4
BROWN ADVISORY
US SMALLER
COMPANIES PLC
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
BROWN ADVISORY US SMALLER COMPANIES PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 30 JUNE 2023
1
FOR THE YEAR ENDED 30 JUNE 2023
Contents
Introduction to Brown Advisory US Smaller Companies PLC
2
Investment Objective, Investment Policy and Benchmark Index
5
Strategic Report
Financial Highlights
7
Chairman’s Statement
8
Portfolio Manager’s Review
12
Twenty Largest Holdings
15
List of Investments
19
Portfolio Manager’s ESG Report
24
Strategic Report
25
Report of the Directors and Governance
Directors
34
Report of the Directors
36
Corporate Governance
44
Report of the Audit and Risk Committee
48
Directors’ Remuneration Report and Policy
51
Statement of Directors’ Responsibilities
55
Independent Auditor’s Report
56
Financial Statements
Income Statement
64
Statement of Financial Position
65
Statement of Changes in Equity
66
Notes to the Financial Statements
67
Company Information
80
Investor Information
81
Important Risk Warnings
83
Glossary of Terms including Alternative Performance Measures
84
Annual General Meeting
Notice of Annual General Meeting
86
Notes for the Annual General Meeting
88
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
2
What does Brown Advisory US Smaller Companies PLC (the “Company”) do?
The Company aims to achieve long-term capital growth by investing in a diversified portfolio of quoted US
smaller and medium-sized companies.
Who is it suitable for?
Brown Advisory manages the Company’s portfolio on behalf of individual investors and wealth managers.
The Company provides a cost-eective way to access the large, entrepreneurial group of smaller
companies in the world’s largest economy – the United States of America. For individuals who are willing
to invest over the long-term, these companies often outperform their large-cap peers (as the chart on the
following page demonstrates) so make for a compelling investment opportunity.
How is Brown Advisory US Smaller Companies invested?
Managed by Chris Berrier and George Sakellaris, CFA, of the US-based investment manager, Brown
Advisory, the Company focuses on businesses with strong growth potential, scalable go-to-market
strategies and well-aligned management and shareholder interests. The resulting portfolio is diversified
across sectors, business models and economic cycles.
The power of compounding – the managers recognise the potential of compounding in order to achieve
long-term, risk-adjusted returns. Therefore, they seek to invest in companies that present above average
capital growth rates.
Harnessing their local knowledge and innovative research approach, they aim to capitalise on market
ineciencies in valuations and invest in businesses that exhibit what they refer to as “3G” qualities:
Out of a universe of over 2,000 companies, this process reduces the available market to around 500
companies, while the portfolio itself is typically made up of 70-80 of these companies.
Benchmark agnostic – while the Company’s performance is measured against the sterling adjusted Russell
2000 Total Return Index, the managers are not beholden to this benchmark – individual sector and security
weightings are driven by their rigorous stock selection process.
Introduction to Brown Advisory US Smaller Companies PLC
3
FOR THE YEAR ENDED 30 JUNE 2023
Why invest in US smaller companies?
US-based smaller companies include an exciting and dynamic group of growing businesses that typically
demonstrate high innovation and strong entrepreneurial cultures.
Over half of global smaller companies – more than 2,000 companies – are listed in the US, creating a
huge opportunity.
US smaller companies oer a deep and liquid market but are typically not as well covered by sell-side
research analysts as their larger counterparts, creating ineciencies and missed opportunities that
Brown Advisory aims to exploit.
A US stock market listing means there are high governance hurdles relative to some of their global peers,
considerably reducing the risk profile of US smaller companies.
Over the long-term, small and mid-caps have outperformed large-cap companies
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$1 invested at 31/12/1925 as of 12/03/2023
Small-Cap
Mid-Cap
Large-Cap
32,517
25,688
12,375
Source: Furey Research Partners, FactSet, CRSP, Ibbotson; as at 31/03/2023.
Past performance is not a guarantee of future performance and investors may not get back the amount invested.
Why have the directors of Brown Advisory US Smaller Companies PLC appointed
Brown Advisory as the Portfolio Manager?
Chris Berrier and George Sakellaris, CFA, the portfolio leads between them have more than 44 years’
experience investing in US small and mid-caps and are supported by a large team of fundamental,
investigative and environmental, social and governance (ESG) analysts. Based in the US, the team have
direct access to the companies in which they invest.
Brown Advisory has more than 25 years’ experience of investing in small and medium-sized companies in
the US and within its broader US Small-Cap Growth strategy it manages $6.6bn*. The firm benefits from
an extensive network of venture capital, private equity and corporate relationships, which helps provide a
strong overview of the broader small to mid-sized company market.
*As at 30/06/2023
Introduction to Brown Advisory US Smaller Companies PLC (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
4
Brown Advisory believes that disciplined, bottom-up research, coupled with teamwork and the free
exchange of ideas amongst colleagues, are the keys to achieving long-term outperformance. The
combination of its investment philosophy and its client-first culture were important factors in the Board’s
decision to appoint Brown Advisory as the Company’s Portfolio Manager.
4
Introduction to Brown Advisory US Smaller Companies PLC (continued)
5
FOR THE YEAR ENDED 30 JUNE 2023
Investment Objective, Investment
Policy and Benchmark Index
Investment Objective
The Company’s objective is to achieve long-term capital growth by investing in a diversified
portfolio consisting primarily of quoted US smaller and medium-sized companies.
FOR THE YEAR ENDED 30 JUNE 2023
5
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
6
Investment Policy
The Portfolio Manager takes a disciplined approach to investment, emphasising long-term risk-adjusted
returns. The Portfolio Manager believes that the US smaller and medium-sized company sector is a diverse
and dynamic part of the North American market and continues to provide opportunities for capital growth
over the long term. The sector is highly diversified with a great many companies from which to choose.
Many companies are relatively immature, whether financially or operationally or in terms of management
or market position. They tend to be highly geared to growth and are particularly vulnerable to market and
other changes.
Against this background, the Company has adopted an investment style that focuses on companies
with durable growth, scalable go-to-market strategies and well-aligned management and shareholder
interests, and whose shares are considered by the Portfolio Manager to oer above-average capital growth
at attractive valuations. The Portfolio Manager believes that this is an excellent approach to long-term
investment in this sector.
Investment Limits
The Board has prescribed limits on the investment policy, including:
The Portfolio will comprise at all times a minimum of 40 securities (excluding cash);
No single holding shall constitute more than 5% of total assets at the time of investment;
No derivative instruments (excluding warrants) may be held without the prior approval of the Board;
Investments in unlisted securities shall not exceed 5% of total assets at the time of investment and any
such investments shall require prior Board approval;
The Company shall not make any new investments in other UK listed investment companies;
In any event, not more than 10% in aggregate of the total assets of the Company, and any of its
subsidiaries, may be invested in other closed-ended investment funds (including listed investment
trusts) whether or not such funds have stated investment policies to invest no more than 15% of their
total assets in other listed closed-ended investment funds (including listed investment trusts);
Borrowings, including overdraft facilities, shall not exceed 20% of the Company’s total assets and shall
require prior Board approval;
The Company shall not take legal or management control over any investments in its portfolio.
Benchmark Index
Sterling adjusted Russell 2000 Total Return Index (the ‘benchmark’).
THE COMPANY IS A MEMBER OF THE
Investment Objective, Investment Policy and Benchmark (continued)
7
FOR THE YEAR ENDED 30 JUNE 2023
Financial Highlights for the year ended 30 June 2023
Ordinary Share Performance
30 June
2023
30 June
2022
% change
Net asset value (pence)
1
1,431.9 1,303.9 +9.8
Closing price (pence) 1,220.0 1,105.0 +10.4
Russell 2000 Total Return Index (sterling adjusted) 7,860.0 7,308.5 +7.5
Discount to net asset value (%)
1
(14.8) (15.3) –
Ongoing charges ratio (%)
1
1.00 0.97 –
Ten year record
Year ended 30 June
Net
assets
£’000
Net
asset
value
per
Ordinary
share
p
Ye ar -
on-year
change in
net asset
value per
Ordinary
share
%
Ye a r -
on-year
change in
Benchmark
Index
%
2014 164,957 686.3 +11.0 +9.8
2015 174,033 724.1 +5.5 +15.8
2016 174,163 787.3 +8.7 +9.7
2017 181,687 911.1 +15.7 +28.2
2018 163,339 1,103.4 +21.1 +15.7
2019 161,520 1,152.7 +4.5 +0.3
2020 145,011 1,116.3 -3.2 -3.8
2021 181,426 1,516.3 +35.8 +45.1
2022 155,840 1,303.9 -14.0 -15.2
2023 171,147 1,431.9 +9.8 +7.5
1
For definitions of the above Alternative Performance Measures please refer to the Glossary of Terms on pages 84 and 85.
Strategic Report
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
8
Dear Fellow Shareholder
I am pleased to report that for the year ended
30 June 2023, your Company’s net asset value
(NAV) per share rose from 1,303.9p to 1.431.9p,
an increase of 9.8%. This compares favourably
with the 7.5% gain in the Company’s benchmark,
the sterling adjusted Russell 2000 Total Return
Index, over the same period. It was encouraging
to see the US smaller company sector generate
a positive return again after a very disappointing
performance in the previous year, even if it still
lagged those of its larger peers, the S&P500 and
the tech-heavy Nasdaq.
Over the twelve months under review, the
Company’s share price rose from 1,105.00p to
1,220.00p, an increase of 10.4%. This resulted in
a small narrowing of the discount to NAV from
15.3% on 30 June 2022 to 14.8% on 30 June
2023. No shares were bought in or issued during
the year, as touched on below.
Market Review
In the first nine months of our financial year, US
equity markets lost ground. The geopolitical
background worsened as China/US relations
deteriorated and the war in Ukraine ground
on with no signs of resolution. Supply chain
problems remained an issue, while at home in the
US the inflation numbers continued to come in
stubbornly above expectations. This persuaded
the Federal Reserve to stick firmly to its policy of
raising interest rates to rein in inflation. Despite
the Federal Reserve’s actions, the US economy
continued to hold up well, supported by better-
than-expected employment numbers and by
the willingness of consumers to spend savings
accumulated during the pandemic. Corporate
results were also largely positive. Unsurprisingly,
with interest rates rising sharply, merger and
acquisition activity fell o, and with many
investors preferring to sit on the side-lines and
merely add to their money market funds, volumes
on the exchanges dwindled. For much of this
period, as interest rates rose there was some
rotation within the markets back towards more
‘value’ stocks and away from the highly rated
names, notably those in tech, that had led the
earlier bull market. The smaller company asset
class followed a similar trend.
However, the mood changed in the last four
months of our financial year as a potential
financial crisis erupted in the regional banks. With
rising interest rates encouraging depositors to
look elsewhere for higher yields, several regional
banks suered significant outflows of liquidity,
which could only be met through realising
their loan and bond portfolios at a loss. Most
notable of these was Silicon Valley Bank which
eectively collapsed. Only through swift action
by the authorities with injections of liquidity and
takeovers by stronger peers was the turmoil
brought to heel. Given the potential risks to the
economy from such a situation, bond yields
eased again as investors speculated on whether
the peak in rates was nearing, despite continuing
Federal Reserve rhetoric to the contrary. With
hopes of an imminent peak in interest rates
and news on the economy remaining generally
positive, the stock market enjoyed another lift in
the run up to our financial year end. That said,
the major winners were again the narrow group
of technology mega-caps that had led the market
before, rather than the broader market or the
smaller company asset class.
Over the year, in US dollar terms, the Russell 2000
Index returned 12.3%, the S&P 500 returned
19.6% and the Nasdaq Composite returned
26.1%. Although the pound suered a weak patch
last autumn at the time of the unsettling changes
in British Prime Minister, it recovered thereafter to
end the financial year slightly higher, thus eroding
some of the equity market gains for sterling-based
investors.
Portfolio Manager and Continuation
Vote
A more detailed coverage of the development
of the US smaller company sector over the past
twelve months and our activity and performance
is included in the Portfolio Manager’s Review on
pages 12 to 14.
As I mentioned in our most recent half yearly
report, the Board was pleased in October to visit
the Baltimore oces of our Portfolio Manager,
Brown Advisory, and to review in detail with
Chris Berrier and his team their investment
process and strengthen our knowledge of the
Chairman’s Statement
9
FOR THE YEAR ENDED 30 JUNE 2023
portfolio. The visit gave us an enhanced insight
into the investment operations in Baltimore.
Between 31 March 2021, the date on which
Brown Advisory took over the management of the
portfolio, and 30 June 2023, a mixed period for
markets, the decline in the Company’s NAV was
held at 1.6%, compared to a negative return of
4.9% from the Company’s benchmark over the
same period.
In accordance with the three-year cycle
prescribed in the Company’s Articles of
Association, there will be a continuation vote
at this year’s Annual General Meeting (AGM)
(please see AGM details below). The Board has
considered the Company’s investment remit,
strategy, performance and ongoing viability and
believes that the Company’s oering remains
attractive. Accordingly, the Board strongly
recommends that shareholders vote in favour of
the continuation of the Company in its present
form, which as fellow shareholders they will be
doing themselves.
Revenue and Capital Returns
The net gain per Ordinary share was 128.07p,
split (6.82p) to Revenue and 134.89p to Capital.
Dividend income was higher as some companies
raised pay-outs again as confidence returned and
interest income benefited from the rise in rates.
With management expenses broadly unchanged,
the net revenue loss was thus marginally lower. We
still believe it appropriate to allocate all expenses
to the Revenue account. No distributable revenue
is available for the payment of dividends.
Share Price and Discount
After careful consideration, the Board has
amended the Company’s share buyback policy
that has been in place for several years. The
revised policy will see the Board committed to
using share buybacks with the aim of reducing
discount volatility and working to reduce any
discount should it become significantly wider
than those of similar investment trusts. It
believes this to be in shareholders’ interests. In
determining whether to buy back shares, the
Board will consider, amongst other factors, and
at its discretion, the size of the Company, general
market conditions and sentiment, the liquidity in
the shares and discounts in the investment trust
sector overall.
Alongside this share buyback policy, the Board
believes that the Company’s discount will also
be driven by demand for the Company’s shares,
reflecting its long-term investment performance,
its relevance to investors, the appropriate
marketing of the Company and general market
conditions.
Given the continuing volatility in markets during
the period under review and to allow further
time for our Portfolio Manager to build and
market its performance record, we considered it
inappropriate to buy in any shares in this period.
As at 30 June 2023, the number of shares held
in treasury was unchanged at 6,271,254 and the
total number in public hands was also unchanged
at 11,952,159.
Gearing
As an investment trust, the Company may use
gearing for investment purposes to enhance
returns. However, over the past year the Board,
taking into consideration the views of the Portfolio
Manager regarding investment opportunities
and outlook, did not feel it appropriate to deploy
gearing given the continuing unsettled geopolitical
and economic background and resultant market
volatility. Should conditions improve and the
outlook become more certain, the Board will
review its decision to gear, as it is mindful that the
ability to gear to enhance returns is considered
one of the advantages of a closed-end vehicle.
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 it uses its regular meetings with management
to discuss and challenge them on their adherence
to best practice. Further information on the
Portfolio Manager’s approach to ESG matters is
set out in the ESG Report on page 24.
Chairman’s Statement (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
10
Board Composition
In our half yearly report, I noted that we would
be looking for a replacement non-executive
director for Tina Soderlund-Boley, who had
accepted a senior position at a Swedish real
estate investment company. In view of the time
commitments required by this role, Tina decided
to step down from the Board once a replacement
non-executive director had been appointed. This
she did at the end of June. I should like to thank
Tina for her outstanding contribution to the
Company over the past three years and wish her
every success for the future.
I was therefore pleased to announce in March
that, with the help of search firm Nurole
Limited, we had appointed Jane Routledge as a
replacement independent non-executive director
with eect from 1 April. Jane is a non-executive
director of M&G Credit Income Investment
Trust plc, having previously had a long career
in the investment management sector, holding
several senior marketing positions, including
at Schroders, Invesco, Hermes and Seven
Investment Management. Her considerable
marketing knowledge and experience in this field
will be of great use to the Board.
As a result of Tina’s resignation, the Board has
revisited its succession planning arrangements.
Previously, the Board had anticipated that Tina
would replace Clive Parritt as Senior Independent
Director (SID) at this year’s AGM when Clive
was due to retire. The Board believes that Jane
Routledge has all the necessary skills for this
role, and she has agreed that, after allowing for a
period of getting to know the Company, she will
become SID on 1 April 2024.
In view of this, we have asked Clive Parritt to
stay on the Board for a further period in order to
help smooth the transition. He will retire during
2024 as Jane takes on the role of SID. Although a
long-standing Board member, we deem Clive to
be independent and the Company has benefited
hugely from his continuity, knowledge and
experience. The Board believes that it is in the
interests of shareholders that he be re-elected for
this period.
In February, Jasper Judd took on the role of audit
chair from Lisa Booth. My thanks again to Lisa for
her work as previous audit chair and her help in
organising a very smooth handover, as well as to
Jasper for taking on his new role. All five directors
will be representing themselves at the AGM.
Finally, as part of our refreshment of the Board
and ahead of next year when both Clive and Lisa
will be stepping down, we will begin a new search
for a fourth independent non-executive director.
Going forward, we expect the size of the Board to
oscillate between four and five members.
The Board is aware of the FCA’s Diversity and
Inclusion Policy and notes and supports their
targets. Accordingly, two out of the five non-
executive directors presenting themselves at
the forthcoming AGM are female, while one of
the three senior positions will be occupied by a
female when Jane becomes Senior Independent
Director early next year. As the Board going
forward will only comprise four to five members,
it may not be big enough for us to ensure that at
least one member will be from a minority ethnic
background. That said, we look to create and
maintain a Board that has the correct mix of skills,
diversity of thought and a collegiate culture drawn
from as wide a range of sources as possible.
Annual General Meeting
This year’s AGM will be held on Monday, 6
November 2023 at 2.00pm at the oces of Brown
Advisory, 18 Hanover Square, London W1S 1JY.
It will include a short presentation via video-link
by Chris Berrier, covering the performance of the
Company over the past year as well as his outlook
for the future. The Board and Portfolio Manager
would welcome questions which shareholders
may submit to: InvestmentTrustEnquiries@
brownadvisory.com. Subject to confidentiality, we
will respond to any questions submitted either
directly or by publishing our response on the
Company website.
Electronic proxy voting is now available, and
shareholders are encouraged to submit voting
instructions using the web-based voting
facility www.eproxyappointment.com and
www.proxymity.io for institutional shareholders.
Chairman’s Statement (continued)
11
FOR THE YEAR ENDED 30 JUNE 2023
In order to use electronic proxy voting,
shareholders will require their shareholder
registration number, control number and pin. If
you do not have access to these details please
contact the Company’s Registrar, Computershare,
whose details can be found on page 80 of this
report.
Notice of the AGM, containing full details of the
business to be conducted at the meeting, is set
out on pages 86 and 87 of this report.
Shareholder Communications
The Board encourages shareholders to visit the
Company website (www.brownadvisory.com/
basc) for the latest information, podcasts and
monthly factsheets.
Outlook
So far in 2023, both the US economy and the US
stock market have defied expectations on the
upside. Despite major headwinds comprising a
huge jump in interest rates, persistent inflation,
the depletion of pandemic era savings, concerning
geopolitical tensions and a minor regional banking
crisis, the US consumer has remained resilient
and continued to drive the American economy.
As a result, the recession forecast by many a year
ago has failed so far to materialise. The stock
market has responded positively, and it has been
supported further by hopes that the peak in
interest rates is within sight.
Given the market’s rise to date, some setback
should not, of course, be ruled out. While the
Federal Reserve may have paused its rate
increases in June, this was done merely in order
to take stock and assess the impact so far. With
the resilience of the economy and still high
inflation numbers, the trajectory for interest rates
remains upwards in view of the Federal Reserve’s
determination to bring inflation back into its
target range. The diculty for the Federal Reserve
is in determining at what point the rise in rates
will achieve this, without putting the economy
severely at risk. With the Federal Reserve putting
inflation restraint before economic activity, there
is a risk that investors underestimate the extent
and duration of tightening potentially to come.
At the same time, the geopolitical concerns
remain, the economy may slow if the consumer
finally becomes more cautious and corporate
earnings may be impacted.
As we look further out, we become more
optimistic. We expect the Federal Reserve’s tough
medicine to work and for the inflation numbers
as we enter the autumn to trend lower, allowing
interest rates to ease back too. Although possibly
somewhat softer, we still expect the domestic US
economy to hold its own, with demand supported
by recent wage growth and still high levels of
employment. We see this as a generally favourable
background for the US smaller company sector
which should again draw investors given its
attractive valuations and extended period of
underperformance relative to its larger peers.
Any period of weakness in the short-term will
thus be welcome and oer our Portfolio Manager
the opportunity to add to positions at attractive
prices, having cash on hand and the ability to gear.
Stephen White
15 September 2023
Chairman’s Statement (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
12
Performance review
During the year ended 30 June 2023, the
Company’s NAV increased by 9.8%, compared to
the benchmark Russell 2000 Index return of 7.5%.
Overall, we are pleased with the Company’s
absolute and relative returns over the last
financial year, representing a solid rebound from
the challenging market conditions experienced
toward the end of 2021 and most of 2022. Our
emphasis on quality has certainly helped results
more recently. However, we see this condition
as temporary considering current economic
and market dynamics. If current conditions
persist, we think there could be an increased
reliance on idiosyncratic successes to drive
relative outperformance. Nonetheless, our overall
approach remains steady as we continue to wait
patiently for opportunities to introduce new ideas
and increase our investment in a select group of
existing portfolio holdings.
Portfolio review
For the twelve-month period, the largest
absolute contributors to the Company’s overall
performance were the information technology,
healthcare and industrials sectors. However, on
a relative basis, the financials sector was the
primary driver as our eclectic list of holdings
outperformed the bank-laden benchmark.
Consumer discretionary and industrials saw
relative weakness due to their comparative lack of
cyclicality.
At the individual stock level, EVO Payments,
ChampionX Corporation and Workiva were
the strongest contributors. EVO Payments Inc,
which operates a global merchant acquirer and
payment processor servicing company, entered
into a definitive agreement to be acquired by
Global Payments for $34 per share in an all-
cash transaction. ChampionX Corporation is a
chemicals company specializing in delivering
solutions that optimize the extraction and drilling
Portfolio Manager’s Review
EVO Payments Inc, which operates a global merchant acquirer and payment processor servicing company, was the top contributor
to performance over the period after entering into a definitive agreement to be acquired by Global Payments. Indeed a substantial
amount of the turnover in the portfolio this year can be attributed to positive M&A activity.
13
FOR THE YEAR ENDED 30 JUNE 2023
of oil and gas. The company continues to benefit
from the positive energy cycle, breathing new
life into a new capital deployment strategy that
includes both dividends and share repurchases
– at the end of 2022 the company committed
to returning more than 60% of free cash flow to
shareholders going forward. Workiva Inc. provides
a cloud-based software platform that enables
organisations to collect and analyse data for
compliance and management reporting. The
company is seeing continued improvement in
profitability both in the short and long-term. There
have also been rumours that the company may be
garnering interest from private equity suitors.
