It would be improper of me to disclose full financial details concerning the affairs of Cambridge United Football Club Limited before reporting those details to the shareholders of the Company. That I will do at our AGM at the end of January. In the meantime I am releasing a general statement about the Club to everyone interested in its future.

A year ago I informed our staff, our shareholders and our fans that the year ended 31st May 2003 was likely to be the most difficult, in financial terms, in the Club's history. We entered the year on the back of an operating loss before finance and amortisation of players in 2001/02 of almost £180,000 and an overall net loss of £328,000.

I also stated that there were a number of exceptional items in that year which disguised the underlying losses of roughly £1.1 million. Our relegation at the end of 2001/02 to Division Three, coupled with both the collapse and eventual liquidation of ITV Digital and with the renegotiation of the contractual terms of FLPTV (the Football League's joint venture for member clubs' Internet sites), would have a negative impact on our annual revenues of at least £900,000.

Without major changes to the way we manage and run our business we would be facing losses of at least £2 million in the year 2002/03 and, if good fortune on the pitch did not come our way, the losses could be expected to be significantly higher than this. Furthermore we were also facing the virtual total erosion of the transfer market at Football League club level. We could no longer rely upon player transfers to bring our finances back into balance as we had successfully done in the past.

2002/03 did indeed turn out to be our most difficult year ever and we had a constant struggle to contain and reduce operating costs whilst at the same time trying to develop our playing squad to provide entertaining and successful football. The good news is that we managed to dramatically improve on the forecast I outlined a year ago, although the year ended 31st May 2003 still produced the biggest loss for any year in the company's history. The loss was, however, substantially lower than it might have been had the Board of Directors not continued with their strategy to drive further costs out of the business whilst, with the resulting limited resources, seek to further increase both gate receipts and commercial revenues.

The strategy paid dividends and, despite the poor overall financial performance, I am pleased to say that there were some real positives to take from 2002/03:

• League gate receipts were up 22% on the previous year as a result of the much more entertaining football being played at The Abbey and the increased effort we expended to attract higher numbers of spectators.
• FA Cup gate receipts were up 395% on the previous year as a result of a good cup run of six games which was only ended by a narrow away defeat in the third round replay at Millwall. A win at Millwall would have reduced our losses by almost two thirds which clearly demonstrates the fine line we walk between financial success and failure.
• Worthington League Cup gate receipts were up 188% on the previous year as a result of drawing Premiership club Sunderland at home in the second round of this competition.
• Whilst our LDV Vans Trophy receipts were down on the previous year when we reached the national final of this competition, we still progressed to the area final and receipts as a result were more than respectable and higher than the Directors had budgeted.
• Commercial revenues were up 14% on the previous year whilst commercial costs were only up 8%. The resulting commercial contribution increased by 17% on the previous year which itself was a record performance 50% up on the year before that. Given our limited scope for commercial business at The Abbey until the redevelopment of the Newmarket Road end of the stadium is completed, the commercial performance in 2002/03 has to be regarded as excellent.
• Playing costs for the year were reduced by 25% bringing this area of costs back down to pre 2000/01 levels.
• Other costs (match day, ground and administration) were down by 12% on 2001/02 levels.

In view of the forecast losses, we entered 2002/03 knowing that a new, substantial injection of cash into the business for working capital would be needed if the Club was to be able to complete its fixtures during the 2002/03 football season. A major source of loan capital was negotiated to provide the Company with up to £585,000 of short term working capital. The loan was due for repayment on 22nd December 2003.

We maintained our investment in what continues to be a highly successful youth policy. It is the success in this area that is already providing the majority of our first team playing squad. In the future it will become even more important that high quality professional footballers emerge from their apprenticeships to replace the first team players who may leave us at the end of their contracts for no fees. Last season our youth team enjoyed an excellent run in the FA Youth Cup which was ended by Leeds United after extra time in the fourth round in front of a large crowd at The Abbey. Many of us saw some bright, future Cambridge United prospects play against Leeds that evening. Our youth development staff and all of our youth team players can be rightly proud of their achievements.

2002/03 saw the emergence of two key players:

Dave Kitson has had a very short professional career to date yet he finished last season scoring 25 goals in all competitions - the second highest achievement in our league history. Had the transfer market not collapsed, we could have been looking at a player who was destined to break our all time transfer record.

Unfortunately the transfer market has collapsed and, despite significant interest from other professional clubs, we only received one offer for Dave's services in the summer of 2003. That offer, received from a fellow Third Division club, did not provide an attractive enough financial incentive for us to transfer his services.

