Hornets chief's questions and answers give inside track on financial turmoil

10:30am Friday 1st January 2010

By Anthony Matthews

Following the dramatic events of Watford Leisure’s annual meeting, the ensuing spectre of administration hanging over the Hornets and Lord Ashcroft’s package to stave off that threat, chief executive Julian Winter explains how a traumatic period in the club’s history unfolded and what the future now holds at Vicarage Road.

Can you explain what happened to the financial position of the club over the past few weeks and where we are now?

Winter: “For me, and all of the board and staff at the club, the past few months have been very difficult. On the one hand we have had a very positive season so far on the field but behind the scenes the club has continued to have the well documented cash flow problems. During 2009 the board, led by chairman Jimmy Russo, needed short term cash injections to stay afloat and ultimately this money came from player trading and loans from Valley Grown Salads (VGS). By December VGS had loaned £4.88m to the club and had securitised their loans against the stadium and made the loan capable of being called in “on demand”.

“As we know the VGS representatives on the board resigned at the start of our annual meeting (AGM) on December 15 and promptly demanded repayment of their loan by 1pm on Thursday, December 17 2009. The company was never going to be in a position to repay the loan in such a short space of time and so we faced the real prospect of administration. Fortunately, Lord Ashcroft intervened, through Fordwat Limited, to pay VGS their loans in full to stop Watford FC being placed into administration and the team being docked ten points.

“Moving forward Fordwat have offered to underwrite a rights issue during the early part of 2010 to raise some £7.5m for the company. It is intended that this will repay Fordwat their loan, provide some working capital for the business and also afford the board the breathing space to continue to implement our long term business plan, ‘The Watford Way’, and progress the sourcing of a longer term investment and/or ownership for the club.”

Winter: “To put it bluntly, we were hours away. VGS had filed their notice of intention to appoint an administrator at the High Court late on Thursday, December 17. If the matter had not been settled by 4pm on Monday, December 21 VGS had the power to appoint an administrator.”

Winter: “To start with I think it is right to state that I, along with the rest of the remaining directors, was very surprised by the actions of VGS at the AGM. I have seen a number of interviews subsequently in which Jimmy has given his reasons for resigning. My focus, and its one I know the other directors share, is doing what is right for Watford Football Club. I personally found it difficult to see how resigning in such a dramatic way and the calling in of the loans squares with doing what is best for the club.

“The days which followed the AGM were quite simply the toughest that I have faced at the club. We did not have £4.88m available to repay VGS within their deadline and so we needed to find an appropriate solution and quickly. After the AGM, a proposal from Fordwat Limited to underwrite a rights issue had been presented to the board and the non-executive directors and I agreed that this offered the best solution at the time for both repaying VGS and also injecting the much needed working capital into the business. Following the AGM we asked VGS not to put the company into administration, informed them of Fordwat Limited’s offer to underwrite a rights issue and pointed out that if we were given the time to implement this they would receive their money back upon the completion of the rights issue.

“That evening VGS made a very public rejection of our offer so we had until 4pm on the following Monday to find an appropriate solution and in the end I must thank Lord Ashcroft for saving our club from administration. Administration would have been catastrophic for the team, the staff, our Community Trust, our relationship with the Harefield Academy, our local suppliers and dedicated fans “We made a further proposal to VGS on the Friday afternoon, informing them that Fordwat Limited would repay the loans in full over a two-week timeframe. I was slightly taken back, albeit delighted to see that Jimmy Russo again went public to state he was accepting the offer and that he never wanted to put the club into administration. The reality though was that as we entered the Monday, administration was still a real threat.”

Winter: “Thankfully, we will never know if VGS actually would have pressed the button. What I will say is that despite all the public announcements stating their desire not to put Watford into administration, that their actions via their lawyer signalled something different.”

Winter: “A number of words spring to mind including, anger, frustration, draining but ultimately I found the whole process so unnecessary. Those few days following the AGM were very tough and my responsibility was for the club and the staff who work so hard for Watford FC. Being in the office over those days with the real threat of administration hanging over us was challenging for all.

“I must pay tribute to all the staff for the professional way in which they conducted themselves, not only in the last few weeks but throughout what has been an incredibly hard year. I would like to thank all the staff and my fellow board members, including our interim chairman Graham Taylor, for their dedication to Watford Football Club. I would also like to thank our manager Malky Mackay for the way in which he handled the situation in the glare of a huge amount of media attention along with his staff and players who have never waivered from the task on the field.

