Half Yearly Results to 31 December 2021

RNS Number : 8006A

Brown Advisory US Smaller Cos. PLC

07 February 2022

 

Brown Advisory US Smaller Companies PLC (the 'Company')

Legal Entity Identifier: 549300HKKL9K1NY4TW55

Half Yearly Financial Results for the six months ended 31 December 2021 (unaudited)

Financial highlights for the six months ended 31 December 2021

Ordinary share performance

	31 December 2021	30 June 2021	% change
Net asset value (pence)*	1,530.47	1,516.34	+0.9
Closing price (pence)	1,480.00	1,437.50	+3.0
Russell 2000 Total Return Index (sterling adjusted)	8,580.81	8,621.29	-0.5
Discount to net asset value (%)*	(3.3)	(5.2)
Ongoing charges ratio (%)*	0.95	0.96

*Alternative performance measure

Stephen White, Chairman, Brown Advisory US Smaller Companies commented:

"We believe that US smaller companies remains an attractive sector for long-term investors, is under-researched and offers areas of undiscovered value. It's pleasing that the performance of the Company in the first half of the year, which outperformed the benchmark by 1.4 percentage points, is largely attributable to strong stock selection by the Portfolio Manager. Brown Advisory's investment philosophy, which focuses on buying good companies at attractive valuations, that have the ability to compound over time, puts us in good stead to create shareholder value over the longer-term."

Brown Advisory, Portfolio Manager, commented:

"We are pleased with the performance of the portfolio during the first six months of the year which produced good relative results, driven by balanced, 'bottom-up' stock selection and an investment process that focuses on delivering compound growth. Although market volatility was prevalent during the period and we expect more in the coming months, we hope our portfolio construction helps to buffer the jolts and our stock selection proves efficacious. Over the long term, bouts of volatility can even produce opportunities in great small-cap companies that can markedly enhance our portfolio's risk/reward dynamics."

Contact:

Brown Advisory US Smaller Companies Chris Berrier, Portfolio Manager	[e-mail] [phone]
FundRock Partners Limited, Company Secretary Limor Gonen	[e-mail] [phone]
TB Cardew, Financial PR to BASC Tom Allison Tania Wild Max Gibson	[e-mail] 07789 998020 07425 536903 07435 791368

Chairman's statement

Dear Fellow Shareholder

I was honoured to succeed Gordon Grender as Chairman in October 2021, having joined the Board in October 2020 as chairman designate. I took up the role at a pivotal time for the Company and look forward to continuing to work with the Board, our Portfolio Manager and our shareholders to promote its success.

Performance

I am pleased to report that in the six months to 31 December 2021, the Net Asset Value ('NAV') per share of the Company rose by 0.9%. This compares to a fall of 0.5% in the Company's benchmark, the sterling-adjusted Russell 2000 Total Return Index.

The 1.4% outperformance of the benchmark is discussed in the Portfolio Manager's review and is largely attributable to strong stock selection, particularly within the Healthcare sector. The performance of the Company's Information Technology sector was also positive, with many of the software and semiconductor names performing well during the first three months of the financial year in particular.

Since Brown Advisory took on portfolio management responsibilities at the beginning of April last year, performance has compared favourably to the benchmark. The Company's NAV per share rose 5.0% between 31 March 2021 and 31 December 2021, compared with a 3.6% return for the benchmark over the same period.

Whilst relative and absolute NAV per share increases in sterling terms have been pleasing over the six months to the end of 2021, it is notable that US smaller companies, as measured by the Russell 2000 Net TR Index, fell by 2.5% in dollar terms, in contrast to the large cap Standard & Poor's 500 Index and the technology-oriented NASDAQ Index, which returned 11.7% and 8.2% respectively in dollar terms over the period.

Share price and discount

The Board remains committed to its policy of using share buybacks with the intention that over a period and in normal market conditions the market price of its shares is limited to around 10% discount to NAV per share.

