Attention, dear travelers. Now please welcome the CEO of Dufry, Mr. Xavier Rossinyol.
Thank you for the applause. Was not necessary. Good morning. Welcome to this Capital Markets Day of Dufry 2022. Today, we are gonna present the new strategy for the next five years of Dufry, Destination 2027. Hopefully not only gonna give good information, good insights of what we want to do over the next five years, but we also wanna give you a very immersive experience on actual things we are gonna do going forward in our stores, like we are gonna do today here in this event in London. Also, a warm welcome to the people attending to this event remotely through our webcast. There is a legal disclaimer, because of the process of merger with Autogrill where we are, which we have to show.
Not only we are gonna present the strategy in a lot of detail and also explain why this strategy and not another strategy, but we are also gonna explain as much as possible how we are gonna bring that strategy to reality through uncompromised execution. We will try to explain how we will go from theory to actual practice and actual free cash flow generation and value for all our stakeholders, and our shareholders in particular. The agenda will start this morning with a presentation of the strategy, including a chairman of the board opening note. We will then have a break for lunch, but also a break where we're all gonna be having the opportunity to have quite a bit of flavor on some of the changes we are gonna do in our stores and in our retail in the next months.
In the afternoon, we are gonna explain the financials and the financial model going forward, and also we're gonna conclude. We're gonna have an extensive opportunity for Q&A at the end of the session. For those that are here in London, we also have the opportunity tomorrow to have two sessions to see our stores in Terminal 5 in London Heathrow. I'll come back in a moment. Now I'm very happy to introduce you to our Chairman, Juan Carlos Torres, which is gonna give us a small introductory note.
Yes, indeed, it's gonna be small and brief. First of all, welcome to all of you to this 2022 Capital Markets Day. I'm honored to welcome, I think we're about 100 here, or 110, and about 200 more that will be on the web. Above all, thank you for your interest in our company. Here today with me, here, I think mostly in the front row, is the Dufry Global Executive Committee. We also have here one board member, Joaquín Moya-Angeler Cabrera.
Here.
Unfortunately I need to read out another one of those legal things that I love so much. It says, "The proposed transaction between Dufry and Autogrill and Edizione is subject to regulatory approvals. Before the regulatory approvals are received, Dufry and Autogrill are separate entities pursuing their own independent commercial activities and strategies. Therefore, what we will share to you today refers only to Dufry, not to the combined entity." Okay? That's it. Having said that, let us turn to today's event. I was looking, and I found out that last Capital Markets Day that we have, it was back in 2018. You're familiar what has happened since then.
In the spring of 2020, in a period of three weeks, our revenues dropped by more than 90%. As a consequence, we changed the way that we operate, restructure our debt, increase our equity capital. We brought new long-term shareholders and proved that we are a very resilient company. As a result of all these changes, what we implement in the last two years, Dufry is now a more efficient company. In many key geographies, we're fully recovered or even performing better than before the pandemic. As the next step, over the last few months, both the board of directors and Dufry management, we have worked on defining Dufry's vision and long-term strategy. Today, our CEO and our CFO will share with you our conclusions and the implementation, as Xavier Rossinyol said, for the next five years.
The planned combination with Autogrill forms a relevant part in our strategy. The combined group will deliver an enhanced experience for passengers. You will hear a lot today about the experience for passengers, and great benefits for landlords and brands. We will generate value for consumers, and ultimately for you shareholders, which they are always obviously in our minds. We really appreciate your trust as we receive 97%-99% approval to the transaction-related agenda items last week in the extraordinary general meeting. On behalf of the board and myself, I would like to thank the Dufry management team for their hard work and effort regarding this strategic combination as part of the overall strategic plan. I'm also thankful to you, our shareholders, and appreciate your continuous support while we confirm our commitment to deliver long-term value. I'll hand over to Xavier.
Thank you.
Thank you, Juan Carlos Torres. I wanna start also with a thank you to the board and to the chairman for the support to the strategic plan, to the support of the intended combination with Autogrill. I think we have two mics connected. It will not be an actual event if there will not be a technical issue. Let me start with a new purpose of the company that results as a consequence of this Destination 2027: making travelers happier. It is an idea we've been thinking a lot, because in our view, happier customers, happier passengers, happier travelers will, at the end of the day, yield on higher consumption and higher revenues for Dufry. The structure of the presentation is as follows: I'm gonna start with all the analysis we have done on market and consumer that are the reason why we are presenting this strategic plan.
I will present afterwards each of the four pillars of the new strategy, Destination 2027. Then in the afternoon, as I said, Yves, our CFO, will present the financials. This is not the strategy of one, two, or even the full GEC. This is the strategy of the entire company. The process of defining this strategy has been extremely participative. We have listened to the market, we have listened to the consumers, we have listened to the brands, the airports, the other landlords, and we have listened to our own people doing the first ever full survey on our shop floor employees on how they see our stores and our customers. It's really participative. Here we have the whole GEC. We have Andrea, we have Luis, Sara, Pascal, Yves.
We have one member that is joining, Eugenio, by video call, and we also have, and you can interact with her later, Katrin Volery, which is joining at the end of September as our new Chief People Officer, reporting to the CEO and driving the new strategy on people management. Some initial thoughts that I'm gonna develop in the next few minutes. We are in a fantastic market. It's a large market, has very healthy fundamentals, is very resilient, and is recovering very fast. It's a large market. The size of the global travel retail market in 2019 was CHF 86 billion. If we add the concession F&B, which is another CHF 28 billion, we have an addressable market of CHF 115 billion. The combined Dufry and Autogrill will have a market share on this addressable market of about 12%-13%.
Includes different segments: airports, which, as we all know, is our most important one with 80% of our total revenues, but also includes downtown duty-free stores, cruise and ferries, motorway, trains, and airlines, and others. It has proven over the years to be an extremely resilient market. If you look at the last 20 years, 30 years, 40 years, you have passenger growth. The last 10 years before COVID crisis was a CAGR of 6% increase on passengers. One small point that is in this slide that I find quite interesting. It's estimated that only 10%-20% of the global population has ever taken a flight. It's not only that has been a resilient market in the past, every indication is that the number of air traffic and the number of passengers will keep growing over the next 10, 20, 30 years.
Always on a straight line? Of course not. There will be cyclical crisis from time to time, but always has come back, and has come back strongly. Today, again, we are seeing a big comeback after the COVID crisis. It's expected that the air traffic might be at the levels of 2019 next year or 2024, and growing again at historical paths after that. Of course, that will be different depending on the geographical regions, and I'll come to that when we talk about the geographical diversification strategy. In order to benefit from this organic growth on passengers, we need to have the right geographical exposure. I find this slide particularly interesting. There is an extreme correlation between passenger growth, number of travels, and GDP or disposable income. Which means that in any given geography, our potential customers are the most affluent segment.
Air traffic does not represent a proxy of the population. It represents a proxy of the most affluent part of the population. That's why, historically, it has been less cyclical to macroeconomics than other types of retail segments. Putting all these changes on the traffic and all these trends, it's expected that the travel retail market at airports will be back to 2019 levels in 2024 or 2025, and again, growing to an average CAGR over the next five-seven years of 6%. Again, ahead of the expected passenger growth. Of course, you have here the details. Different geographies will grow at different paths. What we have learned over the years is that sometimes the forecasts per regions are not too precise because there are unexpected crises or shocks. Again, the geographical diversification will be a way to deal with these local differences.
Not only the market and the passengers are important, but also general consumer trends. Because the passengers, at the end of the day, they also are general consumers, and they are affected like any other part of the population. Consumers are changing. The way people travel is changing. The profile, the personas of the potential customers is also changing. As a consequence, we will need to adapt our value proposition to maximize the value we can extract from these new travel personas. Let me start with some demographics. I could show you hundreds of ratios we have. We've chosen to just show three that we consider very relevant. Number one, Generation Y and Z will represent about 70% of the travelers in 2025. Their behavior and their consumption patterns are different from prior generations.
Sales directly influenced by online, that used to be 10%, it will go up to 30%. One last point, which I also find very relevant, especially thinking on the long term, because we know that Chinese travelers today are practically zero around the world, except in China, but they were the driving force on the luxury industry in the last 10, 15 years. The share of Chinese luxury shopping within China will go from 33% in 2019 to 50% in 2025. Not only the demographics, but also what consumers want is changing. How they behave is also changing. People spend more and more time on personal devices. In the U.S., the average time spent on mobile devices is already at four hours a day. Why would that be relevant? Because this is today a competition we have at the airports for the dwell time.
A co-potential customer can choose to go to our shops, in the future to our restaurants, or he can choose to look at a video on their mobile device. It's also changing what they want. Three numbers I would like to point out in this slide. Luxury products are expected to grow between 5%-9% CAGR over the next five years. Experience-based goods is expected to grow 6%-10%, and pure experiences between 20%-28%. To give experiences or product-related experiences at our shops is not any more an option, it's a must. Thinking about the future and thinking about the next five years, we can not only talk about retail, we also need to talk about F&B. We will go maybe in less detail than in the retail because of the antitrust process where we are.
Also F&B and what people expect from F&B is changing. More and more people is looking for food that suits their personal lifestyle. From vegan to whole foods, it's more and more important to understand the consequences on the food we consume. Therefore, there is an increased demand for sustainable alternatives to traditional food. Transparency, especially in food, is fundamental, both for health and ecological reasons. People wants to know where the product is sourced. Both in retail and food and beverage, people wants more and more personalization. Sometimes want more experience, sometimes want more convenience. It's not only that people want different things, they might want different things in different moments. The same individual might one day look for a massive experience because it has more time at the airport. Another day might want only a quick convenience fix.
That is true in both food and beverage and retail. Also, based on our research, and this is again, just an example, based on 15,000 passenger survey we did, people wants different thing. To point out three categories, local products and souvenirs, 24%, but then emerging and fast-growing categories like wellbeing or sustainable eco product. We not only identify categories, but we also identify what on those categories people want to have. Consumers are changing when they don't travel, and they are changing when they travel. Also, the way people travels is changing. Here we have two graphics. On the first one, we can see the growth of domestic, the growth of international short-haul, and the growth of international long-haul.
We all have seen that the recovery from COVID crisis has been faster on domestic, and we can say that in most key markets, domestic is already back. International has been lagging behind, but now is expected to recover to a faster path. Again, I'll come to the diversification, not only geographical, but also segmental. Having the opportunity to address the different type of passengers and the different type of flight, having duty-free, which is more linked to long-haul, having duty paid and F&B that is more linked to shorter or mid-haul, it is also a way to hedge and to have a more resilient business model. Also, the type of airlines people are traveling on, it's also changing. Low-cost carriers represented already 35% in 2020, and that might have consequences on the retail, but even more consequences on the F&B.
Because the lack of food on board can also give an additional opportunity to the F&B at the airport. A key question we received periodically, which is leisure versus business. It's clear leisure has recovered much faster than business travel. We already been very clear on our reporting this year. The touristic areas are basically back at the level of sales of 2019. Business airports are still a little bit behind. If you ask me, I don't know what is gonna be the speed of recovery of one or the other, or even a new hybrid type of travel that is rising as a consequence of the remote working. There is more and more people that are combining leisure and work travel. For me, what is important is that both segments are expected to grow again strongly over the next few years.
This is an interesting one because when you look at long-term trends, you see almost every single airport we work with saying they are investing in technology, they're investing in digital, to achieve a more seamless experience at the airports. In theory, long-term, the capacity we will have to anticipate the dwell time of passengers, it should increase. What we are seeing short-term is absolutely the contrary, massive disruptions all across the board. My approach is very practical. We don't know if an airport is gonna be more seamless or more disrupted, but we have to have an offering that we can adapt and to benefit from any of the two situations. One thing is clear, the dwell time and how that dwell time is spent at the airport is as important as the consumer profile you have.
Again, the combination with Autogrill, we believe will bring higher capacity to optimize that dwell time, particularly with hybrid models. Consumers are changing. Travel is changing. We believe that the old travel segments we have been using, and most of the industry has been using, it has limited value to predict the new consumers and the new way people will travel. That's why we have started, and it's gonna become a permanent element in our research, social media research. One of the big advantages today is that you don't need to ask people what they think or what they want. You can just listen to them. What I'm gonna show now is the consequence of 15 million travel-related posts that we have listened over the last three years.
