Brown Advisory US - Annual Financial Report
23/09/2024 07:00
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RNS Number : 1409F Brown Advisory US Smaller Cos. PLC 23 September 2024
Brown Advisory US Smaller Companies PLC (the 'Company')
Legal Entity Identifier: 549300HKKL9K1NY4TW55
Annual Financial Report for the year ended 30 June 2024
Financial Highlights for the year ended 30 June 2024
Ordinary Share Performance
30 June 30 June
2024 2023 % change
Net asset value (pence) * 1,471.4 1,431.9 +2.8
Closing price (pence) 1,282.50 1,220.00 +5.1
Russell 2000 Total Return Index (sterling adjusted) 8,699.00 7,860.00 +10.7
Discount to net asset value (%) (12.8) (14.8) -
Ongoing charges ratio (%) 1.05 1.00 -
*for definitions of the above Alternative Performance Measurements please
refer to the Glossary of Terms in the Annual Report.
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 % %
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
2024 174,544 1,471.4 +2.8 +10.7
*for definitions of the above Alternative Performance Measurements please
refer to the Glossary of Terms in the Annual Report.
Stephen White, Chairman, Brown Advisory US Smaller Companies, said:
"In a challenging environment, the portfolio managers maintained their
strategy of identifying long-term compounders that offer durable growth, good
governance and a strong 'go-to-market' position, even if this meant missing
out on some of the more momentum-driven and speculative stocks that have led
the smaller companies market more recently. Our performance was impacted by
other factors such as our underweight position in financials, a sector our
portfolio managers tend not to favour and, for valuation reasons, having
little exposure to perceived AI plays. In addition, certain stocks in the
healthcare and IT sectors were hit by negative earnings surprises, some of
which have since been sold.
Today's backdrop of a reasonably healthy economy and falling interest rates is
favourable for smaller companies. We see a return to the fore of our portfolio
manager's investment style with its focus on earnings analysis, cash flow and
balance sheet quality, and believe our portfolio is well placed to take
advantage of this situation."
Contact:
Brown Advisory US Smaller Companies InvestmentTrustEnquiries@brownadvisory.com
(mailto:InvestmentTrustEnquiries@brownadvisory.com)
FundRock Partners Limited, Company Secretary ukfundscosec@apexgroup.com (mailto:ukfundscosec@apexgroup.com)
Singer Capital Markets, Broker to the Company + 44 207 496 3000
Robert Peel
Asha Chotai
Cardew Group, Financial PR to BASC brownadvisory@cardewgroup.com (mailto:brownadvisory@cardewgroup.com)
Tania Wild 07425 536903
Henry Crane 07918 207157
Chairman's Statement
Dear Fellow Shareholder
For the twelve months ended 30 June 2024, your Company's net asset value (NAV)
per share rose from 1,431.9p to 1,471.4p, an increase of 2.8%. This small gain
was somewhat disappointing, not only in absolute terms as smaller companies in
the US lagged their larger peers for the third financial year running, but
also relative to our benchmark, the sterling adjusted Russell 2000 Total
Return index, which rose by 10.7% over the same period. An explanation of
specific portfolio factors in relation to performance can be found in this
statement as well as in the
Portfolio Manager's review below. Despite a difficult year, the Board
reiterates its confidence in Brown Advisory's approach and its optimism for
the US smaller company sector going forward.
Over the twelve-month period, the Company's share price rose from 1,220.00p to
1,282.50p, an increase of 5.1%. This resulted in a small narrowing of the
discount to NAV from 14.8% on 30 June 2023 to 12.8% on 30 June 2024. A small
number of shares were bought in over the course of the year in accordance with
the revised buyback policy we outlined a year ago.
Market Review
For the first four months of our financial year, US equity markets moved
within a narrow trading range amidst low volatility, reduced trading volumes
and restrained corporate activity. Geopolitical risks remained elevated as in
Europe the war between Russia and the Ukraine continued, in the Far East
dialogue between China and Taiwan became more strained and in the Middle East
Israel responded aggressively to the attacks by terrorist organisation Hamas.
Surprisingly, these tensions had only a limited impact on financial markets.
At the same time, US domestic news, continued to be mixed, giving little
direction to markets as the debate continued as to whether the economy would
be hitting a 'hard' or a 'soft' landing in 2024.
What influenced markets above all in this period was the perceived direction
of US interest rates. With official rates having reached a 22-year high of
between 5.25% and 5.50% at the start of our year, the Federal Reserve (Fed)
reiterated its focus on bringing inflation down to its 2.0% target, suggesting
that it still had 'a long way to go', even if tight conditions would weigh on
economic activity. Given this rhetoric and data that showed the economy and
jobs market to be still in good shape, 10-year bond yields moved steadily
higher, briefly touching 5.0% in October.
This restrained equity markets in this period, and held back in particular the
smaller company sector, not helped by investors continuing to favour the
mega-caps, particularly those now known as the 'Magnificent Seven', and other
technology stocks with any perceived connection to artificial intelligence
(AI).
In November, the mood in the markets began to brighten again. Hopes grew that,
with improving inflation numbers, mixed retail sales and some softening in the
jobs market, the Fed's tightening cycle had come to an end and that a steady
programme of interest rate cuts lay in store. Indeed, investors' expectations
for rate cuts at this time moved well ahead of those suggested by the Fed in
its famous post-meeting 'dot plots', both in terms of timing and of scope.
Nonetheless, the Fed held firm throughout the first half of 2024, refusing to
cut rates as it argued that, despite some softening, the economy and the jobs
market remained resilient, while inflation risks had not gone away. It did
acknowledge, however, that the peak in rates had probably been reached, but
made no promises as to when the first cut would come. This was despite several
other major central banks cutting interest rates towards the end of the
period.
