Brown Advisory US - Half Yearly Results to 31 December 2022
15/02/2023 07:00
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RNS Number : 9170P Brown Advisory US Smaller Cos. PLC 15 February 2023
Brown Advisory US Smaller Companies PLC (the 'Company' or 'BASC')
Legal Entity Identifier: 549300HKKL9K1NY4TW55
Half yearly financial results for the six months ended 31 December 2022
(unaudited)
Financial highlights for the six months ended 31 December 2022
Ordinary share performance
31 December 2022 30 June 2022 % change
Net asset value (pence)* 1,379.75 1,303.87 +5.8
Closing price (pence) 1,185.00 1,105.00 +7.2
Russell 2000 Total Return Index (sterling adjusted) 7,643.50 7,308.48 +4.6
Discount to net asset value (%)* (14.1) (15.3) -
Ongoing charges ratio (%)* 0.96 0.97 -
* Alternative performance measure
Stephen White, Chairman, Brown Advisory US Smaller Companies PLC, said: "It
was encouraging to see US smaller companies hold their own against their
larger peers for the six months ended 31 December 2022. BASC's NAV per share
made an absolute gain of 5.8%, which is a welcome achievement after the
setback in markets during the prior financial year and compares favourably
with the 4.6% gain in the benchmark. There are grounds for believing the US
peak in inflation has now been seen, meaning the path towards lower interest
rates should become evident. This will favour US equities again and, most
likely, US smaller companies given their sensitivity to the domestic economy
and their attractive valuations. We remain confident that our Portfolio
Manager has the firepower and will take advantage of any market opportunities
as they present themselves."
Chris Berrier, Portfolio Manager, Brown Advisory US Smaller Companies PLC,
said: "During the period, stock selection was by far the largest positive
contributor to returns and enabled our more growth-oriented portfolio to
outperform its core benchmark. Although 2022 was a challenging year, there is
a silver lining as small-caps are now trading below their historical average
valuation levels and look particularly compelling compared to large-cap peers.
Furthermore, after multiple years of abnormal lower-quality company
outperformance, we are encouraged to see a regime shift to higher-quality
entities which would be a welcome change, turning a strategy headwind into a
potential tailwind. While we believe that the set-up for small-caps has
improved, our outlook is for continued volatility as we move into an uncertain
2023 across a number of dimensions, but we will nonetheless strive to take
advantage of market swings to drive sound, risk-adjusted returns in the years
to come."
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 (mailto:ukfundscosec@apexfs.com)
Limor Gonen +44 203 994 7129
Singer Capital Markets, Broker to the Company + 44 207 496 3000
Robert Peel
Asha Chotai
TB Cardew, Financial PR to BASC brownadvisory@tbcardew.com (mailto:brownadvisory@tbcardew.com)
Tom Allison 07789 998020
Tania Wild 07425 536903
Henry Crane 07918 207157
Chairman's statement
Dear Fellow Shareholder
I am pleased to report that for the six months ended 31 December 2022, your
Company's net asset value (NAV) per share rose from 1303.87p to 1379.75p, an
increase of 5.8%. This absolute gain is a welcome achievement after the
setback in markets during the Company's prior financial year. It also compares
favourably with the 4.6% gain in the Company's benchmark, the sterling
adjusted Russell 2000 Total Return index, over the same period. Furthermore,
it was encouraging to see US smaller companies, after a lengthy period of
relative underperformance, once again holding their own against their larger
US peers, notably the S&P 500 and the Nasdaq.
Over the six months, the Company's share price rose from 1105.00p to 1185.00p.
This resulted in a small narrowing of the discount from 15.3% to 14.1%. No
shares were bought back during the period under review.
Market Review
Equity markets worldwide began the period under review on an unsettled note,
having fallen sharply in the six months before, and the US smaller company
segment was no exception.
During the first half of 2022, Russia's unexpected invasion of Ukraine, an
ensuing surge in inflation as energy and other commodity prices soared, and an
abrupt change in monetary policy by the Federal Reserve as it pushed up
interest rates aggressively to combat inflation and regain credibility, had
all weighed on markets, with major declines seen in both equity and bond
prices.
Having reached their low point in the early summer, US equity markets started
to pick up again as news on the domestic economy and the corporate sector
proved generally supportive and hopes grew that the Federal Reserve might soon
pivot its stance if it was to prevent a major fall in business activity.