The Company's share price rose 3.0% to 1,480p over the period under review. The discount to NAV was 3.3% on 31 December 2021, compared to a discount of 5.2% on 30 June 2021 and 9.1% at the time that Brown Advisory took on management of the portfolio. As at 3 February 2022, the discount was 7.5%.

During the period under review, the Company bought back 12,539 shares at an average discount of 10.9%. These are included in the 6,271,254 shares that were held in Treasury on 31 December 2021.

COVID-19

The ongoing COVID-19 pandemic has had little effect on the running of the Company. The managers have been able to work from home when required, with access to the usual systems, and the Board met remotely when necessary.

Corporate Communications

The Board encourages shareholders to visit the Company's website (www.brownadvisory.com/basc) for the latest information and access to monthly factsheets.

Outlook

The rise of the Omicron variant at the tail end of 2021 eroded slightly the positive returns we had seen in the middle of the year, and with the recent onset of inflationary pressures, rising bond yields and global political tensions we do anticipate the possibility of some market volatility in the early part of 2022. However, we have confidence in the ability of the Portfolio Manager to navigate steadily through these conditions, as they have done in previous bouts of volatility.

The US smaller companies sector remains an attractive and interesting one for long-term investors, even more so given the past year's underperformance relative to the broader US stock market indices. Generally, the sector is under-researched and offers areas of undiscovered value. Shareholders should continue to benefit from the Company's investment approach that focuses on buying good companies at attractive valuations.

Stephen White

Chairman

4 February 2022

Portfolio Manager's review

During the six-month period ended 31 December 2021, the NAV per share of the Company rose by 0.9%. This compares to a fall of 0.5% in the Company's benchmark, the sterling-adjusted Russell 2000 Total Return Index. The favourable relative results were driven by balanced, 'bottom-up' stock selection and our efforts to allocate incremental capital away from certain pockets of market excess. Overall, our team is striving to remain focused and disciplined as market volatility continues to escalate. Historically, we have utilised times of stress effectively to enhance the risk/return profile of the strategy and we hope to do so again.

As a reminder, our philosophy is to harness the power of compounding. We seek out businesses that possess the ability to scale into much larger organizations over time. Our '3G' (durable growth, sound governance and scalable go-to-market strategies) investment filter enables our team to keep their gaze on these unique, long-term opportunities. This practice certainly causes us generally to separate the wheat from the chaff, embedding higher quality assets in the portfolio when compared to the typical small-cap benchmark. When we couple this dynamic with valuation discipline and prudent diversification, we have historically reduced relative downside risk. The portfolio's upside stems from strong security selection that leverages our team's deep domain expertise and rigorous due diligence process. This combination of offence through stock picking and defence through portfolio construction has been the mantra for nearly 16 years under present portfolio management.

As we look back at the past six months (and year) of executing against our overall investment process, we are amazed by the multitude of macroeconomic cross-currents that blow across the investment landscape. We have witnessed vast changes in market leadership (i.e. low-quality to high-quality, growth to value and small to large) that have wreaked havoc on both absolute and relative returns no matter the type of strategy managed. These equity market gyrations have stemmed from a combination of economic recovery from COVID-19, fiscal and monetary stimulus, the rise of the Delta and Omicron variants, and a sizeable jump in inflation, which the Federal Reserve no longer describes as 'transitory'. The appropriate response to this development is both being contemplated and vocalised. If the Federal Reserve acts as it has suggested, we stand on the cusp of them attempting the most significant policy shift of the last decade (i.e. quantitative tightening and rate increases) and one that many investment professionals will not have experienced before. Unfortunately, as we look ahead to 2022, we will probably confront a volatile, uncertain, complex, and ambiguous ('VUCA') world. It is in times like these when remaining focused on the 'long term' is more important and valuable than ever.