With proper AI, you can extract patterns, and you can identify what people want and how the people want it. With that, we have identified new type of personas, new profile of consumers. Not only how they behave, but also what do they expect and how they even expect to consume, when they travel. We have identified these three personas. The first one is working wanderers. These are people that are enjoying flexible work type, and therefore, they are very focused on portable, lightweight technology, on subscription, on membership. A second persona is experience seekers, where they're very much focused on luxury travel, in curated experiences. They appreciate the slow travel, limited editions, and they have a focus on sensory retail experiences. I'm not sure the people connected very cool, the thing. The third one is young explorers.
These are people looking more for budget-friendly options, more Generation Z, traveling as a shared experience. They want more sustainable and regenerative, and they are very much community-based. These are three personas. They want different things. We have a fourth persona that we call Enigma, which is the one that will arise tomorrow or the day after tomorrow. Because if we think understanding consumers and travelers is static, we are making a mistake. Things will change, things will evolve. This is not something we can do once and just, "Oh, now we got it." We need to constantly research and constantly listen and constantly adapt to these new personas. Now, going a little bit from the market and from the consumers and the travelers down to Dufry. Why are we looking at all that?
We are looking at all that because these new personas are the ones that will determine our revenues. Our revenues are a function of the number of passengers and the spend per passenger, which is the conversion rate and the spend per ticket. As a reminder, because I still keep seeing this as a huge opportunity, our current conversion rate is 20%. People going through airports that decide to purchase something in our stores is only 20%. 80%, I call them non-customers, are a huge opportunity. The key question for us is: how can we influence the spend per passenger and even the volume of passengers? The spend per passenger depends, one, on the individual traveler profile, the personas. On top of that, we have something which is maybe sometimes not understood, that is a travel mix.
You can be optimizing, and this is our target, to optimize and to increase the spend per passenger per type of customer. Of course, if the mix change, that might change the overall result. It's also very important to understand the spend per passenger, the dwell time. That is affected by the way our offering works. Of course, we cannot influence the passenger volume per se. A little bit, organizing events in London, for example, for some of you to fly here and that, but not in a meaningful way. What we can influence is the effect of the passenger growth in our portfolio through diversification. The same on macroeconomics. Of course, a global recession will affect us, but partial recession or local recessions can be compensated by further diversification.
Something that has affected our spend per head and our spend per passenger in the past, that is relative exchange rates. Some markets are influenced by the exchange rate between US dollar or EUR and the local currency. The idea is we want to understand consumer because that understanding is what will allow us to influence the revenues through the spend per passenger. We listened to the consumers, we heard the feedback from brands, landlords, our own people. We did a lot of research of the market, and with that, we defined Destination 2027, with the idea to bring a revolution on the travel experience. We are not defining our ourselves anymore as a travel retailer because we think this is a very. Anything a traveler might need, might want, we will have in our portfolio. I'm very realistic.
We know people don't purchase strategies. People purchase products, services, and experiences. This is a strategic view, but as I said earlier, is gonna boil down in very specific action plans to make a successful execution on this new strategy. Destination 2027, based on four pillars. Number one, travel experience revolution with the traveler at the center of everything we do. Four elements there. A holistic travel experience, changing travel retail, and adding F&B to provide this full travel experience. An end-to-end engagement, which is both digital and on the point of sale. We are not, and we will not be an online retailer because we are a physical retailer, but we are gonna use digital to enhance the experience. Second pillar, geographical diversification. Third pillar, operational improvement culture. Fourth pillar, ESG. ESG becomes one of the pillars of the strategy.
It's not a strategy and then ESG. On a daily basis, ESG is gonna be at the heart of everything we do. Nothing will happen without the power of our people. That's why one of the first decisions I took is to put people management and a new chief people officer at the center of the executive team. We have identified each of these pillars, how they are gonna affect the key financial drivers of our model. Reimagining the travel retail will support increased conversion and increase the spend per ticket. Adding the food and beverage, it's also helping conversion and spend per ticket, but it's also allowing us to access to a different type of passengers, and therefore, to increase our exposure. Digital, well done, needs to help our conversion and spend per ticket, but also in a more efficient cost structure.
The revolution on the point of sale that I'm gonna explain in a few minutes, it should help spend per passenger and also profitability. Geographical diversification could help sales if we are successful in increasing our exposure to fastest-growing areas, and of course, will help to improve our risk profile. Operational improvement culture, it has to be one of the core elements to drive further profitability in the system. ESG is also important to improve our risk profile. The target is to increase and to have a reliable, sustainable free cash flow generation, because we believe that is what drives long-term value. Need some water. Let me go now to each of these pillars. The travel experience revolution is to make sure that we constantly adapt our value proposition. We will redesign our space, our offering, our pricing. The name of the game is customization.
We need to customize our offering in the wide sense to every location, and we need to engage travelers on a digital channel. It's a complex circle, but basically there are four ideas here. Number one, the traveler is at the center of what we do, and it's gonna be even more of what we are gonna do. Our offering to those travelers, our value proposition depends both for retail and F&B on the store experience. Offering and pricing that will be more and more data-driven. The sales force, I think we have not paid enough attention in the past to the sales force and the digital engagement. Third idea, we cannot do it alone. We need to partner with landlords and brands to really make this new value proposition truly meaningful. Fourth idea is this concept that things change, and things change faster than ever before.
Ten years ago, we could anticipate the profile of passengers on certain airports, and they will not change for five years. Now, probably what we're seeing today is gonna be different three years from now. We need to have a constant screening of those changes and a much more flexible and cost-efficient way to adapt to those changes. Traveler, new duty-free value proposition, brands and landlords as our partners, and a constantly adapting offering. On this re-imagination of the value proposition, airports, brands, and Dufry have different roles. Airports have the space. Airports can decide on the flows. Airports have data. Airports are the only ones that can decide if the hybrid models between retail, F&B, duty-free, duty paid is something they want or not. Brands, they have product innovation. They understand, and they have an engagement pre- and post-journey. They have massive consumer insights.
We are also a very important part of this equation. We have our own very dedicated insights which can be useful both for airports and brands. For airports, we can provide revenue optimization, quality of service, and a loyalty program that goes to many, many airports. We always said that, but we have not brought this to the level we can have. The combination with Autogrill, and I'll go into that in a few minutes, is gonna be a meaningful change to really bring the loyalty program to a next level. For the brands, I want to emphasize one thing, exposure. Exposure has always been one of the key ideas of this industry, and we can push for it much more. Brands not only are interested on what they can sell on travel channels.
Next year, we're gonna have exposure to 2.3 billion people that are gonna go through airports where we're gonna have a store or a restaurant. 2.3. In our discussions with the brands, this is absolutely of their interest. The last idea in this slide at the bottom, again, is that this is not a static, but this is constantly changing and adapting. Our approach to both airports and brands is increasingly collaborative. We are not worried about sharing more and more strategic views. We are creating a yearly forum for some of the key brands on different categories to think together. We are gonna share much more insights, because at the end of the day, if we share the right information, all three parties will benefit, and we all will benefit from the increased transparency.
A key element of this new value proposition is a combination between F&B and retail. We had the full presentation a couple of months ago when we announced the combination, but let me go through some of the key points. Number one, the conversions between the different offerings, because at the end of the day, it's the same people and the same dwell time is already happening. Since the announcement, at least 25 airport authorities have approached us actively asking, "Can we have more details on these hybrid concepts?" We have seen relevant tenders surprisingly coming with this proposal of hybrid concepts. Something that we thought would be happening is actually already happening and is accelerating in a path faster than I had anticipated. This combination of the food and beverage and the retail allows us increased cross-selling opportunities through cross-promotions.
One thing we're gonna see later on is part of how we bring entertainment. How that could be very basic raffles, it could be music, it could be show. If you have a wider base, you can also do that in a more optimal manner because it costs money. Mixed formats, I just addressed it. There is an increasing interest, of course, in the smaller airports, in remote areas in airports. To our surprise, and I cannot disclose the airport, but you will see it soon in the next few months, there is one of the largest airports in Europe that's gonna ask for their main duty-free store hybrid concept, including F&B, inside the store to get more experience and drive more passengers and increase the conversion. Of course, it's very obvious, but going to 5,000.
To 5,500 points of sales and having the same loyalty card and the same end-to-end digital engagement is gonna also make us a big opportunity. Once more, these conversions is gonna be one of the key drivers for us to generate value on the long term. Now I'm gonna go through each of the four elements of this new value proposition. The store experience, the digital, the sales force, and the offering. Starting with the store experience. Shops cannot and should not be designed thinking about how they look like or thinking about what the airport would like to see or looking at another airport that it is a nice shop. Shops don't need to be nice. Shops needs to be relevant.
Shops needs to be designed, ideally also airports, but we cannot do that, we need to do it with the airport, thinking about the type of potential customer you have. It's first data, and then you design the store. One question that will come later is, well, and what happens if the passenger profile change? You cannot change the stores. Yes, we can. We can change the stores as fast as needed if we think about the stores from scratch in a completely different manner, looking at having stores on building blocks. The idea is to have stores that can be changed in a cost-efficient manner rapidly. The key, at the end of the day, will be to achieve a manner for which 60%-70% of the cost of what the customer doesn't see is the same, is standardized, and then.
The perception of the passenger is the other way around, that 60%, 70% is personalized. You can do that. Furniture can be the same, and only the finishing needs to be different. You can have the same infrastructure like the amazing one we have here, but then the content on the digital can be changed rapidly. Third idea. Self-learning stores. The good news is the technology to make smarter stores already exists, and it's proven. The only thing is, it has not been implemented in travel retail. This is cameras. Of course, nice cameras that don't intimidate the passenger. Is software that reads what is happening on the store. Today, we don't truly know what are the hot and the cold areas of our stores. Technology allows that, but also even allows to identify the cold areas at the shelf level.
Technology allows through, not anymore face recognition, because legally it's very difficult, but through avatars, to have digital content automatically adapted. Technology allows you to identify if the person in front of you is female or male, the age, and even some other characteristics. For the sales force, there is also amazing technology. You can support, for example, on self-learning tools. They are technology that allows to listen the conversations between your employee and an anonymized customer, process it, and understand how you increase sales. All what I'm discussing is proven technology, and in all the cases, we are already identifying which could be our technology partners to develop that. I'm gonna give, in a few minutes, very specific targets of what we want to do on these self-learning, smarter stores. With stores, physical stores, is gonna be a key element of our going forward strategy.
Let's not forget we are in an amazing business. Our potential customers are meters away from where we have the offering. Sometimes not even meters. They are already inside the store. Of course, we need to convert that into actual consumption, but they are very, very close. The physical store is the backbone of our new retail experience revolution. Also, what we put inside the store, the offering and the pricing. This is a very material strategic change on the way we work. This industry traditionally has worked thinking what the supplier, what the brand wants and on a push strategy, we put that on the stores. That's not gonna be the case anymore. We will identify what the consumers want, and we will pull the offering, and we will put the pricing. All in a dynamic, fast way.
Today, we are too slow on changing assortment. We are too slow on introducing promotions. We are too slow on changing prices. The technology of the commercial team that we're working on will allow to accelerate that in a very material manner. We are, in some cases, already using it to identify new private labels, new categories or subcategories. Whatever you see, multiply it by 10, and that's what you're gonna see over the next five years. The third element of this travel retail revolution, the sales force. Here it's very clear to me. The sales force is a key element to drive experience, consumption, and sales. We're gonna introduce reinforced training. We're gonna introduce more meaningful incentive system. We are gonna deploy technology to support our sales force. Also, we are gonna use, when necessary, technology to replace or reallocate sales force.
This is why we say we are gonna cluster the different stores, and depending on the type of store, type of passengers, location, et cetera, it will be different. A very simple example. We are doing a massive effort on putting self-checkouts in the Hudson stores in the U.S. It started as a way to address the lack of personnel that there is in that store. What we are seeing is that when you apply self-checkouts in convenience store, you have double-digit growth on spend per head. That's why we have decided at the GEC, two weeks ago, to double the speed on the deployment on the self-checkouts in the U.S. for Hudson.
On the other extreme, on a very luxury duty-free store, what you might want to do is the contrary, and to introduce self-devices for the sales force to have more time to talk to the customers, to advise. It's different from different categories. It's not the same thing if you want a sandwich and a drink, or if you want to have maybe a skin treatment, and you want to even spend some time. I cannot tell you yet, but you're gonna see and enjoy yourself in a few minutes. Enjoying what buying some beauty treatment can actually be in itself a very enjoyable experience. Now, at least for the people in the room, I'm told that we are gonna film it, so also the people remotely is gonna see. I'm gonna show some of these ideas in actual manner.
