TCS Group - New Co-CEO Appointed

TCS Group has announced the appointment of Pavel Fedorov as co-CEO to work alongside Oliver Hughes. At the same time, Ilya Pisemsky, the long-time finance director, has been made group CFO. The decision to appoint co-CEOs is not without precedent, but does come as a surprise given Fedorov has only been with the group a couple of months, and to us it looks a little cumbersome. Obviously, one question that it throws up is what the implications are for Oliver Hughes. On this, he remains firmly committed to the company, having recently agreed a new five-year contract and tranche of MLTIP shares vesting over the next 5-6 years. It seems to us that Oliver is not going anywhere, and that this decision helps ease his management workload as TCS continues on its strong domestic growth path and with international expansion starting too. While we do not fully see the need for co-CEOs, TCS has always been unconventional and had a flat management structure. The split of duties broadly makes sense, with Hughes remaining focused on operational matters and Fedorov focusing on group strategy, international expansion and partnerships. Fedorov also brings good government and regulatory relations experience.> Fedorov brings diverse experience. Fedorov joined the TCS BoD in September with a particular focus on advising on international expansion, and he was present on the recent management call discussing capital. His work background combines over a decade in TMT investment banking at Morgan Stanley, and, after that, includes a couple of stints at Rosneft, most recently as CFO, and a year as deputy energy minister in 2012. We also think it is important to note that he has known both Oliver Hughes and the core shareholder, Oleg Tinkov, for many years, and that this is not an out-of-the-blue hiring in that sense. > International expansion - some more color. Fedorov stated yesterday that TCS may look to invest around $200 mln in international expansion over the next few years, including an initial $60 mln in the Philippines. He added that TCS is eyeing two other markets in Asia beyond the Philippines and is looking at full banking and brokerage licenses. > Co-CEOs will take some getting used to, but may not be such a big deal. As it continues on its path of rapid customer acquisition growth and the development of new ecosystem elements, as well as international expansion, TCS has brought in several news senior hires over the past year or so, of which Fedorov is the latest. While having co-CEOs will take a bit of getting used to, the key thing here is whether this ultimately bolsters and improves management decision-making and execution, and time will tell on that.