Good morning, everyone, and thank you for attending today's investor call to discuss the reorganization of DFI Retail Group's interest in Maxim's and its Starbucks licensed business. I'm Karen Chan, Strategy and Investor Relations Director. Joining us today from our management committee are Scott Price, Group Chief Executive, [Kaizer] Wu, Group Chief Financial Officer, Ella Chan, Group Chief Strategy Officer, and Andrew Wong, who will be leading both the licensed business of Starbucks and IKEA at DFI. Following the prepared remarks, there will be an opportunity to ask questions. Please submit your questions on the platform, and we will direct them to our speakers. Today's presentation is being webcast in its entirety. As a reminder, this call is being recorded. Press release and slide presentation regarding the transaction are available at the investor relations sections of the DFI website.
Before we start, I would like to remind you of the following regarding the information to be provided during the presentation. The information about to be presented is for information purposes only and is not intended to be investment advice for any person. There is no intention to invite for any dealings in any securities. There may be forward-looking statements mentioned in the presentation materials, which include statements regarding our intent, belief, or current expectations with respect to DFI Retail Group's businesses, operations, market conditions, et cetera. You are expressly advised not to rely on these forward-looking statements, as they are subjective views which are subject to risks and uncertainties. With that, I'll pass it over to Scott. Scott, please.
Thanks, Karen, and good morning, everyone. We do appreciate you joining us on short notice, for a bit of an update on yesterday's announcement, where with Hongkong Caterers, we have agreed to a reorganization of the Maxim's business. Maxim's consists of a number of restaurants, the Starbucks coffee houses, and a branding and branded product and manufacturing business. We will be taking from this joint venture, which has existed for many years, the 1,100 coffee houses across seven Asian markets. Those markets are Thailand, Hong Kong, Macau, Vietnam, Singapore, Cambodia, and Laos, as well potentially, the right to engage in franchises in other similar markets. We've had a partnership, as I said, for almost 40 years, with a 50/50 structure. It's really grown into one of the leading food and beverage organizations in Asia. One we're very proud of having been a part of for so many years.
We believe the reorganization is the right thing for DFI. We will transactionally transfer our 50% stake in Maxim's to Hongkong Catering in exchange for the entire Starbucks licensed business, which we believe positions both companies now for a next phase of growth, and believe that this really does fit well with our overall operating model at DFI. This is a final milestone in DFI's move from a portfolio company that included many positions of minority, where board seats was the process by which we influenced the business, to only an operating company with full operating control of all of the aspects of the business. DFI and Maxim's through Hongkong Catering, and Hongkong Catering through Maxim's, we're going to remain strategic partners.
There are many synergies that work for both companies across procurement, supply chain, and as well, our overall yuu program, of which Starbucks is a member. The transaction itself is immediately accretive to DFI's revenue and operating model, and [Kaizer] will talk about that in a few slides. In addition, we will receive $340 million in cash, which we will recycle to either higher return growth initiatives, potentially inorganic, and we have shared previously the framework by which we look at that, or potentially as well return to shareholders. The next slide, please. The structure of it, as I have mentioned, is a 50% transfer of our Maxim's shares to the Hongkong Caterers entity. They will in exchange transfer the Coffee Concepts business, the legal entity name of the Starbucks licensee. As well, we will receive $340 million representing the value differential to the 50%.
We will assume the entire interest in the Starbucks licensee business, named Coffee Concepts. Hongkong Caterers will become the sole shareholder then of the Maxim's business, which we think is going to be, I think, good for both companies, as I mentioned. Andrew, who is joining us and will talk a bit in a few minutes, will become the Chief Executive Officer of both the IKEA and DFI licensee businesses. Andrew has a background in working in the food industry franchise and as well, has Pacific Coffee, a local chain here in Asia, in his background. A passionate coffee lover. So that is always helpful when you are going to spend your life in coffee houses. We will continue to work on the basis of very good relationships with the Starbucks company based in Seattle, and have already had a number of very good conversations with them.
The transaction is targeted to complete by end of Q1 next year, subject to standard closing conditions. Next slide, please. In terms of some of the core details, revenue in 2025, $ 746 million. The CAGR, 2023- 2025 of 3.5%. As of June, a little over 1,100 coffee houses, and an underlying operating margin of 7%. To the left, you can see the map, which shows the layout, including that the Thailand business is by far the largest. We really do see this as a good strategic fit with DFI's portfolio. In many of these markets, we see an opportunity to not only share procurement, but as well the opportunity to work together on property, and as well on ready-to-eat food. This gives us a leading market position in specialist coffee.
