1   General information

Ricardo plc (the 'Company'), a public company limited by shares, is listed on the London Stock Exchange and incorporated and domiciled in the United Kingdom. The address of its registered office is Shoreham Technical Centre, Shoreham-by-Sea, West Sussex, BN43 5FG, England, United Kingdom, and its registered number is 222915.

The condensed interim financial statements were approved for issue by the Board of Directors on 24 February 2021. These condensed interim financial statements have not been audited, but they have been subject to an independent review by KPMG LLP ('KPMG'), whose independent review report is included at the end of this report.

2   Basis of preparation

These condensed interim financial statements of the Company and its subsidiaries (together, the 'Group') for the six months ended 31 December 2020 do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. They have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and IAS 34 Interim Financial Reporting, as adopted by the European Union.

These condensed interim financial statements should be read in conjunction with the financial statements for the year ended 30 June 2020 within the Annual Report & Accounts 2019/20, which were prepared in accordance with International Financial Reporting Standards ('IFRS'), IFRS Interpretations Committee ('IFRS IC') interpretations adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The Annual Report & Accounts 2019/20, which was approved by the Board of Directors on 9 September 2020 and delivered to the Registrar of Companies. The report of the auditors on those statutory accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The accounting policies adopted within this Interim Report are consistent with the Annual Report & Accounts 2019/20 except for the requirements of IAS 34 Interim Financial Reporting in respect of income tax. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual profit or loss.

In the context of the economic uncertainty caused by the ongoing COVID-19 pandemic, the Board of Ricardo plc has undertaken an assessment of the ability of the Group and Company to continue in operation and meet its liabilities as they fall due over the period of its assessment. In doing so, the Board considered events throughout the period of their assessment, including the availability and maturity profile of the Group's financing facilities and covenant compliance. These condensed interim financial statements have been prepared on the going concern basis which the directors consider appropriate for the reasons set out below. The Group funds its operations through cash generated by the Group and has access to a £200.0m Revolving Credit Facility ("RCF") which is linked to two covenants. These covenants are tested at 30 June and 31 December each year until the debt matures in July 2023. The threshold for the Adjusted Leverage (defined as net debt over underlying EBITDA for the last twelve months) is 3.75 at December 2020 and June 2021, reducing to 3.00 from the 31 December 2021 test date onwards. The threshold for the Interest Cover (defined as underlying EBITDA for the last twelve months over net finance costs) is 4.00 for each test date.

On 11 November 2020 the Group raised £28.2m of proceeds, net of fees, by way of an equity placing. The placing was carried out to reduce leverage, strengthen the balance sheet and provide adequate working capital for the Group. As at the date of these condensed interim financial statements, the amount of the RCF undrawn and available to the Group was £120m, with total borrowing, including overdrafts and hire purchase liabilities, of £87m and cash and cash equivalents of £41m.

The Directors have prepared a cash flow forecast which covers at least 12 months from the date of approval of these condensed interim financial statements to June 2023. In this forecast, the directors have considered the impact of the ongoing COVID-19 pandemic on trading levels, as well as delays in starting new projects and converting pipeline opportunities, on the Group's results, operations and financial position, in a severe but plausible downside scenario. This scenario models reductions in EBITDA in the second half of FY 2020/21 and further reductions in FY 2021/22 in the Automotive & Industrial, Performance Products and Rail segments, no growth in Energy & Environment, and growth in Defense, but at lower rates than budgeted. In addition, the downside scenario models an increase in net working capital days over the remainder of FY 2020/21 and FY 2021/22.

The modelled downside scenario incorporates some mitigating actions which are within the control of the Group, such as setting appropriate levels of dividends, the non-payment of discretionary bonuses, discretionary cost saving measures, and a reduction in non-essential capital expenditure. Although headroom under the Group's banking covenants is reduced under this downside scenario, the Group and Company and is expected to operate within its committed facilities and covenant requirements during the forecast period.

Consequently, the directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the condensed interim financial statements and therefore have prepared the condensed interim financial statements on a going concern basis.