Let me start with the customer journey immersive experience here on the left. At the lunch break, you can go there. This is almost a 3D experience. The messaging is very similar to the one I've been giving this morning, but it's to emphasize that you might have the same offering or the same messaging, but you can deliver it in a completely different experience. If you have something like that, and it doesn't need to be specifically this, at the end of a store, I can tell you, we are gonna drive flow. One thing we have learned over the years is that if you drive people into the store, the consumption and the spend per ticket increases. On the next quadrant, we have another example. This is sunglasses with Kering. This is one of the fastest-growing categories we have, sun eyewear.
This is a simple example, but how you can, again, make the experience of buying sunglasses a completely different experience. We have started implementing some of these elements. Again, you see increase on the spend per passenger. The third one, which is already addressing, you will have time, is a Johnnie Walker whiskey bar, which includes a way in which technology, software recommends which whiskey according to your taste, and they tell you which type of whiskey you would be able to drink. You have another one outside, you probably have seen it. It is a Tanqueray 0.0%. This is, for example, something that some of our suppliers are very clear that liquor and drinks is also evolving and the taste is evolving. Very interesting data.
Younger generations consume less alcohol, but they spend more. Actually, in many cases, they are a more profitable category than older consumption. Premiumization, personalization, something exclusive, it really makes a difference. Nobody asked, but yes, you can taste the product. Please drink responsibly. There is more to come. The last element of this travel retail travel experience revolution, the digital aspect. We have defined three targets on the digital strategy. One is further engage on frequent travel. Yes, many people travels few times a year, but they are heavy travelers, and we do not understand them the way we should do. We want to push very much, and I'm gonna give some targets later, on digitally influenced sales.
We want to transform, and I gave some examples before, through digitalization, the experience you have in the store and also with our sales force. We want and we can follow the passenger through the journey. More interesting, with the right collaboration, we can understand the passenger before and after the journey with the brands. Have two slides with some examples of already things happening. We are already doing push notification. We are already understanding how we can deliver value with the brands, through the digital strategy. Let me be very humble. I think we have the right ideas, but the level of execution so far, for many reasons, especially COVID, the lack of resources, et cetera. This company has already decided to speed up the level of resources we're gonna put on this digital.
On the three things that really matter, number one, financial resources. Number two, the right team. Number three, senior management attention. The digital is not just one small part of our strategy. It becomes one of my top four priorities. Nobody wonders what is in the other two curtains. Now another one. This is a retail experience revolution. Afterwards, you can walk. Again, it's a visual, very powerful visual presentation of four elements of this revolution. Store experience, especially focused on sense of place, the digital consumer engagement, the importance of the data-driven decision-making, and even one on the F&B. What we're trying to do with all this setup is to show you that if we can make a more immersive, original way of presenting things in a Capital Markets Day, imagine what we can do in an actual airport.
The last surprise I have for you is a beauty box. I would suggest afterwards, we have an hour and a half, so I hope you will have time. You can really see, analyze your type of skin, and it will recommend what you need to consume. There is a very cool feature. It tells you the age of your skin. I was happy because it gave me exactly my age. Another gate member told me that it gave him 12 years more. I think we need to take care, huh? It's not only the fun that it tells you. Of course, it recommends specific products to deal with that.
There is also a way to test perfumes in a non-aggressive way, because normally when you have a tester of perfumes, as it has alcohol, your nose gets saturated, and after two or three, you don't smell anymore. This is without alcohol. It's only air with essence. So you can smell 50 fragrances and you don't get saturated. So you define what you like, what type of flavors or tastes or lifestyle even, and then it recommends some essence, and then you can smell them, and then you can buy. Again, beauty, that as you know, is our largest category. It is something that where you can do amazing improvements. Those examples are not duty-free developments, are collaboration with brands.
What we want to do is to be the most open travel retail to all these innovations and to bring it as much as possible also in an exclusive manner. When we do the break, hopefully, you're gonna be able to enjoy, apart from excellent food outside, all these experiences inside. I'm gonna finish every of the three pillars or the four pillars with two slides, how it creates value and what is gonna change. I want to emphasize again that every time we think about any of the things we have presented today, and we're gonna present today, is thinking, how can this make a difference on the value of the company? It's very clear. The travel retail revolution, the travel experience revolution, will have better conversion and increase spend per ticket.
When it is going down, we'll increase, and when it's going up, we'll accelerate that. One thing that we haven't discussed yet, but also a more engaging experience at the airport, it could be a way to mitigate and to have another type of discussions and negotiations with the airport because the concession fee pressure is still there. Of course, being the most innovative, open-minded travel retailer, it's also a way to engage brands and to provide them with a new platform of advertising customer engagement. Everything I describe is in order to improve sales and potentially margins, or at least to cope with the potential negative trends on the margins. It's what is going to change because I think this is an important point, because some of the ideas I presented today, you might have heard in the past in one way or in another.
We mean business. We have the commitment to put 50% of our stores as self-learning stores by 2025. 50% of our customers, we will engage digitally by 2025. The new loyalty program, which will be a massive upgrade on the current one, we will deploy it globally across all the type of business we have, duty-free, duty paid, and F&B. You will have the most extensive travel loyalty program anywhere. You will be able to enjoy the benefits independently if you purchase in any of the Autogrill or Dufry points of sales. We are already doing it, and we will continue to enhance and upgrade our digital team. Don't worry, panics, but it's in the model and it's in the forecast. We added 50 basis points of sales into additional CapEx for this travel experience revolution, both stores and digital support.
Before I move to the second pillar, the geographical diversification, another small video to get you relaxed from my voice.
Plain talking. Take us so far. Broken down cars. Like strung-out old stars. Plain talk. Served us so well. Traveled through hell. Know how we fell. Lift me up, lift me up higher. Plain talking. Plain talk. Make you lost for words. Sweeter than dust. Lift me up, lift me up higher.
Lift me up, lift me up. Oh, la, la.
Super cool. I love it. It's also this type of communication is very important for, and this is off presentation, for the team engagement. I mean, already we have introduced this new way of communication, and I can tell you that people increases the engagement, the commitment with the company. It's really important, not only the content, but also the way you express it. Let me now go to the second pillar, the geographical diversification. I think we have already explained that a few, a couple of months ago. Focus on North America, a dedicated strategy for Asia-Pacific, organic growth on business development for the rest of the world. Whenever possible, and as long as the airport and the passengers want it, to combine more and more duty-free, duty paid and F&B.
Doing it on a combination of business development, joint ventures and M&A, because it will be needed in some key markets that I'm gonna explain in a few minutes. North America is large, is resilient, and very importantly, the most important segments are food and beverage and convenience. Duty-free is the smaller of the three segments, which is contrary, for example, to Asia-Pacific, which means it's not only a geographical diversification, but it's strengthening our portfolio with a segment diversification. As we have seen, the resilience and the growth of the different segments is different, and therefore, we have a more resilient and constant growth with that. We're gonna be 60% in North American F&B, 40% in travel retail and convenience.
Together with Autogrill, we are gonna be present in 100 airports and having the best team, combined team, having the experience of the leading companies on the two segments. Element two, Asia-Pacific. Asia-Pacific is nowhere today, and we all know. The restrictions are still much stronger there than in any other part of the world. In 2019, this was a CHF 46 billion travel retail market and included 3.2 billion passengers. With 86% of that market in these top 10 markets that you can see in the map. Now I have four slides on the Chinese. Number one, Chinese account for about 40% of all the passengers in Asia-Pacific. Chinese passengers are growing fast in domestic, and it's expected they will also grow fast again in international short and long haul.
Sometimes, especially on European or North American based companies, we forget that Chinese consumption on travel is 80% in Asia-Pacific. Even if the world will move geostrategically to a more polarized eastern and western hemispheres, you can see that it's very doubtful Chinese would not be a driving force, at least on that eastern part of the world. That's why we need a dedicated strategy for Chinese travelers. There is one element which is very difficult to forecast, which is Hainan and potentially other duty-free areas in mainland China. Hainan duty-free is representing today already 13% of the total mainland China personal luxury sales. The Chinese government is expecting to multiply that by 5x to almost CHF 50 billion. It's an extremely regulated market.
You need to have a license in order to operate duty-free stores, and you need to be a Chinese-based company. The only role we can play is of advisory and supplier. There might be other areas like that created into mainland China. We need to be realistic. These markets are extremely affected by regulation, which is very difficult to anticipate. That's why our partnership with Alibaba is fundamental. We're doing a lot of great things. We are putting the foundations of a long-term collaboration. We want to work together in China, yes, but as I said, nobody knows the speed in which that market will open to non-Chinese companies. What we are driving now is a common strategy to address Chinese travelers also outside China. Alibaba, like many other brands, wants to understand the behavior and to have an engagement on Chinese travelers.
We, as the most global company by far, with the largest presence than any other or number of geographies, we become a key partner of that. I'm convinced that this joint venture, with the proper reinforcement, and this also becomes an essential part of my priorities, it will deliver a different type of interaction with the Chinese traveler. For the rest of the world, we are already very strong in Europe, Latin America, and Africa and Middle East. There, we will continue to grow on new locations, new markets, but more on an organic basis and using the people we already have on those markets. How it's gonna create value? Of course, improves our risk profile. It could accelerate passenger growth if we really choose and are able and successful to enter the most fast-growing areas of the world.
The more diversification, as I said, both on geographies and segments, it gives more reliable revenue growth. It could even increase conversion if we use what we learn on different geographies on the old ones, and it could accelerate digital revenues on the new touch points. What is gonna change? Of course, number one, for North America, the combined team, this is a game-changer. In Asia-Pacific, we are already in the process of massively enhancing that team. As you might remember, on my first phase in Dufry, I ran that region for three years, and I think the potential is big, but we need more management attention and more resources to unlock the potential of Asia-Pacific for us. We're changing the approach to business development.
After we combine, we are gonna be much larger, and the number of opportunities that are gonna pile up are gonna be bigger than ever before. We cannot approach the how we select new projects the same way that before. Return on investment is gonna be the key driver. Of course, understanding the duration of contract and existence or not of minimum guarantees are three things that go together because it's not only the return on investment, but also the risk profile of that project. The third pillar, operational improvement culture, including zero-based budgeting and active portfolio management. We discuss a lot on the executive committee and on the board how to address this. We on purpose decided that the approach of one-off cost cuttings is not the way forward.
That works on a big crisis, but an ongoing regular company, what you need to do is to have a system of continuous improvement, for which every year you drive additional efficiencies. Knowing that part of the efficiencies we will generate need to be reinvested in the company, either to create innovation, potentially to fuel improvements on the systems that will bring further efficiencies in the future. Part of those efficiencies will need potentially to be reinvested to be more competitive on gaining contracts. We will give this afternoon some numbers that of the efficiencies we expect to generate, part of them will go to the bottom line, and part of them will be reinvested in having a sound, reliable long-term business. Zero-based budgeting, I think everybody is aware of it. It's gonna be a very clear philosophy.
We don't think about cost, taking into consideration what we spent the previous year, but starting if the cost itself is necessary or not. That could be a big cost, but it could also be, why am I doing and spending time on doing a report that maybe is not needed anymore? Active portfolio management. I mean it. I mean, I cannot promise perfection, so we might be making mistakes and purposely not win a not so good contract. One thing I can tell you, we will make every effort to win contracts that generate return on investment and profitability. We are not interested in sales. We will be disclosing in the future very clearly the effect of that, because if I lose a contract or we don't win because it's not gonna make money, I'm not unhappy. I'm actually very happy.
This will sustain margins, will allow to reinvest in the business, and when needed, hopefully not, but when needed, it might be split with the airports to be more competitive. What is gonna change? The zero-based budgeting is gonna re-implemented already for budget 2023. We are working now on defining the integration team that will be ready when we do the integration with Autogrill to guarantee that the cost synergies of CHF 85 million per annum that we announced are gonna be delivered on time and at the precise number we forecasted. I already discussed the active management concession portfolio. ESG. This is not something new. Dufry has already a very strong ESG strategy. What is new is that we put it in the middle of our daily business.
We make it more tangible and visible to the third parties, but also to our employees and key stakeholders like airports and brands. Our very science-based targets, and we are gonna focus more on local projects. You have already seen that in the past. We have four areas of focus on ESG, including the sustainability and safety of our products, how we behave, not only legally but ethically, how we retain employees, and how we address diversity and inclusion, and of course, on how we can protect the environment. On this last one, for example, you have the targets the company has already committed to, and that management incentive is gonna include as part of our targets. This is a very much extreme focus of our board of directors and the committee on ESG that we have.