As well, I would remind, relevant to Asia, that there is a tea shop segment as well that is included, Teavana, which we think is an interesting opportunity as well. It is quite a complementary footprint to our focus on Asia. As we have said, that is absolutely where we will operate and would not consider moving outside of Asia. If I move to the next slide. Again, showing here a 16% share today across a $3.8 billion market, growing at 5%. The business covers some of the highest per capita coffee consumption markets globally. Vietnam, a major coffee producer, Thailand with a very deep coffee tradition, Singapore, strong cafe culture, and of course, our headquarter country of Hong Kong, where you see a very substantial beverage culture across both coffee and tea.
We are now going to be able to build upon that 16% market share, where we believe that there is currently an under-penetration of, I'd say, quality coffee houses, and therefore a substantial opportunity to grow the business. Thailand, Vietnam, where coffee houses penetration is low, is where we will initially focus our growth. We see obviously the opportunity to drive an even greater amount of coffee and tea consumption in Hong Kong and Singapore as well. We have, through various parts of our business, created quite, I think, a strong capability in innovation. We will apply that innovation across the coffee category, in collaboration with Starbucks. As well, looking at milk tea and refresher categories as well. Next slide.
From a strategic rationale, as I said, this was a final step, moving ourself to a focused operating company, which, I believe, is an ability then to drive superior returns to shareholder. The everyday community coffee house, we think, brings with it strong heritage and brand loyalty. Obviously, Starbucks is one of the world's most iconic brands. Not only known for just great coffee, but there is a culture around the coffee house. I have had an opportunity to visit the Starbucks coffee houses across multiple markets, and it is amazing the continuity that format brings relative to just that sense of community. We believe this fits with our overall purpose statement of sustainably serve Asia for generations with everyday moments. Clearly interacting in coffee houses and tea is an everyday moment for our customers.
We do, as I said, see opportunity in high-growth Asian markets, Southeast Asian markets, Vietnam and Thailand, to increase our growth. We are targeting a total of 250 new coffee houses by the end of 2029. Primarily driven by Vietnam and Thailand, but we will continue to look at the Teavana and the tea house opportunity. As I said, synergies exist, we believe, through food assortment and operational excellence, procurement optimization, and a deeper integration with yuu. There is, I believe, a profit opportunity here. Andrew Wong will talk about how we are initially looking at where we will find synergy. As we get into 2027, we will schedule another investor day to be able to give, I think, a more complete guidance from the total DFI business. We will be announcing that date in some point in the near future.
Importantly, it enhances the data richness to the DFIQ monetization, bringing a substantial amount of transactions as well to this process. With that, I am now going to turn this over to Andrew.
Thank you, Scott. Good morning, everyone. For many of us, a good cup of coffee is essential to starting the day. In many of our markets, the Starbucks coffeehouse actually owns the morning occasions. For us to maintain this leadership, we will continue to expand our coffee and beverage platform with dedicated category menus. For example, matcha, chai, and enabling greater personalization and meeting evolving consumer demand for functional drinks like protein. We will continue to evolve our breakfast and bakery assortment to drive food bundle and higher ticket sites. We also see a significant opportunity to build more Starbucks occasions throughout the day. We will be accelerating food innovation, which is critical to this strategy. That includes broadening our savory offering with premium all-day snacking and grab-and-go options that appeals to afternoon consumers who are seeking convenience and quality.
We will also localize our F&B assortments to reflect regional taste and preference, leveraging learnings from our CBS business to adapt quickly to local demand. We will also be creating excitement through cross-brand collaboration. For example, partnership with local bakeries, specialty food brands to drive excitement and repeat purchases. As we unlock lunch, afternoon, and even evening day parts, we aim to become the all-day destination for our customers. We see clear revenue upside and cost synergy benefits from increased scale and expanded reach across complementary regions and channels. Five of the seven markets that Starbucks is operating in right now, we actually have other DFI format presence. This anchored around our DFI strategic deliverables. On the previous slide, we actually talk about our plan in accelerating F&B innovation to better cater to local needs, sense of place, and also evolving consumer preferences.