We conduct quarterly, six-monthly and annual review processes for the strategy because we know the long term is made up of a series of short terms. While the period reviewed here is in our view too brief to draw any firm conclusions regarding the efficacy of our process, we hope that by providing some colour it allows shareholders to better understand our approach and tendencies, so that they may be better equipped to evaluate our multi-year results as they unfold. As investment practitioners, we certainly hope to learn ourselves.

During the six months under review, an examination of our attribution demonstrates that stock selection was far and away the largest driver of our relative results. At the sector level, we witnessed excellent performance in Information Technology and Healthcare with several other areas also aiding returns. Communication Services was the only sector detracting from results in a meaningful manner, however that was driven by a material decline in a single holding. Over time, we expect to see security selection drive our relative returns and hope to achieve a balanced contribution across sectors.

In any given period, while we certainly give the 'top-down' catalysts for our returns their due, we typically spend the majority of our efforts on examining individual security contributions to measure whether their progress is tracking against our underlying investment thesis. During the period, our top three contributors came from three different sectors. EastGroup Properties, our only traditional REIT holding, continues to benefit from both robust demand for its infill industrial properties as well as favourable capital markets conditions, allowing the company to accelerate its development and acquisition activity. The stock gained nearly 40% as future cash flow estimates rose. In Technology, Workiva, our largest software holding, is a software-as-a-service company focused on enterprise reporting. The business saw growth accelerating throughout 2021 as a result of continued robust sales and benefited from strong capital markets activity. Early success in key long-term growth initiatives including Europe and ESG reporting are just beginning to bear fruit. Although we trimmed our position size materially to manage risk as the valuation expanded, we continue to see a bright future and a long runway for expansion. Finally, in Healthcare, Biohaven Pharmaceutical, a commercial stage biotechnology company, rose nearly 42% in the period due to the strong launch of Nurtec, its promising drug for both migraine treatment and prevention. A recently announced partnership with Pfizer provided access to capital to drive growth in the US market and a distribution partner for the rest of the world with unparalleled scale and reach.

On the negative side of the ledger for the second half of 2021, Zynga Inc., HealthEquity Inc., and Agilon Health Inc. registered as our largest detractors. Zynga, a leading mobile games company, was forced to modestly lower its full-year bookings target due to Apple's IDFA ('Identifier for Advertisers') policy, this synced up directly with a reopening surge in mobility from COVID-19 lockdowns. Fortunately, we determined that this was not a violation of our investment thesis and continued to hold the stock as early in 2022 it was announced that Take-Two, another interactive entertainment company, offered to acquire the business at a healthy premium to bolster its mobile presence. HealthEquity, a leading provider of HSA ('Health Savings Accounts') and other benefits, faltered as its smaller commuter and FSA ('Flexible Spending Accounts') business lines were impacted by a resurgence in COVID-19 infections. Lastly, we have Agilon Health, a relatively new Healthcare holding for the strategy. Agilon is a value-based care provider focused primarily on the Medicare Advantage space. While this IPO performed quite well early, it has traded down recently along with most other newly public companies. Unlike many, the company is quite close to breakeven due to their unique business model of partnering with established primary care physician practices. We see a sizeable runway for growth and scale over the next 5 to 10 years for Agilon, but we understand that the stock could remain volatile in the current market climate.

In sum, we were not perfect in the prior six months, but our stock selection was, on balance, quite solid and our investment process and discipline resulted in good relative results. As we look ahead, our outlook is for more volatility in the months ahead. Although it may be unsettling in the short term, we hope our portfolio construction helps to buffer the jolts and our stock selection proves efficacious. Over the long term, we actually prefer bouts of excess volatility (on occasion) because it tends to produce the types of opportunities in great small-cap companies that can markedly enhance our portfolio's risk/reward dynamics.

The cross-currents that remain at play likely mean we will be living in this VUCA environment for a bit. We will strive to execute our game plan well no matter what hand is dealt and look forward to updating shareholders on our efforts and progress in six months' time.