“I would also like to mention the steadfast support of our professional advisors; Guy Thomas of our solicitors SA Law LLP, Paul McGoohan of Square1 Consulting and Rory Murphy of Strand Hanson. Finally, I would also like to praise Barclays for their ongoing support during this challenging time.”

Prior to the AGM, the company’s cash flow problems were well known. What was being done to find a solution to these and what will happen now?

Winter: “I think it is important to inform all of the club’s supporters of what was happening behind the scenes in the run up to the AGM. Most of 2009 has been spent cleaning up issues of the past, but despite significant progress, we were always going to need help from the shareholders to help bridge the inherited gap in the club’s funding. In fact the £8.5m requirement stated in January only shifted to £6.5m in September 2009 based on the removal of the capital project in the South West corner and an over achievement trading on players in the summer window. The inherited position has always been clearly stated.

“More recently the board, which was chaired by Jimmy Russo, had tasked the independent directors to consider two proposals. As I outlined earlier, one was put forward by Fordwat, proposing a rights issue. This followed an offer for the club’s assets from VGS. The independent directors believe that the Fordwat proposal offers the best way forward for the company, its shareholders and the football club.

“VGS rejected the Fordwat proposal to inject the working capital via a combination of a rights issue and loan conversion with an independent board to take the club forward and subsequently resigned at the AGM and called in their loan.

“Following the events of the past two weeks, Fordwat have now in effect taken over the VGS loan. They have also indicated their ongoing support, which allows us to carry on operating in the short term until the completion of the rights issue. A fully underwritten rights issue allows us to move forward with some certainty for the remainder of the season.

“We now have a roadmap in place that seeks to leave the club virtually debt free come the end of the season. Many other clubs in both the Championship and Premier League would wish to be in that position.”

Winter: “Firstly it is important to note that we are due to receive further monies from previous sales this January which will help our short term financial position. Our transfer policy is based on making Watford competitive within the Championship, the events of the past few weeks have not changed this. Moving into this window, we will treat any offer that may arrive for a player on its merits. The level of working capital we have to raise is not great, so we do not feel any pressure to sell. If we do, it will be because we have received an appropriate offer for a player and our manager is content to let them leave, just as we have in the last two windows of last January and the summer.”

What of Fordwat’s long term position? Will they continue to fund the company moving forward?

Winter: “Lord Ashcroft has made it quite clear that while he will assist us now in getting through this tough period, as indeed he has done twice in the past, he does not see himself as the long term solution for the club. Moving into 2010, Fordwat wish to see a strong and independent board running the company. They are not seeking a place on the board, nor will Graham Simpson. The remaining directors, Graham Taylor, David Fransen, Stuart Timperley and myself, are not shareholders in the company and with their independence will continue to do what we feel is right for Watford – not for ourselves.

“Fordwat, it has to be said, have always been consistent in its approach to Watford FC. It has been supportive in the past and has now once again supported the club because we have prepared a sensible business plan to take the club forward and now, further to the AGM have an independent board to implement that plan.

“We will continue to implement ‘The Watford Way’ business plan that was drawn up at the start of 2009, while we will continue to seek new external investment for the club.

“The board will be meeting in early January to agree the on-going rules and responsibilities and to commence the further delivery of the business plan.”

Winter: “I would like to offer my thanks to all our supporters who come week in, week out to support the club. 2009 has been a tough year in so many ways but our support has been with us, through the ups and the downs. Rest assured that the board, with people such as Graham Taylor on side, will only do what we believe is right for Watford Football Club.

“So please continue to get behind Malky, his staff and the team and I look forward to seeing all our fans at Stamford Bridge on Sunday and welcoming as many people back to Vicarage Road as possible in 2010.

“It was great to see a sold out Vicarage Road on Boxing Day versus Nottingham Forest and also fantastic to see such a large travelling support at Peterborough United and then Bristol City. The team have responded wonderfully throughout a challenging period and I hope to see them progress further with the support of the board, staff and fans really getting behind them.

“Watford FC has so many good things going for it – a unique Academy in partnership with Harefield School, an award winning Community Trust established against the club’s long term legacy as a real family and community club, an association with a world class entertainer in Elton John who is prepared to support the club to raise funds for players, a clear forward business strategy and the possibility of being a debt free football club that will be well governed to deliver a financially stable, viable and vibrant football club going forward.