Chairman’s Statement

I present the Interim Report to Shareholders for the six months ended 31 December 2008. The results are disappointing and clearly Watford Football Club (the Club) is facing major challenges both on and off the pitch this season.

Following the resignation of Graham Simpson at the E.G.M and Mark Ashton shortly afterwards, Andrew Wilson agreed to act as interim Chairman and he appointed Julian Winter as C.E.O. and stated that a new Board would be formed. My brother, Vince, and I were invited to join the Board in January together with Stuart Timperley and Graham Taylor. Subsequently, Andrew Wilson resigned as interim Chairman and as Director and I was appointed Executive Chairman with my brother as Executive Vice Chairman. We have additionally appointed David Fransen and Robin Williams to the Board. We now have a genuinely broad based Board with a wealth of experience in business and football matters and I am totally confident that with the dedication and commitment that we all have, we will be able to guide the Club through the difficult and challenging times ahead. We will have to take many hard decisions in our drive to return the Club to financial stability going forward and as a Board, we would seek your support and patience. As your Chairman I will not promise or undertake to do anything that I know I cannot deliver. I would seek to be open and approachable to all as it is important to me that everyone is aware of the progress we make and the decisions we take.

At this point I would wish to express my thanks to my brother for his invaluable support, to Julian Winter for his immense contribution in recognising the problems and acting positively to resolve them and to all the other Board members who have moved quickly and responded with determined intention to all of the challenges ahead of us.

The recent announcement that Sir Elton John is to return as a Life President is most welcome and satisfying. Sir Elton’s passion for the Club is infectious to all and his name is synonymous with Watford. This is really good news.

I now focus my attention on the Manager, Brendan Rogers. Brendan has settled in well at the Club and has recognised and accepted the challenges ahead both at Board level and on the pitch. Let there be no misunderstanding: Brendan, his team and his playing squad must and do enjoy the total support of us all and it is success on the playing field which is the ultimate benchmark for any football club. It is vital that we remain in the Championship League. Performances of late have moved us towards safety and I am hopeful that we will end the season in the top half of the league.

We now look to the future, not dwelling on the past. There are no more parachute payments next year and we therefore have to act now to reduce costs wherever practicable but we will always be mindful of the Manager’s needs.

One of the first decisions of the new Board was to review season ticket costs for 2009/2010. We felt that in these uncertain economic times, both business and individual fans are reining in their discretionary spend. We have enjoyed wonderful support since I first joined the Club some five years ago and I am keen that we help our fans who are the life blood of the Club by reducing season ticket prices between 16 – 20%. This is a real contribution by the Club and Company to our fan base, and this has been really well received by them.

Construction of the key worker housing units at the back of the Rookery (south) Stand continues apace and work will shortly commence on the northwest corner. The shell and core or “wrap around” in the southwest corner has now been completed. The plan initially had been to fit out the southwest corner in preparation for the start of the 2009/10 season. However, given financial constraints, we are forced to revisit the plan with a view to identifying more cost effective options. Currently we are looking at completing the fit out in stages with the changing rooms and other critical match day facilities at ground level taking priority. This would enable us to demolish the East Stand which I think everybody would agree is now not just an eyesore but also a drain on our limited resources in that we will need to spend money making it safe. I cannot at this stage give you any guarantees or timelines. What I will say though is that I, and my fellow Directors, will endeavour to keep you informed of developments on a regular basis and in time we will deliver a stadium which matches the Club’s aspirations and potential.

Financial Results

The accounts reflect the Club’s second year in the Championship following relegation from the Premier League in May 2007. Revenue for the first six months of the year was £11.0m (2007: £11.3m) and the loss on ordinary activities after taxation was £(2.3m) (2007: £3.8m profit).