Brown Advisory LLC

Portfolio Manager

4 February 2022

Twenty largest holdings as at 31 December 2021

		31 December 2021		30 June 2021
		Market value	Percentage of Portfolio	Market value	Percentage of Portfolio
Company	Sector	£'000		£'000
Genpact Business process management services.	Information Technology	6,701	3.8	5,629	3.2
Evo Payments A Payment technology and services provider.	Industrials	6,112	3.5	3,370	1.9
Waste Connections Waste management services company.	Industrials	5,530	3.1	4,752	2.7
Charles River Laboratories International Pharmaceutical company specialising in pre-clinical and clinical laboratory services.	Healthcare	5,502	3.1	6,288	3.5
Workiva Cloud-based enterprise software.	Information Technology	5,077	2.9	5,498	3.1
EastGroup Properties, REIT Industrial properties with a particular emphasis on Florida, Texas, Arizona and California.	Real Estate	4,312	2.5	3,052	1.7
IAA Buying and selling of trucks, passenger cars and motorcycles.	Consumer Discretionary	4,277	2.4	4,517	2.6
Prosperity Bancshares Provision of financial products and solutions.	Financials	4,261	2.4	3,342	1.9
Zynga 'A' Video game software.	Communication Services	3,873	2.2	5,762	3.2
Catalent Delivery technologies and development solutions for drugs, biologics and consumer health products.	Healthcare	3,822	2.2	3,607	2.0
Bright Horizons Family Solutions Childcare and early education services.	Consumer Discretionary	3,703	2.1	3,584	2.0
Entegris Materials management products and services to the microelectronics industry.	Information Technology	3,501	2.0	3,048	1.7
Casey's General Stores Convenience store chain.	Consumer Staples	3,422	1.9	3,310	1.9
AZEK Outdoor living products manufacturer.	Industrials	3,332	1.9	2,073	1.2
CMC Materials Products and solutions for the semiconductor industry.	Information Technology	3,159	1.8	2,903	1.6
HB Fuller Adhesives, sealants, coatings, paints, and other specialty chemical products.	Materials	3,088	1.8	1,834	1.0
FTI Consulting Business advisory firm.	Industrials	3,036	1.7	2,651	1.5
Churchill Downs Horse racing company.	Consumer Discretionary	2,953	1.7	1,658	0.9
Leslie's Swimming pool supplies and related products.	Consumer Discretionary	2,951	1.7	1,163	0.7
NeoGenomics Cancer diagnostics and pharmaceutical services company.	Healthcare	2,907	1.7	3,550	2.0
Total		81,519	46.3

The value of the twenty largest equity holdings represents £81.5 million (30 June 2021: £77.4 million) and 46.3% (30 June 2021: 43.8%) of the Company's total investments.

As at 30 June 2021 and 31 December 2021, none of the Company's assets were invested in the securities of other listed closed-ended investment companies.

Interim management report

Related party transactions

During the first six months of the current financial year no transactions with related parties have taken place which have materially affected the financial position or performance of the Company. Details of related party transactions are contained in the Annual Report & Accounts for the year ended 30 June 2021.

Principal and emerging risks and uncertainties

The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it aims to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings considering the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests. Other key risks faced by the Company relate to liquidity risk, the discount to net asset value, regulatory risk, credit and counterparty risk, loss of key personnel, and operational and financial risks.

Further details of the principal and emerging risks and uncertainties associated with the Company's
business are set out in the Annual Report & Accounts for the year ended 30 June 2021. In the view of the Board, these principal and emerging risks and uncertainties are as applicable to the remaining six months of the financial year as they were to the six months under review. 

Going concern

The Half Yearly Financial Report has been prepared on a going concern basis. The Directors consider that this is the appropriate basis as they have a reasonable expectation that the Company has adequate
resources to continue in operational existence for the foreseeable future. In considering this, the Directors
took into account the Company's investment objective, risk management policies and capital management policies, the diversified portfolio of readily realisable securities which can be used
to meet short-term funding commitments and the ability of the Company to meet all of its liabilities
and ongoing expenses.