The negative side of the ledger included Clarus
Corporation, Azenta Inc. and BlackLine Inc.
Clarus Corporation, a manufacturer of outdoor
sporting equipment, was the victim of inventory
rationalization at several national account
customers, which prompted them to lower their
forecast of future profits. Azenta Inc. provides
gene sequencing and gene synthesis services and
develops automated ultra-cold storage systems.
The company lowered its full year profitability
guidance due to a weaker than anticipated
rebound in what we view as a highly profitable
product category. BlackLine Inc. provides cloud-
based solutions for accounting and finance
operations. It has recently announced a CEO
transition that has prompted investor concerns
around its product roadmap and go-to-market
strategy.
There were roughly an equal number of additions
and deletions to the portfolio over the twelve-
month period. A substantial amount of the
portfolio turnover was due to M&A activity and our
desire to eliminate positions where our investment
thesis appeared violated or we believed a poor
risk/reward dynamic necessitated a redeployment
of capital. For example, Biohaven Pharmaceutical
Holdings, CMC Materials, EVO Payments, IAA
Inc., ManTech International Corporation, and
Terminex were all acquired. Catalent, Nevro Corp,
and Progyny were situations that fell into the latter
Portfolio Manager’s Review (continued)
We believe Workiva, Inc., a SaaS (software-as-a-service) company operating globally to provide cloud-based compliance and
reporting functionality, can continue to show strong operating leverage as they develop their international sales and marketing
and channel partner investments. Shares in the company jumped during the period amidst rumours of acquisition interest.
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
14
bucket. We were pleased that the team was able
to re-deploy the vast majority of the proceeds into
a diverse collection of businesses that we hope to
own for the next several years.
A thought on investing
Investment management is a straightforward,
yet challenging profession. Success hinges upon
an empirically derived philosophy, a committed
team with clear roles, a culture fostering open
and honest communication, and decisive actions
informed by collected data and evidence. Time,
attention and energy should be allocated towards
analysing and refining the investment process –
the controllable aspect – rather than towards the
outcomes. Learning and growth should be the
focus of both investment successes and failures.
Unlike more predictable professions, where
following certain procedures guarantees certain
outcomes, investing demands similarly precise
methods but success is never guaranteed. We
would all prefer it to be straightforward.
Legendary NFL coach Bill Parcells once said, “You
are what your record says you are.” While football
teams are judged by a season, investment teams
should be assessed over an “investment cycle.”
A 3- to 5-year investment record represents a
culmination of all the bottom-up capital allocation
decisions made during this time. We make
numerous decisions every day, guided by one
primary thought: what potential action is most
likely to benefit long-term returns? As such, we
must always consider any factors that might
distort or obscure our perspective.
Being aware of our human fallibility, we foster
a collaborative investment-decision-making
process. Each of us is influenced by several
behavioural or cognitive biases such as anchoring,
authority, confirmation, disposition eect,
egocentricity, endowment eect, familiarity,
framing, hindsight, loss aversion, mental
accounting, narrative bias, overconfidence,
recency, and survivorship.
Conclusion
“Toto, I’ve a feeling we’re not in Kansas anymore.” –
Dorothy, The Wizard of Oz
Much like Dorothy’s transition from Kansas to
the fantastical Land of Oz, we too have been
transported to a dierent world in the equity
markets. The last decade has seen zero interest
rate policy (ZIRP), a global pandemic, a surge
in inflation and a dramatic policy reversal by the
Federal Reserve. The advent of passive capital
(index funds, ETFs, etc.) has further altered the
structure of the stock market.
This journey has led to dramatic changes in
investment sentiment, capital flows, and market
leadership. Our portfolio’s active share is high,
which can cause significant shifts in short-term
relative performance. Despite an interesting
investment environment in the first half of
2023, our core elements have stood the test of
time over the last 17+ years and will continue to
guide us in the future. We anticipate volatility will
remain prevalent and intend to leverage it to our
advantage. We remain pleased with our long-term
performance and will strive to continue to drive
solid risk-adjusted returns going forward.
Portfolio Manager
Brown Advisory LLC
15 September 2023
Portfolio Manager’s Review (continued)
15
FOR THE YEAR ENDED 30 JUNE 2023
30 June 2023 30 June 2022
Company Sector
Market value
£‘000
Percentage
of Portfolio
Market value
£‘000
Percentage
of Portfolio
Waste Connections
Waste Connections, Inc. provides
non-hazardous solid waste collection
services for commercial, industrial,
and residential customers. The
company oers collection, landfill
disposal, and recycling services for
various recyclable materials, including
compost, cardboard, oce paper,
plastic containers, glass bottles, and
ferrous and aluminium metals.
Industrials 6,255 3.9 5,611 3.8
Bright Horizons Family Solutions
Bright Horizons Family Solutions
Inc. provides childcare and early
education services as well as other
services designed to help employers
and families to better address the
challenges of work and life. The
company provides services primarily
under multi-year contracts with
employers who oer childcare and
other dependent care solutions as part
of their employee benefits packages.
Consumer
Discretionary
5,086 3.2 4,054 2.7
Casey’s General Stores
Casey’s General Stores, Inc. operates
convenience stores in the Midwest.
The company oers food, beverages,
tobacco products, health and beauty
aids, automotive supplies, and other
non-food items, as well as selling
gasoline.
Consumer Staples 4,050 2.6 3,581 2.4
SPDR S&P Biotech ETF
SPDR S&P Biotech ETF is an
exchange-traded fund incorporated
in the US. The Fund seeks to
replicate the performance of the S&P
Biotechnology Select Industry Index,
an equal-weighted index. The index
tracks all the US common stocks
listed on the NYSE, American Stock
Exchange, NASDAQ National Market
and NASDAQ Small Cap exchanges.
Biotechnology 4,003 2.5 – –
Abcam
Abcam plc operates as a
biotechnology company.
The Company oers diagnosis,
research, and therapeutic solutions.
Abcam services patients worldwide.
Healthcare 3,823 2.4 1,219 0.8
Twenty Largest Equity Holdings as at 30 June 2023
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
16
30 June 2023 30 June 2022
Company Sector
Market value
£‘000
Percentage
of Portfolio
Market value
£‘000
Percentage
of Portfolio
Genpact
Genpact Limited designs and
runs business operations to
manage risk and compliance. The
Company focuses on the areas of
finance and procurement, financial
services account servicing, claims
management, regulatory aairs and
industrial asset optimization. Genpact
operates worldwide.
Information
Technology
3,794 2.4 5,943 4.0
Dynatrace
Dynatrace, Inc., through its
subsidiaries, develops software
intelligence platforms for the
enterprise cloud. Its software
intelligence platforms allow customers
to modernize and automate IT
operations, develop and release high
quality software faster and improve
user experiences for better business
outcomes.
Information
Technology
3,742 2.4 2,521 1.7
Prosperity Bancshares
Prosperity Bancshares, Inc. is the
holding company for Prosperity Bank.
The Bank attracts deposits from the
general public and uses those funds
to originate a variety of commercial
and consumer loans. Prosperity Bank
operates in the greater Houston
metropolitan area and neighbouring
counties in Texas.
Financials 3,633 2.3 4,446 3.0
ChampionX
ChampionX Corporation provides
energy solutions. The company
focuses on upstream and midstream
oilfield technology such as chemistry
programs and drilling activities.
ChampionX serves customers
worldwide.
Energy 3,498 2.2 968 0.6
HB Fuller
H.B. Fuller Company manufactures
and markets adhesives, sealants,
coatings, paints and other specialty
chemical products worldwide. The
company’s products are sold in
countries that include North America,
Europe, Latin America, the Asia Pacific
region, India, the Middle East, and
Africa.
Materials 3,091 1.9 2,562 1.8
Twenty Largest Equity Holdings as at 30 June 2023 (continued)
17
FOR THE YEAR ENDED 30 JUNE 2023
30 June 2023 30 June 2022
Company Sector
Market value
£‘000
Percentage
of Portfolio
Market value
£‘000
Percentage
of Portfolio
HealthEquity
HealthEquity, Inc. provides technology-
enabled services platforms that allow
consumers to make healthcare saving
and spending decisions. The company
enables consumers to access their
tax-advantaged healthcare savings,
compare treatment options, pay
healthcare bills, receive personalised
benefit and clinical information and
earn wellness incentives.
Healthcare 3,044 1.9 2,633 1.8
Workiva
Workiva Inc. provides cloud-based
and mobile-enabled platforms for
enterprises. The company oers
software to collect, manage, report
and analyse business data in real time.
Information
Technology
2,945 1.9 2,538 1.7
Pinterest ‘A’
Pinterest, Inc. operates and maintains
a social networking site. The Company
provides an online platform that
helps users gather ideas on oddities,
decorations, places to visit, recipes
and other items. Pinterest serves
customers worldwide.
Communication
Services
2,905 1.8 – –
MSA Safety
MSA Safety Inc. develops,
manufactures and supplies safety
products that protect people and
facility infrastructures. The company’s
core products include self-contained
breathing apparatus, fixed gas and
flame detection systems, portable
gas detection, head protection and fall
protection products.
Industrials 2,900 1.8 1,824 1.2
Rentokil Initial, American
Depositary Receipt
Rentokil Initial plc provides fully
integrated facilities management
and essential support services to
government and commercial sector
organisations of all sizes across all
business sectors. The Company
provides services in pest control,
hygiene, workwear, facilities and
plants.
Industrials 2,878 1.8 – –
Twenty Largest Equity Holdings as at 30 June 2023 (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
18
30 June 2023 30 June 2022
Company Sector
Market value
£‘000
Percentage
of Portfolio
Market value
£‘000
Percentage
of Portfolio
Quaker Chemical
Quaker Chemical Corporation, trading
as Quaker Houghton, produces,
develops and markets industrial
chemical products. The Company
oers heat treatment, metal forming,
forging and tin plating fluids, as well as
cleaners, casting lubricants, greases,
ground control agents and metal
rolling oils. Quaker Houghton serves
customers globally.
Materials 2,834 1.8 2,246 1.5
Entegris
Entegris, Inc. provides materials
management products and services
to the microelectronics industry on
a worldwide basis. The company
provides products such as wafer
shippers, wafer transport and process
carriers, pods and work-in-process
boxes. Entegris also provides chemical
delivery products such as valves,
fittings, tubing, pipe and containers.
Information
Technology
2,831 1.8 2,127 1.4
Neurocrine Biosciences
Neurocrine Biosciences, Inc. is
focused on the discovery and
development of therapeutics for
neuropsychiatric, neuroinflammatory
and neurodegenerative diseases and
disorders. The Company is developing
therapeutic interventions for anxiety,
depression, Alzheimer’s disease,
insomnia, stroke, malignant brain
tumours, multiple sclerosis, obesity
and diabetes.
Healthcare 2,778 1.8 2,970 2.0
EastGroup Properties, REIT
EastGroup Properties, Inc. is an equity
real estate investment trust. The
trust acquires and develops industrial
properties in major sunbelt markets
throughout the US with a special
emphasis in the states of California,
Florida, Texas and Arizona.
Real Estate 2,761 1.7 2,466 1.7
Mister Car Wash
Mister Car Wash, Inc. operates as a
car wash company. The Company
oers car exterior and interior cleaning
services. Mister Car Wash serves
customers in the US.
Consumer
Discretionary
2,749 1.7 – –
Total 69,600 43.8
The value of the twenty largest holdings represents £69.6 million (2022: £70.2 million) and 43.8% (2022:
47.5%) of the Company’s total investments.
Twenty Largest Equity Holdings as at 30 June 2023 (continued)
19
FOR THE YEAR ENDED 30 JUNE 2023
Company Industry
Market
value
£’000
Percentage
of Portfolio
Biotechnology* 3.5%
(2022: 0%)
SPDR S&P Biotech ETF ETF which seeks to track the
performance of S&P Biotechnology
Select Industry Index.
4,003 2.5
Karuna Therapeutics Operates as a clinical-stage
biopharmaceutical company.
Engages in business of research
and development.
1,671 1.0
5,674 3.5
Communication Services* 4.5%
(2022: 3.9%)
Pinterest A Social networking site where ideas
on oddities, decorations, places to
visit, recipes and other items are
gathered.
2,905 1.8
Cogent Communications Holdings Internet service provider 1,947 1.2
Take-Two Interactive Software Publisher, developer and distributor
of video games
1,539 1.0
Angi Digital market place for home
services
791 0.5
7,182 4.5
Consumer Discretionary* 11.7%
(2022: 13.7%)
Bright Horizons Family Solutions Childcare and early education
services
5,086 3.2
Mister Car Wash Engages in the provision of exterior
and interior car cleaning services
2,749 1.7
Churchill Downs Gaming entertainment company 2,666 1.7
TopBuild Insulation and other building
products
1,524 1.0
Choice Hotels International Hotel franchisor 1,520 1.0
XPEL The manufacture and distribution
of automotive products
1,081 0.7
Leslie’s Swimming pool supplies and
related products
1,039 0.6
Clarus Industrials 975 0.6
MakeMyTrip Travel services provider over the
internet
822 0.5
Vizio Holding A Designer and manufacturer of
consumer electronics through its
subsidiaries
659 0.4
First Watch Restaurant Group Restaurant chain 477 0.3
18,598 11.7
List of Investments
as at 30 June 2023
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
20
List of Investments (continued)
Company Industry
Market
value
£’000
Percentage
of Portfolio
Consumer Staples* 3.7% (2022: 3.6%)
Casey’s General Stores Convenience store chain 4,050 2.6
Simply Good Foods Nutritional foods and snacking
products
1,719 1.1
5,769 3.7
Energy* 5.0% (2022: 1.9%)
ChampionX
Provider of chemistry programs
and services for global upstream oil
and natural gas industry 3,498 2.2
Denbury Oil and natural gas company which
acquires, develops, operates and
explores oil and gas properties.
2,569 1.6
Cactus A Manufacturer of control equipment 1,853 1.2
7,920 5.0
Financials* 2.8% (2022: 3.0%)
Prosperity Bancshares Provision of financial products and
solutions
3,633 2.3
Houlihan Lokey A The provision of investment banking
services. It operates through the
following segments: corporate
finance, financial restructuring and
financial and valuation advisory.
879 0.5
4,512 2.8
Healthcare* 20.2% (2022: 22.7%)
Abcam Biotechnology company that oers
diagnosis, research and therapeutic
solutions
3,823 2.4
HealthEquity Service platforms that allow
consumers to make healthcare
saving and spending decisions
3,044 1.9
Neurocrine Biosciences Biopharmaceutical company
that focuses on therapeutics
for neuropsychiatric,
neuroinflammatory and
neurodegenerative diseases and
disorders
2,778 1.8
Bruker Scientific instruments for molecular
and materials research
2,674 1.7
Encompass Health Inpatient rehabilitative healthcare
services
2,620 1.6
SI-BONE Implantable devices used in
the surgical treatment of the
sacropelvic anatomy
2,521 1.6
Establishment Labs Holdings Devices for aesthetic and
reconstructive plastic surgery
2.499 1.6
NeoGenomics Cancer diagnostics and
pharmaceutical services company
2,388 1.5
21
FOR THE YEAR ENDED 30 JUNE 2023
Company Industry
Market
value
£’000
Percentage
of Portfolio
Accolade Software solutions that help people
better understand, navigate and
utilise the healthcare system
2,076 1.3
Inari Medical Innovative catheter-based
technologies for the treatment of
venous thromboembolism
1,719 1.1
Agilon Health Provider of healthcare platform 1,657 1.0
OrthoPediatrics Orthopaedic implants and
instruments for paediatric
orthopaedic surgeons
1,630 1.0
Ascendis Pharma, ADR Pharmaceutical products for the
treatments of growth hormone
deficiency, endocrinology, central
nervous system disorders,
infectious diseases and diabetes
940 0.6
Blueprint Medicines Biomedical treatments 939 0.6
Alignment Healthcare Consumer-centric platform
delivering customized healthcare
562 0.3
Arvinas Clinical-stage biotechnology
company creating a new class of
drugs
251 0.2
32,121 20.2
Industrials* 19.5% (2022 16.9%)
Waste Connections Waste management services
Company
6,255 3.9
MSA Safety
Manufacturer of safety products
2,900 1.8
Rentokil Initial, ADR The provision of business support
services. The firm’s products and
services protect people from pest-
borne disease and the risks of poor
hygiene
2,878 1.8
Woodward Control systems and components
for aircraft engines
2,680 1.7
FTI Consulting Business advisory firm 2,175 1.4
Valmont Industries Poles, towers and structures for
lighting, communication and utility
markets
2,170 1.4
John Bean Technologies Technology solutions for industrial
food processing
1,956 1.2
Zurn Elkay Water Solutions Oers a range of advanced water
system solutions
1,762 1.1
AZEK Outdoor living products
manufacturer
1,366 0.9
Clear Secure A Provides a technology platform
which enables frictionless and safe
journeys using biometric identity.
1,354 0.9
Casella Waste Systems A Waste management company 1,208 0.8
List of Investments (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
22
Company Industry
Market
value
£’000
Percentage
of Portfolio
Mueller Water Products A Manufacture and sale of products
used in the transmission,
distribution and measurement of
water
1,182 0.7
Knight-Swift Transportation Holdings Transportation and logistics
services
1,011 0.6
IDEX Engineered industrial products and
technology
960 0.6
SiteOne Landscape Supply Wholesale distributor of landscape
supplies
848 0.5
CCC Intelligent Solutions Holdings Cloud-based software as a service
(SaaS) platform connects trading
partners, facilitates commerce
and supports mission-critical,
artificial intelligence-enabled digital
workflows
301 0.2
31,006 19.5
Information Technology* 23.3%
(2022: 28.7%)
Genpact Business process management
services
3,794 2.4
Dynatrace Software intelligence platform
based on artificial intelligence
3,742 2.4
Workiva Cloud-based enterprise software 2,945 1.9
Entegris Materials-management
products and services to the
microelectronics industry
2,831 1.8
WEX Payment processing and
information management services
2,519 1.6
Blackline Cloud-based enterprise software 2,468 1.5
Phreesia Healthcare software 2,344 1.5
Bentley Systems B Infrastructure engineering software
company
2,276 1.4
Power Integrations Supplier of high-voltage Analog
integrated circuits
2,275 1.4
Littelfuse Circuit protection products for
the electronics, automotive and
electrical industries
2,085 1.3
Envestnet Wealth management technology
and products
1,814 1.1
PROS Holdings Price optimisation, sales
improvement, opportunity
detection and revenue
management software
1,759 1.1
Curtiss-Wright A global integrated business that
provides engineered products,
solutions, and services mainly to
the aerospace and defence markets
1,567 1.0
List of Investments (continued)
23
FOR THE YEAR ENDED 30 JUNE 2023
Company Industry
Market
value
£’000
Percentage
of Portfolio
Infinera Digital optical telecommunications
equipment
1,437 0.9
Definitive Healthcare A Engages in the provision of
healthcare commercial intelligence
1,093 0.7
Lattice Semiconductor Developer of programmable logic
devices
974 0.6
Azenta Provider of life sciences solutions 905 0.6
SiTime A micro-electromechanical system
based silicon timing solutions
191 0.1
37,0 1 9 23.3
Materials* 3.7% (2022: 3.3%)
HB Fuller Adhesives, sealants, coatings,
paints and other specialty chemical
products
3,091 1.9
Quaker Chemical Custom-formulated chemical
specialty products
2,834 1.8
5,925 3.7
Real Estate* 2.1% (2022: 2.3%)
EastGroup Properties, REIT Industrial properties, with a
particular emphasis on Florida,
Texas, Arizona and California
2,761 1.7
DigitalBridge Group, REIT Infrastructure solutions focused on
mobile and internet connectivity
647 0.4
3,408 2.1
Total Investments 159,134 100.0
The number of companies in the portfolio is 78 (2022: 78).
* Sector categories correspond to those used in the Russell Indices.
List of Investments (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
24
ESG research integration into the
investment process
We believe thoughtful investing starts with
listening to our clients, understanding their goals
and identifying the best solutions to achieve
them. Strong long-term performance, sound
advice, and superior service are foundations of
our commitment to our clients. Over the years,
we have found that an investment process that
considers ESG inputs has been an eective way to
deliver our commitment of “thoughtful investing”
to clients. For Brown Advisory US Smaller
Companies, this means establishing processes
that allow us to identify ESG risks when making
our investment decisions.
Investment inputs
We believe that ESG research is not a ‘style’ but
rather an input to our decision-making process.
Our expertise lies in understanding the financial
implications of environmental, social and
governance characteristics, both independently
and in consideration of one another, and how this
helps us gain an edge in generating performance
for our clients.
We employ a “3G” investment filter within
the Brown Advisory US Smaller Companies
portfolio that seeks the following factors
when evaluating new investments: growth,
governance, and go-to-market strategy. To
highlight the governance filter, the 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.
To support this, we integrate ESG research
(either third party or provided by our team of
ESG analysts) for all securities before we buy.
Alongside this, we receive quarterly analysis that
includes certain ESG data and, where applicable,
controversies associated with the holdings in the
portfolio. This report ensures we remain aware of
various ESG characteristics of our investments.
Brown Advisory’s ESG research team
As part of our commitment to “thoughtful
investing”, we have long embedded ESG research
analysts within 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
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.
Brown Advisory’s Sustainable Investing
Advisory Board
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 information into investment
decisions in ways that have clear fundamental
benefits. The board includes members from
Brown Advisory, as well as external sustainable
investing experts.
Brown Advisory LLC
Portfolio Manager
15 September 2023
Environmental, Social and Governance (ESG) Report
25
FOR THE YEAR ENDED 30 JUNE 2023
The Strategic Report has been prepared in
accordance with the Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013.
The Strategic Report seeks to provide
shareholders with the relevant information to
enable them to assess the performance of the
Board during the period under review.
Business and Status
During the year the Company carried on business
as an investment trust with its principal activity
being portfolio investment. The Company has
been approved by HM Revenue & Customs as
an investment trust subject to the Company
continuing to meet the eligibility conditions of
sections 1158 and 1159 of the Corporation Tax Act
2010 (‘CTA 2010’) and the ongoing requirements
for approved companies as detailed in Chapter
3 of Part 2 of the Investment Trust (Approved
Company) (Tax) Regulations 2011. In the opinion
of the Directors, the Company has conducted
its aairs in the appropriate manner to retain its
status as an investment trust.
The Company is an investment company within
the meaning of section 833 of the Companies Act
2006.
The Company is not a close company within the
meaning of the provisions of the CTA 2010 and
has no employees.
The Company was incorporated in England &
Wales on 15 January 1993.
Reviews of the Company’s activities are included
in the Chairman’s Statement and Portfolio
Manager’s Review on pages 8 to 14.