However, such hopes were well and truly quashed at the end of the summer as
the chairman of the Federal Reserve, Mr Jerome Powell, stressed at the Jackson
Hole symposium that the need to get back to price stability would require
maintaining a restrictive policy for some time. Share prices fell in response,
returning to their summer lows. Thereafter, the US equity markets traded on
lower volumes within a relatively narrow trading range, only edging a little
higher towards the period end. The dollar was modestly stronger versus the
pound over the half year and thus UK investors received small additional gains
in Sterling.
Within the US markets, as interest rates rose, the rotation continued away
from the highly rated growth stocks, notably in technology, that had led the
earlier bull market, to the more perceived value plays in areas such as energy
and financials. Investors became less tolerant of earnings misses and of
companies with no earnings, while merger and acquisition activity declined
markedly. Smaller companies saw the same trends, but managed to do somewhat
better than their larger peers as they benefited from some rotational return
of interest away from the mega caps. Over the period, in US dollar terms the
Russell 2000 achieved a total return of 3.9%, compared to 2.3% from the
S&P 500 and -4.7% from the Nasdaq.
Portfolio Manager
More detailed coverage on the development of the US smaller company sector
over the past six months and our activity and performance is included in the
Portfolio Manager's review.
In October, the Board was pleased to make its first visit to Brown Advisory's
offices in Baltimore to meet with Chris Berrier and his team in order to
develop our understanding of their investment process and gain deeper
knowledge of the portfolio. The visit was a success and gave us a much better
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 31 December 2022, which was a difficult period for markets, the decline in
the Company's NAV was held at 5.2%, outperforming the benchmark, which fell by
7.0%.
Share Price and Discount
As mentioned in previous reports, it is the Board's policy to use share
buybacks with the intention that over a period and in normal market conditions
the market price of its shares is limited to around 10% discount to NAV per
share.
Over the period under review, the Company's share price rose 7.2% from
1105.00p to 1185.00p. This helped to narrow the discount to NAV from 15.3% on
30 June 2022 to 14.1% on 31 December 2022. Given the continuing volatility in
markets during the period under review and the fact that for much of the
period the shares' discount traded within our tolerated range we decided not
to buy back any shares.
As at 31 December 2022, the number of shares held in treasury was unchanged at
6,271,254 and the total number outside treasury at 11,952,159.
Gearing
Given the still troubled political and economic background and continuing
market volatility, the Board was reluctant to take on gearing during the
period. However, going forward and should conditions improve and the outlook
brighten, the Board will review its decision, mindful that the ability to gear
to enhance returns is one of the advantages of a closed-end vehicle.
Environment, 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 they use their regular meetings with companies to
discuss and challenge investee management teams 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
As part of our succession planning, I mentioned in my statement in last year's
annual report that we had begun the search for a new director as audit chair
designate to take over eventually from Lisa Booth. I was therefore very
pleased to announce in September the appointment of Jasper Judd to the Board
as a non-executive director. Jasper is a Chartered Accountant and currently a
non-executive director and audit chair of JPMorgan Indian Investment Trust PLC
and of Dunedin Income Growth Investment Trust PLC, as well as a non-executive
director of Schroders Asian Total Return Investment Company. Previously, he
had a long career in industry.
After a period of induction, Jasper has now taken on the role of audit chair
from Lisa. I should like therefore to take this opportunity to thank Lisa for
all her hard work and commitment as previous audit chair and for organising a
very smooth handover.
Lastly and sadly, Tina Soderlund-Boley let us know in January that she had
accepted a position at Slättö Förvaltning AB which had arisen unexpectedly.
The Board considered the time commitments required by this role and agreed
that Tina would stand down once a replacement non-executive director had been
appointed. On behalf of the Board, I would like to thank Tina for all her
contribution to the Company over the past three years, particularly in
marketing matters, and wish her every success in her new appointment.
Shareholder Communications
The Board encourages shareholder to visit the Company's website
(www.brownadvisory.com/basc (http://www.brownadvisory.com/basc) ) for the
latest information, podcasts and monthly factsheets.