Since it became public that we had a major loan to be repaid on 22nd December 2003 the enquiries for Dave increased dramatically but there were still only four firm offers. Dave had been unsettled by all the speculation and felt that the Club might stand in the way of his career progression. It was clear that we had to conclude a deal that was in the best interests of both Dave and the Club without any undue delay and a deal was concluded with Reading on Boxing Day.

The depressed nature of the transfer market suggested that we would be unlikely to receive comparable offers in the foreseeable future, and recognising that Dave is undoubtedly one of our prime financial assets, we had a responsibility to our shareholders and employees to consider not just the short term financial requirements of the Club, but also the Club's long term survival and development ambitions.

The exact terms of the deal are 'commercial in confidence' between the contracting parties but I can confirm that we have the potential in the contract to receive up to £360,000. As is usual in transfer deals, part of that sum is payable immediately and part is payable over time and based on specified events. Receipts of £250,000 can confidently be predicted. In addition we have a healthy sell on clause in the contract should Reading transfer Dave at any stage in the future for more than they had then paid to us.

I was also delighted that John Turner made his league debut near the end of the 2002/03 season, scoring on his first appearance for the senior squad. For a young footballer in only the first year of his three year apprenticeship this was a great achievement. This season we have already seen a lot more of this gifted young man and I am certain he has a tremendous professional career ahead of him.

We opened the new South Stand early in 2002/03 season and this made a big improvement to the Abbey Stadium. It has given us an insight into what the stadium could become as we seek to redevelop the other stands in phases over time. The Board concluded that the original, approved scheme for the Newmarket Road (North) end was neither financially viable nor would it generate the level of commercial contribution needed to fund the Club in the long term. We therefore embarked upon a complete redesign of this phase of our redevelopment. The revised scheme includes:

• A new 1,600 seat stand almost identical to the South Stand.
• A new Supporters Club.
• A day nursery/crèche.
• A health and fitness club.
• Fourteen residential apartments.
• A ninety-eight bedroom hotel.

This revised scheme requires a new planning consent and our planning application was submitted to Cambridge City Council at the end of October 2003. We have taken the opportunity to include changes to the Main (East) stand in the planning application. The changes include increasing the size of the stand to incorporate enlarged conferencing, banqueting and meeting facilities as well as new offices for the Company's staff and a number of executive hospitality boxes. Providing planning consent is granted before the end of March 2004, our aim is to commence the next stage of the redevelopment in the summer of 2004.

The summer of 2003 saw two major commercial agreements being concluded. Firstly I was pleased to confirm that Kershaws renewed their sponsorship of our away shirts for a further two seasons to the end of the 2004/05 season.

My sincere thanks go to Eddie Bird and Kershaws for their continued support, which now extends their sponsorship to four years, and for their belief in all that we are trying to achieve.

Secondly I was absolutely delighted that we were able to agree a new four year home shirt sponsorship agreement to the end of season 2006/07 with Capital Sports, a member of the Global Group of Companies. This sponsorship is the longest initial commercial agreement in our history and we are grateful to Johnny Hon, the Global Group Chairman and Chief Executive, for this tremendous commitment from him and his company.

The Board of Directors subsequently invited Johnny Hon to become a Director of the company in August 2003. Johnny is a graduate in medicine from Cambridge University, he is a highly successful businessman, he lives locally to Cambridge, he has a passion for football and he has many good contacts in the finance sector.

Dr Johnny Hon and Gary Harwood

Last year I stated that we could not continue in the way we had been operating in recent years. We had to implement a number of difficult changes. Many of those changes were implemented during the year resulting in losses significantly below the level we otherwise could have anticipated. The implementation was not without a fair degree of pain but it was absolutely necessary.

To help us continue to implement our strategies, and to ensure our stringent cost management policies are maintained, we appointed Peter Salvage to the position of Chief Executive Officer in February 2003 to take day to day responsibility of all non playing matters. He is already having a positive impact on our business. Despite all the difficult decisions we had to make in 2002/03, we must recognise that similar, difficult decisions will need to be made in the future. Downsizing in certain areas of the business will be necessary and the Board will not shy away from any decision that helps the Company survive in the short term and prosper in the long term.

As I mentioned earlier, to ensure we were able to complete our fixtures in 2002/03, we borrowed working capital, in the form of a loan, which had to be repaid on 22nd December 2003. I am pleased to confirm that the loan was repaid and I have previously issued a statement outlining how this was achieved. [article]

Each and every one of us played a key part in this achievement and we should all be very proud of what a united team can do. I can not stress enough how close we came to being in a very difficult, if not fatal, situation. We have gone a long way towards securing the foreseeable future but we must not make the mistake of assuming all of our troubles are over.