3   Seasonality

Management does not consider the Group's business to be highly seasonal but based upon its experience, higher levels of revenue and profit are expected in the second half of each financial year. This is typically due to lower levels of annual leave and a greater number of chargeable hours, which equates to higher revenues on a predominantly fixed cost base, and therefore higher profits. For the current financial year, the phasing of profit is expected to be even more weighted to the second half of the year due to the ongoing recovery from the impact of COVID-19.

4   Alternative Performance Measures

Throughout this document the Group presents various alternative performance measures ('APMs') in addition to those reported under IFRS. The measures presented are those adopted by the Chief Operating Decision Maker ('CODM', deemed to be the Chief Executive Officer), together with the main Board, and analysts who follow the Group in assessing the performance of the business. Explanations of how they are calculated and how they are reconciled to an IFRS statutory measure are set out below.

a)  Group profit and earnings measures

Underlying profit before tax ('PBT') and underlying operating profit: These measures are used by the Board to monitor and measure the trading performance of the Group. They exclude certain items which the Board believes distort the trading performance of the Group. These include the amortisation of acquired intangibles, acquisition-related expenditure, reorganisation costs, and other specific adjusting items.

The Group's strategy includes geographic and sector diversification, including targeted acquisitions and disposals. By excluding acquisition-related expenditure from underlying PBT and underlying operating profit, the Board has a clearer view of the performance of the Group and is able to make better operational decisions to support its strategy.

Acquisition-related expenditure includes the costs of acquisitions, deferred and contingent consideration fair value adjustments (including the unwinding of discount factors), transaction-related fees and expenses, and post-deal integration costs.

Reorganisation costs arising from major restructuring activities, profits or losses on the disposal of businesses, and significant impairments of property, plant and equipment, are excluded from underlying PBT and underlying operating profit as they are not reflective of the Group's trading performance in the year, as are any other specific adjusting items deemed to be one-off in nature.

The related tax effects on the above and other tax items which do not form part of the underlying tax rate are also taken into account. Items are treated consistently year-on-year, and these adjustments are also consistent with the way that performance is measured under the Group's incentive plans and its banking covenants. A reconciliation is shown below. Further details of the nature of the specific adjusting items are given in Note 7.

Underlying earnings attributable to the owners of the parent: The Group uses underlying earnings attributable to the owners of the parent as the input to its adjusted EPS measure. This profit measure excludes the amortisation of acquired intangibles, acquisition-related expenditure, reorganisation costs and other specific adjusting items, but is an after-tax measure. The Board considers underlying EPS to be more reflective of the Group's trading performance in the year than reported EPS. A reconciliation between earnings attributable to the owners of the parent and underlying earnings attributable to the owners of the parent is shown in Note 8.

Constant currency growth/decline: The Group generates revenues and profits in various territories and currencies because of its international footprint. Those results are translated on consolidation at the foreign exchange rates prevailing at the time. Constant currency growth/decline is calculated by translating the result for the current year using foreign currency exchange rates applicable to the prior year. This provides an indication of the growth/decline of the business, excluding the impact of foreign exchange.

Segmental underlying operating profit: This is presented in our segmental disclosures and reflects the underlying trading of each segment, as assessed by the main Board. This excludes segment-specific amortisation of acquired intangibles, acquisition-related expenditure and other specific adjusting items, such as reorganisation costs. It also excludes unallocated Plc costs, which represent the costs of running the public limited company and specific adjusting items which are outside of the control of segment management. A reconciliation between segment underlying operating profit, the Group's underlying operating profit and operating profit is presented in Note 5.

b)  Cash flow measures

Cash conversion: A key measure of the Group's cash generation is the conversion of profit into cash. This is the reported cash generated from operations (defined as operating cash flow, less movements in net working capital and defined benefit pension deficit contributions) divided by earnings before interest, tax, depreciation and amortisation ('EBITDA'), expressed as a percentage.