In terms of getting access to customers, as Scott alluded earlier, we see room for coffeehouse growth and underserved markets with disciplined guardrail around site selection. This includes second-tier cities and provinces, especially in Thailand and Vietnam, where currently we have minimal presence. Our plan is to expand our coffeehouse footprint by at least 250 for the next three years. We actually see great synergies coming from primarily two areas. First of all, operational efficiencies, which reflect procurement and sourcing ability. Best practice sharing across services and real estate optimization as we extract greater value across a wider store portfolio. Second is driving stronger business performance by deepening loyalty through data-driven personalization and targeted offers to improve customer engagement. With that, I'll turn it over to [Kaizer] to discuss financial implications.
Thank you, Andrew, and good morning, everyone. Following Scott and Andrew's introduction of the deal and our strategy on the Starbucks licensed business, I will now use the next few minutes to briefly talk through the financial impact of the deal. As Scott and Andrew pointed out, the fundamental strategic rationale of this transaction is for us to increase our exposure to a higher margin business in faster-growing geographies while taking full operational control over the entirety of our business portfolio. After the deal, DFI will fully control and consolidate a business currently with an annual revenue run rate of over $800 million, and that's having been growing at over 5% CAGR over the last three years.
Assuming we complete the deal by end of Q1 2027, it will add around $600 million-$ 50 million of revenue to DFI's consolidated P&L in 2027, and approximately $900 million on a full year basis in 2028. Apart from adding into DFI's total revenue, Starbucks existing operating margin of over 7% is also accretive to DFI's current margin profile. On top of that, we have identified, as Andrew mentioned, we have identified several areas of potential synergies between DFI and Starbucks that could potentially improve the operating margin by another 1% - 2% over the next couple of years, and that will make Starbucks licensed business the second most profitable business format at DFI. With the margin accretion from Starbucks, we have greater confidence in achieving our 5% - 7% overall operating margin target by 2028.
Here we would like to also share with you some wider financial implications to DFI from this transaction. Together with the Starbucks team, we will accelerate Starbucks licensed business revenue growth to between 6% - 7% per year and create a billion-dollar business within the next three years. This will be achieved by executing the current coffeehouse expansion plan, especially in high-growth Southeast Asian markets such as Thailand and Vietnam, as Scott and Andrew just mentioned. With a net increase of at least 250 coffeehouses, we aim to grow our regional Starbucks footprint to over 1,350 coffeehouses by 2029. Meanwhile, we also plan to improve the same store sales, especially with more food and drinks products innovation. As Scott and Andrew mentioned earlier, we see various synergy opportunities between Starbucks franchise and DFI's existing formats. These include areas such as sourcing, procurement, property, and customer experience.
We estimated around $10 million of operating synergy in the first full year after the consolidation and after the completion, with additional benefits ramping up in the subsequent years. By working closely with the Starbucks team, we are able to unlock these synergies to deliver operating margin upside for Starbucks. While this deal has clear strategic and commercial value, from accounting point of view, it will create dilution impact to the DFI's EPS in the initial years. This is because after the deal, DFI will no longer pick up the profit from Maxim's restaurant and mooncake businesses through equity accounting.
However, apart from receiving cash consideration of $340 million as part of the deal to effectively compensate for the profit dilutions upfront, we are confident that such dilution impact will be mitigated by realizing business upsides as mentioned earlier, as well as by the value accretive M&As to further accelerate growth. Despite the initial earning dilution, we expect the transaction to be free cash flow accretive within the first 12 months, and that's given the very strong cash generation of the Starbucks license business. As a result, we remain confident and committed to deliver our 2028 underlying PATMI guidance of $310 million-$ 350 million, which was outlined in our 2025 Investor Day. We will be providing more detailed financial guidance at our full year result announcement, and that's when we are approaching the completion of this transaction.
Last but not least, given the continuous momentum of our business and the expected cash inflow from this transaction, we will increase our dividend payout ratio from 70%- 80% in order to support the continued growth in dividend per share and our commitment to drive shareholder returns. While we will continue to look for opportunities to reinvest the cash consideration, as Scott mentioned earlier, we will return excess capital to shareholders if there is no appropriate target in the medium term. Next page, please. Before I pass on to Scott for his final remark, I would like to quickly wrap up and sum up what this transaction means to DFI. We are taking full control of a higher growth and a profitable business within the Maxim's current portfolio, and very importantly, together with cash to drive further shareholder value.
