A new but expected health warning has been issued about Watford’s “ability to continue as a going concern” by the auditors of their parent company’s annual accounts.

The comment has been made by Chantrey Vellacott DFK in their independent auditor’s report to the shareholders of Watford Leisure Plc and published in the full accounts today.

It comes almost 12 months after the London-based auditors issued a similarly-worded statement after the company’s accounts for the year ended June 30, 2008, showed its current liabilities exceeded its current assets at that stage by £13.125m, despite making a net profit of £426,000.

Although that profit has been replaced by a loss of £1.987m for the year ended June 30, 2009, Watford have reduced the gap between their current liabilities and assets by £5.083m to £8.042m.

Despite this reduction and having “considered the adequacy of the disclosures” made in a note to the financial statements, Chantrey Vellacott state: “The validity of the going concern basis is dependent on the assumptions underlying the financial projections being accurate, the financial projections being substantially realised and the group’s ability to raise sufficient new capital to the extent that may be required.

“These conditions indicate the existence of a material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.”

Such a remark is not surprising after chairman Jimmy Russo revealed last week that the Hornets need to fill a projected shortfall of £6.5m by the end of June next year, and this figure is referred to the relevant note to the financial statements explaining why they have been prepared on a “going concern” basis.

It reads: “The directors acknowledge that the football club, similar to many other Championship clubs, will be likely to continue making operating losses. Therefore the group and company remain reliant upon their ability to raise finance through other means.

“The support of the group’s directors and shareholders has been evident in the past and continues to be of significant importance. During the year to 30 June 2009 loans totalling £3.355m were made available by directors of the group, and since the year end a further £2.415m has been made available from the same source. The loans are repayable within the next two years, however directors have indicated that they may be extended thereafter, if necessary. In addition, the bank overdraft facility of £1m continues to be made available by the bank. The group’s bankers have indicated that, so long as the group continues to operate within its financial plan, regular renewal of the facility will be available.

“The group has prepared detailed cash flow forecasts for the period to 30 June 2014. Those forecasts show that the group and company do not currently have facilities in place to fund all of the projected cash requirements over the next 12-month period. The projected shortfall to 30 June 2010 is £6.5m.

“However, the directors are confident that sufficient additional funds will be sourced as and when they are required and given the significant variable of player trading and the high cost of secured borrowings which may not be required, the group has not sought to secure guaranteed finance to fund its cash flow projections in full for the forthcoming 12 months.

“The directors consider that additional shareholder funding will be necessary and discussions are ongoing to secure this. The directors will continue to manage the group’s resources and seek to increase income and control costs at all times. The summer transfer window saw significant income generated through player sales and the group acknowledges that player trading will continue to be a key strategy year on year. The group has also invested significantly in its Academy and recruitment departments.

“The directors are confident that the going concern basis is appropriate, and believe that shareholding funding will be forthcoming in the period required.”

For more from the accounts see Friday's printed version of the Watford Observer.