We have received several comments and questions following the publication of the Club's accounts for the year ended 31 May 2006, and the provision of further updating information on our overall financial picture at the recent Fans Forum. In the spirit of openness, honesty, and best endeavours that we seek to embody in all that we do, we therefore feel that it is helpful to present the background picture to our recent financial results, to put them within the context of the club's recent past, and to set out how and why we budget and run the Club's finances as a result.

The financial year to 31 May 2006 was the season after the Club's cup run, culminating in the matches against Manchester United. Although in that year there was some limited cup success with our appearance in the semi-final of the FA Trophy, that success did not translate into sufficient financial means to bridge the gap between costs and income that season and there was a consequent deficit of £206,000.

As is well documented, like most of its peers Exeter City operated with an annual trading deficit for very many years. Most football clubs carry a regular level of expenditure and a regular level of income, but where expenditure normally exceeds income. Most of these clubs still attempt to cover that annual deficit with funds and loans from the directors, but this practice stopped at Exeter City a few years ago when the Club almost ceased to exist and the Supporters' Trust took over with an ethos which was very different to the past.

The general financial strategy of accepting a trading loss each year can of course balance the books when clubs bank on bridging the annual funding gap through league or cup success, but such success is unpredictable and uncertain. In addition, occasionally finances benefit because of major transfer fees, but this then depends on a club having a strong academy system to produce good young players as well as a manager who is prepared to bring in players with a view to development.

In order to retain the opportunity of recovering our league status, we at Exeter City were implicitly operating under this sort of financial strategy from the point that the Trust took over as majority shareholder of the Club. Over each year since being in the Conference league the Club has increased the football budget to a level now very close to the Conference maximum cap, but has received a very useful amount of income from transfer fees and other 'one-offs' to help balance the books.

Since the profit generated by the Manchester United match in 2004/5, with only a run in the FA Trophy in 2005/06 we recorded a deficit, but in 2006/07 the play-offs and visit to Wembley helped to generate a profit to close the funding gap. On top of that, the Club's "academy" system and investment in emerging talent regularly produces good quality players, which occasionally creates funds from transfer fees.

The new Board of Directors decided to change this historic financial strategy and eliminate the annual budgeted funding gap and, gradually, the reliance on 'one-off' playing or transfer related success through the adoption of the 'V10' plan in early 2006. At this point excess expenditure was trimmed back, overheads were all grouped together and tightly managed under our Operations Director, and a full football related budget was established and adhered to and, more importantly, the decision was made to generate more income from commercial activities.

The Club's commercial activities have grown considerably since that decision was made, with a net surplus of £3,600 in 2004/05 increasing to £152,800 in 2005/06. Strong further growth was achieved in 2006/07, as will be seen when those figures become available, and has been again in the financial year to date. As a result the natural funding gap is closing up year after year.

However, the Club's finances are under constant pressure because of the historic baggage of financial failures. Whilst the CVA allowed for substantial old debt to be written off, the then new Club regime still had to deal with a significant amount of old debt that was not written off. For the new Board of Directors that took over after the CVA, it was not like a new business starting with a clean sheet because there was something in the region of about £1m of old debt that still needed to be managed and repaid.

In the following two seasons, with the Manchester United profit and then the deficit in the following year, the Club managed to fund about £207,000 of that debt. In addition to that, by 31 May 2006 the Supporters' Trust had loaned £361,000 to re-finance that debt and a further £108,000 was loaned in 2006/07. As requested by the Supporters' Trust Board of Society, the Club treats the Supporters' Trust money as a loan (hence we refer to the money as 'refinance').

Simple arithmetic shows that there is still quite a way (circa £300,000) to go to completely clear the impact of that old debt. Therefore, in our budgeting and management of the Club's finances we have to deal with that as part of trying to achieve break-even each season. This explains why the Club's finances are constantly under pressure. This pressure largely manifests itself from time to time in our cash-flow as we seek to continue to repay our historic debts (such as rent, rates and utilities) at the same time as meeting our current day to day trading obligations. We do not carry any structured debt (overdrafts or loans) at all as a club, aside from the recognition that the money the Supporters' Trust has provided is classified as a loan. As with most businesses we manage our cash-flow to meet our obligations in a timely fashion to the best of our ability, which from time to time means that we pay our creditors less quickly than we would ideally like. We thank all concerned for the patience they are occasionally asked to show, and would point to the fact that we have had never failed to pay anyone money owing to them since the new regime took over the Club.

We continue to work to a very tight budget, whereby our income less our operational overheads provides the funds for our football activities. We have fully funded our football budget commitments from the first team to the academy and the playing management and support team, and have provided a percentage of any surplus funds (for example from player transfers) to augment this budget. This equilibrium has served us well for the past two seasons and is supported by and adhered to by all at the club. It involves all areas of the club - football, operations and commercial - operating and delivering to their budgets. We would like to take this opportunity to recognise and thank our Football management and Operations and Commercial teams for working with us to ensure that our budgets are well managed and achieved.

The funds generated from our visit to Wembley last season helped us to get to a break-even position for the financial year to May 2007, having invested above budget money to strengthen the team in January 2007, but it did not leave much spare for anything else. We have to balance our responsibility to pay off our old debts with our desire to allocate additional funds for the manager. We are trying to do both because a successful team creates a virtuous cycle of financial success, but it is not easy to satisfy both of these masters.

The Club faces a continuing challenge to either repay its old debts through our ongoing trading profit or to re-finance them through the provision of funds from our supporter groups and shareholders, whilst at the same time trying to balance the books each year and improve playing standards. There is no fairy godfather and no easy solutions other than hard graft and the continued commitment of the depth of membership and passion within the Supporters' Trust and our other fan groups such as the Supporters' Club and the East and North Devon Grecians. As a result, big strides have been already been made.

Commercial income continues to grow and be developed, playing standards and budgets have been improved, our facilities are maintained and enhanced, expenditure is kept under control and the academy continues to produce good quality players.

It is this approach that the directors believe will in due course bring total financial stability and the success we all strive for. For the past two seasons we have operated within the budgets that our financial strategy outlined, and have been repaying historic debt as part of this. We have recently established an outline five-year budget for the club, which builds on this successful strategy and moves us to our stated aim of repaying all of our historic obligations without needing to directly rely on the financial input of the Supporters' Trust and other fan groups to enable us to break even. This will be achieved by holding our overheads flat, increasing our commercial income year on year, and operating to a football budget level and formula which has already been endorsed by our manager Paul Tisdale.

As we migrate towards this position we would once again thank those who help us manage our cash-flow through their patience, and who continue to support and partner with the Club at all levels of its commercial and day to day activities. We would also wholeheartedly thank and urge all those thousands of supporters who contribute financially, who bring along extra people to matches or other events we hold, and as volunteers directly giving of their time and skills to help us avoid costs we would otherwise need to incur, to please not drop their efforts. These are at the heart of the club, of our ability to make the final step to full financial self-sufficiency and, vitally, to generating the level of working capital required to deliver on our future programme of stadium investment.

Together we have achieved significant things in the recent past. The model and approach we have is unique in football, and has no direct precedent. As a result we continue to highly value and need the input and commitment of all in the broader Exeter City family. As Directors we recognise that we too have and will continue to learn, and we thank those who are generous enough to bear with us in this. We acknowledge our need to continue to communicate on matters relating to the Club's finances more fully and more readily and will address this matter as we seek to continue to steer the Club to the financial and football success we all desire.

The Board of Directors
Exeter City AFC Ltd.

March 2008