Hoping that the Fed would soon concede and cut rates, US equity markets pushed
steadily higher from November onwards, without any major setbacks, and closed
our financial year around their all-time highs. Although the market leaders
were still the 'Magnificent Seven', and other technology stocks linked to AI,
where news flow remained upbeat, earnings continued to surprise positively and
valuations seemed not unreasonable, other sectors were also pulled higher in
their wake. This included small caps which until then had spent much of the
year in the shadow of their larger peers, but which met with some renewed
buying interest. Within the small cap arena, similar trends were at play as in
large cap with the winners being technology stocks, anything seen to be AI
related and momentum plays, often driven higher by speculative retail buying
despite having poorer fundamentals.
As mentioned at the beginning of my statement, our performance this year was
disappointing, both in absolute and in relative terms. Top-down, our portfolio
suffered from being underweight financials, a sector our Portfolio Managers
tend not to favour, having little exposure to perceived AI plays for valuation
reasons, and avoiding the more speculative, indebted, low-quality earnings
situations that enjoyed a sudden rally in November/December. Underperformance
this year also came from stock selection in two specific areas, namely
healthcare and information technology, where our portfolio was hit
unexpectedly by negative earnings surprises in a clutch of our names, some of
which had to be reassessed and have since been sold.
Key positive contributors to return over the year were Casey's General Stores,
Pinterest, Waste Connections, Neurocrine Biosciences and Bright Horizons,
while the main detractors were Accolade, SI-BONE, agilon health, Rentokil
Initial and Workiva.
Over the year, in US dollar terms, the Russell 2000 returned 10.1%, the
S&P 500 returned 24.6% and the Nasdaq returned 29.6%. The pound/dollar
rate was little changed over the twelve-month period, moving from 1.2714 to
1.2641, because of which sterling-based shareholders made no currency gains
this year.
Portfolio Manager and Continuation Vote
A more detailed coverage on 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 below.
With three years having passed since Brown Advisory took over the management
of the portfolio in June the Board undertook a detailed review of the Trust's
investment performance, its fee structure and its remit to ensure that they
remain appropriate and relevant. Between 31 March 2021, the date from which
Brown Advisory commenced management, and 31 March 2024 the Trust's NAV rose by
6.4%, compared to an increase in the benchmark of 8.9%, equivalent to
annualised returns over the three years of 2.1% and 2.9% respectively. We had
hoped for better, particularly given our Manager, Brown Advisory's, impressive
long-term performance record in its US smaller companies strategy, which
attracted us to them in the first place and which we have been following since
their appointment.
Over the three-year period, sector allocation was the main detractor to
performance with an underweight position in the oil sector. Stock selection
was more positive, particularly in the more growthy areas of healthcare and
information technology. Key positive contributors to performance over the
three-year period were Biohaven Pharmaceuticals, EVO Payments, Mimecast
Limited, Waste Connections and Curtiss-Wright Corp., while detractors included
Angi, Leslie's, Azenta, Oak Street Health and Natera.
The Board noted that, despite the more challenging market environment, the
managers maintained their investment approach and their search for longterm
compounders that offer durable growth, good governance and a strong
'go-to-market' position, even if this meant missing out on many of the more
momentum-driven and speculative stocks which have led the smaller companies
markets of late.
The Board will continue to monitor closely investment performance, both
absolute and relative, on an ongoing basis.
Finally, the Board, as part of its ongoing review process, considered the fees
charged by the Manager in relation to peers in the closed-end and open-ended
sectors to ensure they remain both appropriate and competitive.
In accordance with the three-year cycle prescribed in the Company's Articles
of Association, a continuation vote was held at last year's Annual General
Meeting. The resolution in favour of continuation was passed with 3,885,193
proxy votes or 90.5 percent in favour. The next continuation vote will take
place at the Annual General Meeting in November 2026. At its Strategy Day in
April, the Board also considered again the Company's investment remit,
strategy and performance and ongoing viability and believes that the Company's
offering remains attractive.
Revenue and Capital Returns
The net gain per Ordinary share was 38.57p, allocated (6.11p) to Revenue and
44.68p to Capital. Dividend income was higher as some companies raised
pay-outs as confidence returned and interest income benefited from the higher
interest rates. With management expenses broadly unchanged, the net revenue
loss was marginally lower
than the previous year. The Board still believes it appropriate to allocate
all expenses to the Revenue account. No distributable revenue is available for
the payment of dividends.
Share Price and Discount
A year ago, the Board amended the Company's share buyback policy which had
been in place for several years. Under the new policy, the Board is committed
to using share buybacks with the aim of reducing discount volatility and
working to reduce any discount to the extent that it is significantly wider
than those of similar investment trusts.
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 that for much of the period the discount was within our tolerated range
we only repurchased 90,000 shares. As at 30 June 2024, the number of shares
held in Treasury was 6,361,254 (2023: 6,271,254) and the total number in
public hands was 11,862,159 (2023: 11,952,159).
Gearing
With the rise in interest rates, a mixed earnings outlook and limited investor
interest in the sector, the Board saw
no good reason to deploy any gearing over the year, and indeed preferred to
hold some cash in hand in case of market setbacks. However, going forward,
should prospects for the smaller company sector improve and investor interest
return, the Board will review its decision to gear, mindful that the ability
to do so to enhance returns is one of the key advantages of a closed-end
structure.
Board Composition
In May, I was pleased to announce the appointment of Ruth Beechey as a
non-executive Director, with effect from 1 July 2024. We were helped in our
search by an external recruitment agency which put forward a strong,
experienced and diverse list of candidates to choose from. Keen to recruit
someone with a legal background to replace the skill set that will be lost
when Lisa Booth steps down, we chose Ruth. We see her bringing considerable
expertise to the Board given her long career as a lawyer in the fund
management industry, first at Deutsche Asset
Management and then at UBS Asset Management UK. She is also a non-executive
director at Legal and General Assurance (Pensions Management) Ltd and the
Investor Forum.
