A letter from the Chairman of Watford Football Club

12:12pm Monday 4th February 2008

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HAVING read the letters in last week's Watford Observer (January 25), I thought it would be appropriate to reply in person and to give Watford fans the opportunity to read my response and judge for themselves as to where we are going as a Club.

I was surprised and saddened to read so much apparent despondency and lack of understanding as to the Club's present situation. There are some valid points made, but the majority of what has been written is based on hearsay and speculation rather than facts. The wrong picture is being painted and I cannot allow this to continue without giving my side of the story. So I propose to deal with the main issues.

Club's Financial Position

It seems from last week's letters that there is a general concern about the Club's finances, let me reiterate once and for all this could not be further from the truth. There is simply no comparison to the state of the Club I took over in 2002 and the position we find ourselves in now.

For an in-depth analysis of our financial position past, present and future, please refer to my Chairman's letter in our 2007 Annual Report and Accounts, which is included later in this piece. Alternatively, if you require a hard copy of my letter please contact us at the Club on 01923 496000 and we will forward it to you by post.

In simple terms you will see over the last six years the Club has lost £21.7m, and this includes the £8m profit that we made last year. It also shows quite clearly that the equity raised over the same period equates to £21.6m. Please take time to read and digest it.

We are in real terms a million miles away from those dark days of 2002. I will never forget the huge responsibility that weighed on my shoulders becoming Chairman of a Club that in my first year I already knew was going to lose £10m. It was a very sobering and frightening scenario.

My Personal Circumstances and Finances

I have never really discussed my personal situation and finances in public before but I will now as I think it is relevant. I've invested in shares in Watford to the tune of £4.3m plus I also loaned the Club a further £2m. Currently we are valued, according to our AIM listing, at £9.44m (shares 21.5p). This puts my current equity valuation at approximately just under £1.6m, so at present on paper I have lost £2.7m. I am pleased to say my children are still speaking to me.

On top of this, because of my obsession with turning this Club around over the last five years, I have completely neglected my other businesses. Simpson Travel has virtually stood still and suffered from my lack of day-to-day involvement. My other business based abroad has stagnated and I've had to put it on hold for the last five years whilst I put all my energy into securing a safe and long-term future for Watford Football Club. Had I not volunteered to be Chairman in 2002 and had stayed in the private sector; I would probably be far better off than I am today.

The bonuses received by myself, Mark and Aidy were paid in relation to our promotion season based on success and not for relegation. These bonuses were agreed at least one year prior to promotion being achieved and were unanimously ratified by the Board.

Let me make it clear, I have no regrets about taking on this job and I certainly don't feel sorry for myself. This is not a sob story. It continues to be an honour and a privilege to be Chairman of the Club I have supported since 1959.

The Club's staff, commercial aspirations and 2010 vision

Mr Baldwin (Watford Observer, 18/1/08) questions our 2010 vision for the Club. I have on numerous occasions clarified this. We have a robust and self-sustaining three-year business plan in place. In our 2010 vision we are working towards building a very special Club both on and off the pitch that has a united leadership team, with a shared vision, a common language, and a determination to become a top 10 Premier League Club.

Regarding staff comings and goings, this is just one of many aspects of running any successful business. Sometimes it can be very difficult to tell somebody that they cannot remain at the Club, but it is something that if you are a leader you have to be prepared to do.

We have at the Club a very dedicated team of talented individuals who all understand our vision for the Club. We are all working together to achieve our goals.

At present my wife and I host small groups of staff over for dinner at our flat in Watford so I can meet and talk to everyone individually to gauge their opinions on how we are moving forward.

One of the points that particularly disappoints me in the letters page from last week is from Steve Johnson who wrote "the Club needs people in it who care passionately, who have history with it, but these people have, one by one, been removed until we have people running our Club that don't care about it only in advancing their own careers and futures". I think that sadly that ignores our loyal staff, so let me inform you of the following dedicated long-serving staff, all who are playing a crucial role in taking the Club forward: Paddy Flavin, 8 years, Alex Ashby, 9 years, Rob Clarke, 12 years, Gaby Dryan, 7 years, Katie Wareham, 12 years, Michael Jones, 13 years, Ann Watt, 13 years, Michelle Ives, 10 years, Tom O'Connor, 10 years, Rob Smith, 12 years, Jane Philips, 10 years, Jo Simmons, 10 years, Gill Winfield, 10 years, Linnette Croucher, 21 years.

And there are many more staff who care passionately about this football club.

Our commercial aspirations have never changed and will not while I remain Chairman, we have a very focussed and innovative team who are always striving to improve revenue. Mr Whittall (Watford Observer, 18/1/08), I take on board your points. I think your idea of local football teams having presentation nights is excellent. With regard to conferences and the Olympics we have of course explored these in some depth.