By having the Starbucks license business closer to our existing core businesses, we are able to expand our direct presence into more growth markets, and we will create a bigger revenue base to realize higher efficiency gains, and we will improve product innovations and customer experience to deepen our share of customer wallet. We do see significant opportunities to work with the Starbucks team to drive an even stronger performance from this beloved brand. This will also be supported by driving better customer experience through the loyalty programs. With all this, we are building a stronger, more focused, more competitive, and faster-growing DFI that is well-positioned to capture the opportunities ahead and deliver greater value over time. With that, I will pass it back to Scott for final remark.
Thanks, [Kaizer]. We have already mentioned many of the comments on this slide. I would probably make an overreaching point, which is DFI and our focus upon everyday moments, and importantly, our relentless focus upon a value proposition while also providing customers with affordable treats, as it were, has paid dividends. You will have seen in our first half a quite strong growth. But interestingly, we are seeing in Asia now, growth in aspects of everyday life. Hong Kong, for example, retail sales back to 9% growth.
We do see this as not only in the short term but also mid and long term, a huge opportunity for DFI, our portfolio, and our formats, to continue to create a high level of synergy, and thus, not only a great value for our customers, but also great returns for shareholders, as we continue to deepen the cooperation between formats, continue to drive our omni platform, which is ensuring that we are meeting the customer wherever they want, both online and offline. While also, I think, focused upon that dividend yield you will see here at 5%. We do think that this is an important step towards creating the DFI of the new.
I would reiterate that we do have an active inorganic strategy that is very focused upon existing businesses in Asia that give us accretive TSR. If we do not, as [Kaizer] mentioned in the midterm, see anything that justifies, well, that is fine. We would see a potential return to shareholders. We have a very strong balance sheet, which does not then preclude in the future leveraging our balance sheet, if something that we believe fits our strategic filter comes to fruition. With that, I am going to hand it back to Karen for Q&A.
Thank you, Scott. With that, we will open up the floor for Q&A. If you wish to ask a question, please submit your question on the platform and we will direct them to our speakers. Our first online question comes from Jeff Kiang of CITIC CLSA. Thank you, management. I have a couple of questions here. My first question is about how do we view the Starbucks competition with other low-cost operator in these markets. What are a right to win in operating the Starbucks franchise? My second question is about the growth and margin guidance. How comfortable are we with the outlook given, and what are the low-hanging fruits DFI can do immediately to drive savings and synergies? Thank you.
On the first question, I am very comfortable. I am going to hand it over to Andrew, who is far more of an expert than I in the coffee house world. I believe that based upon financial results and how we see the business, a great right to win. Then maybe, [Kaizer], you pick up on the second growth and margin perspective. Andrew?
Thank you, Scott. Thank you, Jeff, for your question. I think the key thing is we are going to maintain our proposition as a community coffee house centered on in-store experience while also introducing locally relevant flavors with a touch of personalization, rather than competing purely on price point and transactional convenience. We have the opportunity to make Starbucks an all-day destination by accelerating food innovation, local sense of place, like food range, protein, gluten free. There is a lot of opportunity there. Also we understand that customers are always excited about cross-brand collaboration, and we think there is a lot that we could do in that area with such a powerful brand. We will also leverage on loyalty programs to actually make sure that we encourage food redemption and improve food penetration in the traffics.
Yep. Thank you. In terms of the financial guidance on revenues and margins, our current business plan on Starbucks has been relatively prudent, and that is predominantly based on the historical trajectory of Starbucks over the last three to five years. It has been growing at around 5%- 6% CAGR in the last five years, and at the margin at around 7.5%. The starting point of the Starbucks business has been very solid and strong. As Andrew and Scott mentioned earlier, we did identify, based on initial assessments, we did identify a series of synergy opportunities by integrating better and deeper with the DFI businesses. That is across property, across COGS, rental, CapEx, even retail media and customer proposition.
We believe that by working closer with the DFI team, the operating margin of the Starbucks business can be improved by another 1% - 2%, to around 8% -9 % in the next two to three years. That would bring Starbucks business to be closer to one of the most profitable business within DFI.
Thank you. Next question comes from Jayden Vantarakis from Macquarie. Are there any implications on the ready-to-eat strategy at 7-Eleven following this transaction, as Maxim's has been one of the strategic partners for the RTE products? Thank you.