As planned, to coincide with Ruth's arrival Clive Parritt, Senior Independent
Director (SID), stepped down from the Board on 30 June 2024. I am delighted
that his role as SID has been taken on by Jane Routledge. During Clive's time
as a Director the Company benefited hugely from his corporate and accounting
knowledge and business acumen as a former president of the Institute of
Chartered Accountants in England & Wales.
Finally, Lisa Booth will be retiring from the Board at the AGM in November.
For several years, she was Chair of
the Audit and Risk Committee and her background as a lawyer was of great use
to the Company, particularly during the time of our change of Manager. On
behalf of the Board and shareholders I would like therefore to thank both
Clive and Lisa for their contribution to the success of the Company over the
past years and to wish them the very best in the future.
With the full refreshing of the Board since I became Chair in October 2021,
four directors will be presenting themselves for re-election/election at the
AGM in November, Jasper Judd, Jane Routledge, Ruth Beechey and myself.
Although, following the AGM, the Board will only comprise four people, I
believe that this is appropriate for the size and complexity of our Company
and that all the necessary skill sets are represented, be they investment
management, accounting, marketing or legal. If we feel the need for additional
skills and expertise, we always have the scope to go back to five.
The Board is aware of the FCA's Diversity and Inclusion Policy and notes and
supports their targets. Full disclosure of the Board's composition, balance
and diversity is given in the Annual Report. The Board's aim above all is to
create and maintain a Board that has the appropriate mix of skills, diversity
of thought and a collegiate culture drawn from as wide a pool as possible.
Annual General Meeting
This year's AGM will be held on Monday, 4 November 2024 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, Portfolio Manager,
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,
whose details can be found within the Company's Annual Report.
Notice of the AGM, containing full details of the business to be conducted at
the meeting, is set out in the Company's Annual Report.
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 2024, the US economy has continued to perform well, and the
recession forecast by many has again failed to materialise. Consumer spending
has been the linchpin of the economy, driven by jobs growth, rising wages and
the drawdown of savings accumulated from the pandemic period. At the same
time, investment spending has held up well due to government incentives and
the move towards reshoring given the rising geopolitical and supply chain
risks. The Board sees these trends continuing and the US economy remaining
resilient. At the same time,
market expectations are for inflation to move back towards the Fed's targeted
range, enabling the latter to embark on its much-anticipated programme of
interest rate cuts as of the autumn. Certainly, the tone of the US central
bank has been softening over the summer, as evidenced by Jerome Powell's
speech at the recent Jackson Hole symposium where the chair of the Fed
declared that 'the time has come for policy to adjust'.
Against a background of a reasonably healthy economy and falling interest
rates, US equity markets will hopefully
continue nonetheless to perform well. More importantly for us, we see this as
a generally favourable background for smaller companies, particularly given
their long period of underperformance relative to their larger peers. Smaller
companies tend to have higher amounts of debt and at floating rates and thus
benefit proportionally more
as interest rates fall. They tend to be under-owned by investors, particularly
true of late given the massive exposure
that many have built up in the 'Magnificent Seven' stocks and the technology
sector at the expense of all other areas.
They are likely to benefit more from the reshoring trend given their domestic
economy bias and finally they offer
greater value trading at multiples well below their larger peers and their own
long-term averages. That is not to say
that the US smaller company sector won't be affected by bouts of volatility in
world markets resulting from the ongoing geopolitical issues, notably tensions
in East Asia and Ukraine, not to mention closer to home with the forthcoming
presidential election in November in the US.
In conclusion, after a period of dull returns from US small cap, we see a more
favourable picture going forward,
for all the reasons cited above. At the same time, we also see a return to the
fore of our Manager's investment
style with its focus on earnings analysis, cash flow generation and balance
sheet quality, rather than on speculation and momentum. We believe our
portfolio is well placed to take advantage of this situation.
Stephen White
Chairman of the Board
20 September 2024
Portfolio Manager's Review
Performance Review
For the 12 months ending June 30, 2024, our portfolio unfortunately did not
keep up with our benchmark, the Sterling-adjusted Russell 2000 Total Return
Index. During the year, the Company's NAV increased by 2.8% compared to the
benchmark return of 10.7%1. Several factors contributed to this
underperformance, which we'll explain below.
Market Overview
The market has been through some unusual times in the past few years. The
COVID-19 pandemic led to stimulus cheques and very low interest rates, causing
markets to soar. However, in 2022 skyrocketing valuations and rampant
inflation forced the Federal Reserve to take a stricter approach, causing
growth stocks to fall. Traditional
growth sectors like technology and healthcare initially struggled. While
healthcare remains under pressure, the information technology sector rebounded
in late 2023 thanks to innovations like generative artificial intelligence,
leading to a historic period of market concentration.
In the small-cap space, Super Micro Computer, Inc. (SMCI) became the first
company to be included in both the Russell 2000 Index and the S&P 500
Index simultaneously. MicroStrategy Inc. (MSTR), which holds a large position
in bitcoin, also saw staggering gains. The largest 15 names in the Russell
2000 Growth Index produced a weighted average gain of 77.5% in the first half
of 2024 - this is extremely unusual.
Our Strategy's Performance
Our strategy has seen both highs and lows over the last few years. Our
downside protection helped us endure the challenges of 2022, posting a smaller
decline against the benchmark. However, in late 2023, it became increasingly
difficult to keep up with our benchmark as market concentration accelerated
and individual investors swelled.
Individual investors, also known as retail investors, are non-professional
market participants who trade securities for their personal accounts. The
surge in their activity can significantly impact market dynamics, leading to
increased volatility and price shifts.
