McDonalds 2011 Annual Report Download - page 13

continue to play a meaningful role as we seek to deliver on cus-
tomers’ menu expectations through products such as the
McFlurry and unique delivery storefronts like the dessert kiosks
in China, where we are now one of the largest ice cream retailers.
Our breakfast business continues to evolve and is now offered in
approximately 75% of APMEA restaurants. In Japan, rotational
breakfast items, including the Chicken Muffin and Tuna Muffin,
were offered during several months, while Australia launched
new breakfast menu items such as bagel sandwiches. Nearly
two-thirds of APMEA restaurants are now offering some form of
extended operating hours and over 4,600 restaurants are open
24 hours. Delivery is offered in many APMEA markets and is now
available in over 1,500 restaurants, including nearly 500 in China.
McDonald’s Japan was negatively impacted by the natural dis-
aster last March and as a result, continued to face some
challenges throughout 2011. However, we remain confident that
the market will continue to drive long-term profitable growth.
Our approach to offering affordable value to our customers is
complemented by a focus on driving operating efficiencies and
effectively managing restaurant-level food and paper costs by
leveraging our scale, supply chain infrastructure and risk
management practices. Our ability to execute our strategies in
every area of the world, grow comparable sales and control sell-
ing, general & administrative expenses resulted in combined
operating margin (operating income as a percent of total rev-
enues) of 31.6% in 2011, an improvement of 0.6 percentage
points over 2010.
In 2011, strong global sales and margin performance grew
cash from operations, which rose $808 million to $7.2 billion. Our
substantial cash flow, strong credit rating and continued access
to credit provide us flexibility to fund capital expenditures and
debt repayments as well as return cash to shareholders. Capital
expenditures of approximately $2.7 billion were invested in our
business primarily to open new restaurants and reimage existing
restaurants. Across the System, 1,150 restaurants were opened
and over 2,500 existing locations were reimaged. In addition, we
returned $6.0 billion to shareholders consisting of $3.4 billion in
share repurchases and $2.6 billion in dividends.
Cash from operations continues to benefit from our heavily
franchised business model as the rent and royalty income
received from owner/operators is 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 advan-
tages, making McDonald’s not just a global brand but also a
locally-relevant one.
HIGHLIGHTS FROM THE YEAR INCLUDED:
• Comparable sales grew 5.6% and guest counts rose 3.7%,
building on 2010 increases of 5.0% and 4.9%, respectively.
• Revenues increased 12% (8% in constant currencies).
• Operating income increased 14% (10% in constant
currencies).
• Combined operating margin increased 0.6 percentage
points to 31.6%.
• Diluted earnings per share was $5.27, an increase of 15%
(11% in constant currencies).
• Cash provided by operations increased $808 million to
$7.2 billion.
• One-year ROIIC was 37.6% and three-year ROIIC was 37.8%
for the period ended December 31, 2011 (see reconciliation
on page 25).
• The Company increased the quarterly cash dividend per share
15% to $0.70 for the fourth quarter—bringing our current
annual dividend to $2.80 per share.
• The Company returned $6.0 billion to shareholders through
share repurchases and dividends paid.
OUTLOOK FOR 2012
We will continue to drive success in 2012 and beyond by enhanc-
ing the customer experience across all elements of our Plan to
Win. Our global System continues to be energized by our ongoing
momentum and significant growth opportunities.
We 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.
Growing market share will continue to be a focus as we execute
our three global priorities: optimizing our menu, modernizing the
customer experience and broadening our accessibility. The menu
efforts will include expanding destination beverages and desserts
and enhancing our food image. The customer experience efforts
will include accelerating our interior and exterior reimaging
efforts and providing our restaurant teams with the appropriate
tools, training, technology and staffing. The accessibility efforts
will include increasing the level and variety of conveniences pro-
vided to our customers through greater proximity, extended
operating hours and stronger value platforms. We will execute
these priorities to increase McDonald’s brand relevance with
operational and financial discipline. Consequently, we are con-
fident we can again meet or exceed our long-term constant
currency financial targets.
In the U.S., our 2012 initiatives focus on balancing core menu
classics with new products and promotional food events such as
Chicken McBites, made with bite-sized pieces of premium
chicken breast, Blueberry Banana Nut Oatmeal, and additional
McCafé beverage offerings such as the Cherry Berry Chiller. We
will continue offering value across the menu at breakfast and the
rest of the day. Opportunities around additional staffing at peak
hours during the breakfast and lunch day parts and increasing
restaurants that operate 24 hours per day will allow us to
broaden accessibility to our customers. In addition, our plans to
elevate the brand experience include leveraging our new
point-of-sale system with other technology enhancements such
as using hand-held order takers and advancements to improve
our front counter service system. We also will expand our major
remodel program to another 800 locations in 2012.
Our business plans in Europe are focused on building market
share with the right mix of guest counts, average check, strategic
restaurant reimaging and expansion. We will increase our local
relevance by complementing our tiered menu with a variety of
promotional food events as well as new snack and dessert
options. In 2012, we will reimage approximately 900 restaurants
as we progress towards our goal of having 90% of our interiors
and over 65% of our exteriors reimaged by the end of the year.
We will leverage service innovations by continuing the deploy-
ment of technologies such as updating the point-of-sale system,
self-order kiosks and hand-held order devices to enhance the
customer experience and help drive increased transactions and
labor efficiency. We will also continue working to reduce our
McDonald’s Corporation Annual Report 2011 11