This, we will make it impactful on a local basis. After the combination with Autogrill, we are gonna be present in 350 airports worldwide. These are 350 communities, and many times we are one, if not the largest employer in that local community. What we do there can actually make an impact, and our employees can see it in a very tangible way. Also, airports can see it in a very tangible way. That might be meaningful ethically, but it could also be meaningfully meaningful business-wise. Those are the four pillars of the new strategy. Making a small dramatic pause because I have five minutes, 12 seconds to finish, and probably I have four minutes to take so. The four pillars of the strategy. We didn't define the strategy and then try to see why it makes sense.
We really identified what we need to do to win travelers, to be meaningful to travelers, to have an engagement on travelers and therefore, to have an impact on our sales. We look at what airports want, the good things and the challenging things, because they want growth, they want passenger satisfaction, but they also want, potentially, more of financial targets. We look at what brands want. Why is travel retail relevant for brands? Exposure, not only sales, but exposure is fundamental. Understanding that, and today was only a summary, we have hundreds of pages of research and internal discussions over more than four months, is what brought us to these three pillars. Travel experience revolution, where the combination with food and beverage is fundamental, where the end-to-end engagement with consumers is relevant. Geographical diversification, the operational improvement and the ESG.
Always remembering that we are a team, and only with the power of our people we can get there. Before I finish, I wanna show again, it's the same slide, but for you to understand that we are tremendously focused on that. Internal management rewards and reviews, we will be based on this. It's not only gonna be in a slide, but I do intend that the incentive systems of management of all levels, and when it's relevant, of course, because not everybody can influence everything, is gonna be based on those targets. Because we have to have an alignment between management rewards and value generation. At the end of the day, what we want is sustainable cash flow, sustainable and predictable free cash flow. Two minutes to the break. I have one video or two. Only one. Okay.
There is a very cool video that. You know, technology is amazing. We had a drone this morning at 5:00 A.M. going through all the event and filming. We're gonna show that, but that's a surprise, no? I shouldn't explain that. It's gonna be a surprise. I'm gonna finish with one video, then we have nice food outside. The curtains will be open, so you can browse through the different immersive experience. There will be duty-free people and people from our brands to help you out when needed. Enjoy it. We have an hour and a half, so we don't need to pile all of us at the same time.
When we come back in the afternoon, our CFO, Yves, will explain the financials, which I know is what everybody wants to see, but I hope this initial part was also interesting enough. Now a final video before the break. Thank you very much for your attention. Was really appreciated.
Travel is changing. The next customer generation is raising different customer needs, and behaviors emerge. We get ready to reinvent ourselves and launch a travel experience revolution, reimagine our value proposition from a store to a story. We further expand our geographical presence to get better at what we do every day, together as one. We want to make a difference for local communities and the planet to fulfill our mission, making travelers happier, inspiring them, and deliver unforgettable moments. From a store to a story.
Ladies and gentlemen, we will now continue to the financial part of the presentation. Therefore, please welcome the CFO of Dufry, Mr. Yves Gerster.
Thank you very much. Good afternoon, everybody, and welcome to the Capital Markets Day of Dufry 2022. I hope you enjoyed the day so far, and that you had a great lunch and some great discussions during the lunch. I will guide you now based on what Xavier said this morning on Destination 2027, our new strategy, through the building blocks of that new strategy and how it will generate shareholder value through sustainable profitability and ultimately also cash flow generation. The building blocks are probably obvious, but we'll guide you through the top-line growth and what drives us there, and Xavier was very specific on that part, and we'll go a little bit into the details there. The cost structure and the cash flow, the resilience of that business, and how all those elements will generate ultimately the shareholder value.
Before we go there, and before we start with one building block after the other, let me guide you through a couple of other elements which we believe are extremely important. When we come to the number, and all the numbers I'm going to present to you today, we are calling them unaffected, which basically means that it's not a blue-sky scenario in that sense, but it's a scenario which does take into account certain challenges we will have on the way of our Destination 2027 strategy. We don't have a crystal ball. We don't know and can predict every single challenge we will experience on our journey. Therefore, before we go into the building blocks, I want to mention a few of them. In the short term, as you know, we have certain restrictions in respect to the number of passengers.
We have some geopolitical tensions, and we also have inflation. Again, we are considering and try to consider all of those potential challenges in our strategy, but there might be effect we cannot predict, and there might be challenges which have an influence on the performance of our organization, which we cannot predict in the strategy. I think the pandemic we have all experienced over the last couple of years is the perfect example of such an event. If we now go into the building blocks one by one, starting with the top-line growth. What you see here is nothing new on the left side. What you see here is probably nothing new from a structural point of view.
It's our fundamentals of our business and the top-line growth, starting with the number of passengers, which were one of the key drivers of our industries for more than a decade now. It's the spend per passenger, which is the second key driver, and together, they amount for the like for like growth, combined with the net new concession. Our constant ambition to optimize our concession portfolio. Xavier was also very specific this morning with the focus to generate as much cash as possible. What is, though, new is the way we approach it. In respect to spend per passenger, this is going to be one of the key drivers in the top-line growth going forward. Xavier was very dedicated and very detailed on all the initiatives we plan to do to convert people who are not shopping into people who are buying goods from us.
That's where we put a lot of energy with the travel retail revolution, the digitization of our business, and all the other programs we have launched and will launch in the near future. Last but not least, obviously also M&A plays a role in our growth strategy. The most obvious one is the signed contract with Edizione to combine with Autogrill. This is subject to antitrust approval, as you know. Once we are combined and integrated, there might also be further initiatives in that regard. M&A is part of our DNA. You know we have been the consolidator in the industry for more than a decade now, and it's definitely something we also plan to be part of our growth story also going forward.
If you move to the second pillar, the sustainable profits, let me start by explaining to you once more about the flexible cost structure we have. If you look at the two first lines here, the cost of goods sold and also the concession fees, the most relevant cost amount structure or lines of our P&L. Those two lines together amount to around 75% of our cost, of our operational cost between top line and EBITDA. Almost everything of that is variable. Cost of goods sold, so the merchandise we purchase from our suppliers, is entirely variable. We don't have any contracts which define a minimum purchase amount. On concession fees, as you know, there's a combination between the variable part and also the fixed part, the minimum annual guarantees.
In respect to minimum annual guarantees, you will see in a moment that under a stress scenario, even more than 50% or 60% is actually variable. For modeling purposes, in normal circumstances, for the two first line, around 70%-75% is indeed variable. For the remaining part of this cost structure, as you can see on the slide, also there, be it personnel expenses, OpEx or also CapEx, around half or even more than half of the costs are variable. From our perspective, the best proof of that were the year of the pandemic. On all the lines I've explained before, be it PEx, OpEx or CapEx, we have proven the flexibility of the cost structure there.
On the concession fees, which you see on the far left here, where we only reflect on the slide the max or the minimum annual guarantee itself, so the fixed part of the concessions, you see that during the pandemic, almost 100% of that has been turned into variable, or we were able to mitigate that. Disregarding the fact that actually those costs were obliged contractually to our concession partners, i.e., the landlords or the airport operators. Another element in respect to the cost structure, which is extremely important, especially now as we move into the food and beverage with the combination with Autogrill, is the different cost structures of the different concepts. We often get asked, "But how will the PEx line evolve over the next one, two, three, four, five years?" Or, "How will concession fee evolve over the next couple of years?
Will you continue to see pressure on the concession line?" It's very difficult to answer that because it depends. It depends a lot on which direction we are moving to, and if we will move more into food and beverage going forward organically, more into convenience or more into duty-free or duty paid concepts. As you can see here, food and beverage actually has the highest gross profit margin. It's significantly higher than duty-free or duty paid concepts. On the other hand, it comes together with much higher personnel expenses. Purely due to the combination with Autogrill, our concession fee will increase significantly, but so will also our personnel expenses. If we move on to the cash flow statement, you will see something similar to happen once we combine with Autogrill. Starting with the net working capital.
In travel retail or in retail concepts in general, we do invest into net working capital. One of the key reasons in our case is the central sourcing over our global platforms. On the other hand, the relative, compared to food and beverage, obviously, but long shelf life of our products. I say relatively compared to food and beverage, not in general. If you go to one of our shop and you buy a bottle of perfume, you're probably pretty relaxed about the fact if it's already there for a week or two. That's obviously completely different when it comes to food and beverage, where you want to enjoy a fresh sandwich. That's typically sourced locally and is either consumed on the day itself or one or two days thereafter.
On the other lines of the cash flow statement, being payments to minorities or taxes, the picture is more or less stable in the future due to the combination and also in general. However, on taxes, we expect to see some pressure going forward. We're obviously working on concepts to mitigate that, but nevertheless, in some of the jurisdictions where we do pay taxes, so which are relevant from a tax point of view for us, there are increases in income taxes expected over the next couple of years or already being confirmed. If we move on to CapEx, also there, pretty mixed in respect to the different concepts. While in duty-free and duty paid, you have relatively low CapEx numbers and investments into CapEx in average on a yearly basis, it's a completely different ballgame in food and beverage, where you see much higher CapEx.
Convenience is somehow in between. The reason for that is duty-free and duty paid concepts, the stores are relatively large compared to convenience, and you obviously don't have the kitchen. The kitchen is pretty cost-intensive. On the other hand, in food and beverage, what you also do have, and that's mitigating the higher initial CapEx to a certain extent, is much longer contractual durations. They are closer to 10 years, whereas in food and beverage and convenience is a little bit below that. To summarize the cash flow statement, what you see here is, on both charts, is the cash flow before financing, so the EBITDA into cash flow before financing conversion, and EBITDA into equity free cash flow. Let me focus on the right side, the EBITDA into equity free cash flow.
As you can see in the two record years we have, 2018 and 2019, so the years directly before the crisis, our equity free cash flow generation or conversion was around 27%. In 2019, even slightly more than 2018. When we have achieved that, and that's important, when we have achieved that back in 2019, everybody was super happy about that, inside the company and also in the market. It was a fantastic result, and I want you to remember that number, 27.3%. If you go to the next building block with the resilience of our business. Dufry always had a very diversification-oriented strategy, be it in respect to the geographical split, be it in respect to product categories, be it in respect to channels, and we will continue to pursue that. That's also part of our strategy.
Xavier has mentioned it this morning, the geographical diversification is one of the key pillars of Destination 2027. Directly after the combination, once it is approved by antitrust and completed with Autogrill, we will have a very balanced geographical profile, with around 1/3 of our revenues coming from North America, a little bit more than 1/3 from Europe, and a little bit less than 1/3 coming from Asia. That's also one of the reasons, as you know, why the rest of the world, which contains also APAC, is part of our core strategy going forward. In respect to the format, we will be completely balanced. We will have food and beverage being 1/3, duty-free and duty-paid, give or take, 1/3. In respect to channels, we will continue to stick to airports. That's going to be the core of our focus going forward.
However, we will add some additional concepts, specifically in locations where it does make sense. One thing which you perfectly know from our past is, for example, the cruise business, specifically in the Caribbean, not necessarily globally, but in the Caribbean and also selected other locations, or the ferries, for example, between the U.K. and mainland Europe. Another key aspect of the resilience of our business are the stakeholders and the shareholders. Let me start with the shareholder base. As you know, we have a very stable and long-term relationship with some of our key investors and key shareholders. We name here a few of them, Alibaba and Advent have joined us during the COVID crisis.
Now with the combination, we will have one additional shareholder joining, and it's going to be, the Benetton family through their vehicle, Edizione, which will join us if the combination happen and is approved by antitrust very soon with a stake between 20%-25%. What is very strong in the organization is the governance. We are strongly committed to the Swiss Code of Best Practice for Corporate Governance. We're following that very diligently. We are convinced to have a independent and diverse board of directors and also management. What is new, and we have announced that around two months ago, is the new strategy and integration committee, which will support on the strategy and the execution of the strategy on one hand side, and also the integration of Autogrill into Dufry.
Last but not least, I have mentioned now the investors or the equity investors, but it's not only the equity investors, it's obviously also all other stakeholders we have. Be it a relationship with our group of lending banks, most of them following us since more than a decade. Same organizations, but what is also great, same people, same relationship teams, so very strong relationship there. With our concession partners, the landlords or the brands, and also all the debt investors and the employees, and also the relationship we have with the governments. As we are in a regulated business, we are working extremely closely with them. We have seen that especially during the COVID crisis, so extremely strong relationships there. This is also an extremely important topic, especially now as we have inflation, as markets are difficult, is the financing of the organization.