These market dynamics led to a small-cap benchmark that had become somewhat
distorted, with the largest constituent of the Russell 2000 Index, SMCI,
valued at $46bn by the end of May 2024. The index was rebalanced in late June
2024, removing some of these outliers. Following SMCI's exit from the index,
the maximum market capitalisation drops to just under $11 billion. This
results in an index more aligned with our present portfolio weights. We are
modestly underweight in healthcare and closely aligned with the benchmark in
information technology. Additionally, we are overweight in Industrials,
including a 5%+ position in waste management companies, which are likely
better mapped as utilities or consumer staples.
Our strategy's monthly tracking error has risen from around 1.5% pre-COVID to
nearly 2.4% post COVID. Tracking error measures the difference between the
performance of a portfolio and its benchmark. It is often used to assess how
closely a portfolio follows the index to which it is benchmarked. A higher
tracking error indicates more significant deviations from the benchmark, while
a lower tracking error suggests the portfolio is closely aligned with the
benchmark.
Despite this increase, we remain committed to our philosophy and process.
While our portfolio's relative swings can be significantly positive or
negative over short periods, our portfolio's long-term fortunes will be
governed by the fundamental progress of the companies in which we invest. We
continue to remain active, adding to our winners, reducing or selling poorer
performers, and adding new positions with favourable risk/reward profiles.
Key Factors Impacting Performance
· Most of our fiscal year relative underperformance occurred in the
final weeks of 2023. Our strategy was ahead of the Russell 2000 Index and
roughly tied with the Russell 2000 Growth Index for the calendar year as we
entered the month of November last year. However, people became excited about
the possibility that the Federal Reserve might switch to a less strict policy
which prompted a classic, lower quality, risk-on rally - where investors flock
to higher-risk assets hoping for greater returns - resulting in our higher
quality portfolio struggling. This led to us lagging the Russell 2000 Index by
about 5% during the November-December rally.
· The absence of Super Micro Computer (SMCI) and MicroStrategy (MSTR)
in our portfolio hurt results. Despite examining these stocks over the years,
they did not align with our "3G" investment filter. Russell's decision to
retain these high market cap stocks in the benchmark until very recently
proved detrimental, negatively impacting our relative returns.
· Subpar results in healthcare dampened returns. Compared to the
Russell 2000, we had our largest sector overweight in healthcare during the
fiscal year, and our healthcare stocks returned roughly -10.4% vs. the -1.8%
return for those in the benchmark. Although a few companies underperformed our
expectations, some holdings fell on little negative news.
Additions and Disposals
Over the twelve-month period, we saw a roughly equal number of additions and
deletions in the portfolio. Much
of the turnover was driven by M&A activity and our decision to exit
positions where our investment thesis was no longer valid or where we saw poor
risk/reward dynamics.
Over the twelve-month period, we made several strategic exits from our
portfolio, driven by mergers and acquisitions (M&A) activity, invalidation
of our investment thesis, or again poor risk/reward dynamics.
Specifically, we sold agilon health, Bentley Systems, Knight-Swift
Transportation, XPEL, Inc., Choice Hotels, Genpact, Karuna Therapeutics,
Abcam, Denbury Inc, and Angi Inc. These sales were made to ensure our
portfolio remained aligned with our investment philosophy and to focus on
positions with more favorable risk/reward profiles.
We also exited Definitive Healthcare, Sprout Social, Alignment Healthcare,
Azenta, and Leslie's due to disappointing performance or concerns about future
profitability. Astera Labs and Loar Holdings Inc. were sold after significant
price increases following their IPOs. MakeMyTrip was sold after strong
performance, but we remain cautious about future competition.
We were able to redeploy the proceeds from these sales into a diverse
collection of businesses that we hope to own for the next several years.
Notable additions include Applied Industrial Technologies, a leading
distributor of industrial machinery with strong market positioning;
Haemonetics, which is using its strong cash flow to drive significant earnings
growth through acquisitions; Kadant, a high-quality industrial company with a
proven management team; and Vaxcyte, a biotechnology firm with a promising
pneumococcal vaccine. We believe these companies offer strong
long-term growth potential and align well with our investment philosophy.
Focus on quality decisions
In challenging times, our commitment is to high quality decision-making,
acknowledging that not all choices
will be perfect. Nonetheless, our investment team is actively adding new
prospects to our portfolio, which
we believe will contribute to long-term risk-adjusted performance.
While our investment approach is not constrained by the composition of our
benchmark, the continuing
rise of passive investing means we have to be more aware than ever of the
impact of index inclusion on a
company's share price, particularly during periods of market volatility. As
such, to avoid future oversights
we have enhanced our investment process to ensure we have an informed
perspective on all top index
names that meet our "3G" criteria but we don't yet own.
We're grateful for your patience with short-term performance fluctuations. Our
enduring objective is to outperform small-cap benchmarks with reduced risk, a
goal we've achieved as an investment team over the past 18 years. As the
investment landscape evolves, so too does our strategy, ensuring we stay ahead
in a dynamic market.
Portfolio Manager
Brown Advisory LLC
20 September 2024
Key Performance Indicators
At 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.
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
website www.brownadvisory.com/basc.
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. 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, as detailed in the Annual Report, 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
· it 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 recognises that a continuation vote is scheduled for 2026 but has no
current reason to believe that shareholders will vote against the continuation
of 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.
In addition to those principal risks and uncertainties, the Board considers
that the development of artificial intelligence (AI) presents potential risks
to businesses in almost every sector. The extent of the risk presented by AI
is extremely hard to assess at this point but the Board considers that it is
an emerging risk and, together with the Manager, will monitor developments in
this area.
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.
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.
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.