Outlook
Although it is good to see equity markets regaining some ground this year
after a very dismal 2022, they still face many headwinds. The Russia/Ukraine
war continues to drag on with no signs of resolution, but ever-present risks
of escalation. Growth is slowing in most developed economies with a
possibility that some of them will fall into recession at some stage this
year. Inflation in goods and services remains high and this, coupled with
tight labour markets, puts corporate margins at risk. Finally, and most
importantly, the era of low interest rates and low bond yields and an
accommodative Federal Reserve has come to an end. The US central bank is
determined not only to bring inflation back towards its sustained 2.0% target,
but to be seen to be back in control. Interest rates seem likely to rise
further and stay high for as long as need be. While these factors remain in
place, markets might find it difficult to make much headway and could continue
to fluctuate within the trading range set over the past six months.
Looking further out, however, we have cause to be more optimistic. There are
grounds for believing that the peak in inflation in the US has now been seen.
The latest monthly figures have been trending lower, the prices of energy and
many commodities are back to near their pre-war levels, supplies are less
scarce and falling demand is eroding many companies' pricing power. Should
this be the case, and eventually acknowledged by the monetary authorities, the
path towards lower interest rates should become evident, and any recession in
the US might then be more modest. Such a scenario would favour US equities
again, and most likely US smaller companies given their sensitivity to the
domestic economy, their attractive valuations and their underperformance
relative to their larger peers over the past few years. With cash on hand and
the ability to gear, our Portfolio Manager has the skills and firepower to
take advantage of any market opportunities in the meantime.
Stephen White
Chairman
15 February 2023
Portfolio Manager's review
During the six-month period ended 31 December 2022, the NAV per share of the
Company rose by 5.8%. This compares to an increase of 4.6% in the Company's
benchmark, the sterling adjusted Russell 2000 Total Return Index. The
favourable relative results were driven by stock selection. Our team continues
to assess our opportunity set regularly as we operate during a time of
heightened volatility in both the macroeconomic and the equity market
backdrops. We know that we have limited ability to predict the future, but we
certainly attempt to prepare for it.
As a reminder to our Shareholders, even though our stated benchmark is the
sterling adjusted Russell 2000 Total Return Index, our strategy, in
composition, tends to be a bit more growth-oriented. This stems from our
philosophy to harness the power of compounding. We generally seek out
businesses that possess the ability to scale into much larger organizations
over a multi-year time frame. Our "3G" (durable Growth, sound Governance and
scalable Go-to-market strategies) investment framework is utilized to centre
our analytical team's attention on these unique, long-term investments. Based
on the company characteristics we desire, the average company in our portfolio
is typically of above average "quality" when compared to the average small-cap
business. When we pair this aspect of the strategy with an attempt to drive
adequate diversification and maintain a valuation discipline, we have
historically been able to mitigate some of the downside risk of investing in
the small-cap asset class. To summarize - in American football terms - we play
offense with our security selection and defense with our portfolio
architecture.
Looking back at the trailing six-month period, it was a nice reprieve from the
very challenging equity market experienced in the first half of 2022. Although
small-caps finished nicely above their 52-week lows, it was still a punishing
year. However, there is a silver lining. Small-cap stocks are now trading
below their historical average valuation level and look particularly
compelling when compared to their large-cap peers. In addition, it is no
secret that many of the mega-cap companies have been experiencing difficult
times - a factor that typically helps the return prospects of smaller
companies. Furthermore, at the portfolio level, we are very encouraged that
after multiple years of abnormal lower-quality company outperformance, we are
seeing a regime shift to higher-quality entities. Per our comments above, this
would be a welcome macro-economic change, turning a strategy headwind into a
potential tailwind.
Our optimism regarding the potential for perhaps some enduring leadership for
smaller caps is not without acknowledging the volatile and uncertain world we
inhabit. While valuations are lower, a slowing macroeconomic environment is
likely to pressure future earnings, making close scrutiny of company
fundamentals essential. At present, we are constantly sifting through top-down
and bottom-up information to attempt to better understand the prospects for
our holdings in 2023 and beyond. We are also looking back at our mistakes of
the past six months in the hope of improving ourselves as investors as we
strive to improve both our relative and absolute results in the years to
come.