Directors' responsibility statement

The Directors confirm to the best of their knowledge that:

(a) the condensed set of financial statements, prepared in accordance with the applicable set of
accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit
or loss of the Company at, or, as applicable, for the period ended 31 December 2021.

(b) the Chairman's statement, the Portfolio Manager's review and the interim management
report include a fair review of the information required by Disclosure Guidance and Transparency
Rule 4.2.7R; and

(c) the interim management report includes a fair review of the information required by Disclosure
Guidance and Transparency Rule 4.2.8R on related party transactions.

The Half Yearly Financial Report has not been audited or reviewed by the Company's auditors.

For and on behalf of the Board

Stephen White

Chairman

4 February 2022

Income statement

For the six months ended 31 December 2021 (unaudited)

				Six months to 31 December 2021			Six months to 31 December 2020
				Revenue	Capital	Total	Revenue	Capital	Total
				£'000	£'000	£'000	£'000	£'000	£'000
Gains from investments held at fair value through profit or loss (Note 2)				-	1,996	1,996	-	23,802	23,802
Foreign exchange gain on loan				-	-	-	-	156	156
Currency exchange gain/(loss)				-	259	259	-	(252)	(252)
Investment income				350	-	350	774	-	774
Total income/(loss)				350	2,255	2,605	774	23,706	24,480
Investment management fee				(627)	-	(627)	(579)	-	(579)
Other expenses				(249)	-	(249)	(206)	(1)	(207)
(Loss)/return before finance costs and taxation				(526)	2,255	1,729	(11)	23,705	23,694
Finance costs				-	-	-	(20)	-	(20)
(Loss)/return before taxation				(526)	2,255	1,729	(31)	23,705	23,674
Taxation				(58)	-	(58)	(113)	-	(113)
Net (loss)/return after taxation				(584)	2,255	1,671	(144)	23,705	23,561
Net (loss)/return per Ordinary share (Note 3)				(4.88)p	18.85p	13.97p	(1.15)p	188.73p	187.58p

The total column of this statement is the profit and loss account of the Company prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued in the period.

The financial information does not constitute 'accounts' as defined in section 434 of the Companies Act 2006.

Statement of financial position

As at 31 December 2021

	31 December 2021 (unaudited)	30 June 2021 (audited)
	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	175,894	176,854
Current assets
Debtors	376	68
Cash at bank and in hand	7,149	4,994
	7,525	5,062
Creditors: amounts falling due within one year	(495)	(490)
Net current assets	7,030	4,572
Total assets less current liabilities	182,924	181,426
Capital and reserves
Called up share capital	4,555	4,555
Share premium account	19,550	19,550
Non-distributable reserve	841	841
Capital redemption reserve	9,628	9,628
Retained earnings* (Note 8)	148,350	146,852
Total shareholders' funds	182,924	181,426
Net asset value per Ordinary share (Note 6)	1,530.47p	1,516.34p

*   Under the Company's Articles of Association any dividends may be distributed only from the revenue element of retained earnings and, as at 31 December 2021, there were no available earnings of this type.

Statement of changes in equity

For the six months ended 31 December 2021 (unaudited)