The Club's Community Sports & Education Trust has made significant strides in the last couple of years developing meaningful partnerships with local, regional and national agencies to develop a range of projects that have an impact on local people from all areas of society. Myself and Mark Ashton have been instrumental in creating the Community Sports & Education Trust as a registered charity that is able to work so progressively in the local community. Mark had the foresight to change the structure of the community department to allow it to flourish and also took the strategic decision to recruit a Community Director, Julian Winter, to place the work of the Community Sports & Education Trust at the heart of the football club for the long term. Perhaps the Watford Observer and the Club need to be more proactive in getting the good news stories out to its readers and supporters to promote the very positive work that is being undertaken and how a real commitment to the community has been made.

The Russo Brothers

With regard to Jimmy and Vince Russo, I have always believed that it is in everybody's interest to keep a dignified silence as to their removal from the Watford board. I am sorry to disappoint you all but I am not prepared to change my stance and I will not be the person that instigates airing this scenario in public. Once again I will take this opportunity to publicly thank them for their invaluable support to the Club.

Aidy Boothroyd and Marlon King

There has been a great deal of criticism levelled at Aidy in the last few weeks. Let's review the situation. We have a young manager who came to the Club when we had the distinct possibility of being relegated and in his first full season took us to "the promised land". He then had to deal with what many people recognised was a football club that perhaps got to the Premiership too early. Yet he did it with great dignity, winning the respect of not only his fellow managers but the media in general. Today, we find ourselves third in the league fending off the critics and cynics and two points from the top spot which we have held for four months. At Sheffield United earlier this week I was encouraged by comments from their directors who congratulated me on our current league position and general high standing in the Championship. In just a few short seasons we have become the Championship club of choice for many players, something I am personally very proud of. Whilst as a fan I understand everyone's frustrations, let's remember where we have come from.

As for Marlon King I have spoken at some length about the issue on local radio and through our website, but put simply, he wanted to go and we just couldn't stand in his way, no matter how much we wanted to.

Watford Observer

I thought last March that we had finally buried the hatchet. We had a meeting between myself, Mark Ashton, Peter Wilson-Leary and Frazer Ansell, where I apologised personally to them both for my behaviour when they visited the Club after the Elton John "ticket fiasco". Peter and Frazer graciously accepted my apology and we listened to each others points of view. We all agreed to wipe the slate clean and to move forward and I was delighted to invite both to join us at Villa Park for our FA Cup semi-final against Man United. Frazer attended with his son and things seemed to settle down.

The Observer has the right to voice its concerns over any matter relating to the Club as long as the Club has sensible notice periods in order to give a considered response, to what are very important matters. All went well until that fateful day in May when a letter was published from a former employee, which we felt publicly questioned the integrity and honesty of the Watford PLC Board. Sadly we had to threaten legal action. Eventually we were given a front page apology followed by a more in-depth statement at the back of the newspaper. A small donation was made to charity and our costs were paid. Despite this, after the AGM, it was put on the paper's website that I had received a £1m bonus instead of the correct £500k which was later rectified but had prompted several negative comments to appear, one referring to me as a "crook".

So where are we now? Well I am still keen to let bygones be bygones and move forward in a positive way, it is the Watford supporters that need to feel that the relationship between the two sides is professional. So Peter and Frazer, let's have another cup of tea, let's start again and let's get it right this time so both sides can move forward in a positive way. This is my olive branch to the Watford Observer, so please Peter or Frazer pick up the phone, you know my mobile number, let's sort this out.

My position as Chairman

Anybody who didn't know any better could be forgiven for thinking that this is an unhappy ship. Words used in last week's letters refer to integrity, respect, honesty and decency, these are words I hold in very high esteem and all my life have used them as a moral back-drop to my own aspirations in my career.

If after all these years of passion, commitment and determination we at Watford fail then I, as the leader, will take responsibility. I have another life waiting in the wings and one day I will be quite happy to return to it.

In the meantime, we have a job to do. We have a stadium to build, a team to promote to the Premiership. We have stepped back from the precipice in the last five years, and we are getting back on our feet.

Our focus is with Aidy and his team; it's with Mark and his staff. My sole focus as Chairman is to ensure the future of this Club gets brighter, season after season. Clearly I'm reliant on all of you and your support, real Watford fans who want the same as me, because otherwise none of this will ever be possible, for me, or for anyone else who might want to take on this fantastic job.

That's it. This is all I feel I need to say. There's a job to be done, let's get on with it.

