Emirates Group’s ground handling and travel services unit, dnata, is eyeing acquisitions in Asia after it reported a 9 per cent rise in net profit.
“We are looking at travel management companies across Asia, and this comes back to the end-to-end product. We are selling packages, and why not get involved in ground services business?” said Gary Chapman, the president of group services and dnata. The company’s ground services include its City Sightseeing bus tours in Dubai.
“In this business you have to have scale, because if you don’t have the scale no one takes you seriously, and it gives you the ability to bring business to the hotels, airlines and ground services providers.”
He also confirmed the company’s interests in buying the UK unit of the Swiss travel agent Kuoni, which sells holidays to more than 80 destinations worldwide.
“We have a large cash balance and we continue to generate cash, and for really significant transactions, I wouldn’t want to use my own cash, just part of it, and get bank financing due to the low rates,” Mr Chapman said.
Sheikh Ahmed bin Saeed Al Maktoum, the chairman and chief executive at Emirates Group, said that dnata’s Dh906 million profit, its highest in its 56 years of operation, was driven largely by Gold Medal, the UK-based distributor of long-haul scheduled flights, hotels and car hire.
Revenue rose 36 per cent to Dh10.3 billion from a year earlier, with about 60 per cent coming from outside the UAE. Its cash balance stood at Dh3.1bn.
Dnata’s travel services revenue grew to Dh2.7bn in the financial year through March from Dh705m in the previous financial year.
Dnata’s acquisitions so far have been concentrated in the UK, making it one of the largest travel agents there. Last month it acquired a majority stake in Imagine Cruising, giving it an entry into the cruise travel segment. Last year it bought Thomas Cook’s Gold Medal for £45m (Dh251.5m) as well as Stella Travel Services. It acquired UK-based Travel Republic in 2012.
Acquisitions outside the UK would “diversify dnata’s international portfolio and also de-risk their business and service activities”, said Saj Ahmad, an analyst at London-based StrategicAero Research.
Dnata provides cargo, catering and ground handling services to 78 airports across the world. That includes a catering service at Orlando Sanford International Airport in Florida, its sole airport operations in the US.
“For us to go into the US, we have to go in with a certain scale, because it’s a big and mature market,” Mr Chapman said. “There are a lot of challenges in wages, such as a person working in a McDonald’s or a barista in a coffee shop earns more than a lot of people working on the ramp. I am quite happy to sit back and see how these things evolve.”
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”