The Company’s investment objective and
investment policy are described on pages 5 and 6.
There has been no significant change in the
activities of the Company during the year to
30 June 2023 and the Directors anticipate that
the Company will continue to operate in the same
manner during the current financial year.
Gearing
A definition of gearing is included in the glossary
of terms including Alternative Performance
Measures on page 84.
The Company was not geared during the year.
Key Performance Indicators
At quarterly Board meetings, the Directors
consider a number of performance indicators
to assess the extent to which the Company is
meeting its objective. The key performance
indicators used to measure the performance of
the Company over time are as follows:
Net Asset Value changes;
The discount or premium of share price to Net
Asset Value;
A comparison of the absolute and relative
performance of the Ordinary share price and
the Net Asset Value per share relative to the
return on the Company’s Benchmark Index and
of its peers;
Ordinary share price movement; and
The Company’s ongoing charges ratio.
Information on performance against Key
Performance Indicators can be found on page 7
and within the Chairman’s Statement.
In addition, a history of the Net Asset Value,
Ordinary share price and Benchmark Index are
shown on the monthly factsheets which can
be viewed on the Portfolio Manager website
www.brownadvisory.com/basc.
Strategic Report
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
26
Discount to Net Asset Value
The Directors regularly review the level of the
discount or premium between the closing price of
the Company’s Ordinary shares and the Net Asset
Value. The Company will issue shares when there
is sucient demand. Such issues are always at
a price which is in excess of the NAV. No shares
were issued during the year under review.
The Board will apply its revised policy of buying
back shares with the aim of reducing discount
volatility and maintaining any discount such
that it is not significantly wider than those of
similar investment trusts. It believes this to be in
shareholders’ interests. In determining whether
to buy back shares, the Board will consider,
amongst other factors, and at its discretion, the
size of the Company, general market conditions
and sentiment, the liquidity in the shares and
discounts in the investment trust sector overall.
The Directors had powers granted to them at
the last Annual General Meeting (‘AGM’) held on
31 October 2022 to purchase Ordinary shares
and either cancel or hold them in treasury as a
method of controlling the discount to Net Asset
Value and enhancing shareholder value. No shares
were bought back during the year under review.
Under the Listing Rules, the maximum price that
may be paid by the Company on the repurchase
of any Ordinary shares is 105% of the average of
the middle market quotations for the Ordinary
shares for the five business days immediately
preceding the date of repurchase. The minimum
price will be the nominal value of the Ordinary
shares. The Board is proposing that its authority
to repurchase up to approximately 14.99% of its
issued share capital (excluding treasury shares)
be renewed at the AGM. The new authority to
repurchase will last until the conclusion of the
AGM of the Company in 2024 (unless renewed
earlier). Any repurchase made will be at the
discretion of the Board in light of prevailing market
conditions and within guidelines set from time to
time by the Board, the Companies Act, the Listing
Rules and the Market Abuse Regulation.
Treasury Shares
In accordance with the Companies (Acquisition
of Own Shares) (Treasury Shares) Regulations
2003 (the ‘Regulations’), which came into force
on 1 December 2003, any Ordinary shares
repurchased, pursuant to the above authority,
may be held in treasury. These Ordinary shares
may subsequently be cancelled or sold for cash.
This gives the Company the ability to reissue
shares quickly and cost eectively and provides
the Company with additional flexibility in the
management of its capital.
At 30 June 2023 there were 6,271,254 Ordinary
shares held in Treasury.
Management
The Company has no employees and most of its
day-to-day responsibilities are delegated to Brown
Advisory LLC, which acts as the Company’s
Portfolio Manager, and FundRock Partners
Limited which acts as the Company’s Alternative
Investment Fund Manager (‘AIFM’) and Company
Secretary. Further details of the Company’s
arrangement with Brown Advisory LLC and the
AIFM can be found in Note 20 to the Financial
Statements on page 79.
J.P. Morgan Europe Limited (‘JPMEL’) acts as the
Company’s depositary. The Company has also
entered into an outsourcing arrangement with J.P.
Morgan Chase Bank N.A. (‘JPMCB’) as custodian
and for the provision of accounting services.
Strategic Report (continued)
27
FOR THE YEAR ENDED 30 JUNE 2023
Viability Statement
In accordance with Provision 36 of the Code
of Corporate Governance as issued by the
Association of Investment Companies in February
2019 (the ‘AIC Code’), the Board has assessed the
prospects of the Company over a longer period
than the twelve months required by the ‘Going
Concern’ provision, by reviewing the next three
years and assessing the implications of the next
required vote on the continuation of the Company
at the 2023 AGM. The Board has confirmed that,
following consultation with key stakeholders, it
considers the continuation vote will be approved
by the shareholders.
The Board has considered the Company’s
business model including its investment objective
and investment policy, the principal and emerging
risks and uncertainties that may aect the
Company, as detailed on pages 28 to 30, the
size threshold below which the Company would
be considered uneconomic or unviable, and the
Company performance and attractiveness to
investors in the current environment. The Board
has noted that:
the Company holds a liquid portfolio invested
predominantly in US listed equities;
the Company is not geared;
the Company has maintained a reasonable
performance and share price discount to NAV;
the portfolio management fee is the most
significant expense of the Company. It is
charged as a percentage of the Company’s net
asset value and so would reduce if the market
value of the portfolio were to fall. The remaining
expenses are modest in value and predictable
in nature;
no significant increase to ongoing charges or
operational expenses is anticipated; and
the Board is satisfied that Brown Advisory
LLC and the Company’s other key third-party
suppliers maintain suitable processes and
controls to ensure that they can continue to
provide their services to the Company.
The Board has also considered the market
outlook, both for US smaller company equities
and for investment trusts, and has concluded
that these remain an attractive opportunity for
investors.
The Board has therefore concluded that there
is a reasonable expectation that the Company
will be able to continue in operation and meet its
liabilities as they fall due over the next three years.
Strategic Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
28
Principal and Emerging Risks and Uncertainties
The Board, through the Audit and Risk
Committee, carries out a regular review of the
risk environment in which the Company operates,
changes to the environment and individual
risks. The Board also considers emerging risks
which might aect the Company. During the
year, the continued conflict in Ukraine and
tensions between China and the US have created
geopolitical uncertainties which have increased
market risk and volatility.
There are a number of other risks which, if
realised, could have a material adverse eect
on the Company and its financial condition,
performance and prospects. The Board
has carried out a robust assessment of the
Company’s principal and emerging risks, which
include those that would threaten its business
model, future performance, solvency, liquidity or
reputation.
The principal risks and uncertainties facing the
Company at the current time, together with a
description of the mitigating actions the Board
has taken, are set out in the table below.
Risk Mitigating Action
Investment objective – the Company’s
objective becomes unattractive to investors
which could result in a lack of demand for the
Company’s shares, leading to a widening of the
discount of the share price to its underlying
NAV and a fall in the value of its shares.
Board review: the Board formally reviews the
Company’s objective and related strategies on an
annual basis, or more regularly if appropriate.
Shareholder communication: the Board is cognisant
of the importance of regular communication with
shareholders. The Chairman oers meetings with
the Company’s largest shareholders, and the Board
meets with shareholders at the Annual General
Meeting. Additionally a shareholder presentation
with questions and answers is available at the AGM.
The Board reviews shareholder correspondence and
investor relations reports and also receives feedback
from the Company’s broker.
Discount monitoring: the Board, through the Portfolio
Manager and AIFM, keeps the level of discount under
constant review. The Board is responsible for the
Company’s share buyback policy and is prepared
to authorise the use of share buybacks to provide
liquidity to the market and to try to limit any widening
of the discount, to the extent that it is wider than those
of similar investment trusts.
Strategic Report (continued)
29
FOR THE YEAR ENDED 30 JUNE 2023
Risk Mitigating Action
Investment strategies – the Company adopts
inappropriate investment strategies in pursuit
of its objective which could result in decreased
demand for the Company’s shares, leading to a
widening of the discount and poor investment
performance.
Adherence to investment guidelines: the Board sets
investment guidelines and restrictions which the
Portfolio Manager follows, covering matters such as
asset allocation, diversification, gearing and currency
exposure. These guidelines are reviewed regularly
and reports on compliance with them are reviewed at
Board meetings.
In order to ensure adequate diversification, the Board
has set absolute limits on minimum holdings and
maximum exposures in the portfolio at the time of
investment, which are set out on page 6.
Investment performance – the appointment
or continuing appointment of a portfolio
manager with inadequate resources, skills or
expertise, or which makes poor investment
decisions. This could result in poor investment
performance, a loss of value for shareholders
and a widening discount.
Monitoring of performance: the Board keeps
performance under continual review. It meets the
Portfolio Manager on a regular basis and keeps under
close review (inter alia) its resources and adherence
to investment guidelines. The Board discusses with
the Portfolio Manager reasons for over or under-
performance at every Board meeting.
A detailed formal appraisal of the Portfolio Manager
is carried out annually by the Board. The Board also
keeps under review the adequacy of risk controls.
Financial/market – insucient oversight or
controls over financial risks, foreign currency
risk, market price risk, interest rate risk,
liquidity risk, credit and counterparty risk, and
insucient revenue forecasting and monitoring,
could result in losses to the Company.
Management controls: the Portfolio Manager has
a range of procedures and controls relating to the
Company’s financial instruments and maintains a
closed ‘approved broker’ list.
Board review: as stated above, the Board sets
investment guidelines and restrictions which are
reviewed regularly and the Portfolio Manager reports
on compliance with them at Board meetings.
Revenue forecasting and monitoring: the AIFM
presents detailed forecasts of income and expenditure
covering both the current and subsequent financial
years at Board meetings.
Further details of the Company’s financial instruments
and associated risk management are included in Note
13 to the Financial Statements.
Strategic Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
30
Risk Mitigating Action
Regulatory – changes to, or failure to comply
with, relevant regulations (including the
Companies Act, the Financial Services and
Markets Act, the Alternative Investment Fund
Managers Directive, accounting standards,
investment trust regulations, the Listing Rules,
Disclosure Guidance and Transparency Rules
and Prospectus Rules) could result in fines,
loss of reputation, reduced demand for the
Company’s shares and potentially the loss of
an advantageous tax regime.
Board awareness: the Directors have an awareness
of the more important regulations and are provided
with information on changes by the Association
of Investment Companies. In terms of day to day
compliance with regulations, the Board is reliant
on the knowledge and expertise of the AIFM and
Company Secretary. However, where necessary, the
Board engages the services of external advisers.
Management controls: the Company Secretary and
accounting teams use checklists to aid compliance
and these are supported by the AIFM’s compliance
monitoring programme and risk-based internal audit
investigations.
Operational (including cyber-crime) – the
Company is reliant on services provided by
third parties (in particular those of the Portfolio
Manager, AIFM, custodian and depositary) and
any control gaps and failures in their operations
could expose the Company to loss or damage.
Agreements: written agreements are in place defining
the roles and responsibilities of all third-party service
providers.
Internal control systems of the AIFM and Portfolio
Manager: the Board receives reports on the operation
and ecacy of IT and control systems, including
those relating to cyber-crime and internal audit and
compliance functions.
Safekeeping of assets: the depositary is ultimately
responsible for the safekeeping of the Company’s
assets and holds cash and securities in segregated
accounts with J.P. Morgan Chase Bank N.A. The
depository reconciles these accounts daily against the
records of the Portfolio Manager.
Monitoring of other third-party service providers: the
AIFM closely monitors the control environments and
quality of services provided by third parties, including
those of the depositary. This includes controls relating
to cyber-crime and is conducted through service level
agreements, regular meetings and key performance
indicators. The Directors review reports on the AIFM’s
monitoring of third-party service providers on a
periodic basis.
A detailed formal appraisal of the AIFM, Portfolio
Manager and other key third party providers is carried
out annually by the Board.
Geopolitical (including a pandemic, climate
change and the conflict in Ukraine) – the
impact of geopolitical events could result in
losses to the Company.
Board and Portfolio Manager awareness: geopolitical
events over which the Company has no control are
always a risk. The Board and Portfolio Manager do
what they can to address these risks where possible.
Strategic Report (continued)
31
FOR THE YEAR ENDED 30 JUNE 2023
Directors
Details of the Directors of the Company and their
biographies are set out on page 34.
The Company’s policy on Board diversity is
included in the Corporate Governance section of
the Report of the Directors on page 45.
At 1 July 2023 the Board comprised two
†
female
and three male directors.
Employees, Environmental, Social and
Human Rights issues
The Company has no employees and therefore
no disclosures need to be made in respect of
employees. The Board has delegated the day-to-
day management and administration functions to
the Portfolio Manager, the AIFM, JPMEL, JPMCB
and other third-party service providers.
Integration of Environmental, Social
and Governance (‘ESG’) considerations
into the Portfolio Manager’s
investment process
A report from the Portfolio Manager has been
included on page 24.
Modern Slavery Act
The Modern Slavery Act 2015 requires certain
companies to prepare a slavery and human
tracking statement. As the Company has no
employees and does not supply goods and
services, no statement is required.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions
to report from its operations as its day-to-day
management and administration functions
have been outsourced to third parties and it
neither owns physical assets or property nor
has employees of its own. It therefore does
not have responsibility for any emissions-
producing sources under the Companies Act
2006 (Strategic Report on Directors’ Reports)
Regulations 2013.
Section 172 Statement
Under Section 172 (‘S172’) of the Companies Act
2006, the Directors have a duty to act in good
faith and to promote the success of the Company
for the benefit of its shareholders as a whole.
This includes taking into consideration the likely
consequences of their decisions in the long-term
and in respect of the Company’s stakeholders
such as its shareholders, employees, if any,
and suppliers, while acting fairly as between
shareholders.
The Directors must also consider the impact of
the Company’s decisions on the environment, the
community and its reputation for maintaining high
standards of business conduct.
The Company ensures that the Directors are
able to discharge this duty by providing them
with relevant information and training on
their duties. The Company also ensures that
information pertaining to its stakeholders is
provided, as required, to the Directors as part
of the information presented in regular Board
meetings in order that stakeholder considerations
can be factored into the Board’s decision-making.
The Directors’ responsibilities are also set out in
the schedule of matters reserved for the Board
and the terms of reference of its Audit and Risk
Committee, both of which are reviewed regularly
by the Board. At all times the Directors can
access, either collectively or individually, advice
from its professional advisers including the
Company Secretary and independent external
advisers.
The Company’s investment objective, to
achieve long-term capital growth by investing
in a diversified portfolio primarily of quoted US
smaller and medium-sized companies, supports
the Directors’ statutory obligations to consider
the long-term consequences of the Company’s
decisions. How the long-term focus of the
Company is achieved is set out in more detail
in the above section on the Portfolio Manager’s
approach to ESG considerations. This approach is
fundamental to the Company achieving long-term
success for the benefit of all stakeholders.
Strategic Report (continued)
† Tina Soderlund-Boley resigned on 30 June 2023.
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
32
The Company is aware of its own potential impact
on the environment and has practical policies in
place to reduce that impact. Examples include the
use and sharing of electronic Board materials and
the provision of electronic copies of the annual
report and financial statements to shareholders
and via the Company website. Where physical
copies of the annual and half yearly financial
reports are made, materials and processes are
used which are designed to both minimise the
environmental impact and to maximise the
recycling potential as described in more detail on
the inside back cover of this document.
Engagement with suppliers, customers
and others and the effect on principal
decisions
The Shareholders – The shareholders of the
Company are both institutional and retail and
details of those with substantial shareholdings are
provided on page 36.
The Board believes that shareholders have a vital
role in encouraging a higher level of corporate
performance and is committed to listening to the
views of its shareholders and giving useful and
timely information. The Board provides open and
accessible channels of communication including
those listed below.
The AGM – The Company encourages
participation from shareholders at its AGMs,
where they can communicate directly with the
Directors and Portfolio Manager. The upcoming
AGM will include a short presentation by the
Portfolio Manager on the performance of the
Company over the past year, as well as an
outlook for the future. The Board and Portfolio
Manager welcome questions which shareholders
may submit to InvestmentTrustEnquiries@
brownadvisory.com. Subject to confidentiality, we
will respond to any questions submitted either
directly or by publishing our response on the
Company website. All views of the shareholders
will be taken into consideration and action taken
where appropriate.
Online Information – The Company website
contains the annual and half yearly financial
report along with monthly factsheets and
commentaries from the Portfolio Manager. The
daily NAV per share, monthly top ten portfolio
listings and other regulatory announcements can
be found on the regulatory news service of the
London Stock Exchange.
Shareholder Communications
Shareholders can raise issues or concerns at any
time by writing to the Chairman or the Senior
Independent Director at the Registered Oce.
Further details about how the Board incorporates
the views of the Company’s shareholders can
be found in the UK Stewardship Code and the
Exercise of Voting Powers section on page 39.
Further information about how the Board ensures
that each Director develops an understanding
of the views of the Company’s shareholders can
be found in the section entitled Shareholder
Relations on page 41 of this report.
The AIFM and the Portfolio Manager
Brown Advisory LLC acts as the Company’s
Portfolio Manager and FundRock Partners Limited
has been appointed as the Company’s AIFM.
The portfolio management function is critical to
the long-term success of the Company. The Board
and the Portfolio Manager maintain an open and
constructive relationship, with meetings taking
place a minimum of four times per annum, with
monthly updates and additional meetings as
required.
The ‘Management of the Company’ section
on page 37 in this report details the Board’s
consideration of the Portfolio Manager’s
performance, its terms of appointment and
the Board’s annual assessment of the Portfolio
Manager’s continued stewardship of the portfolio
and its oversight of the administrative functions.
Strategic Report (continued)
33
FOR THE YEAR ENDED 30 JUNE 2023
The Audit and Risk Committee meets at least
twice a year and as part of its role considers the
reports on the internal control objectives and
procedures of the Portfolio Manager, the AIFM,
and other third party service providers together
with independent, external reviews where
appropriate.
The AIFM also supplies company secretarial
services to the Company. The AIFM oversees
the activities of the Company’s other third-party
suppliers on behalf of the Company and maintains
open and collaborative relationships to maintain
quality, eciency and cost control through regular
communication with operational teams. The
Board regularly reviews reports from the Portfolio
Manager, the AIFM and Company Secretary, the
depositary, the Company’s broker, the investor
relations research provider and its independent
Auditor.
These provide vital information concerning
changes in market practice or regulation which
aect the Company and assist the Board in its
decision-making process. Representatives from
these providers attend Company Board meetings
and give presentations on a regular basis enabling
in depth discussions concerning their findings and
performance.
Other Third-Party Service Providers
As an externally managed investment company
with no employees or physical assets, the
principal stakeholders of the Company are its
shareholders, Portfolio Manager, AIFM, depositary,
custodian, administrator and registrar.
The continuance, or otherwise, of engagement
of key third-party service providers are principal
decisions taken by the Board every year.
In Summary
The governance structure and decision-making
process are underpinned by the duties of the
Directors under S172 on all matters. The Board
firmly believes that the sustainable long-term
success of the Company is dependent upon
taking account of the interests of all its key
stakeholders.
For and on behalf of the Board
Stephen White
Chairman
15 September 2023
Strategic Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
34
Directors
Stephen White
†
(Chairman of the Board)
Appointed to the Board in October 2020 and subsequently appointed as
Chairman of the Board in October 2021. He is a non-executive director and
chairman of the audit committee of BlackRock Frontiers Investment Trust
plc and a non-executive director of Polar Capital Technology Trust plc and
Henderson EuroTrust plc. He qualified as a Chartered Accountant at PwC before
starting a career in investment management. He has more than 35 years’
investment experience, most notably as head of European equities at F&C Asset
Management, where he was manager of F&C Eurotrust plc and deputy manager
of the F&C Investment Trust plc, and as head of European and US equities at
British Steel Pension Fund.
Lisa Booth
†
Appointed to the Board in September 2015. Ms Booth is a solicitor with many
years’ experience in private practice. She co-founded a law firm in the City of
London in 2003 and developed and managed a practice focusing on private
equity and investment fund transactions during the subsequent ten years.
She currently works as the General Counsel of a Berlin-based company which
provides online travel search and ticket booking services.
Jasper Judd
†
(Chairman of the Audit and Risk Committee)
Appointed to the Board in October 2022. He is a chartered accountant and
non-executive director and chairman of the audit committee of Dunedin Income
Growth Investment Trust plc and a non-executive director and chairman of
the audit and risk committees of JPMorgan Indian Investment Trust plc and
Schroder Asian Total Return Investment Company plc. Previously, he had a long
career in finance and strategy.
Clive Parritt
†
(Senior Independent Director)
Appointed to the Board in January 2007. He is a chartered accountant with
over 40 years’ experience providing strategic, financial and commercial advice
to medium sized and growing businesses. He is senior independent director
of London and Associated Properties PLC. He was president of the Institute of
Chartered Accountants in England & Wales in 2011 to 2012. Until April 2016 he
was Group Finance Director of Audiotonix Limited (an international manufacturer
of audio mixing consoles) and, until 2001, he was chairman of Baker Tilly (now
RSM), having been its national managing partner for ten years until June 1996. He
has previously chaired or been a director of a number of investment trusts, VCTs
and media businesses.
Report of the Directors and Governance
† † Member of the Audit and Risk Committee.
35
FOR THE YEAR ENDED 30 JUNE 2023
Jane Routledge
†
Appointed to the Board in April 2023, Ms Routledge is a non-executive director
of M&G Credit Income Investment Trust plc (MGCI). She is also a non-executive
director of Cumbria Education Trust. Previously, Ms Routledge had a long
career in the investment management sector and has held a number of senior
marketing positions including at Schroders, Invesco, Hermes and Seven
Investment Management.
† † Member of the Audit and Risk Committee.
Report of the Directors and Governance (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
36
The Directors present the Annual Report and
Financial Statements of the Company for the year
ended 30 June 2023.
Results and Dividends
The Company’s Net Asset Value per Ordinary
share and the Ordinary share price increased by
9.8% and 10.4% respectively in the year ended
30 June 2023, compared to an increase of 7.5%
in the sterling adjusted Russell 2000 Total Return
Index. Results and reserve movements for the
year are set out in the Income Statement on page
64 and the Notes to the Financial Statements on
pages 67 to 79.
The Net Assets of the Company at 30 June 2023
were £171.1 million (2022: £155.8 million). No
distributable revenue is available for payment of
dividends.
Capital Structure
As at 30 June 2023 the Company’s issued share
capital consisted of 18,223,413 Ordinary shares
of 25p each of which 6,271,254 were held in
Treasury. As a result, the voting shares on 30
June 2023 totalled 11,952,159. All Ordinary shares
rank equally for dividends and distributions and
carry one vote each. There are no restrictions
concerning the transfer of securities in the
Company, no special rights with regard to control
attached to securities, no agreements known
to the Company between holders of securities
regarding their transfer and no agreement to
which the Company is party that aects its control
following a takeover bid.
Details of the capital structure can be found in
Note 14 to the Financial Statements on page 77.