Share price trading at a discount to NAV - A protracted discount to NAV Discount monitoring: the Board, through the Portfolio Manager and AIFM, keeps
could reduce the attractiveness of the Company's shares. 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 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
including foreign currency risk, market price risk, interest rate risk, controls relating to the Company's financial instruments and maintains a
liquidity risk, credit and counterparty risk, and insufficient revenue closed 'approved broker' list.
forecasting and 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.
Further details of the Company's financial instruments and associated risk
management are included in Note 12 to the Financial Statements.
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 of
Alternative Investment Fund Managers Directive, accounting standards, Investment Companies. In terms of day to day compliance with regulations, the
investment trust regulations, the Listing Rules, Disclosure Guidance and Board is reliant on the knowledge and expertise of the AIFM and Company
Transparency Rules and Prospectus Rules) could result in fines, loss of Secretary. However, where necessary, the Board engages the services of
reputation, reduced demand for the Company's shares and potentially the loss external advisers.
of an advantageous tax regime.
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.
There are coded limits within the Portfolio Manager's dealing systems.
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
Company. regularly horizon scan and consider what they can do to address these risks.
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
20 September 2024
Statement of Comprehensive Income
for the year ended 30 June 2024
2024 2023
Revenue Capital Revenue Capital
Return Return Total Return Return Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains from investments held at fair value through profit or loss
- 5,391 5,391 - 16,474 16,474
Foreign exchange loss - (65) (65) - (746) (746)
Investment income 1,018 - 1,018 873 - 873
Other Income 180 - 180 111 - 111
Total income 1,198 5,326 6,524 984 15,728 16,712
Management fee (1,222) - (1,222) (1,172) - (1,172)
Other expenses (578) (2) (580) (521) (2) (523)
Total expenses (1,800) (2) (1,802) (1,693) (2) (1,695)
Return before taxation (602) 5,324 4,722 (709) 15,726 15,017
Taxation (126) - (126) (106) 396 290
Net return after taxation (728) 5,324 4,596 (815) 16,122 15,307
Net return per Ordinary share (6.11)p 44.68p 38.57p (6.82)p 134.89p 128.07p
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 2024
2024 2023
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 165,925 159,134
Current assets
Debtors 79 67
Cash at bank and in hand 9,722 12,444
9,801 12,511
Creditors: amounts falling due within one year (1,182) (498)
Net current assets 8,619 12,013
Total assets less current liabilities 174,544 171,147
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 - capital reserve 149,973 145,848
Retained earnings - revenue reserve (10,003) (9,275)
Total shareholders' funds 174,544 171,147
Net asset value per Ordinary share (pence) 1,471.4p 1,431.9p
The financial statements were approved by the Board of Directors and signed on
its behalf on 20 September 2024.
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 2024
Called up Share Non-distributable Capital Capital Revenue Total
share
Premium
reserves
Redemption
reserve†
reserve†*
capital
reserve
for the year ended 30 June 2024 £'000 £'000 £'000 £'000 £'000 £'000 £'000
1 July 2023 4,555 19,550 841 9,628 145,848 (9,275) 171,147
Repurchase of Ordinary shares to be held in treasury - - - - (1,199) - (1,199)
Net return for the year - - - - 5,324 (728) 4,596
Balance at 30 June 2024 4,555 19,550 841 9,628 149,973 (10,003) 174,544
Called up Share Non-distributable Capital Capital Revenue Total
share
Premium
reserves
Redemption
reserve
reserve*
capital
reserve
for the year ended 30 June 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
1 July 2022 4,555 19,550 841 9,628 129,726 (8,460) 155,840
Net return for the year - - - - 16,122 (815) 15,307
for the year ended 30 June 2023 4,555 19,550 841 9,628 145,848 (9,275) 171,147
† Retained earnings comprise the total of Capital reserve and Revenue
reserve.
* Dividends are only payable from the Revenue Return element of Retained
Earnings.
Statement of Cash Flows
for the year ended 30 June 2024
2024 2023
£'000
£'000
Cash flows from operating activities
Investment income received (gross) 1,018 869
Deposit interest received 180 111
Investment management fee paid (1,217) (1,149)
Other cash expenses (568) (652)
Net cash outflow from operating activities before taxation and interest (587) (821)
Taxation (126) 533
Net cash outflow from operating activities (713) (288)
Cash flows from investing activities
Purchases of investments (42,125) (42,203)
Sales of investments 41,380 47,463
Net cash (outflow)/inflow from investing activities (745) 5,260
Cash flows from financing activities
Repurchase of ordinary shares into Treasury (1,199) -
Net cash outflow from financing activities (1,199) -
(Decrease)/increase in cash (2,657) 4,972
Cash and cash equivalents at the start of the year 12,444 8,218
Realised loss on foreign currency (65) (746)
Cash and cash equivalents at end of the year 9,722 12,444
Reconciliation of net cash outflow from operating activities
2024 2023
£'000
£'000
Net return before finance costs and taxation 4,722 15,017
Gain on investments (5,391) (16,474)
Realised loss on foreign currency 65 746
Decrease in Debtors (12) (6)
Increase in other creditors and accruals 29 (104)
Net cash inflow from operating activities before interest and taxation (587) (821)
Analysis of changes in net debt
At 30 June 2023 Cash Flow Non-cash movements At 30 June 2024
£'000
£'000
£'000
Cash at bank 12,444 (2,657) (65) 9,722
12,444 (2,657) (65) 9,722
Notes to the Accounts for the year ended 30 June 2024
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 2024. 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 2024 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 July 2022.
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 in July 2022.
In accordance with FRS 102, the Company is required to identify its 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 identified functional and
presentation 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.
(b) Principal accounting policies
(i) Financial instruments Financial instruments include fixed asset
investments and derivative assets and liabilities.