Underlying cash conversion: This is underlying cash generated from operations (defined as reported cash generated from operations, adjusted for the cash impact of specific adjusting items) divided by underlying EBITDA (defined as reported EBITDA, adjusted for the impact of specific adjusting items). A reconciliation between the two is shown below.

Net debt: is defined as current and non-current borrowings less cash and cash equivalents, including hire purchase agreements, but excluding any impact of IFRS 16 lease liabilities. Management believes this definition is the most appropriate for monitoring the indebtedness of the Group and is consistent with the treatment in the Group's banking agreements.

c)  Tax measures

Underlying effective tax rate ('ETR'): We report one adjusted tax measure, which is the tax rate on underlying profit before tax. This is the tax charge applicable to underlying profit before tax expressed as a percentage of underlying profit before tax.

5   Financial performance by segment

The Group's operating segments are being reported based on the financial information provided to the Chief Operating Decision Maker who is the Chief Executive Officer. The information reported includes financial performance but does not include the financial position of assets and liabilities. The operating segments were identified by evaluating the Group's products and services, processes, types of customers and delivery methods.

From HY 2020/21, due to restructuring within the Group, Strategic Consulting & Software ('other') is no longer being separately reported as an operating segment.

The Strategic Consulting element of this segment is now reported within Automotive & Industrial ('A&I'). This business has a number of common customers, operates in similar markets to A&I, and is now run as a business unit within the overall A&I business. From HY 2020/21 onwards, the A&I EMEA Managing Director has overall responsibility for the Strategic Consulting service offering.

The Software element of this segment has been aggregated into the Performance Products operating segment for reporting. Whilst the Software business continues to be run as a separate business with its own leadership team, it has a number of similar characteristics to the Performance Products manufacturing business, in that it is involved in the development and sale of niche products, requiring a high level of capital/development spend, primarily selling to automotive manufacturers.

As a result of this change, the Group is now reporting the following five segments:

·      Energy & Environment ('EE');

·      Rail;

·      Automotive & Industrial ('A&I');

·      Defense; and

·      Performance Products ('PP').

Measurement of performance

Management monitors the financial results of its operating segments separately for the purpose of making decisions about allocating resources and assessing performance. Segmental performance is measured based on underlying operating profit, as this measure provides management with an overall view of how the different operating segments are managing their total cost base against the revenue generated from their portfolio of contracts.

There are varying levels of integration between the segments. The segments use EE for their specialist environmental knowledge. A&I and PP have various shared projects. There are also shared service costs between the segments. Inter-segment transactions are eliminated on consolidation. Inter‑segment pricing is determined on an arm's length basis in a manner similar to transactions with third parties.

Included within Plc costs in the following tables are costs arising from a central Group function, including the costs of running the public limited company, which are not recharged to the other operating segments. Comparative figures for the half-year ended 31 December 2019 have been restated, reflecting the impact of the changes to Strategic Consulting & Software mentioned above.

(*) See Note 7.

6   Revenue

7   Specific adjusting items

Specific adjusting items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. These items comprise the amortisation of acquired intangible assets, acquisition-related expenditure, reorganisation costs and other non-recurring items that are included due to the significance of their nature or amount. Acquisition-related expenditure is incurred by the Group to effect a business combination, including the costs associated with the integration of acquired businesses. Reorganisation costs relate to non-recurring expenditure incurred as part of fundamental restructuring activities, significant impairments of property, plant and equipment, and other items deemed to be one-off in nature.

Amortisation of acquired intangible assets

On acquisition of a business, the purchase price is allocated to assets such as customer contracts and relationships. Amortisation occurs on a straight-line basis over the asset's useful economic life, which is between 3 and 9 years. During the period, certain "customer contracts and relationships" intangible assets reached the end of their economic life, resulting in a decrease in amortisation charges compared to the prior period.

