended 30 June 2023
will shortly be submitted to the National Storage Mechanism and will be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report & Accounts will also be available for download from the
Company's website www.brownadvisory.com/basc
Enquiries:
FundRock Partners Limited, Company Secretary
Inderpreet Kaur Bedi Tel: +44 (0) 7766 081 197
ukfundscosec@apexfs.com
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
END
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. END FR UBOOROVUKAAR
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