We currently have a net debt position of around CHF 3 billion. It has been extremely stable over the last five, six years. It has been especially stable due to all the initiatives we have taken during COVID. We have entered the crisis with around CHF 3.1 billion of debt. We are going now out of the crisis with a current position of CHF 2.9 billion of net debt. Actually around 10% lower than before the crisis. That's obviously thanks to the banks, the equity investors, the bond investors, who have supported us during the crisis and made that happen. In respect to the covenants, we obviously are still in the covenant holiday, as you know. That lasts until September 2023, where we have the first testing.
As you can see on the line, we are still a little bit above the threshold, but we are getting closer very fast. I'm super relaxed about the covenants. I stay a little bit on the financing because I really believe it's important at the moment. The second thing which is extremely important to note is our access and capability to the financial markets. We have proven before the crisis and also during the crisis, with more than 10 capital market transactions during the COVID crisis, that the company has access to the market. It's not only to bank financing, it's also to debt, equity or equity-linked products. The second element which is important is related to inflation. I get often asked, how will interest expenses for the group change with the inflation? In the short run, the good news is marginal or not at all.
What you see on the right side here is the evolution of our fixed floating rate debt. We have increased that over the last decade steadily from being more or less floating to more fixed rate interest debt, reaching 86% most recently at the end of 2021, and the amount is still on that level. Most of our debt is fixed. It's not only fixed. The part which is fixed and relatively non-expensive, if I can call it that way, has a remaining long lifetime. What you see here is the remaining lifetime of our debt. The one which is not hedged or which is actually floating has a relatively short lifetime. The one which is fixed and relatively low coupons has a long lifetime.
Just to mention the EUR 750 million bond and the EUR 725 million bond, which mature only in 2027 and 2028, have a coupon of 2% and 3.4% respectively. Very solid financing. We went through the key building blocks. Looking at the last one, the shareholder value. We have mentioned it when we announced the signing of the agreement with Edizione to combine with Autogrill, that our target of leverage is below 3x in 2025. What is important to note here is this is not contractually obliged. From a bank's perspective and from the agreement perspective, you have a threshold of 4.5x. It's our ambition to deleverage the organization and go to below 3x by 2025. Once this is reached, the capital allocation of the group will be threefold.
It's to reinvest, as Xavier has mentioned this morning, into the company to drive growth. It's to consider return to our shareholders, and it's to support the growth of the company through M&A going forward. It's probably the most important slide, and I like typically clean slides, so that's far from being clean. We had quite some debate on how the slide should look like. It's not clean, but I believe it's very detailed and very transparent, and that's probably the most important thing. What we have decided to do is to split our outlook for Destination 2027 from a financial perspective in two different moments in time. We have the year 2023-2024, which we call the transition years. Then the year thereafter, 2025-2027, which are the more cruising speed years, if I can call it that way.
Let's go through it step by step, starting with the top-line growth. Again, the split into passenger growth, SPP, and business development. As we are obviously still a little bit in a recovery phase from COVID, the growth in the year 2023 and 2024, the top-line growth in respect to passengers and spend per passenger, is higher than in the years to follow. It's 7%-10%, 2023 and 2024 per annum. In year 2025 to 2027, it's going to be between 3.5% and 4% in respect to passengers and 1.5%-2% unaffected spend per passenger increase. That, together with the business development for the year 2025 to 2027, translates into a CAGR of 5%-7%. In the year 2023 to 2024, you note that we have put there a comment called Spain effect.
Also there we had quite some debate because obviously we want to be transparent or as transparent as possible and give you an as precise guidance about the future as possible. However, Spain for us is a meaningful contract. It's relatively big in size in respect to revenues, relatively small in respect to profitability and cash flow, as you know. However, it's a meaningful contract when we talk about turnover, and we simply cannot predict our future. As you know, it's a tender, it's a competitive tender, and therefore we have decided to put that there separately. 2024, what we can give as a prediction is passenger growth and spend per passenger, what we mentioned on the slide. When we go one step further and look at the profitability and our core EBITDA in the new way we present our financial core numbers.
There, based on the improvement culture Xavier has announced this morning, we will be able to increase our profitability, basically to reduce our cost there by net around 75-100 basis points. The starting point for that is the EBITDA margin we have disclosed in half year 2021. Basically, the way you need to think about that is you take the weighted result of the pro forma combined group as a starting point, and for 2023 and 2024, you have between 75 and 100 basis points. Obviously, there will also be the integration costs of CHF 100 million to be considered. Once this is done thereafter, 2025-2027, the improvement will be a little bit more moderate in the area of 30-40 basis points gross.
As Xavier has mentioned this morning, we plan to invest part of that again into the business to drive growth further. Net, the improvements therefore are around 15-25 basis points. On top of that, as of 2025, i.e., around 24 months after the combination with Autogrill, we will see the synergies of CHF 85 million coming on top. CapEx of the combined group will be higher. I've explained that before. The combined group, due to the food and beverage CapEx, which is higher than travel retail, will have a CapEx of around 4.5% on an ongoing basis. However, for the next two years, it will be slightly higher.
It's going to be 5%, and it's the 50 basis points Xavier has mentioned before for the digitization and the retail revolution project we plan to implement in the back office and also in the shop floors. The change in net working capital is going to be stable based on what I have mentioned before. If you have growth in travel retail because you do invest into net working capital, it will be slightly negative if you grow. In food and beverage, it's slightly positive if you grow. This is also taken into account here. In respect to equity-free cash flow conversion over the next two years, we expect to see an average 20%. What is important to note here is next year. Look for next year, and you have probably seen half-year performance of Dufry, which we have presented in August.
The cash flow obviously was extremely strong, but we also were very clear that there were a couple of timing shifts in respect to CapEx and also other initiatives which led to this relatively high cash flow performance of half year. We'll probably see some costs coming in in relation to CapEx and also other line items in the second half of the year. Something similar will obviously happen also for next year. We will also see some timing shifts from this year into next year in respect to CapEx, but not only that. What you also need to consider for next year is from a cash flow perspective that there are again income tax coming in again and also some MAG payments which we didn't have this year.
What I want to say with that is please remain a little bit on the cautious side when it comes to the cash flow 2023. Thereafter, 2025-2027, we consider an equity-free cash flow conversion to EBITDA in excess of 30%. I've mentioned before that it is important to keep in mind the 27% of 2019. What is important to note here, 2019, we were a pure retailer and we had 27%. Now we are talking about an organization, pro forma combined business going forward, which is a mixed concept. It's travel retail and it's food and beverage. With food and beverage typically yielding lower equity free cash flow. Nevertheless, our target is 30% or in excess of 30%, which is actually, as a combined group, including food and beverage, significantly more ambitious than 2019.
That was the closing remark from my side. With that, I hand over back to Xavier. Thank you very much.
Thank you, Yves. Conclusion. I'm gonna be very short to allow. Is it working? Yeah. Okay. Let me start. Continuing a little bit the fun. Are you having fun apart from interesting insights? Okay, good. Heatmap, actual data. That's what you guys have been doing between, I think, 11 and 14 today. We can see where people are sitting, and if I'm not mistaken, of the different concepts. Of course, you can zoom in because there is. I mean, the. I haven't seen that before, right? I'm seeing it. That will be the perfumes, I think, the skincare. I think that has been the most successful concept. But look, this is a bit for fun, but it's very real. You can see this was happening a few hours ago.
You can actually have very quickly knowing where people are. When we do that in our stores, we can realize that we have many square meters that maybe are not yielding any return because they are not selling anything. Of course, you can change physically, but sometimes you can drive people with silly elements, which could be just putting furniture somewhere where you change the flow, or you could have actively the people, the sales force, driving people to one side or the other. Just before I conclude with two final slides, to put an example, a live example of this morning on how quickly fast you can get information. Of course, if then you don't have the team and the philosophy to take advantage of that, this is only a colorful graphic.
Our intention is to use that and then act on it on a local basis to really make a difference. The conclusion, I'm not gonna say anything new. This is a large, healthy, resilient, addressable market, especially when you see the combination of the duty-free, duty paid, F&B, and probably the new segment of hybrid concepts. Remember always that on average, a passenger is the most affluent of any, general population. Consumer is changing, travel is changing. Consumer and travel will change also in the future, and that's why we define this new strategy. Somebody make a comment that it looks that actually you believe on what you're saying. I cannot guarantee we are right, but what I can guarantee is that the entire management team, senior and general management, we do believe that's the right way going forward.
We are committed to invest our time and the necessary financial and personal investment to make this a successful strategy. Passenger at the center of what we do, because everything else is second to that. Without the passenger buying products, services, and experiences, there is no business. Of course, collaborating with the airports and the brands, because together we can do a much better job than fighting one against the other. As Dufry, focusing on a smart geographical diversification. The geographical diversification is not to be in as many places as possible. It's to be in the right places to drive sales and sustainable profitability. The operational improvement culture, that might sound less exciting than the others, but is for me a key complement to the other two.
Because not only we have to do the right things, but we need to do the right things with the right cost and investment. Again, ESG being meaningful and making a real impact on the day-to-day of our employees. All that to improve in a sustainable manner the financials and at the end of the day, the free cash flow. I truly believe we are in a great business. We are in a structurally growing business. We are in a business where we have material opportunities to expand both geographically and with the new segments that come with a combination with Autogrill. We are in a business, and very few retailers and F&B players can say that, where our potential customers, and let's remember 80% of the passengers are not customers today, are basically in a distance between here and the end of this room.
We just need to make a good job to get those people from the end of the room happy to enter and shop in our stores. Now, big thank you for your attention and we will open. No disclosure. Now we will open the floor and the phone for questions. If you come up. Don't worry, the rumor is true. There is another video at the very end, so you're not gonna leave without another video. Maybe we'll start with the room first. You need a mic to make sure that people can hear you on the phone.
Hi, can you hear me?
Can you say something else?
1, 2, 3.
I don't.
Not yet?
Yes.
Yeah, there you go.
Yeah.
Okay, thank you very much. Good afternoon, it's Jaafar Mestari from BNP Paribas Exane. I've got three questions, if that is okay, to get us started. The first one is on your free cash flow conversion. Obviously, the percentages are very useful, and I know the limits around absolute numbers given the state of the transactions. If I take your track records, you did CHF 320 million in 2019. Autogrill has a target of CHF 140 million in 2024. Why is the number not very close to CHF 500 million? I can't quite square that slide and get it to spit out CHF 500 million. Second question on net new business. There's a 0%-1% target, which looks very much in line with what you delivered in history.
Why is the new hybrid business model and the integration of Autogrill and the new commercial opportunities and cross-selling, why is it not allowing you to accelerate that? If I take it differently, you know that a leading food and beverage business can do 5%-6%. It's a very disruptive environment. You can play with the brands. You can do a lot of things that you can't necessarily do in retail. You're gonna have one-third of the business that should aim for 4%, 5%, 6%, that should almost guarantee more than that. Is there a reason why you're not baking that in? My third question maybe is just a different angle on the first two. I've used the Autogrill targets a lot. Do you believe them? Have you baked them in?
Because if they stop doing 0%-1% net new business and do 4% or 5% like SSP, if they deliver on CHF 140 million equity free cash flow in 2024, your targets should be a lot higher, I think. What's your approach to that? Have you de-risked them? Do you not believe them? Will you need to do more due diligence before you bake them in?
I'm gonna start with second and third, and then Yves will take first. I knew the question will come. I thought it will take a little bit longer, but that's okay. The Autogrill targets, I think. Let me make first a reference to the legal disclaimer. In all effects today, we are two separate companies, so we will only comment on publicly available information on Autogrill. Right now, we are happy and supportive of the guidance or the indications Autogrill have given. That's from outside, okay? I'm not disclosing anything, but I think it's a very professional team, and what they guide, it's okay with me. On the net new business, twofold. Number one, there we have not considered any specific additional targets for Autogrill because they don't give guidance there.
Of course, if the food and beverage will be bigger than that should be added on. Look, for me it's important the concept of net adding business. This is not gross. I do believe the right approach also from a financial discipline is to think that sometimes you will lose contracts and not to get obsessed on getting a very high renewal rate when it doesn't make sense. For me, we will lose some contracts, hopefully the right ones. We will win other contracts. If every year we add a little bit of additional business, I think on the long run, that delivers a lot of value. On the free cash flow?