In order to shed some light on recent results, let's first examine our
high-level attribution. Stock selection was, by far, the largest positive
contributor to returns. At the sector level, we witnessed an outsized gain
coming from the information technology sector, while consumer discretionary
weighed on results. Over the long-term, we expect our idiosyncratic bets to
drive most of our outperformance and we certainly hope to achieve a balanced
contribution across sectors.
Since our strategy is driven from the bottom-up, let's highlight a few of the
major contributors and detractors for the period. Please keep in mind that, at
times, the small-cap space can be volatile. Thus, when we examine the
quarterly, semi-annual or annual performance of our holdings, we are mostly
concerned with how their fundamental results are tracking against our original
investment thesis. We strive to prudently let our winners run and consistently
cull our losers from the portfolio.
During the period, our top three contributors came from multiple sectors. EVO
Payments (EVOP), a merchant acquirer and our largest holding, rose nearly 44%
on its proposed acquisition by Global Payments. ChampionX Corporation (CHX), a
specialty chemical company operating in the oil and gas space and a recent
addition to the portfolio, gained nearly 47% as an improved outlook for growth
and margins catalysed the stock off of a relatively low valuation. Finally,
Casey's General Store, a long-term holding operating in the convenience store
industry, continued its march higher, rising nearly 22% on solid in-store
performance and highly resilient fuel margins.
On the negative side of the ledger, our bottom three stocks were down about
30% on average. In healthcare, agilon health inc. (AGL) is a newly public
company focused on value-based care, predominantly aimed at the Medicare
Advantage population. While we believe the company is tracking well against
our thesis, some of its peers have struggled, making investors question the
steep projected improvement in cash flow for the next few years. Angi Inc.
(ANGI), the leading online marketplace for residential services, was
negatively impacted by the sharp rise in interest rates, prompting a slowdown
in certain of its home services categories. We believe that under a new CEO
the company should improve its profitability in 2023, enabling a bounce in the
share price off depressed levels. Finally, and most surprisingly, Bright
Horizons Family Solutions Inc. (BFAM), a position we have held for a long time
in the child and educational services space, failed to show its historical
resilience and predictability due to labour shortages that slowed the
trajectory of financial improvement coming out of COVID-19. While we believe
underlying demand remains strong, it certainly has taken longer than
originally anticipated for the company to return and eclipse prior highs in
earnings and free cash flow.
Clearly, as you can see from the above, we were not perfect over the trailing
six months. However, overall stock selection was strong and enabled a more
growth-oriented portfolio to outperform its core benchmark. While we are
pleased with this result and encouraged that the set-up for small-cap equities
has improved, our outlook is for continued volatility as we move into a highly
uncertain environment in 2023 across a number of dimensions. Against this
backdrop, we will strive to leverage our knowledge of the small-cap universe
to take advantage of the wild mood swings of Mr. Market with the goal of
driving sound, risk-adjusted returns for our shareholders in the years to
come.
Brown Advisory LLC
Portfolio Manager
15 February 2023
Environmental, Social and Governance (ESG) Report
Overview of Brown Advisory's commitment to sustainable investing
Brown Advisory has a long history of serving clients focused on sustainable
investing and we are deeply committed to this space.
We believe that sustainable investing is smart investing - it's a potential
path to investment performance, a way to reflect your values, an opportunity
to make an impact on the world. We clarify the principles, philosophy and
processes that guide our sustainable investing work in our Institutional
Sustainable Investing Polic
(https://www.brownadvisory.com/sites/default/files/Sustainable%20Investing%20Policy%20Statement.pdf)
y.
We think differently about how ESG factors can drive investment results in
that we believe ESG factors are an important element in identifying investment
opportunities that can outperform over the long term. For many of our
strategies, we conduct proprietary ESG research across both equity and fixed
income sectors, while also leveraging available quantitative tools and third
party ESG research, as appropriate. There is still a shortage of meaningful
ESG data in the market. Therefore, for those 'sustainable' strategies on our
platform, it is crucial to do our own fundamental research in an effort to
understand the impact of our investments, both financially and sustainably.
Brown Advisory's portfolio managers use this research to various degrees, with
those strategies on our sustainable investing platform, fully integrating this
research into their investment decision-making process.
We believe our approach to sustainable investing is comprehensive, rigorous
and based on our ability to evaluate a broad range of sectors. Importantly,
our deep ESG experience stems from a decade-plus track record coupled with a
granular methodology of analysing individual companies and other issuers.