Upon a winding-up, after meeting the liabilities
of the Company, the surplus assets would be
distributed to shareholders pro rata to their
holdings of Ordinary shares.
Notifiable Interests in the Company’s
Voting Rights
In accordance with the Disclosure and
Transparency Rules as issued by the Financial
Conduct Authority (‘FCA’), the Company is
required to be notified of any new or changes to
previously disclosed substantial interests in its
Ordinary shares.
Substantial shareholders
At 30 June 2023, the following shareholders had
declared a notifiable interest in the Company’s
voting rights:
Shareholder
Ordinary
Shares
held
% of total
voting
rights*
Date of
notification
Rathbone
Investment
Management
Limited 593,735
4.97
27 September
2022
1607 Capital
Partners,
LLC 599,740
5.02
5 April
2023
* Based on number of voting rights as at the date of
notification.
The following updates to notifiable interests in the
Company’s voting rights have been declared since
30 June 2023:
Shareholder
Ordinary
Shares
held
% of total
voting
rights*
Date of
notification
Brewin
Dolphin
Limited 590,224
4.94
17 July
2023
* Based on number of voting rights as at the date of
notification.
Directors
The Directors of the Company and their
biographies can be found on pages 34 and 35.
Mr White, Ms Booth, Mrs Soderlund-Boley and
Mr Parritt held oce throughout the year under
review with Mr Judd being appointed to the Board
on 1 October 2022 and subsequently to the role of
Chairman of the Audit and Risk Committee on 6
February 2023 and Ms Routledge being appointed
on to the Board 1 April 2023. Mrs Soderlund-Boley
resigned from the Board on 30 June 2023.
Mr Parritt serves as the SID. The SID serves as a
sounding board for the Chairman and acts as an
intermediary for other directors and shareholders.
The SID is responsible for:
working closely with and supporting the
Chairman;
Report of the Directors
36
37
FOR THE YEAR ENDED 30 JUNE 2023
leading the annual assessment of the
performance of the Chairman;
holding meetings with the other directors
without the Chairman being present, when
required;
carrying out succession planning for the
Chairman’s role;
working with the Chairman, other directors and
shareholders to resolve major issues; and
being available to shareholders and other
directors to address any concerns or issues
they feel have not been adequately dealt with
through the usual channels of communication
(through the Chairman).
Repurchase of Shares
Authority to Repurchase Shares
At the AGM held on 31 October 2022 shareholders
renewed the authority to buy back the Company’s
Ordinary shares for cancellation or holding in
Treasury. The Board is seeking to renew the
Company’s buyback powers at the forthcoming
AGM. It is believed that these provisions provide
a valuable tool in the management of the
Company’s share value against Net Asset Value.
The current authority allows the Company to
purchase up to 14.99 per cent of the issued
Ordinary shares (excluding treasury shares).
Purchases would be made at the discretion of the
Board and within guidelines as set from time to
time. Under the Listing Rules and the buyback and
stabilisation regulation, the maximum price for
such buybacks cannot exceed the higher of (i) 105
per cent. of the average middle market price for
the five days immediately preceding the date of
repurchase; and (ii) the higher of the price of the
last independent trade and the highest current
independent bid.
Directors’ Remuneration and Interests
The Directors’ Remuneration Report and Policy
on pages 51 to 54 provides information on the
remuneration and shareholdings of the Directors.
Conflicts of Interest
Each Director has a statutory duty to avoid a
situation where they have or may have a direct or
indirect interest which conflicts or might conflict
with the interests of the Company, unless the
relevant conflict or potential conflict has been
authorised by the Board in accordance with the
Company’s Articles of Association. The Directors
have declared all potential conflicts of interest
with the Company. The register of potential
conflicts of interests is kept at the Registered
Oce of the Company. It is reviewed regularly by
the Board and all Directors advise the Company
Secretary as soon as they become aware of any
potential conflicts of interest. Directors who have
potential conflicts of interest do not participate
in any discussions which relate to any of their
potential conflicts.
Directors’ and Officers’ Liability
Insurance and Indemnification
During the year under review the Company
purchased and maintained liability insurance for
its Directors and Ocers as permitted by Section
233 of the Companies Act 2006.
Directors’ Indemnification
The Company has indemnified its Directors in
respect of their duties as Directors and Ocers of
the Company, against certain civil claims brought
by third parties and associated legal costs to the
extent that they are permitted by the Companies
Act 2006.
Management of the Company
Brown Advisory LLC is appointed as the
Company’s Portfolio Manager and FundRock
Partners Limited is appointed as the Company’s
AIFM.
A summary of the terms of the appointment
including the notice of termination period and
annual fee is set out in Note 20 to the Financial
Statements on page 79.
The Directors believe that it is in the best interests
of all shareholders for the Company to continue
the appointment of the AIFM and the Portfolio
Manager on the existing terms of appointment
having reviewed the services provided by the
AIFM and the Portfolio Manager during the year.
Report of the Directors (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
38
Leverage
In accordance with the requirements under the
Alternative Investments Fund Managers Directive
(‘AIFMD’), the leverage employed by the Company
on 30 June 2023 was 1.03 as determined using
the Gross method, and 1.03 as determined using
the Commitment method.
Average leverage on a gross exposure basis is
calculated by taking the sum of the notional
values of the derivatives used by the Company,
without netting, and is expressed as a ratio of the
Company’s net asset value. Average leverage on
a commitment basis is calculated by netting the
sum of the notional values of the derivatives and
expressing it as a ratio of the Company’s net asset
value.
Disclosed in the table below is the level of leverage
employed by the Company.
Maximum
limit
Gross
exposure
average
leverage
employed
during the
year
Commitment
exposure
average
leverage
employed
during the
year
30 June 2022 2.10 1.01 1.01
30 June 2023 2.10 1.03 1.03
Going Concern
The Financial Statements have 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.
In determining the appropriateness of the going
concern basis, the Directors gave particular focus
to the operational resilience and ongoing viability
of the Portfolio Manager, the AIFM and other key
third-party suppliers. The Directors also assessed
the likelihood that the continuation vote would be
approved at the Company’s 2023 AGM.
ISA Qualification
The Company currently manages its aairs so
as to be a qualifying investment trust under the
Individual Savings Account (‘ISA’) rules. As a
result, under current UK legislation, the Ordinary
shares qualify for investment via the stocks and
shares component of an ISA up to the full annual
subscription limit, currently £20,000 (2023/24)
in each tax year. It is the present intention that the
Company will conduct its aairs so as to continue
to qualify for ISA products.
Bribery Prevention Policy
The provision of bribes of any nature to third
parties in order to gain a commercial advantage
is prohibited and is a criminal oence. The Board
takes very seriously its responsibility to prevent,
through Brown Advisory LLC and the AIFM on
its behalf, any bribery. To aid the prevention of
bribery, Brown Advisory LLC and the AIFM have
adopted a Bribery Prevention Policy.
Risk Management and Internal
Controls
In accordance with the AIC Code, the Board is
responsible for monitoring the Company’s risk
management and internal control systems and
reviewing their eectiveness, at least annually, and
to report on its review in the Company’s Annual
Report. Internal control systems are designed to
meet the particular requirements of the Company
and to manage rather than eliminate the risks
of failure to achieve its objectives. The systems
by their very nature can provide reasonable
but not absolute assurance against material
misstatement or loss. The Board has reviewed the
eectiveness of the Company’s internal control
systems including the financial, operational and
compliance controls and risk management. These
systems have been in place for the period under
review and to the date of signing the financial
statements.
The Company receives services from the
Portfolio Manager and the AIFM relating to the
management of the Company, and from JPMEL
Report of the Directors (continued)
39
FOR THE YEAR ENDED 30 JUNE 2023
for depositary services and JPMCB for custodian
services and accounting services in respect
of the Company. Documented contractual
arrangements are in place with these service
providers which define the areas where the
Company has delegated authority to them. The
Audit and Risk Committee has considered the
reports on the internal control objectives and
procedures of the Portfolio Manager, the AIFM,
JPMEL and JPMCB, together with the opinion of
the service auditors for these reports, which detail
the measures and the testing of the measures
which are in place to ensure the proper recording,
valuation, physical security and protection from
theft of the Company’s investments and assets
and the controls which have been established to
ensure compliance with all regulatory, statutory
and fiscal obligations of the Company.
The Directors have also had regard to the
procedures for safeguarding the integrity of the
computer systems operated by the Portfolio
Manager, the AIFM, JPMEL and JPMCB and
the key business continuity plans. The Board
reviews the procedures described above for the
management of risk on an annual basis.
The Company does not have an internal audit
function. The Audit and Risk Committee considers
whether there is a need for an internal audit
function on an annual basis. As most of the
Company’s functions are delegated to third-party
service providers the Board does not consider it
necessary for the Company to establish its own
internal audit function.
UK Stewardship Code and the Exercise
of Voting Powers
The Portfolio Manager is responsible for voting
the shares it holds on the Company’s behalf.
The Portfolio Manager’s Corporate Governance
and Voting Policy can be found at https://www.
brownadvisory.com/intl/disclosures.
The Board and the Portfolio Manager believe
that shareholders have an important role
in encouraging a higher level of corporate
performance and therefore adopt a positive
approach to corporate governance. The Portfolio
Manager aims to act in the best interests of all
its stakeholders by engaging with companies in
which the Company invests, and by exercising
its voting rights with care. Not only is this
commensurate with good market practice,
but it also goes hand in hand with ensuring the
responsible investment of its clients’ funds.
Equally, companies are asked to present their
plans for maintaining social and environmental
sustainability within their business.
In order to assist in the assessment of corporate
governance and sustainability issues and
contribute to a balanced view, the Portfolio
Manager subscribes to external corporate
governance and sustainability research providers
but does not necessarily follow their voting
recommendations. Contentious issues are
identified and, where necessary (and where
timescales permit), are discussed with corporate
governance and/or sustainability analysts and
portfolio managers, and companies. The Portfolio
Manager ensures that resolutions are voted in
accordance with this practice and timely voting
decisions are made.
From time to time, resolutions will be brought to
annual general meetings of investee companies by
third parties encouraging companies to address
specific environmental and/or social concerns. In
such instances the Portfolio Manager’s corporate
governance and sustainability analysts will
discuss their views with the investment team
and the Company if appropriate. The Portfolio
Manager will then vote for what it considers to be
in the best financial interests of shareholders of
the Company, whilst having regard for any specific
sustainability concerns unless otherwise directed.
Common Reporting Standards
The Regulations for Automatic Exchange of
Financial Account Information (the Common
Reporting Standard, ‘CRS’) issued by OECD have
been enacted in the UK through The International
Tax Compliance Regulations 2015.
These Regulations require all financial institutions
(including investment trust companies) to share
with HMRC certain information about overseas
shareholders under the UK FATCA regulations.
Accordingly, the Company is required to provide
information to HMRC on the tax residencies
of a number of non-UK based certificated
Report of the Directors (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
40
shareholders and corporate entities on an annual
basis. HMRC in turn exchanges this information
with tax authorities in the country in which
the shareholder may be resident for taxation
purposes. HMRC has advised that the Company
will not be required to provide such information
on uncertified holdings held through CREST. The
Company has engaged Computershare to provide
such information on certificated holdings to
HMRC on an ongoing basis.
Remuneration of the AIFM
Under the Alternative Investment Fund Managers
Directive (“AIFMD”), FundRock Partners Limited
acting as the AIFM of the Company is required to
disclose the aggregate amount of remuneration
broken down by senior management and
members of sta of the AIFM whose actions
have a material impact on the risk profile of the
Company.
FundRock Partners Limited has established an
AIFM remuneration policy designed to ensure that
the AIFM Remuneration Code in the UK Financial
Authority Handbook is met proportionately for all
AIFM Remuneration Code sta. Further details
of the FundRock Partners Limited remuneration
policy can be found at https://www.fundrock.
com/uk-remuneration-policy.
In its role as an AIFM, FundRock Partners Limited
deems itself as lower risk due to the nature of
the activities it conducts. Therefore, FundRock
Partners Limited has provided a basic overview of
how sta whose actions have a material impact
on the Company are remunerated.
Due to the size and structure of FundRock
Partners Limited, it is determined that employees
of the AIFM who have a material impact on the
risk profile of the Company include the Board and
Head of Compliance.
The Portfolio Manager is subject to regulatory
requirements on remuneration that FundRock
Partners Limited deem to be equally as eective
as those detailed in the AIFMD, which would
include the Capital Requirements Directive or
Markets in Financial Instruments Directive.
Number of
beneficiaries
1
Total
remuneration
paid
2
Fixed
remuneration
(everything
else that is not
discretionary)
£
Variable
remuneration
paid
(discretionary)
£
Carried
interest
paid by the
Company
Total remuneration paid by
FundRock Partners Limited
during the financial year
24 2,284,961 2,066,296 218,665 0
Remuneration paid to
employees of the AIFM who
have a material impact on the
risk profile of the Company
3 565,639 449,077 116,562 0
¹ Number of beneficiaries represents employees of the AIFM who are fully or partially involved in the activities of the Company
as at 30 June 2023.
² Total remuneration paid represents total compensation of those employees of the AIFM who are fully or partially involved in the
activities of the Company, based on their time in the role during the reporting period. Due to the AIFM’s operational structure,
the information needed to provide a further breakdown of remuneration attributable to the Company is not readily available
and would not be relevant or reliable.
Report of the Directors (continued)
41
FOR THE YEAR ENDED 30 JUNE 2023
Shareholder Relations
All shareholders have the opportunity to attend
and vote at the AGM, during which the Directors
and Portfolio Manager will be available to answer
questions regarding the Company. The Notice
of Meeting sets out the business of the AGM
and any item not of an entirely routine nature is
explained in the Report of the Directors or notes
accompanying the Notice.
Separate resolutions are proposed for each
substantive issue. Information about proxy
votes is available to shareholders attending the
AGM and published thereafter on the Company
website.
The Company reports to shareholders twice a
year by way of the half yearly financial report
and Annual Report and Financial Statements. In
addition, Net Asset Values are published on a daily
basis and monthly factsheets are published on
the Company website www.brownadvisory.com/
basc.
The Board has developed the following procedure
for ensuring that each Director develops an
understanding of the views of shareholders.
Regular contact with major shareholders
is undertaken by the Company’s corporate
brokers and the investor relations team of the
Portfolio Manager. Any issues raised by major
shareholders are then reported to the Board.
The Board also receives details of all material
correspondence with shareholders and the
Chairman and individual Directors are willing
to meet shareholders to discuss any particular
items of concern regarding the performance
of the Company. The Chairman, Directors and
representatives of the Portfolio Manager are also
available to answer any questions which may be
raised by shareholders.
Engagement with Stakeholders
More information about how the Board fosters
the relationships with its shareholders and other
stakeholders, and how the Board considers the
impact that any material decision will have on
relevant stakeholders, can be found in the Section
172 statement in the Strategic Report on pages 31
and 32.
Statement in Respect of the Annual
Report and Financial Statements
Having taken all available information into
consideration, the Board has concluded that the
Annual Report and Financial Statements for the
year ended 30 June 2023, taken as a whole, is fair,
balanced and understandable and provides the
information necessary for shareholders to assess
the Company’s performance, business model
and strategy. The Board’s conclusions in this
respect are set out in the Statement of Directors’
Responsibilities on page 55.
There were no instances where the Company
was required to make disclosures in respect of
Listing Rule 9.8.4 during the financial period under
review.
The Directors are not aware of any relevant audit
information of which the Company’s Auditor is
unaware. The Directors also confirm that they
have taken all the steps required of a director to
make themselves aware of any relevant audit
information and to establish that the Company’s
Auditor is aware of that information.
Significant votes against at the 2022
Annual General Meeting
There were no votes against representing 20%
or more of votes cast on any of the resolutions
put forward for shareholder approval at the 2022
Annual General Meeting.
Annual General Meeting
This year’s AGM will be held on Monday,
6 November 2023 at 2:00 p.m. at the oces
of Brown Advisory LLC, 18 Hanover Square,
London W1S 1JY.
Please refer to the Notes for the AGM on pages
88 and 89 for full details on how to vote and to
the Chairman’s Statement on pages 10 and 11 for
guidance on how to communicate any questions
that you would like to be raised at the meeting.
In addition to the ordinary business to be
conducted at the meeting, the following
resolutions in respect of special business will be
proposed.
Report of the Directors (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
42
Resolution 11: Continuation vote (ordinary
resolution)
In accordance with the Articles, the Directors
are required to propose an ordinary resolution
at the forthcoming AGM (and at every third
annual general meeting thereafter) that the
Company shall continue in being as an investment
trust. Accordingly, the Directors are proposing
Resolution 11, which will be proposed as an
ordinary resolution.
Resolution 12: Authority to allot shares
(ordinary resolution)
Resolution 12 seeks authority for the Directors
to allot Ordinary shares up to an aggregate
nominal amount of approximately £298,804.
This authority represents 10% of the Company’s
issued share capital (excluding treasury shares)
as at the date of this document. This authority
will expire at the conclusion of the Company’s
AGM in 2024 (unless renewed earlier) and it is
the intention of the Directors to seek renewal of
this authority at that AGM. The Board will only use
this authority where it believes that it is in the best
interests of the Company to issue shares for cash.
Resolution 13: Disapplication of Pre-emption
rights (special resolution)
The Directors may only allot Ordinary shares for
cash (other than by way of an oer to all existing
shareholders pro rata to their shareholdings)
if they are authorised to do so by shareholders
at a general meeting. The Companies Act 2006
requires that, unless shareholders have given
specific authority for the waiver of their statutory
pre-emption rights, the new Ordinary shares must
be oered first to existing Ordinary shareholders
in proportion to their existing shareholdings.
In certain circumstances, it may be in the best
interests of the Company to allot new Ordinary
shares (or to grant rights over shares) for cash
without first oering them to existing Ordinary
shareholders in proportion to their holdings.
Accordingly, the Directors are seeking authority to
issue up to 10% of the issued Ordinary shares on
this basis.
The authority will expire at the conclusion of the
AGM of the Company in 2024 (unless renewed
earlier) and it is the intention of the Directors to
seek renewal of this authority at that AGM. Any
allotment of new Ordinary shares pursuant to the
authority conferred by this Resolution will dilute
the voting power of shareholdings of existing
shareholders, but will not have a dilutive impact
on NAV.
Resolution 14: Authority to buy back shares
(special resolution)
The Company is seeking shareholder approval to
repurchase up to 14.99% of the shares in issue
(excluding treasury shares) at a price that is not
less than the nominal value of each share. The
authority being sought will last until the date of
the next AGM.
The decision as to whether or not to repurchase
any shares will be at the discretion of the Board
and any shares repurchased under the authority
will be cancelled or held in Treasury. The Company
will only fund any purchases by utilising existing
cash resources or out of distributable profits as
defined by the Companies Act 2006.
Any purchase of shares by the Company will
be made in accordance with the Articles of
Association and the Listing Rules in force at the
time. No purchase of shares will be made at a
price in excess of the estimated NAV.
Resolution 15: Notice of General Meetings
(special resolution)
Resolution 15 is required to reflect the
Shareholders’ Rights Directive (the ‘Directive’).
The Directive has increased the notice period for
General Meetings of the Company to 21 days. If
Resolution 15 is passed the Company will be able
to call all General Meetings (other than Annual
General Meetings) on 14 clear days’ notice. In
order to be able to do so shareholders must have
approved the calling of meetings on 14 clear days’
notice. The approval will be eective until the
Company’s next AGM, when it is intended that a
similar resolution will be proposed. The Company
will also need to meet the requirements for
electronic voting under the Directive before it can
call a General Meeting on 14 clear days’ notice.
This shorter notice period will only be used where,
in the opinion of the Directors, it is merited by the
purpose of the meeting.
Report of the Directors (continued)
43
FOR THE YEAR ENDED 30 JUNE 2023
The Board, left to right: Jasper Judd, Jane Routledge, Stephen White, Lisa Booth and Clive Parritt.
Recommendation
The Board considers that the passing of the
resolutions being put to the Company’s AGM
would be in the best interests of the Company
and its shareholders as a whole. It therefore
recommends that shareholders vote in favour
of Resolutions 1 to 15, as set out in the Notice of
Annual General Meeting.
By order of the Board
FundRock Partners Limited
Company Secretary
15 September 2023
Report of the Directors (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
44
Corporate Governance Compliance
Statement
This statement, together with the Statement
of Directors’ Responsibilities on page 55
and the statement of Risk Management and
Internal Controls on pages 38 and 39, indicates
how the Company has complied with the
recommendations of the AIC Code as issued in
February 2019.
The AIC Code addresses the Principles
and Provisions set out in the UK Corporate
Governance Code (the ‘UK Code’) as issued in
July 2018 by the Financial Reporting Council (the
‘FRC’), as well as setting out additional provisions
on issues that are of specific relevance to the
Company.
The Board considers that reporting against the
Principles and Provisions of the AIC Code, which
has been endorsed by the FRC, provides more
relevant information to shareholders.
The Company has complied with the provisions of
the AIC Code (which incorporates the UK Code),
except as set out below. The UK Code include
provisions relating to:
The role of the chief executive;
Executive directors’ remuneration; and
The need for an internal audit function.
The Board considers these provisions not
relevant to the position of the Company being an
externally managed investment company with
no employees. The Company has not therefore
reported further in respect of these provisions.
The AIC Code is available on the AIC website
(www. theaic.co.uk). It includes an explanation
of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them
relevant for investment companies.
A description of the main features of the
Company’s internal control and risk management
functions can be found on pages 38 and 39 of this
report.
The Board
Role of the board
The Board receives monthly reports and meets
at least quarterly to review the overall business of
the Company and to consider matters specifically
reserved for its review. At these meetings, the
Board monitors the investment performance
of the Company. The Directors also review the
Company’s activities every quarter to ensure
that it adheres to its investment policy or, if
appropriate, to make any changes to that policy.
Additional ad hoc reports are received as required
and Directors have access at all times to the
advice and services of the Company Secretary,
who is responsible for ensuring that Board
procedures are followed and that applicable rules
and regulations are complied with. The Board has
adopted a schedule of items specifically reserved
for its decision.
A procedure has been adopted by which Directors
may obtain independent professional advice at
the expense of the Company in the furtherance of
their duties.
Composition
As at 30 June 2023, following the resignation of
Tina Soderlund-Boley, the Board comprised five
non-executive directors, comprising two females
and three males, all of whom are independent of
the Portfolio Manager.
Mr White is Chairman of the Board and has no
conflicts of interest between his interests and
those of shareholders. The Chairman is also a
shareholder. Potential conflicts are reported to the
rest of the board who consider such conflicts and
where appropriate approve them. The Chairman
is not, and has never been, an employee of the
Portfolio Manager nor a professional adviser
to the Portfolio Manager or the Company. The
Chairman does not serve as a director of any
other investment companies managed by Brown
Advisory LLC.
