McDonalds 2010 Annual Report Download - page 13

Nearly two-thirds of APMEA restaurants are now offering some
form of extended hours and over 4,800 restaurants are open 24
hours. Delivery is offered in many APMEA markets and is now in
approximately 1,600 restaurants, including nearly 400 in China.
We continue to offer value to our customers by utilizing a stra-
tegic menu pricing tool that optimizes price, product mix, and
promotions. This approach is complemented by a focus on driving
operating efficiencies and effectively managing restaurant-level
food and paper costs by leveraging our scale, supply chain infra-
structure and risk management practices. Our ability to execute
our strategies successfully in every area of the world, grow
comparable sales, leverage a low commodity cost environment
and control selling, general & administrative expenses resulted in
consolidated combined operating margin (operating income as a
percent of total revenues) of 31.0% in 2010, an improvement of
0.9 percentage points over 2009.
In 2010, strong global sales and margin performance grew
cash from operations, which rose $591 million to $6.3 billion. Our
substantial cash flow, strong credit rating and continued access
to credit provide us significant flexibility to fund capital
expenditures and debt repayments as well as return cash to
shareholders. Capital expenditures of approximately $2.1 billion
were invested in our business primarily to open and reimage
restaurants. Across the System, nearly 1,000 restaurants were
opened and nearly 1,800 existing locations were reimaged. We
returned $5.1 billion to shareholders consisting of $2.4 billion in
dividends and nearly $2.7 billion in share repurchases.
Cash from operations continues to benefit from our heavily
franchised business model as the rent and royalty income
received from owner/operators provides a very stable revenue
stream that has relatively low costs. In addition, the franchise
business model is less capital intensive than the Company-
owned model. We believe locally-owned and operated
restaurants maximize brand performance and are at the core of
our competitive advantage, making McDonald’s not just a global
brand, but also a locally relevant one.
HIGHLIGHTS FROM THE YEAR INCLUDED:
• Comparable sales grew 5.0% and guest counts rose 4.9%,
building on 2009 increases of 3.8% and 1.4%, respectively.
• Revenues increased 6% (5% in constant currencies).
• Company-operated margins improved to 19.6% and franchised
margins improved to 82.4%.
• Operating income increased 9% (9% in constant currencies).
• Earnings per share was $4.58,an increase of 11%.
• Cash provided by operations increased $591 million to $6.3
billion.
• The Company increased the quarterly cash dividend per share
11% to $0.61 for the fourth quarter–bringing our current
annual dividend rate to $2.44 per share.
• One-year ROIIC was 37.3% and three-year ROIIC was 38.3%
for the period ended December 31, 2010 (see reconciliation
on Page 25).
• The Company returned $5.1 billion to shareholders through
share repurchases and dividends paid.
OUTLOOK FOR 2011
We will continue to drive success in 2011 and beyond by enhanc-
ing customer relevance across all elements of our Plan to Win—
People, Products, Place, Price and Promotion. Our global System
continues to be energized by our ongoing momentum and sig-
nificant growth opportunities.
We continue to hold a strong competitive position in the
market place, and we intend to further differentiate our brand by
striving to become our customers’ favorite place and way to eat
and drink. We will continue growing market share by executing
our key strategies in the following areas: optimizing our menu,
modernizing the customer experience and broadening our
accessibility. These efforts will include increasing menu choice,
expanding destination beverages and desserts, enhancing our
food image, accelerating our interior and exterior reimaging
efforts and increasing the level and variety of conveniences pro-
vided to our customers. We will execute these priorities to
increase McDonald’s brand relevance while continuing to prac-
tice operational and financial discipline. Consequently, we are
confident we can again meet or exceed our long-term constant
currency financial targets.
In the U.S., our 2011 focus will include highlighting core
menu classics such as the Big Mac, Quarter Pounder with
Cheese and Chicken McNuggets, emphasizing the convenient
and affordable food offered every day, and encouraging the trial
of new products including Fruit & Maple Oatmeal and additional
McCafé beverage offerings. We will continue offering value
across the menu through the Dollar Menu at breakfast and the
rest of the day. Opportunities around additional staffing at peak
hours and increasing restaurants that operate 24 hours per day
will broaden accessibility to our customers. In addition, our plans
to elevate the brand experience encompass updating our
technology infrastructure with a new point-of-sale (POS) system,
enhancing restaurant manager and crew retention and pro-
ductivity, and contemporizing the interiors and exteriors of
approximately 600 restaurants through reimaging.
Our business in Europe will continue to be guided by three
strategic priorities: increasing local relevance, upgrading the
customer and employee experience, and building brand trans-
parency. We will increase our local relevance by complementing
our tiered menu with a variety of limited-time food events as well
as new snack and dessert options. In 2011, we will reimage
approximately 850 restaurants as we progress towards our goal
of having 90% of our interiors and over 50% of our exteriors
reimaged by the end of 2012. Reimaging reinforces the quality of
our brand while further differentiating us from the competition.
We will leverage service innovations with the deployment of
technologies such as the new POS system, self-order kiosks,
hand-held order devices and drive-thru customer order displays
to enhance the customer experience and help drive increased
transactions and labor efficiency. We believe there is an oppor-
tunity to further build brand transparency by raising customer
awareness about our food quality and product sourcing. In addi-
tion, we will communicate our efforts to preserve the environment
through our sustainable business initiatives. Our European busi-
ness in 2011 faces some headwinds from government-initiated
austerity measures being implemented in many countries. While
we will closely monitor consumer reactions to these measures,
we remain confident that our business model will continue to
drive profitable growth.
In APMEA, we will continue our efforts to become our
customers’ first choice for eating out by focusing on menu varie-
ty, value, restaurant experience and convenience. The markets
will continue to execute against a combination of core menu
McDonald’s Corporation Annual Report 2010 11