Acquisition-related expenditure

The current period acquisition-related expenditure comprises £1.1m (2019: £0.4m) of earn-out and employee retention costs, accrued in relation to Transport Engineering Pty Ltd (now Ricardo Rail Australia - 'RRA'), acquired in May 2019, and PLC Consulting Pty Ltd (now Ricardo Energy Environment and Planning - 'REEP'), acquired in July 2019. The prior period charge also included £0.3m of costs incurred in relation to the post-deal integration of these businesses, and £0.2m costs of running an internal acquisitions department to effect the acquisition processes.

Reorganisation costs

Purchases and disposals

The current period charge includes a £1.5m impairment charge as a result of a decrease in the fair value of the Detroit Technology Campus ('DTC') South building, reflecting its market value at the balance sheet date. The property has been held-for-sale since its purchase in August 2019. It was purchased to remove the business from a long-term lease commitment which ran to October 2037 and comprised a North building, which housed testing operations, and a South office building. The campus was originally purchased for £14.3m (USD 17.3m), and immediately written down, resulting in an impairment charge of £2.5m (net of the extinguishment of an associated IFRS 16 lease liability) in the prior period as the purchase price was predicated on its tenancy. The North building and its associated test assets were sold in the second half of FY 2019/20 and the South building was impaired by a further £1.1m (USD 1.3m). The current period impairment charge reflects the ongoing impact of COVID-19 on the property market, with a significantly lower demand for office space depressing prices in the DTC area. These costs have been classified as specific adjusting items as they are significant in value and would distort the underlying trading performance of the Group if included. On 18 January 2021, as offers received were lower than expected, management decided to retain the use of the property. The property is continuing to be marketed for sale, but management no longer considers a sale within the next twelve months to be highly probable - see Note 17.

The current period charge also includes a charge of £0.1m in relation to a reduction in the fair value of deferred consideration in respect of the sale of Ricardo's Detroit test assets on 3 June 2020, in accordance with the treatment of the original proceeds in FY 2019/20.

Other reorganisation costs

The current period charge reflects £1.5m of redundancy costs from headcount reductions in the Group's A&I business in Europe. This was caused by lower than forecast workable orders in the current period due to a continuation of the challenging trading conditions seen throughout 2020, as Europe struggled to contain the outbreak of COVID-19, with further national lockdowns being imposed in the Autumn of 2020. The A&I Europe business made headcount reductions in the second half of FY 2019/20, driven by impact of the initial outbreak of COVID-19 on trading conditions. Due to the continuing depressed economic conditions further heads were removed from the business in the current period. These costs have been included as specific adjusting items as they are linked to the actions taken in the second half of FY 2019/20. The restructuring was due to the ongoing impact of COVID-19 on trading conditions which has straddled the Group's reporting periods.

The prior period costs included the final elements of costs from the multi-year global automotive restructuring programme (not linked to the actions above), which included £0.2m of redundancy costs, £0.1m of shared service centre set-up costs, and £0.4m of incremental, non-revenue generating contractor costs in A&I Europe. In addition, £0.1m of external fees and incremental, non-revenue generating contractor costs were incurred in relation to the marketing of the DTC assets. £0.4m of redundancy costs were incurred in Rail in the prior period as part of a restructuring process in order to realign the business to market demand (a process which completed in the second half of FY 2019/20).

Guaranteed Minimum Pensions ('GMP') equalisation

In October 2018, the High Court issued a judgement confirming that pension schemes are required to equalise male and female members' benefits for the effect of Guaranteed Minimum Pensions ('GMP'), which resulted in a £1.3m charge in FY 2018/19. A further ruling in November 2020 confirmed that historical transfers out of the scheme, between May 1990 and October 2018 would also need to be equalised for GMP. This has resulted in an additional £0.1m charge in the period, which has been classified as a specific adjusting items due to it being non-recurring in nature. The treatment is consistent with the treatment of the original GMP equalisation charge. 

8   Earnings per share

Underlying earnings per share is also shown because the Directors consider that this provides a more useful indication of underlying performance and trends over time than reported earnings per share.

There are no potentially dilutive shares (HY 2019/20: Nil).