The Club continues to lose approximately £500,000 a year meaning we will need at least £750,000 working capital to survive until the redevelopment is completed - and that assumes planning consent is granted in the near future. This level of loss is based on average attendances of 4,200 per home game. Each 1,000 less than this average would mean the losses would increase by an additional £184,000 a year. Naturally the converse is true. If we can increase our home attendances above the 4,200 average then each 1,000 reduces our losses by £184,000 a year.

We have some, but not all, of the working capital in place (and the Kitson transfer proceeds are part of that) so we will need to continue to work hard on maximising income and minimising expenditure. We will have to continue to take difficult and sometimes unpopular decisions, but we will do so with one objective in mind - the long term survival of Cambridge United Football Club.

Looking forward, let me briefly comment on the 2003/04 season to date. Despite a less than acceptable home record so far this season, I continue to remain optimistic although I am sure my optimism might start diminishing fast if we do not improve our home record. Our away performances, on the other hand, have been tremendous and, as a result, we have not completely lost touch with the last play-off place although we are also perilously close to the second relegation spot. There are still a lot of points to play for both at home and away. Naturally I can not look into the crystal ball and tell you where we will end up but I can report that John, Dale and the squad know what we all expect.

Our youth team have already matched last year's achievement by again reaching the fourth round of the FA Youth Cup. Those of us who watched the third round tie at the Abbey, when we comfortably defeated Millwall's academy side, can not fail to have been impressed with both the overall performance and the individual skills on display. This was from a team without John Turner who was eligible to play but had pressing first team responsibilities to focus on.

Ricky Duncan, Dan Ashworth and Kit Carson are all to be congratulated for not only maintaining, but also improving, our successful youth policy. Let us hope they can exceed last year's record by beating Leicester City away and reach the fifth round of the cup.

We still have very difficult financial challenges to meet and I can not predict any easing of these challenges in the next couple of years until the next phase of our redevelopment is completed and is generating substantial new revenue streams for our business. All things being equal I am hopeful that, at a minimum, the Newmarket Road end redevelopment can be completed by the autumn of 2005. Providing this is achieved, and we continue to be diligent in managing our costs and developing new forms of commercial income, we can expect our overall financial performance to be broadly in balance from 2005/06 onwards.

I could not carry out my role as Chairman of Cambridge United without the support of many people and I would like to take this opportunity to thank all those people who have provided invaluable co-operation and support in what continues to be the most difficult period in this Club's history.

Firstly my thanks to our fans for supporting us through thick and thin. I speak with many of them on a regular basis and I am always overwhelmed by their support for most of what we try to do. Clearly we can not please all of our supporters all of the time but, in the main, the majority now understand the imperatives of running a football club such as ours and their support keeps me sane in the face of seemingly enormous challenges and obstacles to overcome. Similarly my thanks to those fans that have continued to support CFU and, by doing so, they have enabled CFU to help the Club meet the challenges that lie ahead.

Secondly my thanks once again go to our employees (management, players, coaching staff and all the other 'back room' staff) who continue to demonstrate their loyalty and commitment to this Club.

Thirdly my thanks go to all of our commercial sponsors for providing the much needed commercial revenue streams without which this Club would not be able to continue.

Fourthly my thanks to the whole Board of Directors because without their experience and support I would have sank without trace. We have a strong and vastly experienced Board of Directors and every Director has carried out his role with the utmost diligence and determination but, this year, I would particularly like to pay special thanks to:

• John Howard for all of the excellent work he has done on our redevelopment planning,
• Richard Summerfield for juggling an immense number of financial balls without dropping any one of them,
• Roger Hunt for generally keeping the minute, but very necessary, playing and regulatory matters from diverting my attention from the key strategic items I need to spend most of my time on.

As we look forward to the second half of season 2003/04 I remain optimistic for the future. The financial future (at least in the next eighteen to twenty four months) continues to be uncertain and we undoubtedly will have to be at our very best to survive the difficult financial times we still face.

In the past I have said that football is about having dreams, that the key to happiness is having dreams but the key to success is making those dreams come true. We have had our dreams for a number of years but I can, at last, see some of those dreams being converted into successes. The challenges we still have to overcome are daunting but I know that we could have no better team in place to ensure we are in the best possible position to convert our remaining dreams into successes.

I have always believed in teamwork. Last year I said that we had begun to build the team and we had come together - this was the beginning of our transformation. This year we have kept the team together - which is producing the solid progress I predicted. We are now in the working together phase - doing so will deliver success over time.

In summary I know we will remain "United in Endeavour" in order for us all to enjoy the successes again.

Gary Harwood
CHAIRMAN
29th December 2003

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'Bridge The Gap' - The Background
Abbey Stadium Plans Unveiled

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