TIDMBASC
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 30 June
2022 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
Chris Berrier, Portfolio Manager +44 203 301 8130
FundRock Partners Limited, Company ukfundscosec@apexfs.com
Secretary +44 203 994 7129
Limor Gonen
Singer Capital Markets, Broker
to the Company
Robert Peel
Asha Chotai + 44 207 496 3000
TB Cardew, Financial PR to BASC 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 ) 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
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 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 30 June 2022
2022
Market Percentage Market Percentage
value of Portfolio value of Portfolio
------------------------ --------------
Company Sector GBP'000 GBP'000
------------------------ -------- -------- --------------
Waste Connections
Waste management services
company. Industrials 6,134 4.0 5,611 3.8
------------------------ -------- -------------- -------- --------------
Genpact
Business process management Information
services. Technology 5,725 3.7 5,943 4.0
------------------------ -------- -------------- -------- --------------
Prosperity Bancshares
Provision of financial
products and solutions. Financials 4,839 3.2 4,446 3.0
------------------------ -------- -------------- -------- --------------
SPDR S&P Biotech
ETF
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. Biotechnology 4,674 3.1 - -
------------------------ -------- -------------- -------- --------------
Casey's General Stores
Convenience store
chain. Consumer Staples 3,936 2.6 3,581 2.4
------------------------ -------- -------------- -------- --------------
Evo Payments A
Payment technology
and services provider. Industrials 3,744 2.4 5,835 3.9
------------------------ -------- -------------- -------- --------------
Neurocrine Biosciences
Biopharmaceutical
company that focuses
on therapeutics for
neuropsychiatric,
neuroinflammatory
and neurodegenerative
diseases and disorders. Healthcare 3,717 2.4 2,970 2.0
------------------------ -------- -------------- -------- --------------
Bright Horizons Family
Solutions
Childcare and early
education services. Consumer Discretionary 3,642 2.4 4,054 2.7
------------------------ -------- -------------- -------- --------------
Workiva
Cloud-based enterprise Information
software. Technology 3,410 2.2 2,585 1.8
------------------------ -------- -------------- -------- --------------
ChampionX
Provider of chemistry
programs and services
for global upstream
oil and natural gas
industry. Energy 3,353 2.2 968 0.6
------------------------ -------- -------------- -------- --------------
HB Fuller
Adhesives, sealants,
coatings, paints,
and other specialty
chemical products. Materials 3,271 2.1 2,562 1.8
------------------------ -------- -------------- -------- --------------
HealthEquity
Service platforms
that allow consumers
to make healthcare
saving and spending
decisions. Healthcare 2,957 1.9 2,633 1.8
------------------------ -------- -------------- -------- --------------
Dynatrace
Software intelligence
platform based on Information
artificial intelligence. Technology 2,944 1.9 2,521 1.7
------------------------ -------- -------------- -------- --------------
Churchill Downs
Gaming entertainment
company. Consumer Discretionary 2,924 1.9 2,808 1.9
------------------------ -------- -------------- -------- --------------
Denbury
Oil and natural gas
company which acquires,
develops, operates,
and explores oil and
gas properties. Energy 2,740 1.8 - -
------------------------ -------- -------------- -------- --------------
Blackline
Cloud-based enterprise Information
software. Technology 2,669 1.7 2,585 1.8
------------------------ -------- -------------- -------- --------------
Bruker
Scientific instruments
for molecular and
materials research. Healthcare 2,612 1.7 2,346 1.6
------------------------ -------- -------------- -------- --------------
Quaker Chemical
Custom-formulated
chemical specialty
products. Materials 2,559 1.7 2,246 1.5
------------------------ -------- -------------- -------- --------------
Phreesia
Healthcare software. Healthcare 2,550 1.7 1,405 0.9
------------------------ -------- -------------- -------- --------------
Pinterest A
Online product and
idea discovery platform
that helps users gather Communication
ideas on everything. Services 2,544 1.7 - -
------------------------ -------- -------------- -------- --------------
Total 70,944 46.3
-------- -------------- -------- --------------
The value of the twenty largest equity holdings represents
GBP70.9 million (30 June 2022: GBP70.2 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 Six months to 31 December
2022 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 30 June 2022
2022
(unaudited) (audited)
GBP'000 GBP'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 Capital
up share Share Non-distributable redemption Retained
capital premium reserve reserve earnings Total
For the six months
to 31 December
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Capital
up share Share Non-distributable redemption Retained
capital premium reserve reserve earnings Total
For the six months
to 31 December
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Capital
up share Share Non-distributable redemption Retained
capital premium reserve reserve earnings Total
For the year
ended 30 June
2022 (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Six months to
to 31 December 31 December 2021
2022
GBP'000 GBP'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 Six months to
to 31 December 31 December 2021
2022
GBP'000 GBP'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 Six months to
to 31 December 31 December 2021
2022
GBP'000 GBP'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 Net assets Net asset Net assets
value per share attributable value per share attributable
attributable attributable
(p) GBP'000 (p) GBP'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 GBP164,910,000 (30 June 2022: GBP155,840,000) 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 Level Level Total Level Level Level Total
1 2 3 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'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 GBP200 million; 0.6% of the next GBP300 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 GBP583,000. For the period 1
July 2021 to 31 December 2021 the fee payable was GBP627,000.
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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