Look on the free cash flow. I'm not sure if the mic is on. Probably not. On the free cash flow, there, my understanding is that the way Autogrill is presenting the cash flow contains also minorities. You would need to deduct those minorities to come to the right number. If you take that into account, I believe the numbers are much closer together of what we have presented than what you would expect to see, right?
Okay. Just, if the mic can go back on.
Okay. Oh, yeah. No, just on this, thank you for the answer. You think 140 is a slightly different definition. On that slide 103, summary of the targets, 5%-10% growth, 7%-7% growth. Maybe you're gonna do CHF 11 billion revenue combined. Maybe you're gonna do margin around 10%. Above 20% cash conversion, let's assume 20-something. It still looks like a number that combined could be very close to your standalone free cash flow for 2019. Is there something I'm missing here? Why am I not adding at least CHF 100 million for Autogrill, for example?
Look, I think what needs to be taken into account is also what we discussed many times is the normalized equity free cash flow of the Dufry Group 2019. What we have reported, at least the reported number, is CHF 383 million for 2019. There are two effects in there or two one-offs in that sense. One is a tax refund from Spain in the area of around CHF 20 million, and the other one was the prepayment, which has been done by World Duty Free Group when entering into the Spanish contract of around CHF 50 million. More normalized starting point of Dufry 2019 is in the area of CHF 314 million Swiss francs, and I think that's the starting point we need to consider.
Hi, John Cox, Kepler Cheuvreux. I think I'm gonna ask a similar question to my colleague over there. Basically, just to come to the baseline, I didn't quite get it because you seem to be talking about H1 2022 when I think you did an EBITDA, core EBITDA margin is 7.8%, but you're talking about 7.1% pro forma for the group. Is that correct? Just so we start with the right, you know, % we should be looking at EBITDA core this year before we start adding all the other bits and pieces. That's the first question.
Mm-hmm.
Second question, you know, my colleague hasn't even touched on the CHF 270 million original equity free cash flow savings you had after, you know, a major restructuring operation. I'm just wondering, is there anything there or what has happened to that? Or is it in the back pocket as something you can give us later on? Or you just really think at the moment because of the hiring and all the things you're doing, that figure is just, you know, totally disappeared.
One to two.
Obviously a lot of focus on spend per passenger, and I know I asked you this at lunch, Xavier. You know, what sort of targets do you have for that? Just to give us some sort of comfort in terms of what your, you know, what the goals are, what the targets are. We don't necessarily need to know an exact percentage point figure, but just to get a rough feel for what you're actually trying to do there, if that is a core part of your internal KPIs and everything else around your new strategy. Thank you.
Looking in respect to the EBITDA margin, the core EBITDA margin as a starting point, there, the 7.1%, take into consideration the half year EBITDA of Dufry, the one you mentioned, but also the one of Autogrill. Whatever Autogrill has reported for half year 2022 together with Dufry or the weighted number of the two, that's the starting point.
Thank you for the questions, Jon. The way I would like to look at the financials going forward is including two elements. I think keep looking back to 2019 is a bit misleading because 2019 is not gonna be back. The profile of sales, the geographical sales, the type of passenger, domestic, short-haul, long-haul, 2023, 2024 is gonna be something different. The company, like the market, is gonna be something different. Some nationalities are gone, and they don't travel anymore for whatever geopolitical reasons. New ones arise. Brexit is there. Everything changes. First idea is from now on, we start in 2022, and that's what we try to do today.
We go to 2023 and 2024, that they are years where still because of the consolidation with Autogrill and other aspects, it are a little bit of transition. We guide on the new future, 2024 and going forward. Second idea, I think it's misleading to talk to the market about individual lines of P&L if that's not the way management thinks about the business. We don't think about cost lines, we think about profitability, and we don't think about CapEx, we think about return on investment. To ignore that the different lines of the P&L are actually moving on their different directions depending on many things. To give a few examples, and Yves already spoke, depends on the segment of the business. One segment of the business have a higher gross profit margin, but maybe a higher concession fee, so that changes.
The lines don't mean anything. You still can have very similar EBITDA margin. That's why we go to core EBITDA margin. In one airport, I might be willing to put additional personnel to improve the customer satisfaction and that yields, in return, lower concession fees. Again, cutting people in that specific shop will be the wrong management decision. There are categories that have higher gross profit margin, but airports most likely know that, and for those categories, they're asking higher concession fees. I think the way we think, and we would like the market, if we can choose to think about us, is on this, on profitability by relevant segments and not about individual cost lines.
We choose the starting point of half year 2022 to just take something that is officially published, and especially because as we need to consolidate with Autogrill, we have to take something. We all know that the first half year profitability is not a good proxy of the year, but it's a starting point to try to help modeling. From there, we make a big change and a big upgrade on the profitability over the next two years, and then a more regular profitability. If you think how the way we have presented it, I think it's a very realistic, you could say, you said that during the lunch, cautious, but it's a realistic. What we're trying to explain is how the business works. We will improve profitability, but it's not realistic to think that part of those improvements will not have to be reinvested.
One, to be competitive on concession fees in certain geographies. Second, if you want to generate added value going forward, you also need to invest in the business. To make things even more complicated, there is not only the segment, but it's also the geography. I received a very interesting question during the lunch break on how the different geographical dynamics, the cost dynamics, the concession agreements dynamics in different markets. Now, for example, one thing we see is that in markets like the U.S., CapEx is one of the essential elements. Airports want to have outstanding points of sales with outstanding look and feel, and they are less concerned about the percentage of concession fees. In Europe, you have two schools. School number one is this is a partnership. What is important is that we all together sell more.
I'm focusing on delivering the best service possible. If we make a better business combined, I will get my return. I'm not obsessed with the minimum guaranteed. I'm obsessed on making good sales. Tomorrow, some of you are gonna visit one of those airports. If you look at the expenditure per passenger, you will see those airports are the most successful. Because we can be great, but without the support and working together with the airport, you can never maximize the value. There is another school who basically focuses on getting the higher minimum guaranteed. Those airports, you will see they are the worst performing on expenditure per passenger, of course, assuming the profile of passenger. In the rest of the world, depends. They are also everywhere.
To go back to your question, we stopped talking about individual line savings because we don't think that's the right approach. We try to understand that this is a complex business, both on segments and geographies, but it's our commitment as management team that the overall business will increase the profitability on a recurrent basis. Which if you take into consideration all what is happening in the world, I think it's a pretty strong commitment. On your last question, on spend per passenger, do we have targets? Yes. Are we gonna disclose the targets? No. Those targets are gonna be on the day-to-day of the business. Yes. Our teams, commercial and operational, are gonna have expenditure per passenger targets, but by relevant profile of customers. Because if we don't control the mix, I cannot punish or benefit people.
For every given that today's nationality, tomorrow is gonna be personas. You have to generate, if you have Chinese passengers or English passenger, a minimum spend rate of X, and you have to increase that. Of course, if there are more of one or the other, that will affect the mix. That is gonna be more and more as part, not only of the targets, but also the incentive system of the management. Because if we are able to drive spend per passenger up, everything else follows on the right direction. Sorry, extended answers, but I hope they are useful.
Can you hear me? Yeah. Okay. Good afternoon. Simon from Stifel. Three questions, please. First of all, a quick clarification on free cash flow. The +20% conversion for 2023, 2024, does that include the CHF 100 million integration costs? And also, are the CHF 100 million transaction costs included in it, or it's more like exceptional items? Secondly, on CapEx, you are targeting CapEx for the F&B business to be over 5%. Autogrill was targeting CapEx below 5% over this period. So just curious, where do you see the basically incremental CapEx being required for the F&B business?
Lastly, how do you see the European motorway business, how do you see the outlook for this business, and do you believe that fits with your strategy and your focus on sustainable free cash flow? Thank you.
On the first one, on the integration costs and the transaction costs. Look, the integration costs, they are part of the free cash flow or the equity free cash flow, whereas the transaction cost, as historically, they are below equity free cash flow. Integration, yes, above equity free cash flow, transaction below. In respect to food and beverage CapEx. Look, there, what we have taken is more of a industry average of what we understand is done in food and beverage rather than specifically the Autogrill number. For the third one.
Just to be clear on the CapEx, there are no reasons why Autogrill should accelerate the investment as percentage of sales. If they had 5%, I might have different indications, but if they had 5%, it would be 5%. If they had 6%, it would be 6%. On the motorways. I mean, I think when we announced the deal, we said very clearly that the motorway business, which is gonna be about 9% of the combined portfolio, it's a nice business. It's a business that we believe fits well on the European market, where the motorways and the train, high speed trains, are alternative means to the short-haul travel. We don't believe the motorways beyond the current scope is necessary. It's a business we would like to keep.
It's a business that had an overinvestment over the last three years, which makes. Normally, motorways, they have higher CapEx investment than the airport, for a very simple reason. You have the physical building you need to invest on. But as Autogrill made, especially in Italy, a big effort over the last three years, that overinvestment will not be necessary anymore. The motorways will yield a cash flow similar to airports. In that sense, current scope, current geographies, it's a business we think complements well. Like for example, cruise lines and the seaports complement well the airport retailing in the Caribbean, where people flies or goes by a cruise line into the same island. We can use the existing infrastructure.
Hi, good afternoon. Ali Naqvi from HSBC. Just three from me, please. In terms of the revenue targets you have for 2023, 2024, how much of that is a recovery from pre-COVID levels of travel versus, you know, what you expect to achieve from your travel experiences? The same sort of breakdown for 2025 to 2027. How much of that is just inflationary growth versus what you hope to achieve over and above with all the initiatives you're putting through? Then secondly, by 2027, what would you expect your sales mix to be for food and beverage, you know, duty-free retail or convenience retail, aspirationally? Then finally, just on the competitive dynamics, I suppose you can really only talk about the duty-free side. Are you seeing more and less competition now as we come out of the pandemic? Thanks.
Let me take the first one and then the second and third one for Xavier. Look, in respect to the split between the passenger numbers or the recovery of the passenger numbers and the spend per passenger, we on purpose have not disclosed that. For the outer years, it's obviously much easier to communicate that. For the year 2023 and 2024, as we are still in the phase of the recovery, it's super difficult to give you the split and then discuss that split basically every quarter if it goes in the right or in the wrong direction. From that perspective, look, what we can do is we can give you the mix of the two or the combined number, but to go more granular there, I believe is challenging at this stage.
On the mix, if I could choose, I would love that it's a third to third to third. A third duty-free, a third duty paid, and a third F&B. Probably for the next few years, it will be more 37%-14% duty-free and duty paid and F&B, and a little bit less, probably 25% on duty paid. Of course, then on top there will come the hybrid concepts, but that would be what I would like to see. The competitive environment, I mean, we are in both segments, travel retail and F&B, a competitive environment. We have great competitors. We think that with a combined and a clearer strategy and our focus on traveler, we will bring something different from what other players are delivering.
One of the big question mark, we will see that over the next 18-24 months on the renewals, is the appetite for the old minimum guarantees. Everybody in the industry says that the old minimum guarantees should not be coming back because they are too risky, and in any case, when there is a big crisis like COVID, they have to be renegotiated, and people spends the time there instead of spending time on getting the value. We will see. At the end of the day, it will be a combination of the appetite by airports and the appetite by players. As far as I know, all the players that were before the crisis are still around, so the competition, the number of players will be the same.
On appetite, I think people is obviously probably more cautious today than it was in 2018 or 2019, where the pandemic was a theoretical risk. Now it's not a theoretical risk. Hopefully we will see, in some markets, more rational behavior, but time will tell. Excuse me, I think he wants to request.
Just a quick follow-up. On the 5%-7% then, would you be happy that that's, let's say, all that you achieve in terms of all the initiatives you're putting through in terms of like-for-like sales? Do you think that you're holding back and you could probably do more there?
Look, the amount.
It's not working.
It's wo rking?
Oh, yeah, now it's working. Look, as I've said before, we don't want to obviously disclose all the cards at this moment in time. Look, our ambition at the moment is the 5%-7%. It's the mix between passengers and spend per passenger. Obviously, part of the initiatives, as Xavier has mentioned, which we launch not over the next couple of years, but the next couple of months and quarters, will be implemented. You have seen the ambition of 2024, with the 50% of the store being digital. That will obviously significantly contribute to the growth pattern there, and that's all what we can say at this stage.
Hi. I think it's working. It's working?
Can we activate that one?
Okay, cool. Yeah, you mentioned over COVID, you were able to get a reduction in MAG in your concession contracts. Could you maybe give some color on the level of flexibility that you have on these contracts, maybe during normal times?