Together, we believe these foundations enable well-informed assessments of
ESG-related risks and sustainable opportunities. We aim to deliver a wide
range of equity and fixed income solutions to our clients, with many solutions
focusing on integrating fundamental and ESG research in a manner that we
believe improves our investment decisions and leads to better performance over
time.
Team
Brown Advisory has a team
(https://www.brownadvisory.com/intl/people?field_discipline_target_id=966&title=&field_location_new_target_id=All&sort_order_1=select&sort_by=field_last_name_value&sort_order=ASC&page=0)
of colleagues who are wholly or largely dedicated to our sustainable investing
practice. Several of these colleagues form part of our ESG Research Team,
which consists predominantly of ESG equity research analysts and ESG fixed
income research analysts. Our ESG research analysts are a core component of
the firm's broader equity and fixed income investment research team. They work
together across asset classes to develop overarching ESG research tools, and
to provide research coverage of overlapping portfolio names that are held or
are being considered for both equity and fixed income portfolios. At the same
time, the equity and fixed income ESG analysts are fully integrated members of
the research teams for their respective asset classes, working closely with
fundamental analysts and portfolio managers to guide portfolio decisions for
strategies making use of the firm's ESG research tools. We believe this
approach helps us to maintain consistent standards across asset classes while
also seeking to embed ESG research deeply within the decision-making process
for sustainable investments.
Brown Advisory also has a Sustainable Investing Advisory Board. This board was
developed to help us focus on our business strategy as we build out our
sustainable investing capabilities beyond our ESG focused strategies. Among
the strategic guidance that this board provides, they advise our investment
teams as to how they might consider incorporating ESG factors into investment
decisions in ways that have clear fundamental benefits. The board includes
members from Brown Advisory, as well as external sustainable investing
experts.
ESG research integration into the investment process
Brown Advisory's investment philosophy is rooted in the belief that bottom-up
fundamental research can drive long-term outperformance, and this belief
supports the Brown Advisory US Smaller Companies portfolio's commitment to ESG
research as well. We believe that there are elements of ESG research that are
inherent to fundamental analysis and, whenever relevant, consider these in
investment decisions.
The "3G" investment filter that the portfolio managers employ within the Brown
Advisory US Smaller Companies portfolio seeks the following factors when
evaluating new investments: growth, governance, and go-to-market strategy. The
governance factors that companies should possess include a capable and
shareholder-friendly management team, a diverse and appropriate Board
structure, well-structured and aligned incentives, and more. The portfolio
managers invest in companies where management teams take all risks to
fundamental performance seriously, including any material environmental or
social risks. Furthermore, the portfolio managers are provided access to Brown
Advisory's ESG research, tools and third-party ESG research. The portfolio
managers utilise these tools to varying degrees to assist with investment
decision-making. For example, the portfolio managers may request that our ESG
research analysts conduct an ESG assessment of a company or assist with
engagement and proxy voting related to ESG topics. In particular, ESG research
analysts provide guidance to the Portfolio Manager on how to vote on
shareholder proposals. The portfolio managers are also provided with a summary
of their portfolio from an ESG perspective on a quarterly basis, including
identifying any significant ESG risks or controversies. These reports ensure
the portfolio managers maintain awareness of how the strategy is positioned
from an ESG perspective. The portfolio's output has often met ESG standards
for our clients. The Company does not, however, manage its portfolio to a
specific ESG policy.
Brown Advisory LLC
Portfolio Manager
15 February 2023
Twenty largest holdings as at 31 December 2022
31 December 2022 30 June 2022
Market value Percentage Market value Percentage
of Portfolio of Portfolio
Company Sector £'000 £'000
Waste Connections Industrials 6,134 4.0 5,611 3.8
Waste management services company.
Genpact Information Technology 5,725 3.7 5,943 4.0
Business process management services.
Prosperity Bancshares Financials 4,839 3.2 4,446 3.0
Provision of financial products and solutions.
SPDR S&P Biotech ETF Biotechnology 4,674 3.1 - -
ETF which seeks to track the performance of S&P Biotechnology Select
Industry Index. This Index is composed of U.S.-listed equities in the
biotechnology sector.
Casey's General Stores Consumer Staples 3,936 2.6 3,581 2.4
Convenience store chain.
