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29.02.16 18:00
Dow Jones Newswires


EQS Group-News: RBR Capital Advisors / Key word(s): Miscellaneous

2016-02-29 / 18:00
The issuer is solely responsible for the content of this announcement.


February 29, 2016

Dear Chairman and Members of the Board of gategroup,

We were surprised by gategroup's press statement from February 16. Previously, in your letter dated February 3, which
was signed by Chairman Andreas Schmid and Vice Chairman Remo Brunschwiler, you stated that the board would evaluate our
proposed candidates on February 18, and that we could still file a request for the election of our proposed candidates
on February 22 if the board disagreed with our initial proposal. We held our approach to be very reasonable, as it
allowed a smooth transition in the event Andreas Schmid decided to step down. Also, in our meeting on February 1,
Andreas Schmid indicated that he had not yet decided to stand for re-election. Therefore, we felt an even greater
obligation to facilitate an amicable exit if he decided to do so.

With his latest decision, supported by the majority of the board, and announcement, his initial good intentions have now
been recanted. We can only wonder to what has led him to such a change of heart in such a short period of time.

While reading the press release we identified mistakes and erroneous assumptions which we would like to correct in order
to set the record straight.

The two candidates which we proposed to the board of directors at the 2015 AGM are independent and have no relationship
to RBR or Cologny other than being proposed by us. We believe they have the necessary qualifications to improve the
performance of the board and create shareholder value. We are sure that you would agree that Fred Reid is a great,
independent board member who coincidentally also votes in line with your opinion.

We proposed Gerard van Kesteren for his outstanding track record as a manager and CFO. During his tenure as CFO of
Kuehne & Nagel, he was regarded as one of the best CFOs in Europe. He is an honest and upstanding business person who
does not shy away from making tough decisions, and yet he understands that you have to compromise to get things done. In
short: Gerard van Kesteren possesses the qualities to put gategroup on the right track and to restore corporate
governance within the company.

Yet, this is the man you decided not to propose for re-election because he is "not fully aligned with the rest of the
board regarding strategy". We seriously question the rationale of the board and suspect he was silenced for speaking an
inconvenient truth.

Let us assume for a moment that the lack of alignment on strategy was indeed the reason for not proposing Gerard van
Kesteren for re-election. Let us delve a bit deeper into the strategy of gategroup. As we see it, gategroup has a
three-pillar strategy:

1) Grow in emerging markets and retail on board.
2) Grow through acquisitions.
3) Improve profitability through streamlining and optimizing processes and SG&A.

This is essentially what the company announced on September 3, 2015. On that day, investors were greatly disappointed by
this announcement as the share price fell by more than 10%. It would be very enlightening for investors if the company
would disclose the minutes of the board meeting where there were most likely strong disagreements on the strategy. The
share price reaction was a rejection of your strategy and goals, which have clearly not convinced investors and are in
need of modification.

We have always pointed out that it is much safer and creates much greater value for shareholders if the company
initially emphasizes cost savings rather than acquisitions. We would not be surprised if Gerard van Kesteren and the
majority of investors, ourselves included, would back such a front-loaded strategy.

To summarize this point: proposing to not re-elect Gerard van Kesteren at the next AGM jeopardizes the fragile progress
that has been achieved over the last 12 months. What candidate would want to serve under your leadership if disagreeing
with your opinion leads to an expulsion from the board? Also, naming, singling out and publicly shaming board members
who cast a dissenting vote or opinion destroys collegiality, pre-empts the plurality of views and leads to an unhealthy
state of affairs on any board. You have clearly chosen the wrong path in corporate governance.

Nevertheless, Andreas Schmid and Remo Brunschwiler invited us in their letter from February 3 to explain our rationale
for further changes at the board level, including the chairmanship. The following will also clarify gategroup's claim
that we want to make further changes to management:

We strongly believe that gategroup has the potential to be a world-class company. However, despite progress made since
last year, gategroup continues to lack the ambition for a full-scale transformation. gategroup is a world market leader
in a growing market. The largest competitors are weak, as they are run by ailing legacy carriers. The best-in-class
operator Do&Co demonstrates one can achieve sustainable double-digit EBITDA margins while consistently growing sales by
more than 20%! In other words: the starting position for gategroup is quite exceptional and our goal is to put the right
framework in place to truly revive and transform the company.