Best as ever,

Graham

Chairman's Letter (Watford Leisure PLC 2007 Annual Report)

In addition to my official and therefore more formal Chairman's Statement covering the year to 30 June 2007, the Board and I wanted to explain in more detail what has happened financially to the Club over the five year period since my appointment as Chairman of Watford Leisure PLC ("the Company") on 25 September 2002. We believe that having a broader understanding of the Company's finances is both necessary and in-keeping with our stated approach of being as communicative as possible.

When I moved up from director of the Watford AFC Limited ("the Club") to Chairman of the Company our financial position was without exaggeration parlous. In July 2002 we had sold and leased back the stadium at Vicarage Road and the day before my appointment we had announced in an update to the Stock Exchange that we needed to raise at least £9.5 million to avoid administration. I and other members of the Club and Company boards had given verbal commitments to take equity in a future fundraising and then on 26 September 2002 the majority of professional players and more highly paid members of staff agreed to a 12 per cent pay deferral.

In November 2002 I subscribed along with my fellow directors sufficient funds to allow the fundraising to proceed. In December 2002, at the suggestion of our advisers, I was joined on the Board by Andy Wilson who, with his invaluable financial experience, has since contributed significantly to the Club.

What became apparent through 2003 was that as a result of ongoing problems, not least the settlement we reached with Gianluca Vialli in July of that year, we needed to raise further funds to maintain the solvency of the Club. As a consequence in March 2004 we raised a further £5.25m by way of a placing of equity and convertible loan stock, to which I and Lord Ashcroft subscribed further funds and we welcomed Jimmy and Vince Russo as substantial shareholders and directors of the Company.

In June 2004 we were joined by Mark Ashton who became the CEO of the Club. As many of you will be aware I have regarded this appointment as significant as that of Aidy Boothroyd for the future success of the Club. Mark's appointment was followed in August 2004 by the re-purchase of Vicarage Road for £7.6m.

As a Board we set about re-building the Club and the business model from top to bottom in order to achieve the objectives that I set out in my Chairman's report in 2002/3. These objectives were:

1) Achieve promotion to the Premier League.

2) Repay wages owed to players and other staff.

3) Return value to our shareholders.

4) Buy back the freehold of the Vicarage Road stadium.

5) Develop a new East Stand.

At this point I would like to direct your attention to the table below. This sets out the key figures over my five year tenure as Chairman and the results I reported for the year ended June 2002 (a period when I was not Chairman, albeit a director of the Club).

2001/2: turnover, £16.8m; operating (loss)/profit before player trading, (£4.6m); (loss)/profit after tax (£7.2m); net debt, (£1.4m); equity raised*, £5.5m.

2002/3: turnover, £8.7m; operating (loss)/profit before player trading, (£7.6m); (loss)/profit after tax, (£10.3m); net debt, (£6.9m); equity raised*, £4.8m.

2003/4: turnover, £8.5m; operating (loss)/profit before player trading, (£3.9m); (loss)/profit after tax, (£4.5m); net debt, (£7.3m); equity raised*, £4.2m.

2004/5: turnover, £8.5m; operating (loss)/profit before player trading, (£2.5m); (loss)/profit after tax, (£2.1m); net debt, (£8.5m); equity raised*, £1.9m.

2005/6: turnover, £8.5m; operating (loss)/profit before player trading, (£6.6m); (loss)/profit after tax, (£5.6m); net debt, (£5.7m); equity raised*, £5.2m.

2006/7: turnover, £29.9m; operating (loss)/profit before player trading, £3.1m; (loss)/profit after tax, £8.0; net debt, (£5.6m); equity raised*, £0m.

Cumulative (loss)/profit after tax total, (21.7m).

Cumulative equity raised, £21.6m.

*excluding debt waiver

What is starkly set out in this table is that in the five years of my tenure as Chairman we have operated for four of them on a turnover that is significantly out of line with the cost base and that is insufficient to sustain the Club in the upper reaches of the Championship let alone the Premiership. As you can see during the six years covered, cash raised from shareholders effectively funded the losses of the Club. In addition the increase in net debt to a peak of £8.5m roughly corresponded to our major capital investment during that period - the re-purchase of Vicarage Road.

However we began to turn a corner in 2004 with the operating loss cut to £2.5m. Player salaries were pared to the bone and it is of great credit to Ray Lewington that he achieved the success he did in the Cups on such a constrained basis. As a Board we kept faith with the players and ensured that the proceeds of the 2004/5 cup run were used to payback in full all of the salary deferrals entered into in 2002.

Because we could see our way to eliminating the trading loss the Board felt comfortable investing in players when Aidy Boothroyd arrived. Nevertheless both Marlon King and Darius Henderson would not have joined us without further support from me and the Russos in the form of increased shareholder loans.

At this stage I would like to re-iterate the gratitude we, as a Club, have to both Jimmy and Vince Russo for their contribution to Watford. Our disagreements have been the subject of much media comment but I have no hesitation in placing on record the appreciation I, as Chairman, had for their whole-hearted support for the Club.