I will cover that. We have leveraged Maxim's overall manufacturing capabilities to provide some of our 7-Eleven ready-to-eat product. We ensured always that that was an arm's length transaction, that we managed the innovation relative to recipes and proposition. Maxim's would bid for the business. They would provide a quality product at a great price, delivered to our specifications from a replenishment viewpoint, and bid and won that business. That will continue. We see the same approach then occurring with the Starbucks business, that we will manage the innovation, the recipes, the opportunity to drive a different portfolio of products and assortment. Maxim's would, of course, be one of the well-known and trusted brands that we would go to for manufacturing. But it, of course, would have to be managed at an arm's length relative to, again, quality and the replenishment cycle.
We see it as a very good relationship today. They are obviously, in particular for North Asia, experts in food manufacturing. See no impact and an opportunity to continue to further a good relationship.
Thank you, Scott. Next question comes from Zheng Feng Chee of DBS Bank. Is there any other divestment that we should be expecting following this transaction, and any other further updates in terms of M&A plans and timeline? Thank you.
No, we do not have any active conversations around further divestments. As I said, this is the final step in our move from a portfolio to an operating company. We previously have divested our holdings in Yonghui, then Robinsons. I think that the joint venture in Maxim's represented that final step. Right now, we are across now five formats, which is food, convenience, health and beauty, home furnishing, and now coffee houses, coffee and tea houses. Full operating synergy control means that we think that's a very powerful combination. We have an active M&A perspective in the market, and it would be across bolt-on or incremental, that would further those five formats in terms of shareholder returns. If we don't see a win for customers and a win for shareholders, we wouldn't move forward.
As I said, in the midterm, we now have a, I think, good cash bank of $340 million. That were the proceeds as a result of the 50/50 balancing of the transaction with Starbucks. If we choose at some point to return that to shareholders, still a very strong balance sheet that allow us great flexibility to continue to pursue strategic bolt-on acquisitions that continue to further our strategy. Thank you.
Thank you. Next question comes from John Lam of UBS. My first question is about how should we think about 2027 underlying profit growth, given the loss of Maxim's profit contribution partially offset by Starbucks? Second question is, can management comment about the revenue mix for Hong Kong versus ASEAN markets for the Starbucks franchise? Thank you.
[Kaizer], why don't you handle the first, and I'll touch on the second.
Yep. Thank you, John. Before I touch on the Starbucks contribution or the Maxim contribution, I'd like to make the point that we are very on track on delivering our 2026 and 2027 profit target that we communicated earlier for the underlying or core retail businesses within DFI. As I mentioned earlier, due to the changes of basically the portfolio and from accounting point of view, we have to remove the equity accounting, our share of profit from Maxim's, from basically April 2027 onwards. The addition or the consolidation of Starbucks profit at this point cannot fully compensate the loss of share of profit from Maxim and would expect the profit dilution or the current difference is around $35 million-$40 million for the initial year. However, as I mentioned earlier, number one, we get cash upfront to compensate for that differences. That's number one.
Number two, over the next three to five years, probably more than the three years period, we have had the plan under Andrew's leadership to drive additional upsides and synergy from the Starbucks business to, through organic only, we will be able to mitigate the profit gap in the next three years' time.
And on the second question, John, we continue to look for opportunities to balance the portfolio. Obviously, with Thailand as the largest market and with our growth focused upon growing in Thailand and Vietnam, that will be continued to be, I think, an upside to that balancing strategy. Given that 2027 is only three quarters, I am going to hold on a specific, probably multi-year commitment as to where we would see the revenue balancing between Hong Kong and ASEAN. What I would say is both markets are in the formats in which we compete. We are seeing healthy market development as even in markets where potentially there has been some economic challenges. We see great opportunity for growth. We are in everyday essentials.
I like to say, no matter what happens, when you get up in the morning, you want a cup of coffee, you are going to take a shower, you are going to eat your breakfast, you are going to stop for a snack, and we provide all of those. So at probably either the full-year results or our investor day next year, I will get into a little bit more detail as to where we see the revenue mix progressing in a two-to-three-year framework.
Thank you, Scott.
Okay.
Next question comes from Willer Chen of Mizuho Securities. What is the biggest driver for that 1%-2% operating margin expansion we are expecting in the future? Thank you.
Andrew?
Thank you, Willer. As we have mentioned earlier, we are seeing opportunities in terms of the synergy we have in terms of the cost base where we operate in five of the seven markets with the other DFI business. In terms of procurement, there is going to be a strong opportunity and also property as well that will be having synergies with what we are currently having.