Since our settlement before the 2015 AGM in regard to the board composition, we have worked tirelessly with gategroup's
management and the board (mainly the chairman). We have made several proposals and demands to improve corporate
governance, management composition, the long-term incentive scheme and company targets.

Sadly, we must conclude that not a single one of our proposals or demands have been implemented or taken into serious
consideration. The protocols of our meetings and e-mails and letters exchanged over the last nine months are a
testimonial to the fact that Andreas Schmid makes promises but is unable or unwilling to keep them.

In summary, we conclude the following shortcomings:

checks and balances

Corporate governance: We are convinced that the checks and balances at gategroup are not implemented adequately. While
we believe that management should have a high degree of entrepreneurial freedom, we are very concerned about the lack of
control and supervision exercised by the board. Many conversations with Andreas Schmid and management have led us to the
unacceptable conclusion that the board has not reviewed any of the major contracts signed within the last 12 months.
Furthermore, we cannot understand how the board can approve a group strategy without making a full review of all of the
pre-existing major contracts. Overall, this situation cannot be supported and is a breach of the board's fiduciary duty
to shareholders.

due diligence

The assessment and approval of top management jobs by the board is flawed. We have already highlighted in our letter
from June 24, 2015, that we have serious reservations about Messrs. Anbeek and Fisch continuing to serve on the
executive management board. From our many conversations with Andreas Schmid, we conclude that the board has never
properly assessed these gentlemen on the executive board. Furthermore, the appointment of Mr. David de la Torre as the
Chief Commercial Officer of gategroup was executed without a proper assessment by the board and has consequently proved
to be a fiasco. Given that he resigned within less than six months for "personal reasons" and already secured a new job
within days of his resignation (!), our initial suspicions are confirmed that he was appointed for reasons other than
his qualifications and ambitions.


Financial targets: We have outlined in several letters and meetings (most recently in an e-mail from January this year
to Julie Southern, Head of the Nomination and Compensation Committee, with Andreas Schmid CCed) that 8-10% EBITDA
margins are an achievable and appropriate margin target for 2018. If you analyze the bottom-up measures that were
announced on September 3, 2015, you will also come to a very similar conclusion. Adding up the savings from the
announced white collar overhead reduction (we estimate CHF 40 million in ongoing savings) and the 10-25% of savings
potential from CHF 400 million SG&A results in a total savings potential of CHF 80-140 million. This equals more than
250bps to almost 500bps margin improvement potential (from a basis of 5.6% in 2014). Interestingly enough, this does not
even include any further margin improvement potential from better sourcing (we estimate 100-150bps margin improvement
potential) and improved blue collar efficiency (we estimate 100-200 bps improvement potential). Even when taking some
substantial headwinds into consideration, you end up well within the range of 8-10% for 2018. This does not compare to
the figure announced, an artificially low margin improvement potential of 25-50bps p.a. by 2020. Despite several
requests from our side, the board has failed to deliver any satisfactory explanation for this shortfall.


Coincidentally, management has started to lower its guidance on expectations for 2016 earnings. Of the announced 300
headcount reduction, only 220 were actually carried out by the year's end, and it seems that the remaining 80 will not
be leaving as certain plans regarding IT have changed in the interim. At the same time, management has communicated that
only 10% of the targeted 10-25% savings on SG&A can be realized. Moreover, substantially less than 10% will be achieved
within the next 12 months. As far as we understand, best practice would be to achieve substantial savings in SG&A within
the first three months from inception. gategroup management has had this mandate since April 2015 and has not made any
significant savings to this day!

(MORE TO FOLLOW) Dow Jones Newswires

February 29, 2016 12:00 ET (17:00 GMT)


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