9    Dividends

The Directors have declared an interim dividend of 1.75p per share, which will be paid on 9 April 2021 to holders of ordinary shares on the company's register of members on 5 March 2021.

A dividend of £0.4m was issued during the period to a non-controlling interest.

10 Goodwill

At the reporting date, the management of the Group carried out a review for indicators of impairment. Given the continuing challenging conditions in the automotive industry, particularly in Europe, it was considered necessary to carry out an impairment test in relation to the goodwill balance allocated to the A&I operating segment. The value-in-use of the cash-generating unit ('CGU') was reviewed, and continues to support the carrying amount of the associated goodwill, and therefore no impairment has been recognised. There were no indicators of impairment at 31 December 2019, and no impairment test was carried out at that date.

The value-in-use calculation uses a discounted cashflow forecast for the remainder of the current financial year, and the following four financial years, based on a 75% cash conversion rate applied to expected operating profits for each CGU. Due to the impact of COVID-19 on the CGU in the near-term, a four-year plan (FY 2019/20: three-year plan) for the CGU was prepared by management for the purposes of this review. The plan was based on the three-year plan reviewed and approved by the Board, adjusted to reflect management's assessment of the current contract portfolio, contract wins, contract retention, price increases, gross margin, as well as future expected market trends.

Cashflows beyond the final year of the plan were projected into perpetuity using a long-term growth rate, which is determined as being the lower of the planned compound annual growth rate in the CGU's plan and external third party forecasts of the prevailing inflation and economic growth rates for the territories in which the CGU operates. The pre-tax discount rate applied to the cashflows is derived from externally sourced data and reflects the current market assessment of the Group's time value of money and risks specific to the CGU. Specific estimates for long-term growth rates and pre-tax discount rates for the CGU are shown below, with comparatives for June 2020, the date of the most recent impairment review.

The value-in-use calculations were assessed for sensitivity to reasonably possible changes to these estimates. The sensitivities assessed include a 10% reduction in planned operating profit, a 10% reduction in the operating cash flow conversion rate, a 1% increase in the pre-tax discount rate and a 1% decrease in the long-term growth rate.

For goodwill allocated to the A&I CGU, a 10% reduction in the cash conversion rate to 65% would result in an impairment of £0.6m, while a 9% reduction in the cash conversion rate would not result in an impairment. None of the other sensitivities assessed would result in an impairment.

11  Non-current assets held for sale

As explained in Note 7, the impairment charge is a result of a decrease in the fair value of DTC. As explained in Note 17, on 18 January 2021, as offers received were lower than expected, management decided to retain the use of the property. The property is continuing to be marketed for sale, but management no longer considers a sale within the next twelve months to be highly probable. Subsequent to the period end, on 18 January 2021, DTC was reclassified to property, plant and equipment, and it is no longer being classified as held for sale.

12 Fair value of financial assets and liabilities

There are no differences between the fair value of financial assets and liabilities included within the following categories in the Condensed Consolidated Statement of Financial Position and their carrying value:

•        Trade, contract and other receivables;

•        Derivative financial assets;

•        Cash and cash equivalents;

•        Trade, contract and other payables; and

•        Derivative financial liabilities

Derivative financial assets of £3.5m (30 June 2020: £3.9m) and derivative financial liabilities of £1.1m (30 June 2020:  £6.5m) relate to foreign exchange forward and swap contracts, which are Level 2 of the fair value hierarchy within IFRS 13 Fair Value Measurement. The Group use derivative financial instruments primarily to manage currency risk on its US Dollar, Euro, Chinese Renminbi, Japanese Yen, Hong Kong Dollar and Australian Dollar denominated receivables and payables from its subsidiaries, in addition to managing transactional exposures relating to customer contracts denominated in foreign currencies. It is the Group's policy not to undertake any speculative currency transactions.

13 Net debt

Net debt is defined as current and non-current borrowings less cash and cash equivalents, including hire purchase agreements, but excluding any impact of IFRS 16 lease liabilities. Management believe this definition is the best for monitoring the indebtedness of the Group and is consistent with the treatment in the Group's banking agreements.