Probably, Andrew, you would, I think, see an opportunity to leverage our property with negotiating with landlords as we think about growth moving forward, the opportunity to do stores side by side, then importantly, supply chain, because there is obviously quite a bit of movement of goods across these markets.
Absolutely.
I think as [Kaizer] said, 3 years. 5 years would be way too long, guys. So 3 years. We are looking for that opportunity to add that 100-200 basis points of synergy.
Thank you. Next question comes from Yuxin Zhang from CICC. Within your revenue growth guidance of 6%-7% CAGR in the next coming few years, can management comment about the level of like-for-like sales growth within the assumption? Thank you.
[Kaizer]?
Yeah, thank you. As I mentioned earlier, the current 6%-7% of revenue growth is relatively prudent and a bit on a conservative side, because given the timing of the transaction, we still need time to work closer with the management after completion. At this moment, we assume a 1% like-for-like, or 1%-2% like-for-like growth on top of the existing 5% of, it's basically the stored expansion growth. That's predominantly coming from our core market in Thailand. But more growth, higher growth from the higher growth markets such as Vietnam. And would expect that in a mature market such as Hong Kong and Singapore, the focus will be fixing the core and to basically improve the operating efficiencies, improve customer experience and product. But in terms of like-for-like growth, it will mostly come from high growth Southeast Asia markets.
Yeah. As you know, we're in the midst of a conversation around a deal. Clearly this isn't an update on guidance, bu t I would, for all those on the call, commit to in our interim management statement, our IMS, which will come out for Q3 in October, we'll probably more than what we normally would, reflect a bit on what we saw as the Q3 performance of the Starbucks business and how we see that as we move forward. Karen?
Thank you, Scott. Next question comes from Matt Candy from CGS International. Thank you, management. My first question is about, does the 250 coffee house expansion imply any change to your CapEx guidance? Second question is about which are the markets covered under the right to engage in further franchises under the Starbucks license? Thank you.
So let me answer the second question first and then hand over on CapEx over to [Kaizer]. We obviously would be, with seven markets, a relatively large licensing partner for Starbucks. We have had a couple of conversations on potential other markets. There are no rights. That rests fully with Starbucks to grant those. But we're optimistic that there are opportunities, but would not be in a position to announce any of those at this point today. [Kaizer], want to talk a bit about our view on CapEx?
Yeah. We mentioned about the store expansion plan to be around 260 stores over the next 3 years' time. Based on the quick analysis and assumptions, the CapEx requirement will be around $90 million-$100 million over the next 3 years, and that is around 3% of the Starbucks revenue on the annual basis. Again, that is quite aligned with our overall CapEx guidance that we communicated earlier, 2.5% of revenue, when we communicated in the 2025 Investor Day. We will continue to review the CapEx plan and look for opportunities for optimizations.
Thank you. Next question comes from Brian Cho of Citigroup. What do we see as the biggest competitive advantage to compete in key markets, for example, Thailand, where there are sizable local chains offering low price coffee? Thank you.
Let me start, and then I am going to hand it over to Andrew. Andrew and I were in Bangkok just a few weeks ago with the Starbucks teams, having an opportunity to take a look at the market, including some of the competitors. I think like any everyday transaction, as individuals decide what to do with their disposable income, there is a trade-off between value and experience. As we have in many of our markets across our portfolio experience, we see that many of our customers have quite a different view as to, based upon age and demographic, where they want value and where they want experience. The reality is, as I visited those stores in Thailand and had an opportunity to look at the customers, what surprised me was the wide variety of age of customers who were sitting in those coffee houses.
They were chatting, they were working. Some were just simply enjoying a quick little meal with a coffee or a tea. I would say that as we think about our growth, there is a strong demographic that is interested in spending a bit more for a coffee house experience as opposed to a quick coffee on the go, where potentially they are only interested in value. I think in markets where we actually provide both, let us just be very clear, in Hong Kong, we will have Starbucks and we will have 7-Eleven. Different proposition, different experience. I think there is great power in having both in the portfolio. Andrew, anything you want to add to that?
Thank you, Scott. I will also share from the same experience where we visited the Thailand Starbucks business. We are actually very impressed with the food offer. They have a wide range of innovative products. Even looking into the Starbucks Reserve, there are actually alcoholic liqueur coffee that is actually on the menu. I think Thailand is a fast-growing market, both in terms of international tourists, which Starbucks as an iconic international coffee house brand, is going to have a very strong attraction to tourists and also to the local growing coffee culture. As I mentioned earlier, with the local sense of place, of offering food product with the local culture elements, I think we will continue with the very strong management team on the ground that will continue to see that strong growth in this market. Thank you.