Corporate Governance
45
FOR THE YEAR ENDED 30 JUNE 2023
Tenure
The Board is mindful of the AIC and UK Corporate
Governance Codes in relation to the tenure of
directors (including the Chairman) but the Board
has always believed in and arranged annual re-
election for all Directors regardless of tenure.
The Board undertakes an annual evaluation of its
composition, and that of its committee, taking
into account the requirements of the AIC Code.
If appropriate, recommendations are made to
refresh the composition of the Board and its
committee.
Succession Planning
The Directors recently undertook a review of the
composition of the Board.
During the financial year ending 30 June 2024,
the Board intends to appoint an external search
consultancy to undertake the search for an
additional non-executive director as part of the
refreshment of the Board and ahead of the time
when both Mr Parritt and Ms Booth will have
stepped down.
Diversity
It is seen as a prerequisite that each member of
the Board must have the skills, experience and
character that will enable them to contribute to
the eectiveness of the Board and the success of
the Company. Subject to that overriding principle,
diversity of experience and approach, including
gender diversity, amongst Board members is of
great value, and it is the Board’s policy to give
careful consideration to overall Board balance and
diversity when making new appointments to the
Board.
According to new requirements of the Listing
Rules (Listing Rule 9.8.7 R), companies are
required to include a statement in their annual
report and financial statements setting out
whether it has met the following targets on board
diversity as at a chosen reference date within its
accounting period:
1) At least 40% of individuals on its board are
women;
2) At least one of the senior board positions
(Chairman, chief executive ocer (CEO),
senior independent director or chief financial
ocer (CFO) is held by a woman; and
3) At least one individual on its board is from a
minority ethnic background, defined to include
those from an ethnic group, other than a
white ethnic group, as specified in categories
recommended by the Oce for National
Statistics.
As an externally-managed investment company,
the Company does not have a CFO or CEO. The
Board considers that the senior positions in
the Company are the positions of Chairman,
Chairman of the Audit and Risk Committee and
Senior Independent Director.
As at 30 June 2023 the Company makes the
following disclosures:
Number of
Board
members
Percentage
of the
Board
Number of
senior
positions
on the
Board
Men 3 60% 100%
Women 2 40% –
Not specified/
prefer not to
say
– – –
Corporate Governance (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
46
Table for reporting on ethnic background
Number of
Board
members
Percentage
of the
Board
Number of
senior
positions
on the
Board
White British
or other White
(including
minority white
groups) 5 100% 100%
Mixed Multiple
Ethnic Groups – – –
Asian/Asian
British – – –
Black/
African/
Caribbean/
Black British – – –
Other
ethnic group,
including Arab – – –
Not
specified/
prefer not to
say – – –
Re-election of Directors
It was noted by the Board that, as at 30 June
2023 and at the time of signing of these Financial
Statements, it did not meet the second target
on gender diversity or the third target on ethnic
diversity. The Board is committed to meeting
the Listing Rule target set out above and has
agreed to consider gender and ethnic diversity
when future appointments are made, and further
information on how the Board’s composition is
expected to evolve is included in the Chairman’s
Statement on pages 8 to 11.
It is the Company’s policy that all Directors stand
for re-election on an annual basis.
Training
The Directors are kept up to date on corporate
governance issues through materials provided
from time to time by the Company Secretary.
The Board may obtain training on aspects of
corporate governance on an individual basis.
Performance Evaluation
The Board has arranged an externally-facilitated
Board eectiveness review which commenced in
July 2023 and will conclude in early September
2023. On an annual basis, the Directors undertake
an appraisal in relation to their oversight and
monitoring of the performance of the Portfolio
Manager and other key service providers.
Board Committees
Audit and Risk Committee
The Board has established an Audit and Risk
Committee. The report of the Audit and Risk
Committee can be found on pages 48 to 50.
The Terms of Reference of the Committee
are published on the Company website
www.brownadvisory.com/basc.
Other Committees
The Board has not established Remuneration
or Nomination Committees as the functions of
these committees are performed by the Board
as all Directors are non-executive. Directors’ fees
are considered by the Board as a whole within
the limits as set out in the Articles of Association
and in accordance with the remuneration policy
approved by shareholders. The appointment of
directors is considered by the entire Board on
an ad-hoc basis with consideration given inter
alia to candidates’ expertise and maintaining an
appropriate Board balance and composition.
The Board has not established a Management
Engagement Committee as the functions of this
committee, including the appointment of the
Portfolio Manager, are performed by the Board.
Corporate Governance (continued)
47
FOR THE YEAR ENDED 30 JUNE 2023
Directors’ Attendance at Meetings
Board
Audit
and Risk
Committee
Stephen White
6/6 4/4
Lisa Booth
6/6 4/4
Jasper Judd
†
4/4 3/3
Clive Parritt
6/6 4/4
Jane Routledge
††
2/2 2/2
Tina Soderlund-Boley
†††
6/6 4/4
† Covers the period 1 October 2022 to 30 June 2023.
†† Covers the period 1 April 2023 to 30 June 2023.
††† Tina Soderlund-Boley resigned on 30 June 2023.
For and on behalf of the Board
Stephen White
Chairman
15 September 2023
Corporate Governance (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
48
Role of the Audit and Risk Committee
The Audit and Risk Committee changed its name
from Audit Committee so as more accurately
to reflect its responsibilities and role. It meets
at least twice annually to consider the principal
and emerging risks of the Company, financial
reporting by the Company, the internal controls
and relations with the Company’s external Auditor.
In addition, it reviews the independence and
objectivity of the Auditor and the eectiveness
of the audit process, the quality of the audit
engagement partner and the audit team, making
a recommendation to the Board with respect to
the reappointment of the Auditor. It also provides
an opinion as to whether the Annual Report, taken
as a whole, is fair, balanced and understandable
and provides the information necessary for
shareholders to assess the Company’s position
and performance, business model and strategy.
The Company does not have an internal audit
function as most of its day-to-day operations are
delegated to professional third parties.
The Committee also reviews the Company’s
compliance with the Code and the AIC Code.
Composition
The Audit and Risk Committee consists of Mr
Judd, Ms Booth, Mr Parritt, Ms Routledge and
Mr White. Mr Judd is chairman of the Audit and
Risk Committee. All committee members are
independent non-executive directors. Mr Judd is
a chartered accountant and Mr Parritt is a past
president of the ICAEW (Institute of Chartered
Accountants in England and Wales).
Mr White continues to be a member of the
Audit and Risk Committee. The AIC Code
permits the Chairman to be a member of, but
not chair, the Audit and Risk Committee if they
were independent on appointment – which
the Chairman was and continues to be. In view
of the size of the Board, the Directors feel it is
appropriate for him to continue as a member so
that the Audit and Risk Committee can continue
to benefit from his experience and knowledge.
The Audit and Risk Committee has direct access
to the Auditor, the Heads of Internal Audit,
and the Risk and Compliance function of the
Portfolio Manager, and of the AIFM and reports
its findings to the Board. The Board retains
ultimate responsibility for all aspects relating to
external financial statements and other significant
published financial information.
Independent Auditor and Audit Tenure
As part of its review of the continuing
appointment of the Auditor, the Audit and Risk
Committee considers the length of tenure of the
audit firm, its fees and independence from the
AIFM and the Portfolio Manager along with any
matters raised during each audit. Haysmacintyre
LLP (‘Haysmacintyre’) is the appointed Auditor of
the Company.
This year’s audit was the fourth undertaken by
Haysmacintyre, and the first led by Laura Mott
as engagement partner, since Haysmacintyre
was appointed in 2019. The fees paid to
Haysmacintyre in respect of audit services are
disclosed in Note 5 to the Financial Statements on
page 71.
Report of the Audit and Risk Committee
49
FOR THE YEAR ENDED 30 JUNE 2023
Significant Accounting Matters
During its review of the Company’s Annual Report and Financial Statements for the year ended 30 June
2023, the Audit and Risk Committee considered the following significant issues, including a robust
assessment of principal and emerging risks and uncertainties in light of the Company’s activities and issues
communicated by the Auditor during its review, all of which were satisfactorily addressed:
Issue considered How the issue was addressed
Valuation of the investment portfolio and existence Review of reports from the Portfolio Manager
and custodian
Compliance with section 1158 of the Corporation Tax
Act 2010
Review of portfolio holdings reports and
revenue forecasts to ensure compliance criteria
are met
Calculation of management fee Consideration of methodology used to
calculate management fee, matched against
the criteria set out in the Portfolio Management
Agreements
Statement of going concern Review of the investment portfolio, risks and
uncertainties and forecast revenue
Auditor Effectiveness and
Independence
Auditor eectiveness is assessed by means of the
Auditor’s direct engagement with the Committee
at Audit and Risk Committee meetings and also
by reference to feedback from the AIFM, Portfolio
Manager and its employees who have direct
dealings with the Auditor during the annual audit
of the Company.
Disclosure of Information to the
Auditor
The Directors are not aware of any relevant audit
information of which the Company’s Auditor
is unaware. The Directors also confirm that
they have each taken all the steps required of a
company director to make themselves aware of
any relevant audit information and to establish
that the Company’s Auditor is aware of that
information.
Non-audit Services
The Committee ensures that the Auditor’s
objectivity and independence are safeguarded
by requiring pre-approval by the Committee for
all non-audit services provided to the Company,
which takes into consideration:
confirmation from the Auditor that it has
adequate arrangements in place to safeguard
their objectivity and independence in carrying
out such work, within the meaning of the
regulatory and professional requirements to
which they are subject;
the non-audit fees to be incurred, relative to the
audit fees;
the nature of the non-audit services; and
whether the Auditor’s skills and experience
make it the most suitable supplier of such
services and whether they are in a position to
provide them.
The Committee has adopted a policy that all
non-audit services are subject to its approval. No
fee for such services was payable to the Auditor
for the year under review and no services were
undertaken (2022: £nil).
Report of the Audit and Risk Committee (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
50
Statement in respect of the Annual
Report and Financial Statements
Having taken all available information into
consideration, and having discussed the content
of the Annual Report and Financial Statements
with the AIFM, Portfolio Manager, Company
Secretary and other third-party service providers,
the Audit and Risk Committee has concluded that
the Annual Report and Financial Statements for
the year ended 30 June 2023, taken as a whole,
are fair, balanced and understandable and provide
the information necessary for shareholders to
assess the Company’s position and performance,
business model and strategy, and has reported on
these findings to the Board.
For and on behalf of the Audit and Risk Committee
Jasper Judd
Chairman of the Audit and Risk Committee
15 September 2023
Report of the Audit and Risk Committee (continued)
51
FOR THE YEAR ENDED 30 JUNE 2023
Introduction
The Board is pleased to present the Company’s
annual remuneration report for the year ended
30 June 2023, together with its remuneration
policy, in accordance with Schedule 8 of The
Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment)
Regulations 2013.
The law requires the Company’s Auditor to
audit certain of the disclosures provided. Where
disclosures have been audited, they are indicated
as such. The Auditor’s opinion is included in their
report on pages 56 to 63.
Statement by the Chairman
The Board’s policy on remuneration is set out
below.
The Directors of the Company are non-executive
and by way of remuneration receive an annual fee,
payable quarterly in arrears.
Directors’ fees currently payable are as follows:
Role
Amount payable
per annum
Chairman of the Board £37,000
Chairman of the Audit and
Risk Committee £33,500
Director £28,000
Details of the total emoluments paid to Directors
for the years ended 30 June 2022 and 30 June
2023 are provided in the Annual Report on
Remuneration on page 52.
The Company does not award any other
remuneration or benefits to the Chairman or
Directors. There are no bonus schemes, pension
schemes, share option or long-term incentive
schemes in place for the Directors.
Directors’ Remuneration Policy
The remuneration policy of the Company was
approved by shareholders at the 2020 AGM
for a maximum of three years. Accordingly, as
required under the Large and Medium-sized
Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013, a resolution to
approve the remuneration policy for a maximum
of a further three years will be put before
shareholders at this year’s AGM.
Subject to shareholder approval, the
remuneration policy as set out below will apply
until the 2026 AGM unless renewed, varied or
revoked by shareholders at a general meeting.
The Company’s current remuneration policy is
that fees payable to Directors are commensurate
with the amount of time Directors are expected to
spend on the Company’s aairs, whilst seeking to
ensure that fees are set at an appropriate level so
as to enable candidates of a sucient calibre and
possessing suitable knowledge and experience
to be recruited. The Company’s Articles of
Association state the maximum aggregate
amount of fees that can be paid to Directors in
any one year. This is currently set at £185,000
per annum and shareholder approval is required
for any changes to this. No change is proposed
to the remuneration policy, or to the maximum
aggregate amount of fees. Shareholders are being
asked to approve the unchanged remuneration
policy (Resolution 3) at the 2023 AGM.
Subject to the passing of Resolution 3 at the
forthcoming AGM, the Board plans to marginally
increase Director fees next year in line with the
Company’s peer group. Director fees were last
increased on 1 January 2023.
Each Director is entitled to a base fee. The
Chairman of the Board is paid a higher fee than
other Directors to reflect the additional work
entailed by the role. The Chairman of the Audit
and Risk Committee also receives a higher fee on
the same basis.
The Board is authorised to obtain, at the
Company’s expense, outside legal or other
professional advice on any matters within its
Terms of Reference. The Board did not seek
external advice during the year under review.
The Board has not established a Remuneration
Committee and any review of the Directors’ fees
is undertaken by the Board as a whole and has
regard to the level of fees paid to non-executive
directors of other investment companies of
equivalent size.
Directors’ Remuneration Report and Policy
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
52
Directors’ Service Contracts
No Director has a contract of service with the
Company. Accordingly, the Directors are not
entitled to any compensation in the event of
termination of their appointment or loss of oce,
other than the payment of any outstanding fees.
It is the Company’s policy for all Directors to
stand for re-election annually. Any new Director
appointed is subject to election by shareholders
at the next AGM following their appointment.
The terms and conditions of Directors’
appointments are set out in formal letters of
appointment.
Director Date of Appointment Due date for Re-election
Stephen White 1 October 2020 Annually
Lisa Booth 29 September 2015 Annually
Jasper Judd 1 October 2022 Annually
Clive Parritt 2 January 2007 Annually
Jane Routledge 1 April 2023 Annually
Annual Report on Remuneration
A single figure for the total remuneration of each Director is set out in the table below for the years ended
30 June 2023 and 30 June 2022 respectively. Directors’ fees were last increased on 1 January 2023.
Directors’ emoluments for the period (audited)
30 June 2023 30 June 2022
Director
Fees
£
Expenses
£
Total
remuneration for
the year ended
£
Fees
£
Expenses
£
Total
remuneration for
the year ended
£
Stephen White 35,825 – 35,825 31,395 – 31,395
Peter Barton
‡
– – – 10,347 – 10,347
Lisa Booth* 30,300 562 30,862 30,750 438 31,188
Gordon Grender
‡‡
– – – 12,835 – 12,835
Jasper Judd**
†
22,763 – 22,763 – – –
Clive Parritt 27,125 – 27,125 25,625 – 25,625
Jane Routledge
††
7,000 – 7,000 – – –
Tina Soderlund-Boley
†††
27,125 – 27,125 25,625 – 25,625
Total 150,138 562 150,700 136,577 438 137,015
* Chairman of the Audit and Risk Committee until 6 February 2023.
** Chairman of the Audit and Risk Committee from 6 February 2023.
‡ Covers the period 1 July 2021 to 29 November 2021.
‡‡ Chairman of the Board until 21 October 2021.
† Covers the period 1 October 2022 to 30 June 2023.
†† Covers the period 1 April 2023 to 30 June 2023.
††† Tina Soderlund-Boley resigned on 30 June 2023.
Directors’ Remuneration Report and Policy (continued)
53
FOR THE YEAR ENDED 30 JUNE 2023
Directors’ Remuneration Report and Policy (continued)
Expenditure by the Company on
Directors’ Remuneration compared
with Distributions to Shareholders
The table opposite compares the remuneration
payable to Directors to distributions made to
shareholders during the financial year under
review and the prior year. In considering these
figures, shareholders should take into account
the Company’s principal investment objective of
achieving capital growth. In the year ended 30 June
2023, the Company’s capital return was a net gain
of £16 million (2022: net loss of £24 million).
30 June
2023
£’000
30 June
2022
£’000
Remuneration paid to
Directors 151 137
Distributions to
shareholders –
dividends – –
Total value of shares
repurchased – 174
Statement of voting at the last AGM
An ordinary resolution for the approval of the
Directors’ Remuneration Report will be put to
shareholders annually at the Company’s Annual
General Meeting. This vote is advisory and not
binding on the Company, nor does it aect
the remuneration payable to any individual
director. However, it does give shareholders the
opportunity to inform the Board of their views
on the Directors’ remuneration. The Directors
remuneration policy will be put to shareholders’
vote at the upcoming AGM on 6 November 2023.
The Directors’ remuneration policy sets out the
Company’s proposed forward looking policy
on Directors ‘remuneration. The vote is binding
and the company is obliged to present a policy
on Directors’ remuneration to shareholders for
approval every 3 years.
The following sets out the votes received at the
last AGM of the shareholders of the Company,
held on 31 October 2022, in respect of the
approval of the Directors’ Remuneration Report.
Votes cast for Votes cast against
Total
votes
cast
Number
of votes
withheldNumber % Number %
Directors’
Remuneration
Report 4,093,029 98.69 43,833 1.06 4,147,312 12,039
Directors’ Interests
The Directors who held oce at the end of the
financial year covered by this report and their
beneficial interests in the Ordinary shares of the
Company are detailed in the table opposite. There
is no requirement for a director to hold shares in
the Company.
The Directors’ interests in contractual
arrangements with the Company are as detailed
in Note 20 to the Financial Statements. Subject
to these exceptions, no Director was a party to or
had any interest in any contract or arrangement
with the Company at any time during the year or
subsequently.
Directors’ interests in Ordinary shares
(audited)
30 June
2023
30 June
2022
Lisa Booth 463 463
Jasper Judd 2,000 –
Clive Parritt 10,000 10,000
Jane Routledge – –
Stephen White 20,000 20,000
On 11 July 2023, Jane Routledge purchased 857
Ordinary shares in the Company. Ms Routledge
purchased a further 643 Ordinary shares in the
Company on 28 July 2023.
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
54
As at 13 September 2023, the latest practicable date prior to publication of this document, no further
changes had been notified.
Performance to 30 June 2023
The graph below provides details of the Company’s Ordinary share price performance compared against
the Russell 2000 Total Return Index, expressed in sterling.
On behalf of the Board and in accordance with
Part 2 of Schedule 8 of the Large and Medium-
sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, I
confirm that the Directors’ Remuneration Report
and policy summarises, for the year ended
30 June 2023, the review undertaken and the
decisions made regarding the fees paid to the
Board, as well as the future remuneration policy of
the Company.
By order of the Board
Stephen White
Chairman
15 September 2023
0
50
100
150
200
250
300
Performance from 30 June 2014 to 30 June 2023
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-23
Jun-23
Sep-22
Dec-22
Share Price
Russell 2000 Index
NAVBenchmark
Source: Datastream.
Directors’ Remuneration Report and Policy (continued)
55
FOR THE YEAR ENDED 30 JUNE 2023
The Directors are responsible for preparing
the Annual Report and Financial Statements in
accordance with applicable law and regulation.
Company law requires the Directors to prepare
financial statements for each financial year. Under
that law the Directors have elected to prepare
financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and
applicable laws) including Financial Reporting
Standard 102, the financial reporting standard
applicable in the UK and the Republic of Ireland.
Under company law the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of aairs of the Company and of the
return or loss of the Company for that period.
In preparing those financial statements, the
Directors are required to:
(a) select suitable accounting policies and then
apply them consistently;
(b) make judgements and accounting estimates
that are reasonable and prudent;
(c) state whether applicable UK Accounting
Standards have been followed, subject
to any material departures disclosed and
explained in the financial statements; and
(d) prepare the financial statements on the
going concern basis unless it is inappropriate
to presume that the Company will continue
in business.
The Directors are responsible for keeping
adequate accounting records that are sucient
to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time
the financial position of the Company and enable
them to ensure that the financial statements
comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps
for the prevention and detection of fraud and
other irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing
a Strategic Report, Report of the Directors,
Directors’ Remuneration Report and Statement of
Corporate Governance that comply with that law
and those regulations.
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company website
www.brownadvisory.com/basc, which is a website
maintained by Brown Advisory LLP. Visitors to the
website need to be aware that legislation in the
United Kingdom governing the preparation and
dissemination of financial statements may dier
from legislation in other jurisdictions.
Each of the Directors, who are listed on pages 34
and 35 of this report, confirms to the best of their
knowledge that:
1. the financial statements, prepared in
accordance with the applicable set of
accounting standards, give a true and fair view
of the assets, liabilities, financial position and
profit or loss of the Company; and
2. the Strategic Report includes a fair review
of the development and performance of the
Company, together with a description of the
principal risks and uncertainties that the
Company faces; and
3. i n their opinion the Annual Report and
Financial Statements, taken as a whole,
are fair, balanced and understandable and
provide the information necessary to assess
the Company’s position and performance,
business model and strategy.
So far as each Director is aware at the time the
report is approved:
1. there is no relevant audit information of which
the Company’s Auditor is unaware; and
2. the Directors have taken all steps required of a
company director to make themselves aware of
any relevant audit information and to establish
that the Company’s Auditor has been made
aware of that information.
By order of the Board
Stephen White
Chairman
15 September 2023
Statement of Directors’ Responsibilities
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
56
To the Members of Brown Advisory US Smaller Companies PLC
Our opinion on the financial
statements
We have audited the financial statements of
Brown Advisory US Smaller Companies plc (‘the
Company’) for the year ended 30 June 2023
which comprise the statement of comprehensive
income, the statement of financial position, the
statement of changes in equity and the notes to
the financial statements, including a summary
of significant accounting policies. The financial
reporting framework that has been applied in their
preparation is applicable law and United Kingdom
Accounting Standards, including Financial
Reporting Standard 102 ‘The Financial Reporting
Standard applicable in the UK and Republic of
Ireland’ (United Kingdom Generally Accepted
Accounting Practice).
In our opinion:
the financial statements give a true and fair
view of the state of the Company’s aairs as
at 30 June 2023 and of the return for the year
then ended;
the financial statements have been properly
prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described in
the Auditor’s responsibilities for the audit of the
financial statements section of our report. We
are independent of the Company in accordance
with the ethical requirements that are relevant to
our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to
listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance
with these requirements. We believe that the
audit evidence we have obtained is sucient and
appropriate to provide a basis for our opinion.
An overview of the scope of our audit
We planned the scope of our audit to ensure that
we obtained sucient audit evidence to give an
audit opinion on the financial statements as a
whole, taking into account the structure of the
Company, the accounting processes and controls,
and the industry in which it operates.
The Company’s accounting has been outsourced
to J.P. Morgan Chase Bank N.A, who are
responsible for maintaining the Company’s
accounting records. Accordingly, we review their
involvement as a service organisation, use reports
and data provided to us by them, and consider the
operation of controls and procedures operated by
J. P. Morgan Chase Bank N.A. that are relevant to
our audit.