Evo Payments A Industrials 3,744 2.4 5,835 3.9
Payment technology and services provider.
Neurocrine Biosciences Healthcare 3,717 2.4 2,970 2.0
Biopharmaceutical company that focuses on therapeutics for neuropsychiatric,
neuroinflammatory and neurodegenerative diseases and disorders.
Bright Horizons Family Solutions Consumer Discretionary 3,642 2.4 4,054 2.7
Childcare and early education services.
Workiva Information Technology 3,410 2.2 2,585 1.8
Cloud-based enterprise software.
ChampionX Energy 3,353 2.2 968 0.6
Provider of chemistry programs and services for global upstream oil and
natural gas industry.
HB Fuller Materials 3,271 2.1 2,562 1.8
Adhesives, sealants, coatings, paints, and other specialty chemical products.
HealthEquity Healthcare 2,957 1.9 2,633 1.8
Service platforms that allow consumers to make healthcare saving and spending
decisions.
Dynatrace Information Technology 2,944 1.9 2,521 1.7
Software intelligence platform based on artificial intelligence.
Churchill Downs Consumer Discretionary 2,924 1.9 2,808 1.9
Gaming entertainment company.
Denbury Energy 2,740 1.8 - -
Oil and natural gas company which acquires, develops, operates, and explores
oil and gas properties.
Blackline Information Technology 2,669 1.7 2,585 1.8
Cloud-based enterprise software.
Bruker Healthcare 2,612 1.7 2,346 1.6
Scientific instruments for molecular and materials research.
Quaker Chemical Materials 2,559 1.7 2,246 1.5
Custom-formulated chemical specialty products.
Phreesia Healthcare 2,550 1.7 1,405 0.9
Healthcare software.
Pinterest A Communication Services 2,544 1.7 - -
Online product and idea discovery platform that helps users gather ideas on
everything.
Total 70,944 46.3
The value of the twenty largest equity holdings represents £70.9 million (30
June 2022: £70.2 million) and 46.3% (30 June 2022: 47.5%) of the Company's
total investments.
As at 30 June 2022 and 31 December 2022, none of the Company's assets were
invested in the securities of other listed closed-ended investment companies.
Interim management report
Related party transactions
During the first six months of the current financial year no transactions with
related parties have taken place which have materially affected the financial
position or performance of the Company. Details of related party transactions
are contained in the Annual Report & Accounts for the year ended 30 June
2022.
Principal and emerging risks and uncertainties
The Company is exposed to the effect of variations in the price of its
investments. A fall in the value of its portfolio will have an adverse effect
on shareholders' funds. It is not the aim of the Board to eliminate entirely
the risk of capital loss; rather it aims to seek capital growth. The Board
reviews the Company's investment strategy and the risk of adverse share price
movements at its quarterly board meetings considering the economic climate,
market conditions and other factors that may have an effect on the sectors in
which the Company invests. Other key risks faced by the Company relate to
liquidity risk, the discount to net asset value, regulatory risk, credit and
counterparty risk, loss of key personnel, and operational and financial risks.
Further details of the principal and emerging risks and uncertainties
associated with the Company's
business are set out in the Annual Report & Accounts for the year ended 30
June 2022. In the view of the Board, these principal and emerging risks and
uncertainties continue to apply and they are constantly under review.
Going concern
The Half Yearly Financial Report has been prepared on a going concern basis.
The Directors consider that this is the appropriate basis as they have a
reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future. In
considering this, the Directors
took into account the Company's investment objective, risk management policies
and capital management policies, the diversified portfolio of readily
realisable securities which can be used
to meet short-term funding commitments and the ability of the Company to meet
all of its liabilities
and ongoing expenses.
Directors' responsibility statement
The Directors confirm to the best of their knowledge that:
(a) the condensed set of financial statements, prepared in accordance with the
applicable set of
accounting standards, gives a true and fair view of the assets, liabilities,
financial position and profit
or loss of the Company at, or, as applicable, for the period ended 31 December
2022.
(b) the Chairman's statement, the Portfolio Manager's review and the interim
management
report include a fair review of the information required by Disclosure
Guidance and Transparency
Rule 4.2.7R; and
(c) the interim management report includes a fair review of the information
required by Disclosure
Guidance and Transparency Rule 4.2.8R on related party transactions.