Just to be clear, I said that it could be a way the market goes, not that it's still happening yet.
Sorry, I was not sure if I understood the other one.
Yeah, just the level of flexibility on those concession contracts that you have. Could you maybe talk about, you know, if you can renegotiate anything in those or not?
In principle. Now look, the way the contracts work is, you have the tender process or a direct negotiation. You agree on certain conditions, and those conditions, in principle, are sticky for the remaining lifetime of the concession. For example, if you agree with the landlord, you have seven years concession, you pay 30% concession fee. That's de facto sticky for the remaining lifetime of the concession. There are some exceptions, but they are rather rare. Is that answering the question or?
Yeah.
Okay.
Yeah. Okay. Anybody else?
Maybe to extend a little bit. You always have, or practically always, a variable on sales, which depends on the categories, normally on the type of products you sell. In some cases, not everywhere, you have a minimum guarantee. There are two type of minimum guarantee. One that is an absolute amount per year, which is not the most common. You have other type of minimum guarantees that are a hybrid concept in the sense that, for example, it is a minimum guarantee of 80% of the prior year. Of course, if you have a bad year, you have a 12 months delay, but the MAG will be adapted. Sometimes it's a MAG per passenger.
I think, at least that's what we try to explain. Time will tell if we are successful to the airports, is that to require a fixed amount on top or a guaranteed when you have a variable. It's from a philosophy point of view, a bit counterintuitive. Either you are a partner and you benefit when the sales are better or worse, or you have like a high street retailer, a fix. To play the two games at the same time, it's a bit contradictory, number one. Number two, that depending on the number and quality of passengers, you should be requesting maybe different amounts. The minimum guarantee that is an absolute amount for the entire duration of the contract, at least for duty-free, it's something we are gonna like less and less going forward. What the competitors are gonna do, I cannot tell.
Of course, if that will be the trend in the market, and as the largest player, we will try to make clear that that's our philosophy. Maybe the market will change and minimum guarantees will be less relevant. One thing that is important, minimum guarantees are much relevant for convenience, and they are much more irrelevant for F&B. This merger with Autogrill is also helping. Sorry, I don't know if I say well. Minimum guarantees are more relevant in duty-free and less relevant both in convenience and F&B. This diversification also will make the importance of minimum guarantees on the overall portfolio less. It's not immediate profitability, but it's definitely improving the risk profile.
Is it working? Yeah. Good afternoon, Rebecca McClellan at Santander. Just a few small questions, please. Firstly, my understanding is that the spend per passenger has since we sort of come out of the pandemic, has sort of been reflecting some sort of revenge spend. Are you, in your assumptions, assuming that normalizes or are you, or are your assumptions based on sort of current level of the spend per passenger? Secondly, you sort of talked earlier in the presentation about extended dwell time. Is there an argument to suggest that extended dwell time benefits F&B to perhaps at the expense of duty-free or duty paid? Thirdly, the investment in technology and digital, does that.
Is the downstream already fairly smart, or does it depend on a downstream investment, a smart investment in order to get an upstream sort of functional, functioning sort of smart stores, et cetera? Finally, in terms of M&A and bolt-on, do you have a preference or I guess it's food and beverage and Asia, but yeah. Do you have a preference in terms of which categories?
Thank you, Rebecca. All very interesting questions. Look, on the spend per passenger, we try to consider normalized figures because in some cases, we believe that some of the spend per passenger we have seen over the last few months might be affected by the number of passengers. When I say normalized, it means that, for example, U.K. travelers inside Europe are consuming now more than they used to be. For me, this is a new reality because this is not done because it's a hot summer or that. This has been done. Brexit and the new tax structure. We took the things we think they might be exceptional for good or for bad, and we tried to clean that. On the dwell time. Look, dwell time is important to two things, the amount and the quality.
How much time you have at the airport and how busy is the airport, how clear is where your gate is, also sometimes with who you are traveling, little children or not, et cetera. Also your mood. I do not necessarily have research that points out if one or other dwell time affects one segment or the other. Hopefully, if you ask me this question in a year's time, I'm gonna be able to tell you, or at least to tell you that we know. Today, our target, and I didn't say it because, but this is our target internally.
What I said to the team the other day when we were presenting this new strategy is our aspiration should be to transform so much the way travel retail and travel experience happens, that we motivate people to take 30 minutes ahead of the necessary time because they want to see what is new in the retail or the F&B at the airport. Our aim, and this is not in the strategy because that goes beyond the strategy, but that's the type of thinking I would like the team to have.
How meaningful can I go to make people even to change their travel behavior and anticipate the trip because I wanna see there is always music or there is always a new novelty, or I can know if I, since I use this last beauty treatment, if my face age actually improved or not, and you wanna check that out, and then you check that improved, so you buy the product again. Whatever is the reason. The investment digital, I'm not sure I fully understood, so I'm gonna answer what I understood, but then if not what you ask. Look, this additional 50 basis points that if you make the calculation, it's a massive amount and is maybe 20 or 30 full what the company has invested on that in the past. Includes everything. Includes the smarter stores, includes technology on designing a space or assortment, et cetera.
It's the full support of the travel experience, both for F&B and that. Of course, the normal investment on furniture shops, all that continues. This is additional investment that we are committing to make sure that all what we presented today is gonna be actually happening.
My actual question was, is the technology across the rest of the business significantly upgraded to be compatible with smart technology and?
Oh, yeah. Yeah, sorry. Okay. Yes, of course. We didn't discuss too much about back-office today, because it's not always the most interesting part for big audiences. Of course, there was a couple of mentions there. The investment in technology on the front line is priority number one. We will not stop investing on supply chain, smart warehousing, better prediction on the supply chain, et cetera. If I need to tell you, probably it's an investment of 2/3 or 70% on the front line and 30% on the back office, because I think the improvement we need to be doing there is important but is less meaningful than the one on the front end. On the acquisitions.
Look, the two elements for acquisitions are, number one, the strategic fit, and you summarized it. I mean, we said very clearly where we want to go. Second, we like to make acquisitions, but we like to make sound acquisitions with the right return on investment. Of course, if you see the strategy, it tells you a little bit, if opportunities come, where the priority will be. Normally M&A, if you pay a reasonable price, you don't choose. It comes out what it comes out.
Sorry, just one last one on that. In Asia, since the pandemic, of course, it's a bit of a closed market up now, but do you think that the M&A market in Asia or the for-sale sign is a lot hotter than it was sort of in pre-pandemic?
Look, I always found interesting when people talks about closed markets. I mean, if you look at 20 years ago, and you look, for example, at Latin America, at the number of players, local players, regional players, it was not very different from what you see in Asia-Pacific today. Of course, different sizes, different volumes, different names, but also was a very fragmented market with a lot of local players. We were able to unlock it and consolidate that market and generate a lot of value, not only for us, but also for the airports and the passengers. What we did, it's a lot of resources, a lot of people understanding that market. Today, we don't have that intelligence for Asia-Pacific, but I already started building it, and you will see that over time.
I do believe that there are clear opportunities in Asia that can be unlocked. We have to be careful on one thing, at least, to understand when it reopens fully, what are the changes? How Hainan and maybe new areas of duty-free in China might affect markets like Korea. How the Chinese traveler is gonna travel, will still favor Thailand, the Philippines, or it will be going somewhere else. It's clear in my mind we're gonna have a very dedicated strategy for Asia. We're gonna have a very dedicated and a strong team, but we are gonna be patient, and we are not gonna rush into doing things before we feel comfortable, we fully understand where Asia is going. We believe globally we'll be a power in the industry.
Specifically in which subregions, I think we need to be smart, wait and see what happens.
Thank you. Good afternoon, everyone. Gian Marco Werro, ZKB. Three questions from my side, please. First one is also targeting the expansion in Asia, and then two questions in relation to your rejuvenation of the stores and the investments there. First, we heard about Asia and the potential M&A, but how about the opportunity maybe arising, also gaining a new partnership, also a joint venture similar as you have already, mostly for interesting markets that you were mentioning today in the presentation, for example, also in Thailand, Japan, and South Korea, which are very much in favor also of Chinese tourists. This would be interesting. Second question in relation to your stores then, is the hybrid store concepts. I'm a big fan of this innovation that you want to combine the offerings.
Can you give us a bit more numbers there in the rollout? For example, for next year, how many stores do you really plan to refurbish or to combine and to rejuvenate? You mentioned also in relation to your stores in the U.S., the self-checkouts. I think it's a very hot topic if we look at the wage inflation in the U.S., definitely. Can you tell us if you want to also expand these self-checkouts in Europe and how many self-checkouts you want to roll out in the U.S. this or next year? Thank you.
Definitely, Asia Pacific, I mention M&A because that was the question, but my priority is always new concessions, joint ventures, and only afterwards, acquisition. Because acquisitions, of course, require an up-front payment. Across Asia, we are mapping Asia, and we are studying all the players. Also reestablishing personal connections with the key players around the region, it's important, and that has been very challenging over the last three years. I visited all our regions, all our key operations. I have not been able to visit Alibaba in China, for example. It will take a little bit of time, but definitely our priority in Asia is not only acquisitions, but is everything else.
The hybrid concepts, look, I don't think would be right for me to disclose a specific target because the hybrid concepts compared to refurbishing our own stores require the okay of the airport. We cannot just take a space that is a duty-free store and all of a sudden convert it into a hybrid concept. I think the traction will accelerate very importantly, but I think in order to establish more precise target, I think we need to wait another year and to think about 2024. Also because we need the Autogrill team to be working together on those hybrids because we need the knowledge of the two companies. Self-checkouts. Look, I think there was a slide, if you remember, where we talk about store cluster on the sales floor.
We said, depending on the mix and the type of airport, on the segments you sell, et cetera, we will cluster on sales force. You can apply that the same on self-checkouts. We will have three or four different checkouts concepts. The traditional line checkouts, which maybe they don't look the fanciest, but in certain type of stores they have a role because you have a last minute purchase. When you're queuing, you have all those merchandise there and actually works. I'm not gonna disclose, but it's a sizable that. We are not gonna just take those out when we believe they can generate additional sales. On convenience, that is a little bit less relevant because people really, really want to save time. That's why Hudson is working so well and we are gonna expand more there.
In a luxury environment, I was making the joke during lunch. Nobody expects somebody entering a Hermès shop take a 3,000 bag and do a self-checkout with that. Do you expect somebody nice to talk to you to explain where the leather comes, et cetera? There is not a rule of all one size fits all. We will combine. How we are gonna do? Again, database. We are already doing the mapping of all our stores around the group, identifying where we think self-checkout or personal devices, because maybe one option is that for the luxury section of our duty-free stores, they have a self-checkout, so they can a mobile device for which the employee can, at the same time, give you advice and then charge you.
Because maybe that person is not gonna buy much more because queuing, but queuing will decrease the quality of the experience. You will see a bit of everything, self-checkouts, autonomous checkouts that I didn't mention. I mean, in some cases for electronic products, you can go even not to self-checkouts, to autonomous checkouts. The technology it is, it works. All these will depend on the traveler profile. In some cases also depends on the relationship with employees, because there are certain CBAs that might prevent you to do certain things. Of course, then you need also to agree with the airport. You will definitely see more self-checkouts, more autonomous checkouts, but you will still see today and five years from now, some reasonable queuing to increase sales. I think that was the last one. Yes. Thank you.
Hi, Matt Garland from Deutsche Bank. Thank you for taking my question. In terms of when you're looking at the U.S. market, I know you are not gonna disclose the obviously spend per passenger target that you have. Are there particular traveler profiles where you see bigger opportunities maybe than others? With that, is that sort of spend per passenger opportunities within any individual segment, i.e. convenience or duty-free or duty paid, that you would particularly focus on? Then in terms of gross margins, when you're looking at gross margin, I know you look at it on a total basis. Are there any? Do you see sort of further upside to any of those gross margin targets that you kind of talked about across the different categories?
Are there any things that with the brands you're using to kind of help the profitability or overall attractiveness of the concession that you're kind of entering into?
Thank you for the questions. Not easy to answer. Look, I'm an optimistic individual, so I think any given passenger can be given a better service, a better offering, and in theory, the spend per passenger should be able to increase in any segment. Of course, as you cannot do, even with all the technology of the world, a one-on-one personalized, you need to choose a little bit, and you need to focus on those segments that will make the bigger impact. That means the higher spenders, whatever that means for each of the subsegments. That's different, depends on the airport, depends on the. We haven't spoken about that, but even on the time of the day, humans have certain patterns on food consumption. You have certain things that work better just because people is hungry, and they are more is that.