	Called up share capital	Share premium	Non-distributable reserve	Capital redemption reserve		Retained earnings	Total
For the six months to 31 December 2021	£'000	£'000	£'000	£'000		£'000	£'000
Balance at 1 July 2021	4,555	19,550	841	9,628		146,852	181,426
Repurchase of Ordinary shares to be held in treasury	-	-	-	-		(173)	(173)
Net return for the period	-	-	-	-		1,671	1,671
Balance at 31 December 2021	4,555	19,550	841	9,628		148,350	182,924
	Called up share capital	Share premium	Non-distributable reserve	Capital redemption reserve		Retained earnings	Total
For the six months to 31 December 2020	£'000	£'000	£'000	£'000		£'000	£'000
Balance at 1 July 2020	4,555	19,550	841	9,628		110,437	145,011
Repurchase of Ordinary shares to be held in treasury	-	-	-	-		(7,248)	(7,248)
Net return for the period	-	-	-	-		23,561	23,561
Balance at 31 December 2020	4,555	19,550	841	9,628		126,750	161,324
	Called up share capital	Share premium	Non-distributable reserve	Capital redemption reserve		Retained earnings	Total
For the year ended 30 June 2021 (audited)	£'000	£'000	£'000	£'000		£'000	£'000
Balance at 1 July 2020	4,555	19,550	841	9,628		110,437	145,011
Repurchase of Ordinary shares to be held in treasury	-	-	-	-		(11,044)	(11,044)
Net return for the year	-	-	-	-		47,459	47,459
Balance at 30 June 2021	4,555	19,550	841	9,628		146,852	181,426

Notes to the accounts

For the six months to 31 December 2021

1.  Accounting policies

The significant accounting policies, which have not been changed and have been applied consistently during the period ended 31 December 2021 are stated below.

FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has been applied in preparing the financial statements included in this half yearly report.

a.  Basis of accounting

The accounts of the Company are prepared on a going concern basis under the historical cost convention, modified to include fixed asset investments at fair value through profit or loss and in accordance with the Companies Act 2006, UK GAAP and with the Statement of Recommended Practice ('SORP') for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies ('AIC') in November 2014 and updated in October 2019.

The functional and reporting currency of the Company is pounds sterling because that is the currency of the primary economic environment in which the Company operates.

In accordance with the SORP, the Income Statement has been analysed between a revenue account (dealing with items of a revenue nature) and a capital account (relating to items of a capital nature). Revenue returns include, but are not limited to, dividend income, operating expenses and tax. Net revenue returns are allocated via the revenue account to the retained earnings, out of which dividend payments may be made. Capital returns include, but are not limited to, profits and losses on the disposal and revaluation of fixed asset investments and currency profits and losses on cash and borrowings. Net capital returns may not be distributed by way of dividend and are allocated via the capital account to the retained earnings.

b.  Principal accounting policies

i. Financial instruments

Financial instruments include fixed asset investments, derivative assets and liabilities and long-term debt instruments. Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been recently suspended, forward exchange contracts and certain other derivative instruments.

Level 3 - External inputs are unobservable. Value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. Included within this category are unquoted investments.

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 balance sheet 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 are accounted for in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of income actually receivable, without adjustment for the tax credit attaching to the dividends. 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 expenses incidental to the acquisition or disposal of fixed asset investments which are processed through the capital account;

All expenses are recorded on an accruals basis. Finance charges are accrued using the effective interest rate method.

vi.  Taxation

Withholding tax deducted at source from income received is treated as part of the taxation charge in the income account, in instances where it cannot be recovered.

Deferred tax is provided in accordance with FRS 102, on an undiscounted basis, on all timing differences that have been originated but not reversed by the balance sheet 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.

viii.  Retained earnings

Capital reserve - arising on investments sold

The following are included in this reserve:

· gains and losses on the realisation of fixed asset investments;

· realised foreign exchange differences 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.

Capital reserve - arising on investments held

The following are included in this reserve:

· increases and decreases in the valuation of fixed asset investments held at the period end;

· unrealised foreign exchange differences of a capital nature; and

· the revenue loss for the period is taken to the revenue element of this reserve.

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 this set of financial statements.