Matchday revenue of £2.1m is £0.4m lower than last year primarily because of a fall in league match ticket income. The average attendance at Vicarage Road this season has been 14,416 against 16,870 last season. Media revenue of £7.7m is £0.4m higher than in 2007 as a result of additional distributions from the Football and Premier Leagues and additional revenue generated from the Carling Cup. Commercial revenue, however, is £0.3m lower than in 2007 due in the main to a fall in merchandising sales. Cost of sales increased by £0.5m which is due in part to an increased amortisation charge on capitalised player registrations and to the full provision for termination settlements for certain staff and players. Administrative expenses were unchanged at £3.3m. Going forward the administrative expenses will drop because of the current cost reduction programme. The profit on disposal of players’ registrations of £3.0m is comprised primarily of the profit arising on the sale of the registrations of Darius Henderson (to Sheffield United) and Danny Shittu (to Bolton Wanderers) in August 2008 together with appearance fees paid in relation to other players transferred in previous seasons. Cash absorbed by operations was £(0.3m) as against £(1.4m) last year. The Company spent £1.8m on acquiring player registrations which relates primarily to deferred payments on Nathan Ellington, Tamas Priskin, Leigh Bromby and Mat Sadler but received £6.6m on the disposal of player registrations (primarily Danny Shittu, Darius Henderson, Hameur Bouazza and a loan fee for Nathan Ellington). Bank debt of £7.1m was repaid during the period together with a loan of £1.5m which was securitised on the debt owed by Fulham FC in respect of the sale of Hameur Bouazza. New loans resulted in a cash inflow of £2.6m. Overall there was a net cash outflow of £(2.2m) against an inflow of £3.3m last year (which included the exceptional receipt of £4.6m from the premium received on the grant of a long lease of the land behind the south stand).

The Team and Football Management

We now have a new horizon and I am happy both in Brendan Rodgers the Manager and the Man himself. Brendan is his own man but he also realises that we need to work closely so that we can trade through this difficult period. One of Brendan’s concerns was that he wasn’t fully informed as to the position of the Club’s finances. I have been totally honest up front with him and he is fully aware of what Watford FC will look like going forward. Our performances have improved greatly and with this comes extra gate receipts. It is my feeling that if we are to be successful we must entertain the paying public. We cannot expect fans to turn up at Vicarage Road and pay good money and leave the stadium with a neck ache having watched 90 minutes of long ball football with players who had no interest in the Club only to take their money every week!

Full marks to the Manager: he has introduced young players such as Jack Cork from Chelsea and Gavin Hoyte from Arsenal as well as giving opportunities for Ross Jenkins to play regularly in the first team. Off the pitch he has been well supported by John Stephenson who clearly has the eye in recruiting players that will not cost a fortune and yet will deliver at our level. Players such as Mike Williamson and Don Cowie have made big impacts quickly. It would also be fair to say that these players bring excellent value to us and we will be looking for more players from the lower clubs as the days of big spending are over for now. I’m also pleased to say that we have been able to send several players out on loan and allow them to develop with other clubs with a possibility of returning back to us as better players. We have also had to settle with certain players as the Manager feels they do not have a future at the Club and therefore it is our policy that we allow players to seek their fortunes elsewhere, wishing them well on the way.

Clearly we appear to be playing our way out of trouble and have enjoyed some really good reviews in the press despite having suffered two late penalties in recent weeks. We have had a good Carling Cup run with wins against Darlington, Bristol Rovers, Swansea and West Ham, albeit we have also enjoyed some good fortune having been drawn at home on all occasions. As for the FA Cup, wins against Scunthorpe and Crystal Palace and the defeat by Chelsea showed me that Brendan was able to field a team to contain probably one of the strongest teams in the world for 70 odd minutes!

Outlook

I remain optimistic for the future and I have been really impressed by the administrative team. We have some great individuals who have great commitment and serve the Club really well. I would like to take this opportunity to say how pleased I am to have inherited Julian Winter (CEO). He has incredible knowledge of the Club and as an ex player understands the footballing side. He has tireless energy and is determined to help the Board turn round the future of the Club for which I sincerely thank him. The Harefield Academy is also a wonderful facility and with some fifty boys attending the school this should bear fruit over the next few years but we still have to be prudent on how we spend our money and therefore we will be looking for sponsorship in order to help us on our way to making the academy the best in the country. I must also give a special thanks to Rob Smith, who heads up the Community Sports & Education Trust who, along with Chris Norton, has achieved wonderful things and I look forward to seeing even more impressive results. It is important that as a football club we are also focused on the community because the community is the football club and therefore it is important to me that what we deliver is the best. Having taken the responsibility as Chairman of Watford Football Club, I can guarantee to every single shareholder and supporter that I will give it my best at all times. As you are all aware it is difficult to keep a 20,000 plus fan base happy but at no stage will my integrity be questioned and I will always be prepared to answer honestly any questions that any fan or shareholder would like to ask.

This indeed is a new chapter in the history of Watford Football Club and I urge you all to support us for next season and for the future.

Jimmy Russo

Chairman

March 31 2009