I think we need to more than say, "Look, this segment, it might be more or less interesting." I think we need to make an offering that addresses the larger segments in every given airport or even in every given moment of the day. We haven't spoken about that. I have not even discussed that with the team because that sounds science fiction, but why not to adapt your offering across the day? If you have a hybrid concept, maybe you can put more F&B that if you go to an American airport at 6 P.M., 7 P.M., you cannot eat because there is no physical space to eat. But then you go two hours later or two hours before, and that is an empty space, and everybody's queuing somewhere else. For example, that could be a big opportunity. Are we gonna do it?
Not yet, because I don't even know how. There is a lot of opportunities to add flexibility and potential. Gross profit margin. On purpose, we have not spoken about gross profit margin today because, again, the gross profit margin of the company is gonna be a mix. The target for the procurement team is for every line, category or subcategory, to try to improve the conditions, but the mix will depend. I gave an example earlier on. Some of the new generations are looking for emerging new brands, for example, in beauty. Those brands, because they are smaller, they are starting, they might have a lower purchasing power, and therefore, the margin for those brands are lower than comparable well-established alternatives. They are not in the airport today. Why? Because the concession fee is too high for those new brands.
Some airports are starting to think, "Okay, if that's additional sales, maybe it would be acceptable for me, for those sales that have lower structural margin to have a lower concession fee." Again, what is relevant is the net profitability you can do from those products or those categories, not one line. Because if we only think about one line, you might be missing sales. The last consideration is the advertising. I mean, if we do a good job on some of the things we have shown today and other things, I think we have an opportunity to engage more pockets of money that today might go from the brands to an influencer, and maybe in the future will go from that pocket to Dufry.
Of course, we need to do a lot of things. We're already getting a lot of advertising, but maybe there is an opportunity to tap new pockets of money because we offer something different, distinctive, and maybe more interesting for the brands to be part of that, of that game. Thank you.
Coming back for a second bite at the cherry. Just on the deal, the transaction, and this idea of value creation per share, and it's really a question about what are you thinking at the moment on the minorities taking that all in-house shares cash. As an add, really, just into the buyback assumption, are you including that potentially you would do a buyback as a way for that deal to become value accretive per share, which it doesn't look like it would be if you finance the whole thing with shares at the moment? Thank you.
Look, in respect to the transaction, as we have communicated before, if we go step by step, the whole part of Edizione will obviously be a share transaction. Dufry shares or new issue Dufry shares against Autogrill shares. In respect to the minorities, it's obviously difficult to say because we first need to launch the MTO and see how it goes on. Having said that, as we have communicated previously, the intention is the following. Let's look at the two extreme scenarios. One is that all the minority shareholders would opt for Dufry shares. They would trade their Autogrill shares into Dufry shares. It's an all-share transaction. The other extreme scenario where they all would opt for cash, we would allow ourselves to partially refinance that with equity, straight equity or rights issue, and debt. What we have communicated previously is around 50/50.
That's the communication so far, and that's the intention we have.
We do believe the transaction in our numbers is accretive in any of the different scenarios that Yves has explained. On the share buyback, there are not specific intentions on the table right now. I wanna be very clear, something like that requires the approval of the board, and there has not been discussions there. I know in the past, we have done A, B, or C to generate additional value, but today there are no specific plans on any share buyback. We do not believe you will need to do that in order to have an accretive deal. On the 50/50 that Yves just explained, it's not only a good question, you also need to consider that some of the funds invested in Autogrill are Italian-dedicated funds.
Probably it would be difficult for them to take shares of a Swiss entity. We believe the 50/50 cash shares, it's a good proxy. Thank you.
Just a follow-up. Maybe just, how has duty-free typically traded during a recession? Or what are the sort of trademarks that happens in that kind of environment? Then given the level of inflation we're seeing, how do you pass that on to the customer? Does it have to be negotiated with the airport? Just anything you can say around those kind of dynamics, please.
Sorry, the mic.
Sorry. Just on how has duty-free traded during recessions in the past? Inflation, how does that dynamic work in terms of passing it through to the consumer, negotiating with landlords, and is there a catch-up or delay in how you pass it on?
Look, we haven't seen the type of inflation we are seeing for decades. I'm not sure I was born, but I was not an adult, so I don't have that data. In the smaller amounts that the ones we have seen, I mean, the business has been pretty resilient, both on number of passenger and sale per passenger. Normally, we have been able to pass through most of the inflation. The size of the inflation we are seeing or is being expected, probably it's realistic to think that they will have some impact on our profitability and we are not gonna be able to bring all of it to the consumer. Yeah. We also have questions on the phone.
Maybe we take a few on the phone and then we go back if people is still inspired.
Let's do this. We have a couple of questions from the webcast, and I will read them. Maybe the first one is, can you give an update on the timeline of the business combination with Autogrill?
Yeah. So as our chairman said this morning, we had a massive support by shareholders, our shareholders on the capital increase and the other necessary changes to make the deal two weeks ago or last week. Now there is only remaining one last stage, which is the antitrust. As we said, nothing has changed so far, we expect to be able to close the first part of the transaction, so the contribution or the change of the Edizione shareholding and becoming the controlling shareholder of Autogrill in quarter one. Then we will launch the mandatory tender offer to try to acquire the remaining 49%, and we expect that to be completed about three months after the first one, so quarter two, 2023.
So far, everything has gone according to plan.
Thank you. We have another question, which is, how the current disruptions at the airports, geopolitical circumstances impact travel and Dufry specifically?
We have disruptions, we have geopolitics, we have microeconomics, we have cap on the number of passengers. Still, as you saw in quarter two, sales were already getting closer and closer to 2019 levels. July, August so far have shown a very strong pattern. Every indication we have is that even with all the disruptions we have, the summer should be a strong quarter. Of course, we remain cautious for the last quarter and for the beginning of next year because the visibility, not only in our business, I think in general, is very shortsighted because everybody talks about the macroeconomics. So far we have been seeing very limited effect in our business, but we cannot rule out that maybe it will have a bigger effect on the incoming quarters. We remain cautious.
I think a message that was very strong in quarter two, it was that because we remain cautious, even if sales are coming back pretty fast, we invest and we spend very carefully. We really want to see the business normalize before we push ahead on something CapEx. That's why our cash flow generation in the last quarter and probably for the full year is gonna be higher than the normalized amount. As we did in the quarter two, we will, when we report quarter three, report the full cash flow generation, but also the normalized amount. That is the one that needs to be taken into account for 2023 projection.
Another question from Joern Iffert from UBS. By when can we expect the first proof points of the returns on the digitalization investments or investments on the retail revolution experience? And if maybe already by 2023, we can see a higher conversion rate.
I think in business like in life, it's very important to have priorities right. What we're doing now is putting the basis of this travel experience revolution, and that will take a few months. In 2023, we also have to make sure that we pay the necessary attention to the integration with Autogrill, and to setting up the right organization, the right teams, the right expertise to develop the hybrid concepts. Taking into consideration also the technology, even if it's available, it takes time to implement, I would like more to think about 2024 and beyond than 2023. I think 2023 is really still a year of transition, and the focus need to be a successful integration with Autogrill, and in parallel, put the basis for a travel experience revolution, but more to see 2024 and beyond.
Another question is from Yvonne Chao from Morgan Stanley. The question is, how the seamless operations at airports you talked about, how this would impact Dufry, and if this is already accounted for in the outlook we have provided.
Sorry, what the?
No, not the update. The seamless operations.
The seamless operations. Look, there are very few seamless operating airports right now in the world. Look, there is a bit of a sweet spot. I mean, if the operation, it's so seamless one day that people think I can arrive two minutes before my departure, and then I take the plane, but I don't think we're gonna see that in the next couple of decades, that would not be necessarily the best option. We like people to have some dwell time in the terminal. In the extreme, if those disruptions are too much, there is also a stress level. It's good that people have some additional time, but if that additional time is because there are massive disruptions, because they worry about them losing the plane, that level of stress is not necessarily good for consumption.
It has to be a balance. We need people to have some time and some time where they feel like consuming. It's also true that in the past, some people were shopping because it's a way to cope with the stress of flying. There is a segment of people that actually uses shopping or consumption at the airport to lower the stress because they think that. That's not a meaningful segment.
There are no other questions which have not been already asked.
Thank you. Any final comments? Questions? Remember, we have one more video, huh?
This one's quite short. I'm just curious how much access you've had to Autogrill's accounts to make that CHF 85 million synergy realistic rather than just a lowball sort of estimate at this stage.
As part of the negotiations and the due diligence, that's very important through clean teams, because for the antitrust, we had to do it through clean teams. We had two clean teams from McKinsey, one for Autogrill and one for Dufry, which were able to share extremely detailed information. For example, on procurement, not only categories, but the specific item products. We know how many bottles of water Hudson buys in the U.S. and how many bottles. Well, we don't know, but the clean team knows how many Autogrill is buying. In that way, they could calculate what is the potential synergies. They did the same, for example, on supporting staff in at the airports, at the headquarters. I do believe that this definitely is not a top-down calculation. It's a bottom-up, and it's very detailed.
I feel very comfortable on the way the calculation was done, even if I have not seen the calculation itself, but I know how it was done. I know, for example, that business development, where we think that to keep certain separation on the concept is important, were not included any synergies there. I think it will take some time to develop, probably 18-24 months, but those synergies will come to the company.
Sorry. Just because we recall back to the World Duty Free merger, the ultimate synergy was about 30% above the original sort of suggested synergy opportunity. Was that a clean team assumption then, do you know?
When World Duty Free was happening, I was leaving the company, so I don't have detailed information. I don't know if you do.
No, I don't. Yes, it was.
Thank you.
Our Chairman that was there says, yes, they were.
Thank you.
Yes?
I have one final question Alex, Apostolatos. One for Yves. The question is if we are going to address the 2024 maturities together with the Autogrill transaction and potential debt issuance.
Look, the 2024 maturity, as we typically do it, we plan to refinance around 18 months, 12-18 months ahead of maturity. They mature in November 2024, so if you calculate backwards, it basically tells you that we are going to do it in the next six months. To do it together with the financing aspects, if required, as we discussed before, of Autogrill would obviously be efficient. However, we potentially even do that quicker. Within the next six months, more or less both things happen, the Autogrill financing and also the maturities or the extension of the maturities 2024.
Sorry, one quick final question. In terms of management incentive looking over to 2027, how have I guess those been created? Is it sort of where would the kind of base level be versus the plan versus, say, an exceptional performance or not? Can you kind of contextualize sort of how the shareholder compensation for management team over that period will be linked to kind of these different metrics and where, I guess, would be outperformance of base case, et cetera? Thanks.
Well, I mean, the only thing that is in place today is the system for 2022, and the board and the remuneration committee will think about 2023 and beyond. I'm sure they will take into consideration this strategic plan for the long-term incentive. What we have today is, of course, a fixed salary. There is a short-term incentive that is based on the yearly budget, and I do not expect that to change. Management will present a budget to the board for approval, and the key metrics will be based on that budget. For 2022, we're based on revenues and free cash flow because they were the two priorities at the end of last year for this year. For next year, probably we will go also adding something on EBITDA because this is a key metric going forward.
It's not my decision. I propose, but it's a decision of the board of directors. On the long-term incentive plan, the board considers that it's very important to focus not only on the performance of the company, but also on the relative performance of the company and the total shareholders' return. That is a measure that will have importance on the long term. That was not the case in the past. Also ESG. It will be a combination of these three. The specific targets beyond 2022 have not been fixed at this stage. Just to manage expectations, the last video is the first video. One thing I guarantee, the second time you see it it's nicer, and the third time it's even nicer and more contextual. It's also.
It puts you in a right mood and then to go at that, so.
Okay.
No more questions. Before I put the video, because after the video there are some refreshments for the people, I want to thank all the people, that is a few hundreds, that have been attending the event on the webcast for their attention and patience. I really thank you for coming all the way here, and hopefully not only you got some insights, but you had some fun. Because we, as I said earlier, we not only want to make travelers happier, but also the rest of the ecosystem. We would like also to have happy investors or non-investors. If you don't invest today, it's an opportunity you invest tomorrow, which is also okay. Thank you for your attention.
Now the video and then some Italian refreshments because we thought it would be a nice touch to finalize with an Italian, how you call it?
Apéro.
An Italian apéro. All will be Italian food with some Italian wines to go with it. Thank you very much. Really appreciate it.
Thank you.
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