Thank you. Next question comes from Selviana Aripin from HSBC. Can management comment around the synergy split between revenue and cost? Second question, regarding the use of cash proceeds, will special dividend be an option? Thank you.
Andrew, why don't you cover the first, and [Kaizer] the second?
Sure. We are actually looking at a range of initiatives where we would create synergies. For example, as we also mentioned earlier in terms of rent, there will be portfolio optimization, lease negotiation, and also further tightening up of a site selection discipline. We have in the common markets where we have other formats, we will definitely be looking into synergies, into property process, having good conversation with landlords, because international brand, strong operation business from DFI actually warrants being great tenants for landlords. I think that is one example. CapEx as well. It will leverage our scale in construction, engineering, and store development. They will also link to refurbishment as well. Cost of goods sold in certain markets where we have strong purchasing power. The food ingredient, we could definitely have synergies with other formats we have, including food and also convenience as well.
There will be revenue upside in terms of understanding more about our customers through loyalty programs. As I've also mentioned earlier, supply chain is another key synergies that we could see. We see good balance between both revenue and cost optimization coming from various synergies within the group. Thank you.
Thanks, Andrew. I will follow up on Andrew's point that we do have a business plan or a working group to consider both the revenue and the cost synergies here. In terms of the 1%-2% operating margin improvement, at this point, we are relatively prudent on the revenue side. We've been able to more quantify on the cost synergy sides. That's one point to add on. In terms of your questions on the special dividends, given where we are on the transaction, we still have roughly five to six months to go for the completion. It's a bit early to talk about the dividend and then sort of what the special dividend as an option. However, as we mentioned earlier, we will continue to look into opportunities to reinvest the additional cash we receive from the transaction.
Within the next, say, six to 12 months time or in the medium term, if we cannot identify a sensible or proper investment target for us, then we will consider giving the cash back to the shareholders, and special dividend is one of the options.
Thank you, [Kaizer]. Next question comes from John Lam from UBS. A follow-up question on CapEx. Given the free cash flow will be accretive in the first 12 months, should we expect that to be free cash flow positive as well in 2028- 2029? Second question is about reinvestment of the cash proceeds. May I know what kind of categories, business, or geographic market that we may be interested in in terms of M&A? Thank you.
[Kaizer] , why don't you handle the first and I'll touch on the second?
Yeah. As you can see from the financials on the Starbucks license business at the moment, they are very cash generative. We're talking about a PBIT margin of 7%-8%, which means the EBITDA is over $100 million on the annualized basis. Considering the CapEx requirement of around $30 million per year over the next three years, we believe that the Starbucks business itself has the ability to fund most of these, or if not all of the CapEx expansion plan. Therefore, having Starbucks license business consolidated into DFI, it will be operating cash flow and free cash flow accretive to us.
In terms of, John, categories where we would look at potential investment. As I mentioned, we are quite focused on the five formats in which we now have a pretty substantial anchoring of business across food, health and beauty, convenience, home furnishing and coffee houses. We've stated before that we find the health and beauty convenience as two of the higher priority formats, not that we would say no to the others. On coffee houses, expansion into other markets, but also where we see opportunity for quick accretive growth, we look to vertical integration. The acquisition of Cody, which drives a very powerful, we think, proposition on retail media across both physical and as well digital in Hong Kong, was an area that we saw as a good use of capital.
Probably won't go into too much more detail than that, just purely because we have zero interest in driving a price on anything. As I have committed before, we will only have investments where we have a controlling interest. It will be in Asia. It will be in a format in which we have a reasonable amount of scale, and it must be accretive to our business financially. Karen?
Thank you. Due to the interest of time, we will be taking the last question. The last question comes from Makrit Wang, Bank of America. I have a question regarding how should we think about the dividend payout ratio for the year 2028? Thank you.
[Kaizer] .
As mentioned earlier, we will increase the dividend payout ratio by 10 percentage point in 2027. We will review the 2028 dividend payout ratio in due course. The commitment from us is we will continue to deliver the dividend per share growth that we communicated in the Investor Day.
Thank you, [Kaizer] . Ladies and gentlemen, this would conclude our session for today. Thank you very much. You may now disconnect.