The Half Yearly Financial Report has not been audited or reviewed by the
Company's auditors.
For and on behalf of the Board
Stephen White
Chairman
15 February 2023
Income statement
For the six months ended 31 December 2022 (unaudited)
Six months to 31 December 2022 Six months to 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains from investments held at fair value through profit or loss (Note 2) - 9,184 9,184 - 1,996 1,996
Currency exchange (loss)/gain - (40) (40) - 259 259
Investment income 452 - 452 350 - 350
Total income 452 9,144 9,596 350 2,255 2,605
Management fee (583) - (583) (627) - (627)
Other expenses (234) (1) (235) (249) - (249)
(Loss)/return before finance costs and taxation
(365) 9,143 8,778 (526) 2,255 1,729
(Loss)/return before taxation (365) 9,143 8,778 (526) 2,255 1,729
Taxation 292 - 292 (58) - (58)
Net (loss)/return after taxation (73) 9,143 9,070 (584) 2,255 1,671
Net (loss)/return per Ordinary share (Note 3)
(0.62)p 76.50p 75.88p (4.88)p 18.85p 13.97p
The total column of this statement is the profit and loss account of the
Company prepared in accordance with UK Generally Accepted Accounting Practice
('UK GAAP').
The 'Revenue' and 'Capital' columns represent supplementary information
prepared under guidance issued by the Association of Investment Companies.
All items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the period.
The financial information does not constitute 'accounts' as defined in section
434 of the Companies Act 2006.
Statement of financial position
As at 31 December 2022 (unaudited)
31 December 2022 30 June 2022
(unaudited) (audited)
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 153,015 147,856
Current assets
Debtors 453 304
Cash at bank and in hand 11,867 8,218
12,320 8,522
Creditors: amounts falling due within one year (425) (538)
Net current assets 11,895 7,984
Total assets less current liabilities 164,910 155,840
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* (Note 8) 130,336 121,266
Total shareholders' funds 164,910 155,840
Net asset value per Ordinary share (Note 6) 1,379.75p 1,303.87p
* Under the Company's Articles of Association any dividends may be distributed
only from the revenue element of retained earnings and, as at 31 December
2022, there were no available earnings of this type.
Statement of changes in equity
For the six months ended 31 December 2022 (unaudited)
Called up share capital Share premium Non-distributable reserve Capital redemption reserve Retained earnings Total
For the six months to 31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 July 2022 4,555 19,550 841 9,628 121,266 155,840
Net return for the period - - - - 9,070 9,070
Balance at 31 December 2022
4,555 19,550 841 9,628 130,336 164,910
Called up share capital Share premium Non-distributable reserve Capital redemption reserve Retained earnings Total
For the six months to 31 December 2021 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 July 2021 4,555 19,550 841 9,628 146,852 181,426
Repurchase of Ordinary shares to be held in treasury
- - - - (173) (173)
Net return for the period - - - - 1,671 1,671
Balance at 31 December 2021
4,555 19,550 841 9,628 148,350 182,924
Called up share capital Share premium Non-distributable reserve Capital redemption reserve Retained earnings Total
For the year ended 30 June 2022 (audited) £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 July 2021 4,555 19,550 841 9,628 146,852 181,426
Repurchase of Ordinary shares to be held in treasury - - - - (174) (174)
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
Notes to the accounts
For the six months to 31 December 2022
1. Accounting policies
The accounting policies applied for the condensed financial statements are as
set out in the Company's Annual Report & Accounts for the year ended 30
June 2022. They have been applied consistently during the period ended 31
December 2022.
FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has
been applied in preparing the financial statements included in this half
yearly report.
Basis of accounting
The accounts of the Company are prepared on a going concern basis under the
historical cost convention, modified to include fixed asset investments at
fair value through profit or loss and in accordance with the Companies Act
2006, UK GAAP 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 November 2014 and updated in
April 2021.
The functional and reporting currency of the Company is pounds sterling
because that is the currency of the primary economic environment in which the
Company operates.