2.  Gains on investments held at fair value through profit or loss

	Six months to 31 December 2021	Six months to 31 December 2020
	£'000	£'000
Net gains realised on sale of investments	2,467	6,020
Movement in investment holdings (losses)/gains	(471)	17,782
Gains on investments held at fair value through profit or loss	1,996	23,802

3.  Return per Ordinary share

	Six months to 31 December 2021	Six months to 31 December 2020
	£'000	£'000
Net revenue loss	(584)	(144)
Net capital return	2,255	23,705
Net total return	1,671	23,561
Weighted average number of Ordinary shares in issue during the period	11,958,858	12,560,529
Net loss per Ordinary share	(4.88)p	(1.15)p
Net capital return per Ordinary share	18.85p	188.73p
Net return per Ordinary share	13.97p	187.58p

4.  Transaction costs

During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:

	Six months to 31 December 2021	Six months to 31 December 2020
	£'000	£'000
Purchases	18	12
Sales	11	18
Total	29	30

5.  Comparative information

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the six months to 31 December 2021 and 31 December 2020 has not been audited.

The information for the year ended 30 June 2021 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 30 June 2021 have been filed with Companies House. The report of the auditors on those accounts contained no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

6.  Net asset value per Ordinary share

The net asset value per Ordinary share as at 31 December 2021, calculated in accordance with the Articles of Association, was as follows:

	31 December 2021		30 June 2021
	Net asset value per share attributable	Net assets attributable	Net asset value per share attributable	Net assets attributable
	(p)	£'000	(p)	£'000
Ordinary shares	1,530.47	182,924	1,516.34	181,426

Net asset value per Ordinary share on the balance sheet is based on net assets of £182,924,000 (30 June 2021: £181,426,000) and on 11,952,159 (30 June 2021: 11,964,698) Ordinary shares, being the number of Ordinary shares in issue at the end of the period.

7.  Fair valuation of investments

The fair value hierarchy analysis for investments held at fair value at the period end is as follows:

	31 December 2021					30 June 2021
	Level 1	Level 2	Level 3	Total	Level 1		Level 2	Level 3	Total
	£'000	£'000	£'000	£'000	£'000		£'000	£'000	£'000
Investments	175,894	-	-	175,894	176,854		-	-	176,854

8.  Retained earnings

The table below shows the movement in the retained earnings analysed between revenue and capital items:

	Revenue return		Capital return	Total
	£'000		£'000	£'000
Balance at 1 July 2021		(7,441)	154,293	146,852
Net (loss)/return for the period		(584)	2,255	1,671
Ordinary shares repurchased into treasury		-	(173)	(173)
Balance at 31 December 2021		(8,025)	156,375	148,350

9.  Related parties and transactions with the manager

FundRock has been appointed as AIFM to the Company pursuant to an Alternative Investment Fund Management Agreement between FundRock and the Company. FundRock has also been appointed to provide company secretarial services to the Company.

Brown Advisory has been appointed to provide portfolio management services pursuant to a Portfolio Management Agreement between the Company, FundRock and Brown Advisory.

The management fee has been calculated at an annual rate of 0.7% on the first £200 million; 0.6% of the next £300 million; and 0.5% thereafter of the Company's adjusted net assets.

The management fee is payable by the Company to FundRock, who shall deduct from the management fee the amounts due to it as AIFM and for company secretarial services and shall pay the balance to Brown Advisory.

The management fee is calculated and payable on a quarterly basis.

The investment management fee payable to FundRock for the period 1 July 2021 to 31 December 2021 was £627,000. For the period 1 July 2020 to 31 December 2020 the fee payable to Jupiter Unit Trust Managers Limited ('JUTM'), the previous manager, was £579,000.

The appointment of Brown Advisory and FundRock may be terminated by not less than six months' notice, such notice not to be served earlier than 1 April 2022.

There are no transactions with the directors other than the remuneration paid to the directors as disclosed in the Directors' Remuneration Report on page 45 of the 2021 Annual Report & Accounts and as set out in Note 5 to the Accounts on page 64 and the beneficial interests of the directors in the ordinary shares of the Company as disclosed on page 46 of the 2021 Annual Report & Accounts.

Availability of Half Yearly Financial Report

The Half Yearly Financial Report will shortly be available on the Company's website www.brownadvisory.com/basc  

A copy of the Half Yearly Financial Report will also be submitted to the National Storage Mechanism and will soon be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

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