We obtained our audit evidence from substantive
tests and as part of our risk assessment, we
understood and assessed the internal controls in
place at the Portfolio Manager, and the accounting
service provider to the extent relevant to our audit.
This assessment of the operating and accounting
structure in place at these organisations involved
obtaining and analysing the relevant control
reports issued by the independent service
auditor of these entities in accordance with
generally accepted assurance standards for such
work. Following this assessment, we applied
professional judgement to determine the extent of
testing required over each balance in the financial
statements.
Independent Auditor’s Report
57
FOR THE YEAR ENDED 30 JUNE 2023
Key audit matters: Our assessment of
risks of material misstatement
Key audit matters are those matters that, in our
professional judgement, were of most significance
in the audit of the financial statements of the
current period and include the most significant
assessed risks of material misstatement (whether
or not due to fraud) that we identified. These
matters included those which had the greatest
eect on: the overall audit strategy; the allocation
of resources in the audit; and directing the eorts
of the engagement team. These matters were
addressed in the context of our audit of the
financial statements as a whole, and in forming
our opinion thereon, and we do not provide a
separate opinion on those matters.
Key audit matter The risk Our response to the risk:
Incomplete
or inaccurate
revenue
recognition,
including
classification
as revenue or
capital
Revenue for
the year is
£984,000 (2022:
£738,000) and is
disclosed in Note
3 to the financial
statements.
The accounting
policy for revenue
is described in
note 2b(iv).
There is a risk of incomplete or
inaccurate recognition of income through
the failure to recognise proper income
entitlements or applying appropriate
accounting treatment.
In addition to the above, the Directors
are required to exercise judgement in
determining whether income receivable
in the form of special dividends should be
classified as ‘revenue’ or ‘capital’.
We have undertaken the following
procedures to verify the appropriateness
of revenue recognition:
To assess the completeness of
dividends for investments held during
the year, we reviewed the dividend
announcements made by the investee
companies and ensured that the
Company had correctly recognised
income in respect of those dividends.
This was performed on a sample basis;
We agreed the receipt of dividends to
bank statements on a sample basis;
and
For a sample of accrued dividends,
we assessed the date of the dividend
declaration date and whether the
Company had proper legal title to
those dividends.
Key observations communicated to the Audit and Risk Committee
Our audit procedures did not identify any matters or other observations to report to
the Audit and Risk Committee.
Independent Auditor’s Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
58
Key audit matter The risk Our response to the risk:
Valuation of
investments
Investment
valuations at the
year end were
£159,134,000
(2022:
£147,856,000)
which were all
listed investments.
Disclosure of
these investments
is included in Note
9 to the financial
statements.
The accounting
policy for the
valuation of
investments
is described in
Note 2b(i) of
the financial
statements.
Investments represent the most
significant item in the statement of
financial position and an error within the
valuation of the Company’s investment
portfolio could have a material impact on
the financial position and performance of
the Company.
We do not consider these investments
to be at a high risk of significant
misstatement, or to be subject to
a significant level of judgement
because they comprise liquid, quoted
investments.
However, due to their materiality in the
context of the financial statements as
a whole, they are considered to be one
of the areas which has the greatest
impact on our overall audit strategy and
allocation of resources in planning and
completing our audit so therefore was
considered a key audit matter.
We have undertaken the following
procedures to gain assurance over the
valuation of the investments:
We agreed the bid price to an
independent source. This was
performed on a sample basis;
We agreed the exchange rates applied
to US stocks to an independent source.
This was performed on a sample basis;
We agreed the year-end investment
holdings to custodian confirmation;
We assessed the accuracy of the
calculation of Gains and losses on
investments at fair value through profit
and loss; and
We assessed the appropriateness and
presentation of the Gains and losses
on investments at fair value through
profit and loss within the financial
statements disclosures.
Key observations communicated to the Audit and Risk Committee
Based on the procedures performed we gained satisfactory assurance over the
valuation of the Company’s investment portfolio and did not identify any matters or
other observations to report to the Audit and Risk Committee.
Our application of materiality
We apply the concept of materiality both in
planning and performing our audit, and in
evaluating the eect of misstatements on our
audit and on the financial statements. For the
purposes of determining whether the financial
statements are free from material misstatement
we define materiality as the magnitude of an
omission or misstatement that, individually or in
the aggregate, could reasonably be expected to
influence the economic decisions of a reasonably
knowledgeable person, relying on the financial
statements.
Materiality
Materiality provides a basis for determining the
nature and extent of our audit procedures. We
determined materiality for the Company to be
£1,590,000 which is approximately 1% of the
Company’s net asset value at 30 June 2023.
Net asset value has been used as the benchmark
for materiality as this is considered to be the
critical performance measure used by investors to
assess the performance of the Company.
Given the importance of the distinction between
revenue and capital for the Company we also
applied a separate materiality level of £34,000
for the revenue column of the Statement of
Comprehensive Income. We set this level at
approximately 2% of total expenditure.
Performance materiality
On the basis of our risk assessments, together
with our assessment of the Company’s overall
control environment our assessment was that
performance materiality should be set at 75% of
our overall materiality level, namely £1,190,000.
We have set performance materiality at this
percentage due to the absence of significant
Independent Auditor’s Report (continued)
59
FOR THE YEAR ENDED 30 JUNE 2023
errors noted in the current year audit and based
on our assessment of the control framework at
the Company.
We also applied a separate performance
materiality level of £25,500 for the revenue
column of the Statement of Comprehensive
Income. We set this at 75% of the separate
revenue account materiality level.
Reporting threshold
An amount below which identified misstatements
are considered as being clearly trivial. We
determined based on our calculations that
we would report to the Committee all audit
dierences in excess of £79,600 as well as
dierences below that threshold that, in our view,
warranted reporting on qualitative grounds. We
also report to the Audit and Risk Committee
on disclosure matters that we identified when
assessing the overall presentation of the financial
statements. The reporting threshold for the
revenue account was set at £1,700.
Conclusions relating to going concern
In auditing the financial statements, we have
concluded that the directors’ use of the going
concern basis of accounting in the preparation
of the financial statements is appropriate. The
Directors assessment on going concern is
summarised in the Directors’ report and we are of
the opinion that this assessment is reasonable.
Our evaluation of the directors’ assessment of the
Company’s ability to continue to adopt the going
concern basis of accounting included:
Evaluating the appropriateness of the
Directors’ method of assessing the going
concern position in light of market volatility
and the present uncertainties by reviewing
the information used by the Directors in
comprising their assessment;
Considering the liquidity of the investment
portfolio and its ability to meet the liabilities of
the Company as and when they fall due;
Considering the continuation vote at the 2023
AGM;
Considering the current cash position; and
Considering the ability of the key service
organisations to continue providing services to
the Company.
Based on the work performed, we have not
identified any material uncertainties relating
to events or conditions that, individually or
collectively, may cast significant doubt on the
Company’s ability to continue as a going concern
for a period of at least twelve months from when
the financial statements are authorised for issue.
In relation to the Company’s reporting on how it
has applied the UK Corporate Governance Code,
we have nothing material to add or draw attention
to in relation to the directors’ statement in the
financial statements about whether the directors
considered it appropriate to adopt the going
concern basis of accounting.
Our responsibilities and the responsibilities of
the directors with respect to going concern are
described in the relevant sections of this report.
We have nothing to report on the other
information in the Annual Report
The Directors are responsible for the other
information presented in the Annual Report
together with the financial statements. Our
opinion on the financial statements does not
cover the other information and, except to the
extent otherwise explicitly stated in this report, we
do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information
and, in doing so, consider whether the other
information is materially inconsistent with
the financial statements or our knowledge
obtained in the audit or otherwise appears to
be materially misstated. If we identify such
material inconsistencies or apparent material
misstatements, we are required to determine
whether there is a material misstatement in the
financial statements or a material misstatement
of the other information. If, based on the work
we have performed, we conclude that there is a
material misstatement of the other information
we are required to report on that fact.
Independent Auditor’s Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
60
Strategic report and Directors’ report
Based solely on our work on the other
information:
we have not identified material misstatements
in the strategic report and the Directors’ report;
in our opinion the information given in those
reports for the financial year is consistent with
the financial statements; and
in our opinion those reports have been
prepared in accordance with the Companies
Act 2006.
Directors’ remuneration report
In our opinion the part of the directors’
remuneration report to be audited has been
properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging principal risks,
going concern and viability
We are required to perform procedures to identify
whether there is a material inconsistency between
the directors’ disclosures in respect of emerging
and principal risks, going concern and the viability
statement, and the financial statements and our
audit knowledge.
Based on the knowledge we acquired during
our financial statements audit, we have nothing
material to add or draw attention to in relation to:
The Directors’ confirmation set out on page
28 in the Annual Report that they have carried
out a robust assessment of the principal risks
facing the Company, including those that
would threaten its business model, future
performance, solvency or liquidity and the
disclosures in the Annual Report set out on
pages 28 and 30 that describe the principal
risks and explain how they are being managed
or mitigated;
The Directors’ statement in the financial
statements about whether they considered it
appropriate to adopt the going concern basis
of accounting in preparing them, and their
identification of any material uncertainties to
the Company’s ability to continue to do so over
a period of at least 12 months from the date of
approval of the financial statements; and
The Directors’ viability statement on page
27 in the Annual Report as to how they have
assessed the prospects of the Company,
over what period they have done so and why
they consider that period to be appropriate,
and their statement as to whether they have
a reasonable expectation that the Company
will be able to continue in operation and meet
its liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to review the viability
statement, set out on page 27 under the Listing
Rules. Based on the above procedures, we
have concluded that the above disclosures
are materially consistent with the financial
statements and our audit knowledge.
Our work is limited to assessing these matters in
the context of only the knowledge acquired during
our financial statements audit. As we cannot
predict all future events or conditions and as
subsequent events may result in outcomes that
are inconsistent with judgements that the above
disclosures are materially consistent with the
financial statements and our audit knowledge.
Corporate Governance disclosures
We are required to perform procedures to identify
whether there is a material inconsistency between
the directors’ corporate governance disclosures
and the financial statements and our audit
knowledge.
We have reviewed the directors’ statement in
relation to going concern, longer-term viability and
that part of the Corporate Governance Statement
relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code
specified for our review by the Listing Rules.
In this context, we also have nothing to report in
regard to our responsibility to specifically address
the following items in the other information and
to report as uncorrected material misstatements
of the other information where we conclude that
those items meet the following conditions:
Independent Auditor’s Report (continued)
61
FOR THE YEAR ENDED 30 JUNE 2023
The Directors’ statement in the financial
statements about whether they considered it
appropriate to adopt the going concern basis
of accounting in preparing them, and their
identification of any material uncertainties to
the Company’s ability to continue to do so over
a period of at least 12 months from the date of
approval of the financial statements;
The Directors’ statement on page 27 in the
Annual Report as to how they have assessed
the prospects of the Company, over what
period they have done so and why they
consider that period to be appropriate;
The Directors’ statement as to whether
they have a reasonable expectation that the
Company will be able to continue in operation
and meet its liabilities as they fall due over
the period of their assessment, including any
related disclosures drawing attention to any
necessary qualifications or assumptions;
The Directors’ confirmation set out on pages
28 to 30 in the Annual Report that they
have carried out a robust assessment of the
principal risks facing the Company, including
those that would threaten its business model,
future performance, solvency or liquidity and
the disclosures in the Annual Report set out on
pages 28 to 30 that describe the principal risks
and explain how they are being managed or
mitigated;
The Directors’ statement on fair, balanced
and understandable set out on page 41 – the
statement given by the Directors that they
consider the Annual Report and financial
statements taken as a whole is fair, balanced
and understandable and provides the
information necessary for shareholders to
assess the Company’s performance, business
model and strategy, is materially inconsistent
with our knowledge obtained in the audit; or
The section of the Annual Report that describes
the review of eectiveness of risk management
and internal control systems; or
the Audit and Risk Committee report set out on
pages 48 to 50 including the significant issues
that the Audit and Risk Committee considered
in relation to the financial statements, and how
these issues were addressed; and
The Directors’ statement of compliance with
the UK Corporate Governance Code set
out on page 67 – the parts of the Directors’
statement required under the Listing Rules
relating to the Company’s compliance with the
UK Corporate Governance Code containing
provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not
properly disclose a departure from a relevant
provision of the UK Corporate Governance
Code.
We are required to review the part of the
Corporate Governance Statement relating to the
Company’s compliance with the provisions of the
UK Corporate Governance Code specified by the
Listing Rules for our review. We have nothing to
report in this respect.
Matters on which we are required to
report by exception
In the light of the knowledge and understanding
of the Company and its environment obtained
in the course of the audit, we have not identified
material misstatements in;
the Strategic Report or the Directors’ Report; or
the information about internal control and risk
management systems in relation to financial
reprting processes and about share capital
structures, given in compliance with rules 7.2.5
and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report to you
if, in our opinion:
adequate accounting records have not been
kept by the Company, or returns adequate
for our audit have not been received from
branches not visited by us; or
the Company financial statements and the
part of the directors’ remuneration report
to be audited are not in agreement with the
accounting records and returns; or
certain disclosures of directors’ remuneration
specified by law are not made; or
we have not received all the information and
explanations we require for our audit; or
Independent Auditor’s Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
62
a corporate governance statement has not
been prepared by the parent company.
Responsibilities of Directors
As explained more fully in the Directors’
Responsibilities Statement, the Directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view, and for such internal control as
the directors determine is necessary to enable the
preparation of financial statements that are free
from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the
directors are responsible for assessing the
Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to
going concern and using going concern basis of
accounting unless the directors either intend to
liquidate the Company or to cease operations, or
have no realistic alternative to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report
that includes our opinion.
Reasonable assurance is a high level assurance,
but not a guarantee that an audit conducted
in accordance with ISAs (UK) will always
detect material misstatement when it exists.
Misstatements can arise from fraud or error
and are considered material if, individually or in
aggregate, they can reasonably be expected to
influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for the
audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.
org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Explanation as to what extent the audit
was considered capable of detecting
irregularities, including fraud
The objectives of our audit, in respect to
irregularities including fraud are:
To identify and assess the risks of material
misstatement of the financial statements due
to fraud;
To obtain sucient appropriate audit evidence
regarding the assessed risks of material
misstatement due to fraud, through designing
and implementing appropriate responses; and
To respond appropriately to fraud or suspected
fraud identified during the audit.
However, the primary responsibility for the
prevention and detection of fraud rests with both
those charged with governance of the entity
and the entities delegated with the day-to-day
responsibilities and the outsourced service
providers.
Irregularities, including fraud, are instances of
non-compliance with laws and regulations. We
design procedures in line with our responsibilities,
outlined above, to detect material misstatements
in respect of irregularities, including fraud. The
extent to which our procedures are capable of
detecting irregularities, including fraud is detailed
below:
We gained an understanding of the legal
and regulatory framework applicable to the
Company and the industry in which it operates,
and considered the risk of acts by the Company
which were contrary to applicable laws and
regulations, including fraud;
We considered the significant laws and
regulations to the Companies Act 2006, the
FCA listing and DTR rules, the principles of the
AIC Code of Corporate Governance, industry
practice represented by the AIC SORP, the
applicable accounting framework and the
Company’s qualification as an investment
trust under UK tax legislation as any non-
compliance of this would lead to the Company
losing various deductions and exemptions from
corporation tax;
Independent Auditor’s Report (continued)
63
FOR THE YEAR ENDED 30 JUNE 2023
We understood how the Company is complying
with those frameworks through discussions
with the Audit and Risk Committee and key
service providers in combination with a review
of the Company’s documented policies and
procedures.
We focused on laws and regulations that
could give rise to a material misstatement in
the Company financial statements. Our tests
included:
Agreement of the financial statement
disclosures to underlying supporting
documentation;
Enquiries of management and those charged
with governance relating to the existence of any
non-compliance with laws and regulations;
Review of minutes of board meetings
throughout the period to identify and instance
of non-compliance with laws and regulations;
and
Reviewing the calculation in relation to
Investment Trust compliance to check that
the Company was meeting its requirements to
retain its Investment Trust status.
We evaluated the Directors and key service
providers incentives and opportunities for
fraudulent manipulation of the financial
statements (including the risk of override of
controls) and determined that the occurrence of
fraud is low given the activities and operations of
the Company. If fraud were to occur it would likely
be collusive in nature and probably occur through
posting inappropriate manual journal entries
to revenue and investments. Audit procedures
performed by the engagement team included:
Discussions with Audit and Risk Committee
and key service providers including
consideration of known or suspected instances
of non-compliance with laws and regulation
and fraud;
Evaluating controls designed to prevent and
detect irregularities; and
Identifying and testing journals, in particular
manual journal entries posted through revenue
and investments, postings containing unusual
phrases or with unusual descriptions.
Other matters we are required to
address
Following recommendation of the Audit and
Risk Committee, we were appointed by the
Shareholders to audit the financial statements for
the year ending 30 June 2020 and subsequent
financial periods. The period of total uninterrupted
engagement is therefore 4 years.
The non-audit services prohibited by the FRC’s
Ethical Standard were not provided to the
Company and we remain independent of the
Company in conducting our audit.
Our audit opinion is consistent with the additional
report to the Audit and Risk Committee.
Use of our report
This report is made solely to the Company’s
members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state
to the Company’s members those matters we are
required to state to them in an auditor’s report
and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
responsibility to anyone other than the Company
and the Company’s members as a body, for our
audit work, for this report, or for the opinions we
have formed.
Laura Mott
Senior Statutory Auditor
for and on behalf of Haysmacintyre LLP
Statutory Auditor, Chartered Accountants
London
15 September 2023
Independent Auditor’s Report (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
64
for the year ended 30 June 2023
2023 2022
Note
Revenue
Return
£’000
Capital
Return
£’000
Total
£’000
Revenue
Return
£’000
Capital
Return
£’000
Total
£’000
Gain/(loss) on investments at fair value
through profit or loss 9
– 16,474 16,474 – (25,401) (25,401)
Foreign exchange (loss)/gain
– (746) (746) – 1,321 1,321
Investment income 3
873 – 873 738 – 738
Other income 3
111 – 111 – – –
Total income/(loss)
984 15,728 16,712 738 (24,080) (23,342)
Management fee 4
(1,172) – (1,172) (1,192) – (1,192)
Other expenses 5
(521) (2) (523) (475) (4) (479)
Total expenses
(1,693) (2) (1,695) (1,667) (4) (1,671)
Return/(loss) before taxation (709) 15,726 15,017 (929) (24,084) (25,013)
Taxation 7
(106) 396 290 (90) (309) (399)
Net return/(loss) after taxation
(815) 16,122 15,307 (1,019) (24,393) (25,412)
Net return/(loss) per Ordinary share 8
(6.82p) 134.89p 128.07p (8.52p) (204.03p) (212.55p)
The total column of this statement is the profit and loss account of the Company.
The ‘Revenue’ and ‘Capital’ columns represent supplementary information prepared under guidance issued
by The Association of Investment Companies. The Company has no other comprehensive income, and
therefore the net return after taxation is also the total comprehensive income for the year.
All revenue and capital items in the above statement derive from continuing operations. No operations were
acquired or discontinued in the year.
Income Statement
The Notes on pages 67 to 79 form part of these Financial Statements.
65
FOR THE YEAR ENDED 30 JUNE 2023
Statement of Financial Position
as at 30 June 2023
Note
2023
£’000
2022
£’000
Fixed assets
Investments held at fair value through profit or loss 9
159,134 147,856
Current assets
Debtors 11
67 304
Cash at bank and in hand
12,444 8,218
12,511 8,522
Creditors: amounts falling due within one year 12
(498) (538)
Net current assets
12,013 7, 984
Total assets less current liabilities 171,147 155,840
Capital and reserves
Called up share capital 14
4,555 4,555
Share premium account 15
19,550 19,550
Non-distributable reserve 16
841 841
Capital redemption reserve 17
9,628 9,628
Retained earnings 18
136,573 121,266
Total shareholders’ funds
171,147 155,840
Net asset value per Ordinary share (pence) 19
1,431.9 1,303.9
The Financial Statements on pages 64 to 66 were approved by the Board of Directors and signed on its
behalf on 15 September 2023.
Stephen White
Chairman
Company Registration Number 02781968
The Notes on pages 67 to 79 form part of these Financial Statements.
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
66
for the year ended 30 June 2023
For the year ended 30 June 2023
Note
Called up
Share
Capital
£’000
Share
Premium
£’000
Non-
distributable
Reserve
£’000
Capital
Redemption
Reserve
£’000
Retained
Earnings*
£’000
Total
£’000
1 July 2022 4,555 19,550 841 9,628 121,266 155,840
Net return for the year
– – – – 15,307 15,307
Balance at 30 June 2023
4,555 19,550 841 9,628 136,573 171,147
For the year ended 30 June 2022
Note
Called up
Share
Capital
£’000
Share
Premium
£’000
Non-
distributable
Reserve
£’000
Capital
Redemption
Reserve
£’000
Retained
Earnings*
£’000
Total
£’000
1 July 2021 4,555 19,550 841 9,628 146,852 181,426
Repurchase of Ordinary shares to
be held in treasury 14
– – – – (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
* Dividends are only payable from the revenue return element of retained earnings (see Note 18 for further details).
Statement of Changes in Equity
The Notes on pages 67 to 79 form part of these Financial Statements.
67
FOR THE YEAR ENDED 30 JUNE 2023
1. General information
Brown Advisory US Smaller Companies PLC
(a Public Company Limited by shares) is an
investment Company incorporated in the United
Kingdom with a premium listing on the London
Stock Exchange. The Company registration
number is 02781968 and the registered office is
6th floor, 125 London Wall, London, EC2Y 5AS.
The Company conducts its affairs so as to qualify
as an investment trust under the provisions of
section 1158 of the Corporation Tax Act 2010.
The Company has qualified as an investment
trust in respect of all relevant years up to and
including the year ended 30 June 2023. Section
1158 was amended to allow the Company to
seek approval of compliance in advance and for
all subsequent financial years. The Company
received such advance approval subject to it
continuing to meet the relevant eligible conditions
and ongoing requirements. The Company intends
to conduct its affairs so as to enable it to comply
with the requirements. Such approval exempts
the Company from UK corporation tax on gains
realised in the relevant year on its portfolio of fixed
asset investments.
A summary of the accounting policies, all of which
have been applied consistently throughout the
period is set out below.
2. Accounting policies
(a) Basis of preparation
The Financial Statements for the year
ended 30 June 2023 have been prepared
in accordance with UK Generally Accepted
Accounting Practice (‘UK GAAP’) including
Financial Reporting Standard 102 (‘FRS
102’), the financial reporting standard
applicable in the UK and Republic of Ireland
and with the Statement of Recommended
Practice (‘SORP’) for Investment Trust
Companies and Venture Capital Trusts issued
by the Association of Investment Companies
(‘AIC’) in July 2022.