Net debt at 31 December 2020 was £50.4m (FY 2019/20: £73.4m). As reported to the Board on a monthly basis, there is sufficient headroom in our banking facilities. At 31 December 2020 the Group held total facilities of £215.6m (FY 2019/20: £216.6m), which included committed facilities of £200.0m (FY 2019/20: £200.0m). The committed facility consists of a £200.0m multi-currency Revolving Credit Facility ('RCF') which provides the Group with committed funding through to July 2023. In addition, the Group has uncommitted facilities including overdrafts of £15.6m (FY 2019/20: £16.6m), which mature throughout this and the next financial year, and are renewable annually.

Non-current bank loans comprise committed facilities of £104.6m (FY 2019/20: £128.7m), net of direct issue costs, which were drawn primarily to fund acquisitions and general corporate purposes. These are denominated in Pounds Sterling and have variable rates of interest dependent upon the Group's adjusted leverage, which range from 1.4% to 2.2% (FY 2019/20: 1.4% to 2.2%) above LIBOR. Adjusted leverage is defined in the Group's banking documents as being the ratio of total net debt to adjusted EBITDA for the last twelve months. Adjusted EBITDA is further defined as being operating profit before interest, tax, depreciation and amortisation, adjusted for any one-off, non-recurring, exceptional costs and acquisitions or disposals during the relevant period. At the reporting date, the Group has an adjusted leverage of 1.9x (FY 2019/20: 2.3x) which gives rise to an applicable interest rate of LIBOR plus 1.8% (FY 2019/20: LIBOR plus 2.0%). The Group has banking facilities for its UK companies which together have a net overdraft limit, but the balances are presented on a gross basis in the condensed interim financial statements.

The Adjusted Leverage (defined as net debt over underlying EBITDA) covenant is 3.75x for the test dates of 31 December 2020 and 30 June 2021, returning to 3.0x for the next test date 31 December 2021 as well as all future test dates.  The only other financial covenant is Interest Cover (defined as underlying EBITDA for the last twelve months over net finance costs), which remains at 4.0x for all test dates.

14 Issue of share capital

On 11 November 2020, Ricardo plc issued 8,812,030 new ordinary shares of 25 pence, representing 16.5% of the existing issued ordinary share capital of the Company. They were issued at a price of 333 pence per share, being a discount of 9.76 per cent to the closing mid-price on 10 November 2020, raising gross proceeds of £29.3m. Associated transaction costs of £1.1m were incurred, including £0.7m brokerage fees and £0.4m of other directly attributable professional fees. The issue was carried out in order to reduce leverage, strengthen the balance sheet and provide adequate working capital for the business.

The issue took place in the three parts; "Subscription shares" subscribed by certain directors of the company for cash consideration; "Placing shares" placed via Liberum Capital Limited and Investec Bank plc, to certain existing shareholders and other institutional investors, in exchange for preference shares in Project Star Funding Limited; and "Retail shares" offered by the Company for cash consideration.

The number of shares issued in each category, and the associated proceeds, are as follows:

Subscription shares

The subscription shares were subscribed by the following directors:

The proceeds of £0.1m resulted in share capital of £nil and a share premium balance of £0.1m. There were no fees allocated to this element of the issue.

Placing shares

The placing shares were issued via a 'cashbox' structure, whereby Ricardo plc shares were issued in exchange for preference shares in Project Star Funding Limited, a special purpose vehicle. Section 565 of the Companies Act 2006 allows new shares to be issued for non-cash consideration under exception from the pre-emption requirements of section 561 of the Companies Act 2006.

Project Star Funding Limited ('PSFL') was incorporated in Jersey on 4 September 2020. Prior to the placing, Ricardo plc held 89% of the ordinary share capital of PSFL, with the other 11% held by Liberum Capital Limited.