Hence we arrived at the start of the 2005/6 season in good shape - knowing that we still needed to eliminate the trading loss but also convinced that we knew how to do it and that given the confidence of Aidy Boothroyd we had a shot at the Premiership. By mid year it was clear that promotion was a realistic possibility but the Company needed further investment to cover trading losses and to support its effort for promotion and that, if we were to prepare the Club for the Premiership, significant investment was needed on the support side. Hence in 2005/6 the Board agreed to fund these areas. This was a calculated decision backed up by the equity placement in March of that year of £6.2m to Lord Ashcroft, the Russos and myself which meant that we could afford' not to be promoted - if that is the right way of putting things. I should also say that the loss for 2005/6 contains a number of bonus payments to the football side that were triggered by our promotion. On a like for like basis ignoring exceptional costs our trading loss for the year actually decreased to £2m.

Some people would say we were lucky to be promoted but I would disagree with one exception; the luck we had was in finding Aidy, for which Mark Ashton must take a large amount of the credit. Given Aidy's abilities, once he was on board we were convinced that we would be promoted within three years. So when it came it wasn't lucky - just premature.

Promotion meant a considerable amount of money and as both shareholders and supporters I believe you are entitled to hear from me why and where we decided to spend our increased income. Firstly we invested in the playing squad both in the summer 2006 transfer window and in January 2007. The cost of the new players together with additional Premiership payroll costs of the existing players, greatly added to the Club's wage bill. However the extra TV and broadcast revenue was supplemented by increased ticketing and commercial revenue such that the Company generated an operating cash flow (after interest) of approximately £4.8m. The uses to which this money was put were as follows:

Net operating cash inflows after interest: £4.8m.

Purchase of players: (£5.5m).

Sale of players: £3.7m.

Capital expenditure: (£2.9m).

Loan repayments: (£2.4m).

Net cash outflow: (£2.3m).

The cost of new players in the financial year 2006/7 was £5.5m but it is worth noting that there are still £4.1m of deferred payments to be made in respect of players' acquisitions during the 2007/08 season (and £0.7m in 2008/09). On the income side the headline figure for the sale of Ashley Young in January 2007 was £9.65m but only £8.0m of this is guaranteed and of this only £3.5m was received in the 2006/07 season (with £3.5m received in August 2007 and £1m receivable in January 2008). The cash generated last year also gave the Board the opportunity to carry out the first phase of the re-development of the stadium at Vicarage Road (new concourse and catering kiosks in the Rookery Stand together with greatly enhanced corporate hospitality suites in the Rous Stand). In addition we have invested in a new point-of-sale catering system, an access control system, the stadium communication network, improved training facilities and in new administrative offices in Tolpits Lane (necessitated by the building work of the key worker housing units at the rear of the Rookery Stand). Lastly the Club took the opportunity to purchase the freehold of the Red Lion pub (opposite the stadium) in September 2006.

Whilst much was achieved on the back of the additional Premiership revenues, as a Board we decided that financially we needed to plan on a worst case scenario over a three year period following relegation from the Premiership. We didn't want to be relegated, we didn't set out to be relegated and believe me it hurt like hell when it happened but we always intended that if we were then Aidy would have the best chance of getting us back into the Premiership. The first parachute payment therefore has enabled us to retain most of the Premiership squad of players and although we lost Hameur Bouazza to Fulham in August 2007, he was replaced in the same month by Nathan Ellington. Going forward we intend to use the "Premiership" monies in the judicious investment in players and in continuing to invest where possible in the stadium and Club's infrastructure. We also intend to use some of the cash to repay shareholder loans. We do not preclude new shareholder loans but the Board feel that such debts were incurred on market terms and that therefore they should be paid back.

For shareholders the last five years has been a bumpy ride. In September 2002 with the Company days away from administration the recapitalisation effectively valued the Company at approximately £7.5m. Since then a further £11.3m has been invested by shareholders in the Company. The Company's current market capitalization is approximately £13m. I have therefore, not yet achieved my objective of returning value to our shareholders but believe that we are well placed to do so in the near future.

We are now a Company with a stable business base from which to challenge for the Premiership based on an expanded revenue basis. We own our own ground and have a squad of players with significant value. We have the capacity to grow on the Vicarage Road site and in the area surrounding it. Moreover we have the people to achieve our ambitions and it is of this I am most proud. Watford Leisure PLC and Watford Football Club have changed in the last five years not because of me or the Board but because the hard work and commitment of the people who work here both on and off the pitch and it is on that basis that I feel confident that we can achieve all of our strategic objectives.

Graham Simpson Chairman