The Company continues to adopt the
going concern basis in the preparation of
the Financial Statements. The Financial
Statements have been prepared in
accordance with the Company’s accounting
policies as set out below. They are presented
in accordance with the Companies Act
2006 (the ‘Act’) and the requirements of the
SORP ‘Financial Statements of Investment
Trust Companies and Venture Capital Trusts’
issued in July 2022.
The Company has taken advantage of
the exemption from preparing a Cash
Flow Statement under FRS 102, as it is an
investment fund and the investments are
substantially all highly liquid and carried at
fair (market) value.
In accordance with FRS 102, the Company
is required to identify its functional
reporting currency in which the Company
predominantly operates. Having regard
to the Company’s share capital and
the predominant currency in which its
shareholders operate, pounds sterling, is
the identified functional and presentation
reporting currency of the Company.
The Directors are of the opinion that the
Company is engaged in a single segment of
business activity, being investment business.
Consequently, no business segmental
reporting is required.
Statement of Compliance
The Financial Statements of the Company
have been prepared in compliance with United
Kingdom Accounting Standards, including FRS
102 and the Companies Act 2006.
(b) Principal accounting policies
(i) Financial instruments
Financial instruments include fixed asset
investments and derivative assets and
liabilities.
Accounting standards recognise a hierarchy
of fair value measurements for financial
instruments which gives the highest priority
to unadjusted quoted prices in active markets
for identical assets or liabilities (level 1) and the
lowest priority to unobservable inputs (level
3). The classification of financial instruments
depends on the lowest significant applicable
input, as follows:
Notes to the Financial Statements
for the year ended 30 June 2023
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
68
2. Accounting policies (continued)
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.
(ii) Fixed asset investments
As an investment trust, the Company
measures its fixed asset investments at “fair
value through profit or loss” and treats all
transactions on the realisation and revaluation
of investments as transactions on the capital
account. Purchases are recognised on the
relevant trade date, inclusive of expenses
which are incidental to their acquisition. Sales
are also recognised on the trade date, after
deducting expenses incidental to the sales.
Quoted investments are valued at bid value
at the close of business on the relevant date
on the exchange on which the investment is
quoted.
(iii) Foreign currency
Monetary assets, monetary liabilities and
equity investments denominated in a foreign
currency are expressed in sterling at rates
of exchange ruling at the Statement of
Financial Position date. Purchases and sales
of investment securities, dividend income,
interest income and expenses are translated
at the rates of exchange prevailing at the
respective dates of such transactions.
Foreign exchange profits and losses on fixed
asset investments are included within the
changes in fair value in the capital account.
Foreign exchange profits and losses on other
currency balances are separately credited or
charged to the capital account except where
they relate to revenue items when they are
credited or charged to the revenue account.
(iv) Income
Income from equity shares is brought into the
revenue account (except where, in the opinion
of the Directors, its nature indicates it should
be recognised within the capital account) on
the ex-dividend date or, where no ex-dividend
date is quoted, when the Company’s right to
receive payment is established.
Dividends from overseas companies are
shown gross of withholding tax.
Where the Company has elected to receive
its dividends in the form of additional shares
rather than in cash (scrip dividends), the
amount of the cash dividend foregone is
recognised as income. Any excess in the value
of the shares received over the amount of the
cash dividend foregone is recognised in the
capital account.
(v) Expenses, including finance charges
Expenses are charged to the revenue account
of the Income Statement, except as noted
below:
expenses incidental to the acquisition
or disposal of fixed asset investments
are included within the cost of the
investments or deducted from the
disposal proceeds of investments and
are thus charged to the capital element
of retained earnings – arising on
investments sold via the capital account;
and
all expenses are accounted for on an
accruals basis. Finance charges are
accrued using the eective interest rate
method.
Notes to the Financial Statements (continued)
68
69
FOR THE YEAR ENDED 30 JUNE 2023
Notes to the Financial Statements (continued)
2. Accounting policies (continued)
(vi) Taxation
Withholding tax deducted at source from
income received is treated as part of the
taxation charge in the income account, in
instances where it cannot be recovered.
Deferred tax is provided in accordance with
FRS 102, on an undiscounted basis, on all
timing differences that have originated but
not reversed by the Statement of Financial
Position date, based on the tax rates that
are expected to apply in the period when the
liability is settled or the asset realised.
Deferred tax assets are only recognised if it
is considered more likely than not that there
will be suitable profits from which the future
reversal of timing differences can be deducted.
In line with the recommendations of the SORP,
the allocation method used to calculate the
tax relief on expenses charged to capital is the
“marginal” basis. Under this basis, if taxable
income is capable of being offset entirely
by expenses charged through the revenue
account, then no tax relief is transferred to the
capital account.
(vii) Capital redemption reserve
The nominal value of Ordinary share capital
purchased and cancelled is transferred out
of called-up share capital and into the capital
redemption reserve.
Capital redemption reserve is not available for
the payment of dividends.
(viii) Retained earnings
This consists of the following:
Capital return
The following are accounted for in this reserve:
gains and losses on the realisation of
fixed asset investments;
increases and decreases in the valuation
of fixed asset investments held at the
year end;
realised foreign exchange dierences of a
capital nature;
unrealised foreign exchange dierences
of a capital nature;
costs of professional advice, including
related irrecoverable VAT, relating to the
capital structure of the Company;
other capital charges and credits
charged or credited to this account in
accordance with the above policies; and
the costs of purchasing Ordinary share
capital.
Revenue return
the income return or loss for the year
is taken to the income element of this
reserve.
This element of the retained earnings reserve
may be used to fund the distribution of profits
to investors via dividend payments only when
this is in a surplus position. Currently there
is an accumulated loss and therefore no
distributions can be paid.
(ix) Borrowing and finance costs
Interest-bearing bank loans and overdrafts
are recorded at the proceeds received,
net of direct issue costs and subsequently
measured at amortised cost. Finance charges,
including premiums payable on settlement
or redemption and direct issue costs, are
accounted for on an accruals basis in the
Income Statement using the effective interest
method and are added to the carrying amount
of the instrument to the extent that they are
not settled in the period in which they arise.
Finance costs are recognised in the Income
Statement in the period in which they are
incurred. All finance costs are directly charged
to the revenue column of the Income Account.
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
70
2. Accounting policies (continued)
(c) Significant accounting judgements,
estimates and assumptions
The preparation of the Company’s
Financial Statements on occasion requires
management to make judgements, estimates
and assumptions that affect the reported
amounts in the primary financial statements
and the accompanying disclosures. These
assumptions and estimates could result in
outcomes that require a material adjustment
to the carrying amount of assets or liabilities
affected in the current and future periods,
depending on circumstance.
Management do not believe that any
significant accounting judgements have been
applied to these Financial Statements other
than the allocations between capital and
revenue shown in Notes 4 and 5.
.
3. Income
2023
£’000
2022
£’000
Income from investments
Dividends from United Kingdom companies
24 –
Dividends from overseas companies
849 738
873 738
Other income
Deposit interest
111 –
111 –
Total income
984 738
4. Management fee
2023 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Management fee
1,172 – 1,172 1,192 – 1,192
1,172 – 1,172 1,192 – 1,192
Details of the calculation of the management fee are given in Note 20.
Notes to the Financial Statements (continued)
71
FOR THE YEAR ENDED 30 JUNE 2023
Notes to the Financial Statements (continued)
5. Other expenses
2023 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Directors’ remuneration
151 – 151 137 – 137
Auditor’s remuneration – audit of the company
52 – 52 34 – 34
Directors’ and Ocers’ liability insurance
9 – 9 12 – 12
Other expenses
309 2 311 292 4 296
521 2 523 475 4 479
6. Ongoing charges
2023
£’000
2022
£’000
Management fee 1,172 1,192
Other expenses
521 475
Total expenses (excluding finance costs)
1,693 1,667
Average net assets
168,902 173,006
Ongoing charges %
1.00 0.97
7. Taxation
(a) Analysis of (credit)/charge in year:
2023 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Overseas tax (credit)/charge relating to the
current year
106 – 106 90 309 399
Overseas tax (credit)/charge relating to the
prior year
– (396) (396) – – –
Total tax (see Note 7b)
106 (396) (290) 90 309 399
(b) Factors affecting current tax (credit)/charge for the year
The tax assessed for the year is lower (2022: higher) than the standard rate of corporation tax for a
company (20.50%) (2022: 19.00%). The differences are explained below:
2023 2022
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Net return/(loss) before taxation
(709) 15,726 15,017 (929) (24,084) (25,013)
Corporation tax at 20.50% (2022: 19.00%)
(146) 3,224 3,078 (176) (4,576) (4,752)
Eects of:
Tax free (loss)/gains on investments
– (3,224) (3,224) – 4,575 4,575
Non-taxable income received
(162) – (162) (126) – (126)
Capital expenses deductible for tax purposes
– – – – 1 1
Overseas tax relating to the current year
106 – 106 90 309 399
Overseas tax relating to the prior year
– (396) (396) – – –
Income taxed in dierent years
– – – (1) – (1)
Unutilised management expenses for the year
308 – 308 303 – 303
Total tax (credit)/charge for the year
106 (396) (290) 90 309 399
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
72
7. Taxation (continued)
Due to the Company’s status as an investment trust and the intention to continue meeting the conditions
required to obtain approval in the foreseeable future, the company has not provided deferred tax on any
capital gains and losses arising on the revaluation or disposal of investments.
There is an unrecognised deferred tax asset of £5,461,000 (2022: £5,076,000) which relates to unutilised
excess expenses. The deferred tax asset would only be recovered if the Company were to generate
sufficient profits to utilise these expenses. It is considered too uncertain that this will occur and therefore,
no deferred tax asset has been recognised.
8. Net return/(loss) per Ordinary share
The return per Ordinary share figure is based on the net profit for the year of £15,307,432 (2022: Loss
£25,412,443), and on 11,952,159 (2022: 11,955,536) Ordinary shares, being the weighted average number
of Ordinary shares in issue during the year.
The return per Ordinary share figure detailed above can be further analysed between revenue and capital,
as below.
2023
£’000
2022
£’000
Net revenue loss
(815) (1,019)
Net capital return/(loss)
16,122 (24,393)
Net return/(loss)
15,307 (25,412)
Weighted average number of Ordinary shares in issue during the year
11,952,159 11,955,536
Revenue loss per Ordinary share
(6.82p) (8.52p)
Capital return/(loss) per Ordinary share
134.89p (204.03p)
Total return/(loss) per Ordinary share
128.07p (212.55p)
9. Investments held as at fair value through profit or loss
(a) Portfolio investments
2023
£’000
2022
£’000
Valuation at beginning of year
147,856 176,854
Investment holding gains/(losses) at beginning of year
17,962 (8,015)
Cost at beginning of year
165,818 168,839
Purchases at cost
42,267 48,729
Sales at cost
(46,142) (51,750)
Cost at end of year
161,943 165,818
Investment holding (losses) at end of year
(2,809) (17,962)
Valuation at end of year
159,134 147,856
Investments listed overseas
159,134 147,856
159,134 147,856
Notes to the Financial Statements (continued)
73
FOR THE YEAR ENDED 30 JUNE 2023
Notes to the Financial Statements (continued)
9. Investments held as at fair value through profit or loss (continued)
(b) Gains on investments
2023
£’000
2022
£’000
Net gain/(loss) realised on sale of investments
1,321 576
Movement in investment holding gains/(losses)
15,153 (25,977)
Gain/(loss) on investments
16,474 (25,401)
10. Transaction costs
During the year expenses were incurred in acquiring or disposing of investments classified as fair
value through profit or loss. These have been expensed through capital and are included within gains
(2022:(losses)) on investments in the Income Statement. The total costs were as follows:
2023
£’000
2022
£’000
Purchases
44 42
Sales
29 31
73 73
11. Debtors
2023
£’000
2022
£’000
Prepayments and accrued income
10 9
Dividends receivable
57 53
Taxation
– 242
67 304
12. Creditors: amounts falling due within one year
2023
£’000
2022
£’000
Management fee
298 275
Other creditors and accruals
98 225
Purchases awaiting settlement
102 38
498 538
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
74
13. Financial instruments
Background
The Company’s financial instruments comprise securities and other investments, cash balances and term
loans, debtors and creditors that arise directly from its operations, for example, in respect of sales and
purchases awaiting settlement and debtors for accrued income. The numerical disclosures below exclude
short-term debtors and creditors which are denominated in sterling and do not incur interest and therefore
are not subject to foreign currency risk or interest rate risk.
The principal risks the Company faces in its portfolio management activities are:
foreign currency risk
market price risk
interest rate risk
liquidity risk
credit and counterparty risk
The Portfolio Manager’s policies for managing these risks are summarised below and have been applied
throughout the year.
(a) Foreign Currency Risk
A substantial portion of the financial assets of the Company are denominated in US Dollars with the
result that the Statement of Financial Position and Income Statement can be significantly affected by
currency movements.
The Company normally takes account of this risk when making investment decisions although it could
hedge against foreign currency movements affecting the value of the investment portfolio where
adverse movements are anticipated.
Foreign currency sensitivity
The principal currency to which the Company was exposed during the year was the US Dollar as all
investments are quoted in that currency. The exchange rates applying against sterling at 30 June and
the average rates during the year ended 30 June were as follows:
2023 2022
At 30 June
Average for
the year At 30 June
Average for
the year
US Dollar
1.2714 1.2041 1.2144 1.3320
1.2714 1.2041 1.2144 1.3320
The following tables illustrate the sensitivity of the profit after tax for the year and net assets to exchange
rates for sterling against the US Dollar. It assumes the following changes in exchange rates:
£/US Dollar +/– 10% (2022: +/– 10%)
These percentages have been determined based on market volatility in exchange rates over the
previous twelve months. The sensitivity analysis is based on the company’s foreign currency financial
instruments held at the date of each Statement of Financial Position.
Notes to the Financial Statements (continued)
75
FOR THE YEAR ENDED 30 JUNE 2023
Notes to the Financial Statements (continued)
13. Financial instruments (continued)
If sterling had weakened by 10% (2022: 10%) against the currencies this would have had the following
effect on revenue, capital, total return and, accordingly, net assets:
2023 2022
Impact on
revenue
return
£’000
Impact on
capital
return
£’000
Total
£’000
Impact on
revenue
return
£’000
Impact on
capital
return
£’000
Total
£’000
US Dollar
(111) 15,913 15,802 (103) 14,786 14,683
(111) 15,913 15,802 (103) 14,786 14,683
If sterling had strengthened by 10% (2022: 10%) against the currencies below this would have had the
following effect:
2023 2022
Impact on
revenue
return
£’000
Impact on
capital
return
£’000
Total
£’000
Impact on
revenue
return
£’000
Impact on
capital
return
£’000
Total
£’000
US Dollar
111 (15,913) (15,802 ) 103 (14,786) (14,683)
111 (15,913) (15,802) 103 (14,786) (14,683)
(b) Market Price Risk
By the very nature of its activities, the Company’s investments are exposed to market price fluctuations.
The board reviews and agrees policies for managing this risk. The investment adviser assesses the
exposure to market price risk when making each investment decision, and monitors the overall level of
market price risk on the whole of the investment portfolio on an ongoing basis. Further information on
the investment portfolio and investment policy is set out in the Portfolio Manager’s Review on page 12.
Other price risk sensitivity
The following illustrates the sensitivity of the profit after taxation for the year and the total equity to
an increase or decrease of 20% (2022: 20%) in the fair value of the Company’s equities. This level of
change is considered to be reasonably possible based on observation of market conditions during the
year. The sensitivity analysis is based on the Company’s equities at each reporting date, with all other
variables held constant.
The impact of a 20% increase in the value of investments on the revenue loss for the year to 30 June
2023 is a decrease of £223,000 (2022: £207,000) and on the capital return is an increase of
£31,827,000 (2022: £29,571,000).
The impact of a 20% fall in the value of investments on the revenue loss for the year to 30 June 2023
is an increase of £223,000 (2022: £207,000) and on the capital return is a decrease of £31,827,000
(2022: £29,571,000).
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
76
13. Financial instruments (continued)
(c) Interest rate risk
Interest rate movements may affect:
the fair value of investments of fixed interest securities,
the level of income receivable from any floating interest-bearing securities and cash at bank and
on deposit, and
the interest payable on floating interest term loans.
The financial assets (excluding short-term debtors) consist of:
2023 2022
Cash flow
interest
rate risk
£’000
No
interest
rate risk
£’000
Total
£’000
Cash flow
interest
rate risk
£’000
No
interest
rate risk
£’000
Total
£’000
US Dollar
12,444 – 12,444 8,218 – 8,218
12,444 – 12,444 8,218 – 8,218
The floating interest rate risk assets consist of cash deposits at call.
The financial liabilities consist of:
2023 2022
Fixed
rate
£’000
Non-interest
bearing
£’000
Total
£’000
Fixed
rate
£’000
Non-interest
bearing
£’000
Total
£’000
US Dollar
– 102 102 – 38 38
GBP
– 396 396 – 500 500
– 498 498 – 538 538
(d) Liquidity risk
Liquidity risk is not considered significant. All liabilities are payable within three months. The Company’s
assets comprise mainly readily realisable securities which can be sold to meet funding requirements if
necessary.
(e) Credit and Counterparty Risk
Credit risk is the exposure to loss from the failure of a counterparty to deliver securities or cash for
acquisitions or disposals of investments or to repay deposits. The Company manages credit risk by
using brokers from a database of approved brokers who have undergone due diligence tests by the
Portfolio Manager’s Best Execution Committee and by dealing through JPMCB with banks authorised
by the Financial Conduct Authority. Any derivative positions are marked to market and exposure to
counterparties is monitored on a daily basis by the Portfolio Manager; the Board reviews it on a quarterly
basis. The maximum exposure to credit risk at 30 June 2023 was £12,511,000 (2022: £8,522,000).
The calculation is based on the Company’s credit exposure as at 30 June 2023 and may not be
representative of the year as a whole.
(f) Fair value of financial assets and financial liabilities
The financial assets and financial liabilities are carried in the Statement of Financial Position at their fair
value or the statement amount is a reasonable approximation of fair value (due from brokers, dividends
and interest receivable, due to brokers, accruals and cash at bank).
Notes to the Financial Statements (continued)
77
FOR THE YEAR ENDED 30 JUNE 2023
Notes to the Financial Statements (continued)
13. Financial instruments (continued)
Fair Value hierarchy
FRS102 – section 34.22 on Financial Institutions requires an entity to classify fair value measurements
using fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy shall have the following levels:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable
current market transactions in the same instrument or based on a valuation technique whose variables
includes only data from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation
technique based on assumptions that are not supported by prices from observable market transactions
in the instrument and not based on available observable market data. The financial assets measured at
fair value in the Statement of Financial Position are grouped into the fair value hierarchy as follows:
2023 2022
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Investments
159,134 – – 159,134 147,856 – – 147,856
(g) Use of derivatives
In order to enhance returns, the Company may take short positions (using contracts for difference) in
respect of a small number of larger capital securities. There were no derivative positions held at the year
end (2022: nil).
14. Paid-up share capital
2023 2023
Number £’000 Number £’000
Ordinary shares of 25p each
Balance brought forward
11,952,159 2,987 11,964,698 2,990
Ordinary shares repurchased into treasury
– – (12,539) (3)
Closing balance of Ordinary shares
11,952,159 2,987 11,952,159 2,987
Treasury shares
Balance brought forward
6,271,254 1,568 6,258,715 1,565
Repurchase of Ordinary shares into treasury
– – 12,539 3
Closing balance of Ordinary shares held in treasury
6,271,254 1,568 6,271,254 1,568
Total
4,555 4,555
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
78
15. Share Premium
2023
£’000
2022
£’000
19,550 19,550
As at 30 June
19,550 19,550
16. Non-distributable reserve
2023
£’000
2022
£’000
841 841
As at 30 June
841 841
17. Capital redemption reserve
2023
£’000
2022
£’000
9,628 9,628
As at 30 June
9,628 9,628
18. Retained earnings
The table below shows the movement in the retained earnings analysed between revenue and capital items.
Revenue
return
£’000
Capital
return
£’000
Total
£’000
At 1 July 2022
(8,460) 129,726 121,266
Net gain/(loss) for the year
(1,057) 16,364 15,307
At 30 June 2023
(9,517) 146,090 136,573
The capital return includes £2,809,000 of investment holding loss (2022: £17,962,000 of investment
holding loss).
19. Net asset value per Ordinary share
The net asset value per Ordinary share is based on the net assets attributable to the equity shareholders
of £171,147,000 (2022: £155,840,000) and on 11,952,159 (2022: 11,952,159) Ordinary shares, being the
number of Ordinary shares in issue at the year end.
Notes to the Financial Statements (continued)
79
FOR THE YEAR ENDED 30 JUNE 2023
20. Related parties and transactions with the Portfolio Manager and the AIFM
Directors
There are no transactions with the Directors other than aggregated remuneration for services as Directors
as disclosed in the Directors’ Remuneration Report on page 52 and as set out in Note 5 to the Financial
Statements on page 71 and the beneficial interests of the Directors in the Ordinary shares of the company
as disclosed on page 53.
Transactions with the Portfolio Manager and the AIFM
FundRock Partners Limited is AIFM to the Company pursuant to an Alternative Investment Fund
Management Agreement between FundRock Partners Limited and the Company. FundRock Partners
Limited has also been appointed to provide company secretarial services to the Company.
Brown Advisory is appointed to provide portfolio management services pursuant to a Portfolio
Management Agreement between the Company, FundRock Partners Limited and Brown Advisory.
The management fee is calculated at an annual rate of 0.7% on the first £200 million; 0.6% of the next
£300 million; and 0.5% thereafter of the Company’s adjusted net assets.
The management fee is payable by the Company to FundRock Partners Limited, who shall deduct from
the management fee the amounts due to it as AIFM and for company secretarial services and shall pay the
balance to Brown Advisory.
The management fee is calculated and payable on a quarterly basis.
The management fee payable to FundRock Partners Limited for the period from 1 July 2022 to 30 June
2023 was £1,172,000 (payable to FundRock Partners Limited for the period from 1 July 2021 to 30 June
2022: £1,192,000) with £298,000 outstanding as at 30 June 2023 (2022: £275,000).
The appointment of Brown Advisory and FundRock Partners Limited may be terminated by not less than
six months’ notice.
21. Contingent liabilities and capital commitments
There were no contingent liabilities or capital commitments outstanding at 30 June 2023 (2022: nil).