In accordance with the SORP, the Income Statement has been analysed between a
revenue account (dealing with items of a revenue nature) and a capital account
(relating to items of a capital nature). Revenue returns include, but are not
limited to, dividend income, operating expenses and tax. Net revenue returns
are allocated via the revenue account to the retained earnings, out of which
dividend payments may be made. Capital returns include, but are not limited
to, profits and losses on the disposal and revaluation of fixed asset
investments and currency profits and losses on cash and borrowings. Net
capital returns may not be distributed by way of dividend and are allocated
via the capital account to the retained earnings.
2. Gains on investments held at fair value through profit or loss
Six months to 31 December 2022 Six months to 31 December 2021
£'000 £'000
Net gains realised on sale of investments 1,901 2,467
Movement in investment holdings gains/(losses) 7,283 (471)
Gains on investments held at fair value through profit or loss 9,184 1,996
3. Return per Ordinary share
Six months to 31 December 2022 Six months to 31 December 2021
£'000 £'000
Net revenue loss (73) (584)
Net capital return 9,143 2,255
Net total return 9,070 1,671
Weighted average number of Ordinary shares in issue during the period
11,952,159 11,958,858
Net loss per Ordinary share (0.62)p (4.88)p
Net capital return per Ordinary share 76.50p 18.85p
Net return per Ordinary share 75.88p 13.97p
4. Transaction costs
During the period, 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 on investments in the
Income Statement. The total costs were as follows:
Six months to 31 December 2022 Six months to 31 December 2021
£'000 £'000
Purchases 27 18
Sales 19 11
Total 46 29
5. Comparative information
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. The
financial information for the six months to 31 December 2022 and 31 December
2021 has not been audited.
The information for the year ended 30 June 2022 has been extracted from the
latest published audited financial statements. The audited financial
statements for the year ended 30 June 2022 have been filed with Companies
House. The report of the auditors on those accounts contained no qualification
or statement under section 498(2) or (3) of the Companies Act 2006.
6. Net asset value per Ordinary share
The net asset value per Ordinary share as at 31 December 2022, calculated in
accordance with the Articles of Association, was as follows:
31 December 2022 30 June 2022
Net asset value per share attributable Net assets attributable Net asset value per share attributable Net assets attributable
(p) £'000 (p) £'000
Ordinary shares 1,379.75 164,910 1,303.87 155,840
Net asset value per Ordinary share on the balance sheet is based on net assets
of £164,910,000 (30 June 2022: £155,840,000) and on 11,952,159 (30 June
2022: 11,952,159) Ordinary shares, being the number of Ordinary shares in
issue at the end of the period.
7. Fair valuation of investments
The fair value hierarchy analysis for investments held at fair value at the
period end is as follows:
31 December 2022 30 June 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investments 153,015 - - 153,015 147,856 - - 147,856
Financial instruments include fixed asset investments, 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. 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.
8. Retained earnings
The table below shows the movement in the retained earnings analysed between
revenue and capital items:
Revenue return Capital return Total
£'000 £'000 £'000
Balance at 1 July 2022 (8,230) 129,496 121,266
Net (loss)/return for the period (73) 9,143 9,070
Balance at 31 December 2022 (8,303) 138,639 130,336
9. Related parties and transactions with the manager
FundRock has been appointed as AIFM to the Company pursuant to an Alternative
Investment Fund Management Agreement between FundRock and the Company.
FundRock has also been appointed to provide company secretarial services to
the Company.
Brown Advisory has been appointed to provide portfolio management services
pursuant to a Portfolio Management Agreement between the Company, FundRock and
Brown Advisory.
The management fee has been 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, 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 investment management fee payable to FundRock for the period 1 July 2022
to 31 December 2022 was £583,000. For the period 1 July 2021 to 31 December
2021 the fee payable was £627,000.
The appointment of Brown Advisory and FundRock may be terminated by not less
than six months' notice.
There are no transactions with the directors other than the remuneration paid
to the directors as disclosed in the Directors' Remuneration Report on pages
45 to 48 of the 2022 Annual Report & Accounts and as set out in Note 5 to
the Accounts on page 65 and the beneficial interests of the directors in the
ordinary shares of the Company as disclosed on page 47 of the 2022 Annual
Report & Accounts.
Availability of Half Yearly Financial Report
The Half Yearly Financial Report will shortly be available on the Company's
website www.brownadvisory.com/basc
A copy of the Half Yearly Financial Report will also be submitted to the
National Storage Mechanism and will soon be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
End
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