Accounting standards recognise a hierarchy of fair value measurements for
financial instruments which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (level 1) and the
lowest priority to unobservable inputs (level 3). The classification of
financial instruments depends on the lowest significant applicable input, as
follows:
Level 1 - Unadjusted, fully accessible and current quoted prices in active
markets for identical assets or liabilities. Included within this category are
investments listed on any recognised stock exchange.
Level 2 - Quoted prices for similar assets or liabilities, or other directly
or indirectly observable inputs which exist for the duration of the period of
investment. Examples of such instruments would be those for which the quoted
price has been recently suspended, forward exchange contracts and certain
other derivative instruments.
Level 3 - External inputs are unobservable.
Fair value is the Directors' best estimate, based on advice from relevant
knowledgeable experts, use of recognised valuation techniques and on
assumptions as to what inputs other market participants would apply in pricing
the same or similar instruments. Included within this category are unquoted
investments.
(ii) Fixed asset investments As an investment trust, the Company measures its
fixed asset investments at "fair value through profit or loss" and treats all
transactions on the realisation and revaluation of investments as transactions
on the capital account. Purchases are recognised on the relevant trade date,
inclusive of expenses which are incidental to their acquisition. Sales are
also recognised on the trade date, after deducting expenses incidental to the
sales.
Quoted investments are valued at bid value at the close of business on the
relevant date on the exchange on which the investment is quoted.
(iii) Foreign currency
Monetary assets, monetary liabilities and equity investments denominated in a
foreign currency are expressed in sterling at rates of exchange ruling at the
Statement of Financial Position date. Purchases and sales of investment
securities, dividend income, interest income and expenses are translated at
the rates of exchange prevailing at the respective dates of such transactions.
Foreign exchange profits and losses on fixed asset investments are included
within the changes in fair value in the capital account.
Foreign exchange profits and losses on other currency balances are separately
credited or charged to the
capital account except where they relate to revenue items when they are
credited or charged to the revenue
account.
(iv) Income
Income from equity shares is brought into the revenue account (except where,
in the opinion of the Directors, its nature indicates it should be recognised
within the capital account) on the ex-dividend date or, where no ex-dividend
date is quoted, when the Company's right to receive payment is established.
Dividends from overseas companies are shown gross of withholding tax.
Where the Company has elected to receive its dividends in the form of
additional shares rather than in cash (scrip dividends), the amount of the
cash dividend foregone is recognised as income. Any excess in the value of the
shares received over the amount of the cash dividend foregone is recognised in
the capital account.
(v) Expenses, including finance charges
Expenses are charged to the revenue account of the Income Statement, except as
noted below:
- expenses incidental to the acquisition or disposal of fixed asset
investments are included within the cost of the investments or deducted from
the disposal proceeds of investments and are thus charged to the capital
element of retained earnings - arising on investments sold via the capital
account; and
- all expenses are accounted for on an accruals basis. Finance charges are
accrued using the effective interest rate method.
(vi) Taxation
Withholding tax deducted at source from income received is treated as part of
the taxation charge in the income account, in instances where it cannot be
recovered.
Deferred tax is provided in accordance with FRS 102, on an undiscounted basis,
on all timing differences that have originated but not reversed by the
Statement of Financial Position date, based on the tax rates that are expected
to apply in the period when the liability is settled or the asset realised.
Deferred tax assets are only recognised if it is considered more likely than
not that there will be suitable profits from which the future reversal of
timing differences can be deducted.
In line with the recommendations of the SORP, the allocation method used to
calculate the tax relief on expenses charged to capital is the "marginal"
basis. Under this basis, if taxable income is capable of being offset entirely
by expenses charged through the revenue account, then no tax relief is
transferred to the capital account.
(vii) Capital redemption reserve
The nominal value of Ordinary share capital purchased and cancelled is
transferred out of called-up share capital and into the capital redemption
reserve.
Capital redemption reserve is not available for the payment of dividends.
(viii) Retained earnings
This consists of the following:
Capital return
The following are accounted for in this reserve:
· gains and losses on the realisation of fixed asset investments;
· increases and decreases in the valuation of fixed asset investments
held at the year end;
· realised and unrealised foreign exchange differences of a capital
nature;
· tax charges associated with transactions of a capital nature;
· costs of professional advice, including related irrecoverable VAT,
relating to the capital structure of the Company;
· other capital charges and credits charged or credited to this
account in accordance with the above policies; and
· the costs of purchasing Ordinary share capital.
Revenue return
· the income return or loss for the year is taken to the income
element of this reserve.
This element of the retained earnings reserve may be used to fund the
distribution of profits to investors via dividend payments only when this is
in a surplus position. Currently there is an accumulated loss and therefore no
distributions can be paid.
(c) 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 shown in Notes 4 and 5.
3. Income
2024 2023
£'000 £'000
Investment Income
Dividends from United Kingdom companies 45 24
Dividends from overseas companies 973 849
1,018 873
Other income
Deposit interest 180 111
180 111
Total income 1,198 984
4. Management fee
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee - 1,222 1,172 - 1,172
1,222
1,222 - 1,222 1,172 - 1,172
5. Other expenses
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors' remuneration 169 - 169 151 - 151
Auditor's remuneration - audit of the company 63 - 63 52 - 52
Other expenses 346 2 348 318 2 320
578 2 580 521 2 523
6. Taxation
(a) Analysis of tax charge/(credit) in the year:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas tax charge relating to the current year 126 - 126 106 - 106
Overseas tax (credit) relating to the prior year - - - - (396) (396)
Total tax (see Note 7b) 126 - 126 106 (396) (290)
(b) Factors affecting current tax (credit)/charge for the year
The tax assessed for the year is lower than (2023: lower) the Company's
applicable rate of corporation tax of 25.00% (2023: 20.50%). The differences
are explained below:
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return before taxation (612) 5,325 4,713 (709) 15,726 15,017
Corporation tax at 25.00% (2023: 20.50%) (151) 1,331 1,180 (146) 3,224 3,078
Effects of:
Tax free loss on investments - (1,332) (1,332) - (3,224) (3,224)
Non-taxable income received (234) - (234) (162) - (162)
Capital expenses deductible for tax purposes - 1 1 - - -
Overseas tax relating to the current year 126 - 126 106 - 106
Overseas tax relating to the prior year - - - - (396) (396)
Unutilised management expenses for the year 385 - 385 308 - 308
Total tax charge/(credit) for the year 126 - 126 106 (396) (290)
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 £5,841,000 (2023: £5,461,000)
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.