Notes to the Financial Statements (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
80
Company Information
Directors Stephen White, Chairman
Lisa Booth
Jasper Judd
Clive Parritt
Jane Routledge
Tina Soderlund-Boley (resigned on 30 June 2023)
Registered Office 6th Floor, 125 London Wall,
London EC2Y 5AS
Portfolio Manager Brown Advisory LLC
901 South Bond Street, Suite 400,
Baltimore,
Maryland 21231
United States
Alternative Investment Fund
Manager (AIFM)
FundRock Partners Limited
Hamilton Centre, Rodney Way,
Chelmsford, Essex CM1 3BY
Authorised and regulated by the Financial Conduct Authority
Company Secretary FundRock Partners Limited
Hamilton Centre, Rodney Way,
Chelmsford, Essex CM1 3BY
Telephone +44 (0)20 3994 7129
Website www.brownadvisory.com/basc
Email InvestmentTrustEnquiries@brownadvisory.com
Custodian J.P. Morgan Chase Bank N.A
25 Bank Street, Canary Wharf, London E14 5JP
Depositary J.P. Morgan Europe Limited
25 Bank Street, Canary Wharf, London E14 5JP
Authorised by the Prudential Regulation Authority and regulated
by the Financial Conduct Authority and the Prudential Regulation
Authority
Registrars Computershare Investor Services PLC
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ
Telephone 0370 889 4089
Website www.investorcentre.co.uk
Independent Auditor Haysmacintyre LLP
10 Queen Street Place, London EC4R 1AG
Company Registration
Number
02781968
Registered in England & Wales
An investment company under s.833 of the Companies Act 2006
Investor Codes The Ordinary shares of the Company are traded on the London Stock
Exchange.
Sedol Number
Ordinary shares
0346340
ISIN
Ordinary shares GB0003463402
Ticker
Ordinary shares BASC
The company is a member of
81
FOR THE YEAR ENDED 30 JUNE 2023
Investor Information
Performance Updates
The Company publishes a monthly factsheet which contains key information about its performance,
investment portfolio and pricing. The factsheets, together with electronic copies of the most recent full and
interim reports and financial statements, are available for download from www.brownadvisory.com/basc.
Should you wish to be added to an email distribution list for future editions of the monthly factsheet, please
send an email to InvestmentTrustEnquiries@brownadvisory.com. For investors who do not have access
to the internet, these documents are also available on request from Brown Advisory’s Client Services Team
on +44 (0)20 3301 8130.
Further information about the Company is also available from third party websites such as
www.morningstar.co.uk and www.theaic.co.uk.
Retail distribution of non-mainstream products
The Company currently conducts its affairs so that its shares can be recommended by Independent
Financial Advisers to ordinary retail investors in accordance with the FCA’s rules in relation to non-
mainstream investment products and intends to continue to do so for the foreseeable future. The
Company’s Ordinary shares are excluded from the FCA’s restrictions which apply to non-mainstream
investment products because they are Ordinary shares in an investment trust.
Dividend Tax Allowance
With effect from 6 April 2016 the dividend tax credit was replaced by an annual tax-free dividend allowance.
Dividend income in excess of this allowance will be taxed according to your personal income tax bracket.
The Company’s Registrar will continue to provide shareholders with confirmation of dividends paid;
shareholders should retain such confirmations to enable them to calculate and report total dividend
income received. Shareholders should note that it is their sole responsibility to report any dividend income
in excess of their annual tax-free allowance to HMRC.
Further information on changes to dividend tax allowance can be obtained from the HMRC website at:
https://www.gov.uk/tax-on-dividends.
Changes to our Data Privacy Notice
We have updated our Privacy Notice to align with the new data privacy law in the European Union, known as
the General Data Protection Regulation (GDPR) to which we are subject. Data protection and the security of
your information has always been, and remains, important to us.
Any information concerning Shareholders and other related natural persons (together the Data Subjects)
provided to, or collected by or on behalf of, Brown Advisory LLC and/or FundRock Partners Limited (the
Controllers) (directly from Data Subjects or from publicly available sources) may be processed by the
Controllers as joint controllers, in compliance with the GDPR.
You are not required to take any action in respect of this notice, but we encourage you to read our Privacy
Notice. Our Privacy Notice can be found on our website, www.brownadvisory.com/basc. In the event that
you hold your shares as a nominee, we request that you promptly pass on the details of where to find our
Privacy Notice to the underlying investors and/or the beneficial owners.
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
82
Managing your account online
The Company’s registrar, Computershare Investor Services PLC, allows you to manage your shareholding
online. If you are a direct investor, you can view your shareholding, change the way the registrar
communicates with you and buy and sell shares. If you haven’t used this service before, you can enter the
name of the Company and register your account at https://www-uk.computershare.com/investor. You’ll
need your Investor code (IVC) printed on your share certificate in order to register.
Computershare’s contact details are as follows:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road BRISTOL BS99 6ZZ
Telephone: +44 (0)370 889 4089
* Calls to this number are charged at the standard geographical rate and will vary by provider. Calls outside the United Kingdom
will be charged at the applicable international rate. Lines are open from 09:00 a.m. – 17:30 p.m. Monday to Friday.
Investor Information (continued)
83
FOR THE YEAR ENDED 30 JUNE 2023
Important Risk Warnings
Advice to shareholders
In recent years investment related scams have become increasingly sophisticated and difficult to spot. We
are therefore warning all our shareholders to be cautious so that they can protect themselves and spot the
warning signs.
Fraudsters will often:
contact you out of the blue
apply pressure to invest quickly
downplay the risks to your money
promise tempting returns that sound too good to be true
say that they are only making the oer available to you
ask you to not tell anyone else about it
You can avoid investment scams by:
Rejecting unexpected oers – Scammers usually cold call but contact can also come by email,
post, word of mouth or at a seminar. If you have been oered an investment out of the blue, chances
are it’s a high-risk investment or a scam.
Checking the FCA Warning List – Use the FCA Warning List to check the risks of a potential
investment. You can also search to see if the firm is known to be operating without proper FCA
authorisation.
Getting impartial advice – Before investing get impartial advice and don’t use an adviser from the
firm that contacted you.
If you are suspicious, report it.
You can report the firm or scam to the FCA by contacting their Consumer Helpline on
0800 111 6768 or using their online reporting form.
If you have lost money in a scam, contact Action Fraud on 0300 123 2040 or visit
www.actionfraud.police.uk
For further helpful information about investment scams and how to avoid them please visit
www.fca.org.uk/scamsmart.
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
84
Glossary of Terms including Alternative Performance Measures
Alternative performance measures
The European Securities and Markets Authority
(‘ESMA’) published its guidelines on Alternative
Performance Measures (‘APMs’). APMs are defined
as being a ‘financial measure of historical or future
financial performance, financial position, or cash
flows, other than a financial measure defined or
specified in the applicable accounting framework.’
The guidelines are aimed at promoting the
usefulness and transparency of APMs included
in regulated information and aim to improve
comparability, reliability and/or comprehensibility
of APMs. The following APMs are used throughout
the Annual Report, Financial Statements and Notes
to the Financial Statements.
Benchmark total return index
A total return index is a type of equity
performance index that tracks both the capital
gains of a group of stocks over time, and assumes
that any cash distributions, such as dividends, are
reinvested back into the index.
Discount*
The amount, expressed as a percentage, by which
the share price is less than the net asset value per
share.
At 30 June 2023 the share price was 1,220.0p and
the net asset value per share (cum income) was
1,431.9p, the discount therefore being 14.8%.
Discount management
Discount management is the process of the
buy-back and issue of company shares by the
company, to and from its own holding or ‘treasury’
with the intention of managing any imbalance
between supply and demand for the company’s
shares and thereby the market price. The aim
is to ensure that, in normal market conditions,
the market price of the company’s shares will
not materially vary from its NAV per share. The
authority to repurchase the company’s shares is
voted upon by the shareholders at each annual
general meeting.
Gearing*
Gearing is the borrowing of cash to buy more
assets for the portfolio with the aim of making a
gain on those assets larger than the cost of the
loan. However, if the portfolio doesn’t perform
well, the gain might not cover the costs. The more
an investment company gears, the higher the risk.
Gearing is defined as the ratio of the Company’s
debt less cash held, where debt exceeds cash,
compared to its net assets, expressed as a
percentage.
Middle-market price
The middle-market price is the mid-point between
the buy and the sell prices.
NAV per share
The net asset value (‘NAV’) is the value of the
investment company’s assets less its liabilities.
The NAV per share is the NAV divided by the
number of shares in issue. The difference between
the NAV per share and the share price is known as
the discount or premium.
As at 30 June 2023, the net asset value per share
was 1,431.9p.
Ongoing charges*
Ongoing charges are the total expenses including
both the portfolio management fee and other
costs, but excluding finance costs (if applicable),
as a percentage of the average NAV over the
financial year.
The calculation of the ongoing charges is provided
in Note 6 to the Financial Statements on page 71.
Premium*
The amount, expressed as a percentage, by which
the share price is more than the net asset value
per share.
* Alternative performance measure.
85
FOR THE YEAR ENDED 30 JUNE 2023
PRIIPS Key Information Documents
Since 1 January 2018 there has been a
requirement to provide investors with a Key
Information Document (“KID”) which includes
performance projections which are the product
of prescribed calculations based on the
Company’s past performance. The content and
format of the KID cannot be amended under the
applicable EU regulations. The AIC has stated
that these documents are potentially misleading
for shareholders and since 1 January 2023,
preparers of the PRIIPs and KIDs have been
required to publish a KID in accordance with
updated rules. These were introduced by the
FCA as set out in PS22/2: PRIIPs – Final scope
rules and amendments and changes made to the
Regulatory Technical Standards (RTS). The Board
is strongly of the view that these projections
are not an appropriate or helpful way to assess
the Company’s future prospects. Accordingly,
the Board urges shareholders to consider the
more complete information set out in both the
Company’s half yearly financial report and Annual
Report and Financial Statements, together
with the monthly factsheets, and daily NAV
announcements, when considering an investment
in the Company’s shares. These documents are
available on the Company website at:
www.brownadvisory.com/basc.
Treasury shares
Treasury shares are the part of the issued share
capital that is held by the Company. They do not
rank for dividends and do not have voting rights.
The Company uses treasury shares for discount
management purposes as described above and
in more detail in the Strategic Review on page
and in the Report of the Directors ‘Repurchase of
Shares’ on page 37.
Glossary of Terms including Alternative Performance Measures (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
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ANNUAL REPORT AND FINANCIAL STATEMENTS
86
Notice of Annual General Meeting
This Notice of Meeting is an important document.
If you are in any doubt as to what action to take,
you should consult an appropriate independent
adviser.
Notice is hereby given that the Annual General
Meeting of Brown Advisory US Smaller
Companies PLC will be held at the offices of
Brown Advisory LLC, 18 Hanover Square, London
W1S 1JY on Monday, 6 November 2023 at 2:00
p.m. for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following
as Ordinary Resolutions:
1. That the Report of the Directors and the
audited Financial Statements of the Company
for the year ended 30 June 2023 be received
and adopted.
2. That the Directors’ Remuneration Report for
the year ended 30 June 2023 be approved.
3. That the Directors’ remuneration policy be
approved.
4. That Ms L Booth be re-elected as a Director of
the Company.
5. That Mr J Judd be elected as a Director of the
Company.
6. That Mr C Parritt be re-elected as a Director of
the Company.
7. That Ms J Routledge be elected as a Director
of the Company.
8. That Mr S White be re-elected as a Director of
the Company.
9. That Haysmacintyre be re-appointed as
Auditor of the Company.
10. That the Directors be authorised to agree the
remuneration of the Auditor.
Special Business
To consider, and if thought fit, to pass Resolutions
11 and 12 as Ordinary Resolutions and Resolutions
13, 14 and 15 as Special Resolutions:
Ordinary Resolutions:
11. That the Company continue as an investment
trust.
12. That the Directors of the Company be and
are hereby generally and unconditionally
authorised for the purposes of Section 551
of the Companies Act 2006 (‘the Act’), in
substitution for and to the exclusion of any
outstanding authority previously conferred
on the Directors under Section 551 of the Act,
to allot shares in the capital of the Company
(‘shares’) up to a maximum aggregate
nominal amount of £298,804 (being 10% of
the Company’s issued share capital (excluding
treasury shares)) provided that this authority
shall expire at the conclusion of the Annual
General Meeting of the Company to be held
in 2024 save that the Company may, before
such expiry, make an offer or agreement which
would or might require shares to be allotted
after such expiry and the Directors may
allot shares in pursuance of such an offer or
agreement as if the authority hereby conferred
had not expired.
Special Resolutions:
13. That the Directors of the Company be and are
hereby granted power pursuant to Section 570
and/or Section 573 of the Companies Act 2006
(‘the Act’) to allot equity securities (within the
meaning of Section 560 of the Act) for cash
either pursuant to the authority conferred by
Resolution 12 or by way of a sale of treasury
shares, as if Section 561 of the Act did not apply
to any such allotment, provided that this power
shall be limited to:
(a) the allotment of equity securities up to an
aggregate nominal amount of £298,804
(being 10% of the Company’s issued share
capital (excluding treasury shares)); and
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FOR THE YEAR ENDED 30 JUNE 2023
(b) in addition to the authority referred to in
(a) above, in connection with an offer of
equity securities by way of a rights issue
or open offer to Ordinary shareholders in
proportion as nearly as may be practicable
to their existing holdings subject to
such limits or restrictions or other
arrangements as the Directors may deem
necessary or expedient to deal with any
treasury shares, fractional entitlements
or securities represented by depositary
receipts, record dates, legal, regulatory
or practical problems in, or under the
laws or requirements of, any territory or
the requirements of any regulatory body
or stock exchange or any other matter,
and provided that this authority shall
expire at the conclusion of the Annual
General Meeting of the Company to be
held in 2024 save that the Company
may, before such expiry, make an offer or
agreement which would or might require
equity securities to be allotted after such
expiry and the Directors may allot equity
securities in pursuance of such an offer
or agreement as if the authority hereby
conferred had not expired.
14. That the Company be and is generally and
unconditionally authorised in accordance with
Section 701 of the Companies Act 2006 (the
‘Act’) to make one or more market purchases
(within the meaning of Section 693 of the Act) of
Ordinary shares provided that:
(a) the maximum number of shares that
may be purchased is 1,791,629 Ordinary
shares, being 14.99% of the issued number
of shares (excluding treasury shares)
at the date of this document or, if lower,
such number as is equal to 14.99% of
the issued number of shares (excluding
treasury shares) at the date of passing the
resolution;
(b) the minimum price which may be paid shall
be each of their respective nominal values;
(c) the maximum price (excluding the
expenses of such purchase) which may be
paid for each Ordinary share is the higher
of:
(i) 105% of the average middle market
quotations for such Ordinary share
taken from the London Stock
Exchange Daily Official List for the five
business days immediately preceding
the day on which such share is
purchased; and
(ii) the higher of the price of the last
independent trade and the highest
current independent bid as stipulated
by Article 5(1) of Commission
Regulation EC 22 December 2003
implementing the Market Abuse
Directive as regards exemptions
for buy-back programmes and
stabilisation of financial instruments
(No. 2273/2003); and
(d) unless renewed, this authority shall expire
at the conclusion of the next Annual
General Meeting of the Company to be
held in 2024 save that the Company may,
prior to such expiry, enter into a contract
to purchase shares which will or may be
completed or executed wholly or partly
after such expiry.
15. That a General Meeting other than an Annual
General Meeting may be called on not less than
14 clear days’ notice.
By Order of the Board
FundRock Partners Limited
Company Secretary
15 September 2023
Notice of Annual General Meeting (continued)
BROWN ADVISORY US SMALLER COMPANIES PLC
I
ANNUAL REPORT AND FINANCIAL STATEMENTS
88
Notes for the Annual General Meeting
1. A Member entitled to attend and vote may appoint
a proxy or proxies to attend, speak and vote instead
of him or her. A proxy need not be a member of
the Company. A form of proxy is enclosed which, if
used, must be lodged at the Company’s Registrars,
Computershare Investor Services PLC, The Pavilions,
Bridgwater Road, Bristol BS99 6ZY not less than
forty-eight hours before the Meeting. Alternatively
you can appoint a proxy electronically by visiting
www.eproxyappointment.com. You will be asked to
enter the Control Number, the Shareholder Reference
Number and PIN which are printed on the form of proxy
or contained within the email sent to you. To appoint
more than one proxy you may photocopy this form.
You may appoint a person other than the Chairman as
your proxy. Please indicate the proxy holder’s name
and the number of shares in relation to which they are
authorised to act as your proxy (which, in aggregate,
should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of
multiple instructions being given. All forms must be
signed and should be returned together in the same
envelope.
2. Pursuant to Regulation 41 of the Uncertificated
Securities Regulations 2001, the Company
specifies that to be entitled to attend and vote at
the shareholders AGM (and for the purpose of the
determination by the Company of the number of
votes they may cast), Members must be entered on
the Company’s Register of Members at 2:00 p.m. on
2 November 2023. If the meeting is adjourned then,
to be so entitled, Members must be entered on the
Company’s Register of Members at the time which
is 48 hours before the time fixed for the adjourned
meeting or, if the Company gives notice of the
adjourned meeting, at the time specified in that notice.
3. As at 13 September 2023 (being the latest practicable
date prior to the publication of this notice) the
Company’s issued share capital was 18,223,413
Ordinary shares and the total voting rights were
11,952,159.
4. The vote ‘Withheld’ is provided to enable you to abstain
on any particular resolution. However, it should be
noted that a ‘Withheld’ vote is not a vote in law and will
not be counted in the calculation of the proportion of
the votes ‘For’ and ‘Against’ a resolution.
5. The completion and return of this form will not preclude
a Member from attending the meeting and voting in
person.
6. CREST members who wish to appoint a proxy
or proxies through the CREST electronic proxy
appointment service may do so for the Annual General
Meeting to be held on 6 November 2023 and any
adjournment(s) thereof by using the procedures
described in the CREST Manual. CREST Personal
Members or other CREST sponsored members, and
those CREST members who have appointed a voting
service provider(s), should refer to their CREST sponsor
or voting service provider(s), who will be able to take
the appropriate action on their behalf.
7. In order for a proxy appointment or instruction made
using the CREST service to be valid, the appropriate
CREST message (a ‘CREST Proxy Instruction’) must be
properly authenticated in accordance with CRESTCo’s
specifications and must contain the information
required for such instructions, as described in the
CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or an
amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be
transmitted so as to be received by the Company’s
agent ID (3RA50) by the latest time(s) for receipt of
proxy appointments specified in the Notice of Meeting.
For this purpose, the time of receipt will be taken to
be the time (as determined by the timestamp applied
to the message by the CREST Applications Host)
from which the Company’s agent is able to retrieve
the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of
instructions to proxies appointed through CREST
should be communicated to the appointee through
other means.
CREST members and, where applicable, their CREST
sponsors or voting service providers should note that
CRESTCo does not make available special procedures
in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation
to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to
take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed a
voting service provider(s), to procure that his CREST
sponsor or voting service provider(s) take(s)) such
action as shall be necessary to ensure that a message
is transmitted by means of the CREST system by any
particular time. In this connection, CREST members
and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those
sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation
35(5)(a) of the Uncertificated Securities Regulations
2001.
Any corporation which is a Member can appoint one
or more corporate representatives who may exercise
on its behalf all of its powers as a Member provided
that, if it is appointing more than one corporate
representative, it does not do so in relation to the same
shares. It is therefore no longer necessary to nominate
a designated corporate representative. Representatives
should bring to the meeting evidence of their
appointment, including any authority under which it is
signed.
If you are an institutional investor you may be able
to appoint a proxy electronically via the Proxymity
platform, a process which has been agreed by the
Company and approved by the Registrar. For further
information regarding Proxymity, please go to www.
proxymity.io. Your proxy must be lodged by 2:00 p.m.
on 2 November 2023 in order to be considered valid.
Before you can appoint a proxy via this process you will
need to have agreed to Proxymity’s associated terms
and conditions. It is important that you read these
carefully as you will be bound by them and they will
govern the electronic appointment of your proxy.
89
FOR THE YEAR ENDED 30 JUNE 2023
8. If you have disposed of your holding in the Company
this document should be passed on to the person
through whom the sale or transfer was effected for
transmission to the purchaser or transferee.
9. Any person to whom this Notice is sent who is a person
nominated under Section 146 of the Companies Act
2006 to enjoy information rights (a Nominated Person)
may, under an agreement between him/her and the
shareholder by whom he/she was nominated, have
a right to be appointed (or to have someone else
appointed) as a proxy for the Meeting. If a Nominated
Person has no such proxy appointment right or does
not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
10. A copy of the Notices of Meetings and other
information required by section 311A of the Companies
Act 2006, can be found at www.brownadvisory.com/
basc.
11. Pursuant to Section 319A of the Companies Act 2006,
the Company must cause to be answered at the AGM
any question relating to the business being dealt with
at the AGM which is put by a Member attending the
Meeting except in certain circumstances, including
if it is undesirable in the interests of the Company or
the good order of the Meeting or if it would involve the
disclosure of confidential information.
12. Under Sections 338 and 338A of the 2006 Act,
Members meeting the threshold requirements in those
sections have the right to require the Company: (i) to
give, to Members of the Company entitled to receive
notice of the Meeting, notice of a resolution which those
Members intend to move (and which may properly
be moved) at the Meeting; and/or (ii) to include in the
business to be dealt with at the Meeting any matter
(other than a proposed resolution) which may properly
be included in the business at the Meeting. A resolution
may properly be moved, or a matter properly included
in the business unless: (a) (in the case of a resolution
only) it would, if passed, be ineffective (whether by
reason of any inconsistency with any enactment
or the Company’s constitution or otherwise); (b) it
is defamatory of any person; or (c) it is frivolous or
vexatious. A request made pursuant to this right may
be in hard copy or electronic form, must identify the
resolution of which notice is to be given or the matter to
be included in the business, must be accompanied by a
statement setting out the grounds for the request, must
be authenticated by the person(s) making it and must
be received by the Company not later than the date that
is six clear weeks before the Meeting, and (in the case
of a matter to be included in the business only) must be
accompanied by a statement setting out the grounds
for the request.
13. Under Section 527 of the Act, shareholders meeting the
threshold requirement set out in that section have the
right to require the Company to publish on a website a
statement setting out any matter relating to:
(i) The audit of the Company’s Financial Statements
(including the auditor’s report and the conduct of
the audit) that are to be laid before the meeting;
or (ii) any circumstances connected with the
auditor of the Company ceasing to hold office since
the previous AGM at which the annual financial
statements and reports were laid in accordance
with Section 437 of the Act. The Company may
not require the shareholders requesting any such
website publication to cover any costs incurred in
complying with Section 527 or 528 and is required
to forward any statement placed on a website to the
Company’s auditor not later than the time when it
makes the statement on the website.
The business which may be dealt with at the
meeting includes any statements that the Company
has been required under Section 527 of the Act to
publish on a website.
14. Shareholders are advised that, unless otherwise stated,
any telephone number, website and email address set
out in this Notice of Meeting, Form of Proxy, or Annual
Report should not be used for the purpose of serving
information on the Company (including the service of
documents or information relating to the proceedings
at the Company’s AGM).
Notes for the Annual General Meeting (continued)
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www.brownadvisory.com/basc
BROWN ADVISORY US SMALLER COMPANIES PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 30 JUNE 2023