On 11 November 2020 PSFL issued preference share capital of £26.6m (with no par value) to Liberum Capital Limited. Liberum Capital Limited and Investec Bank plc placed shares to certain existing shareholders and other institutional investors, the proceeds of which were used to settle the consideration for the preference share capital. Ricardo plc allotted new ordinary shares in consideration for the transfer of all of Liberum Capital Limited's preference and ordinary shares in PFSL. The issue created an additional £2.0m of share capital. The premium on issuance of these shares was £23.5m, net of directly attributable costs of £1.0m. Since the premium arose from an issuance the purpose of which was to acquire more than 90% of the equity of PSFL, under s612 of the Companies Act 2006 the associated premium is therefore accounted for as a merger reserve.

On the 18 November, PSFL redeemed its preference shares, and PSFL was dissolved on 24 November 2020.

Retail shares

In order to provide retail and other interested investors the opportunity to participate in the offer, shares were made available via PrimaryBid.com, a platform that facilitates discounted equity offerings for publicly listed companies. Due to its size, the issue fell within the exemption set out in section 86(1)(e) and 86(4) of the Financial Services and Markets Act 2000, as amended, and the company was not required to publish a prospectus.

The £2.6m proceeds (net of directly attributable fees of £0.1m) resulted in additional share capital of £0.2m and a share premium balance of £2.5m.

Treatment of proceeds

The total net proceeds were accounted for as follows:

15 Contingent liabilities

In the ordinary course of business, the Group has £12.6m (30 June 2020: £9.4m) of possible obligations for bonds, guarantees and counter-indemnities placed with our banking and other financial institutions, primarily relating to performance under contracts with customers. These possible obligations are contingent on the outcome of uncertain future events which are considered unlikely to occur. The Group is also involved in commercial disputes and litigation with some customers, which is also in the normal course of business. Whilst the result of such disputes cannot be predicted with certainty, the ultimate resolution of these disputes is not expected to have a material effect on the Group's financial position or results.

In July 2013, a guarantee was provided to the Ricardo Group Pension Fund ('RGPF') of £2.8m in respect of certain contingent liabilities that may arise, which have been secured on specific land and buildings. The outcome of this matter is not expected to give rise to any material cost to the Group. In October 2018, a further guarantee was provided to the RGPF for an amount that shall not exceed the employer's liability were a debt to arise under Section 75 of the Pensions Act 1995. The guarantee will terminate on 5 April 2023. The outcome of this matter is not expected to give rise to any material cost to the Group on the basis that the Group continues as a going concern.

16 Principal risks and uncertainties

The Board regularly reviews its principal risks and uncertainties, including those relating to COVID-19 and the UK's new trade deal with the EU. To ensure our risk process drives continuous improvement across the business, we monitor the ongoing status and progress of key action plans against each risk on a half-yearly basis. Risk is a key consideration of the Board in all strategic decisions. In the most recent risk review cycle, risks were reviewed which relate to customers and markets; contracts; people; technology; compliance with laws and regulations; the defined benefit pension scheme; financing; and cyber risk, and these included the continued consideration of the potential impact of COVID-19 and the UK's new trade deal with the EU. The approach to mitigation of these principal risks is discussed on pages 37 to 39 of the Group's Annual Report & Accounts 2019/20, and the Directors have concluded that the disclosure remains appropriate. These principal risks and uncertainties should be read in conjunction with the Trading Summary and Operating Segments Review for the six months ended 31 December 2020 included within this Interim Report.

17 Events after the reporting date

Subsequent to the period end, on 18 January 2021, DTC South was reclassified to property, plant and equipment, and it is no longer being classified as held for sale. Management decided to retain the use of the DTC South building as offers received were lower than expected. The property is continuing to be marketed for sale, but management no longer considers a sale within the next twelve months to be highly probable.

At the point at which the property was reclassified to property, plant and equipment, its recoverable amount was assessed. Its recoverable amount was deemed to be £3.3m, being the property's fair value, less costs to dispose. This recoverable amount is lower than the carrying amount at the point which the property was designated as held for sale, after adjustments for subsequent depreciation.