7. Net return/(loss) per Ordinary share
The return per Ordinary share figure is based on the net profit for the year
of £4,596,536 (2023: Profit £15,307,432), and on 11,918,279 (2023:
11,952,159) 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.
2024 2023
£'000 £'000
Net revenue loss (728) (815)
Net capital return 5,324 16,122
Net total return 4,596 15,307
Weighted average number of Ordinary shares in issue during the year 11,918,279 11,952,159
Revenue loss per Ordinary share (6.11)p (6.82)p
Capital return per Ordinary share 44.68p 134.89p
Total return per Ordinary share 38.57p 128.07p
8. Investments held as at fair value through profit or loss
(a) Portfolio investments
2024 2023
£'000
£'000
Valuation at beginning of year 159,134 147,856
Investment holding gains at beginning of year 2,809 17,962
Cost at beginning of year 161,943 165,818
Purchases at cost 42,780 42,267
Sales at cost (44,781) (46,142)
Cost at end of year 159,942 161,943
Investment holding gains/(losses) at end of year 5,983 (2,809)
Valuation at end of year 165,925 159,134
Investments listed overseas 165,925 159,134
165,925 159,134
(b) Gains on investments
2024 2023
£'000
£'000
Net (loss)/gain on sale of investments (3,401) 1,321
Movement in investment holding gains 8,792 15,153
Gains on investments 5,391 16,474
9. Transaction Costs
During the year expenses were incurred in acquiring or disposing of
investments classified as fair value through profit or loss. These have been
expensed through capital and are included within gains (2023: gains) on
investments in the Income Statement. The total costs were as follows:
2024 2023
£'000
£'000
Purchases 32 44
Sales 34 29
Total 66 73
10. Debtors
2024 2023
£'000
£'000
Prepayments and accrued income 22 10
Dividends receivable 57 57
79 67
11. Creditors: amounts falling due within one year
2024 2023
£'000
£'000
Management fee 303 298
Other creditors and accruals 123 98
Purchases awaiting settlement 756 102
1,182 498
12. Financial Instruments
Background
The Company's financial instruments comprise securities and other investments,
cash balances and term
loans, debtors and creditors that arise directly from its operations, for
example, in respect of sales and
purchases of investments awaiting settlement and debtors for accrued income.
The numerical disclosures below exclude
short-term debtors and creditors which are denominated in sterling and do not
incur interest and therefore
are not subject to foreign currency risk or interest rate risk.
The principal risks the Company faces in its portfolio management activities
are:
- foreign currency risk
- market price risk
- interest rate risk
- liquidity risk
- credit and counterparty risk
The Portfolio Manager's policies for managing these risks are summarised below
and have been applied
throughout the year.
(a) Foreign Currency Risk
A substantial portion of the financial assets of the Company are denominated
in US Dollars with the
result that the Statement of Financial Position and Income Statement can be
significantly affected by
currency movements.
The Company normally takes account of this risk when making investment
decisions although it could
hedge against foreign currency movements affecting the value of the investment
portfolio where
adverse movements are anticipated.
Foreign currency sensitivity
The principal currency to which the Company was exposed during the year was
the US Dollar as all
investments are quoted in that currency. The exchange rates applying against
sterling at 30 June and
the average rates during the year ended 30 June were as follows:
2024 2023
At 30 June Average for At 30 June Average for
the year the year
US Dollar 1.2641 1.2594 1.2714 1.2041
1.2641 1.2594 1.2714 1.2041
The following tables illustrate the sensitivity of the profit after tax for
the year and net assets to exchange
rates for sterling against the US Dollar. It assumes the following changes in
exchange rates:
£/US Dollar +/- 5% (2023: +/- 10%)
These percentages have been determined based on market volatility in exchange
rates over the
previous twelve months. The sensitivity analysis is based on the company's
foreign currency financial
instruments held at the date of each Statement of Financial Position.
If sterling had weakened by 5% (2023: 10%) against the currencies this would
have had the following
effect on revenue, capital, total return and, accordingly, net assets:
Impact on 2024 Total Impact on 2023 Total
revenue Impact on revenue Impact on
return capital return capital
return return
£'000 £'000 £'000 £'000 £'000 £'000
US Dollar (58) 8,296 8,238 (111) 15,913 15,802
(58) 8,296 8,238 (111) 15,913 15,802
If sterling had strengthened by 5% (2023: 10%) against the currencies below
this would have had the
following effect:
Impact on 2024 Total Impact on 2023 Total
revenue Impact on revenue Impact on
return capital return capital
return return
£'000 £'000 £'000 £'000 £'000 £'000
US Dollar 58 (8,296) (8,238) 111 (15,913) (15,802)
58 (8,296) (8,238) 111 (15,913) (15,802)
(b) Market Price Risk
By the very nature of its activities, the Company's investments are exposed to
market price fluctuations.
The board reviews and agrees policies for managing this risk. The investment
adviser assesses the
exposure to market price risk when making each investment decision, and
monitors the overall level of
market price risk on the whole of the investment portfolio on an ongoing
basis. Further information on
the investment portfolio and investment policy is set out in the Portfolio
Manager's Review above.
Other price risk sensitivity
The following illustrates the sensitivity of the profit after taxation for the
year and the total equity to
an increase or decrease of 20% (2023: 20%) in the fair value of the Company's
equities. This level of
change is considered to be reasonably possible based on observation of market
conditions during the
year. The sensitivity analysis is based on the Company's equities at each
reporting date, with all other
variables held constant.
The impact of a 20% increase in the value of investments on the revenue loss
for the year to 30 June
2024 is a decrease of £232,000 (2023: £223,000) and on the capital return is
an increase of
£33,185,000 (2023: £31,827,000).
The impact of a 20% fall in the value of investments on the revenue loss for
the year to 30 June 2024
is an increase of £232,000 (2023: £223,000) and on the capital return is a
decrease of £33,185,000
(2023: £31,827,000).
(c) Interest rate risk
Interest rate movements may affect:
- the fair value of investments of fixed interest securities,
- the level of income receivable from any floating interest-bearing securities
and cash at bank and
on deposit, and
- the interest payable on floating interest term loans.
The financial assets (excluding short-term debtors) consist of:
Cash flow 2024 Total Cash flow 2023 Total
interest No interest No
rate risk interest rate risk interest
rate risk rate risk
£'000 £'000 £'000 £'000 £'000 £'000
GBP 2,853 - 2,853 - - -
US Dollar 6,869 - 6,869 12,444 - 12,444
9,722 - 9,722 12,444 - 12,444
The floating interest rate risk assets consist of cash deposits at call.
The financial liabilities consist of:
Fixed 2024 Total Fixed 2023 Total
rate Non-interest rate Non-interest
bearing bearing
£'000 £'000 £'000 £'000 £'000 £'000
US Dollar - 426 426 - 102 102
GBP - 756 756 - 396 396
- 1,182 1,182 - 498 498
(d) Liquidity risk
Liquidity risk is not considered significant. All liabilities are payable
within three months. The Company's
assets comprise mainly readily realisable securities which can be sold to meet
funding requirements if
necessary.
(e) Credit and Counterparty Risk
Credit risk is the exposure to loss from the failure of a counterparty to
deliver securities or cash for
acquisitions or disposals of investments or to repay deposits. The Company
manages credit risk by
using brokers from a database of approved brokers who have undergone due
diligence tests by the
Portfolio Manager's Best Execution Committee and by dealing through JPMCB with
banks authorised
by the Financial Conduct Authority. Any derivative positions are marked to
market and exposure to
counterparties is monitored on a daily basis by the Portfolio Manager; the
Board reviews it on a quarterly
basis. The maximum exposure to credit risk at 30 June 2024 was £9,801,000
(2023: £12,511,000).
The calculation is based on the Company's credit exposure as at 30 June 2024
and may not be
representative of the year as a whole.
(f) Fair value of financial assets and financial liabilities
The financial assets and financial liabilities are carried in the Statement of
Financial Position at their fair
value or the statement amount is a reasonable approximation of fair value (due
from brokers, dividends
and interest receivable, due to brokers, accruals and cash at bank).
Fair Value hierarchy
FRS102 - section 34.22 on Financial Instruments requires an entity to classify
fair value measurements
using fair value hierarchy that reflects the significance of the inputs used
in making the measurements.
The fair value hierarchy shall have the following levels:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by
comparison with other observable
current market transactions in the same instrument or based on a valuation
technique whose variables
includes only data from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole
or in part using a valuation
technique based on assumptions that are not supported by prices from
observable market transactions
in the instrument and not based on available observable market data. The
financial assets measured at
fair value in the Statement of Financial Position are grouped into the fair
value hierarchy as follows:
2024 2023
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investments 165,925 - - 165,925 159,134 - - 159,134
(g) Use of derivatives
In order to enhance returns, the Company may take short positions (using
contracts for difference) in
respect of a small number of larger capital securities. There were no
derivative positions held at the year
end (2023: nil).
13. Paid-up share capital
2024 2023
Number £'000 Number £'000
Ordinary shares of 25p each
Balance brought forward 11,952,159 2,987 11,952,159 2,987
Ordinary shares repurchased into treasury (90,000) (23) - -
Closing balance of Ordinary shares 11,862,159 2,964 11,952,159 2,987
Treasury shares
Balance brought forward 6,271,254 1,568 6,271,254 1,568
Repurchase of Ordinary shares into treasury 90,000 23 - -
Closing balance of Ordinary shares held in treasury 6,361,254 1,591 6,271,254 1,568
Total 4,555 4,555
14. Net asset value per Ordinary share
The net asset value per Ordinary share is based on the net assets attributable
to the equity shareholders of £174,544,000 (2023: £171,147,000) and on
11,862,159 (2023: 11,952,159) Ordinary shares, being the number of Ordinary
shares in issue at the year end.
15. 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 2024.
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 2023 to 30 June 2024 was £1,222,000 (payable to FundRock Partners
Limited for the period from 1 July 2022 to 30 June 2023: £1,172,000) with
£303,000 outstanding as at 30 June 2024 (2023: £298,000).
The appointment of Brown Advisory and FundRock Partners Limited may be
terminated by not less than six months' notice.
16. Contingent liabilities and capital commitments
There were no contingent liabilities or capital commitments outstanding at 30
June 2024 (2023: nil).
17. Annual results
This Annual Results announcement does not constitute the Company's statutory
accounts for the years ended 30 June 2023 and 30 June 2024 but is derived from
those accounts. Statutory accounts for the year ended 30 June 2023 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 30 June 2023 and the year ended 30 June 2024 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 2024 will
be delivered to the Registrar of Companies.
18. Other information
The Annual General Meeting of the Company will be held on 4 November 2024.
A copy of the Annual Report & Accounts for the year ended 30 June 2024
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
ukfundscosec@apexgroup.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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