McDonalds 2012 Annual Report Download - page 15

750 restaurant reimages. By the end of 2012, over 90% of res-
taurant interiors and approximately 50% of exteriors had been
reimaged. Europe also invested in a roll-out of a new point-of-
sale system, which allows us to continue to expand our menu
offerings and improve order accuracy. By the end of 2012, over
2,200 restaurants had deployed this system.
We expanded our coffee business and have over 1,600
McCafé locations, which in Europe are generally separate areas
inside the restaurants that serve specialty coffees, desserts and
snacks. In addition, we increased our accessibility and con-
venience with extended operating hours, self-order kiosks,
optimized drive-thrus, and opened over 250 new restaurants.
APMEA
In APMEA, comparable sales rose 1.4% and comparable guest
counts rose 2.2%, despite a challenging year of economic pres-
sures, partly due to Japan’s uneven recovery and China’s slower
economic growth. Positive performance was driven by China,
Australia and many other markets. Unique value platforms, great
tasting premium menu selections, locally-relevant menu variety,
and convenience and service enhancements differentiated the
McDonald’s experience. Australia launched the “Loose Change
Menu,” which is a branded affordability menu, while China
focused on breakfast, lunch, and dinner value platforms. Value
initiatives were balanced with mid-tier offers, such as Bubble Tea
in China, and premium limited-time offers, such as the Serious
Lamb Burger and Wrap in Australia.
Our breakfast business has expanded and is offered in
approximately 75% of APMEA restaurants. Desserts continued
to play a meaningful role, particularly in China, where we remain
one of the largest ice cream retailers.
We opened over 750 new restaurants in APMEA, of which
over 250 were in China, where we have made significant prog-
ress toward our goal of 2,000 restaurants by the end of 2013.
Nearly two-thirds of APMEA restaurants are offering some form
of extended operating hours and over 5,400 restaurants are
open 24 hours. Delivery is offered in many APMEA markets and
is now available in over 1,700 restaurants, including nearly 550 in
China.
Since Japan’s natural disaster in March of 2011, the
economy remains a challenge. Despite a declining IEO segment,
McDonald’s is gaining market share through a value platform of
100, 250, and 500 YEN offerings, and family sharing boxes,
such as 15-piece Chicken McNuggets. Japan augmented its
value platform with strategic couponing to encourage add-on and
Extra Value Meal purchases.
Consolidated
Globally, our approach to offering affordable value to our custom-
ers is complemented by a focus on driving operating efficiencies
and leveraging our scale, supply chain infrastructure and our
suppliers’ risk management practices to manage costs. We were
able to execute our strategies in every area of the world, grow
comparable sales and control selling, general and administrative
expenses. However, in 2012 we faced top—and bottom-line
pressures, some a result of planned strategic decisions, and
others driven by the external environment. As a result, combined
operating margin (operating income as a percent of total rev-
enues) was 31.2% in 2012, down 0.4 percentage points as
compared to 2011.
In 2012, cash from operations was nearly $7.0 billion. Our
substantial cash flow, strong credit rating and continued access
to credit provide us flexibility to fund capital expenditures as well
as return cash to shareholders. Capital expenditures of approx-
imately $3.0 billion were invested in our business primarily to
reimage existing restaurants and open new restaurants. Across
the System, over 1,400 restaurants were opened and about
2,400 existing locations were reimaged. In addition, we returned
$5.5 billion to shareholders consisting of $2.9 billion in dividends
and $2.6 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 is a 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 advantages,
making McDonald’s not just a global brand but also a locally–
relevant one.
HIGHLIGHTS FROM THE YEAR INCLUDED:
• Comparable sales grew 3.1% and guest counts rose 1.6%,
building on 2011 increases of 5.6% and 3.7%, respectively.
• Revenues increased 2% (5% in constant currencies).
• Operating income increased 1% (4% in constant currencies).
• Diluted earnings per share was $5.36, an increase of 2% (5%
in constant currencies).
• Cash provided by operations was nearly $7.0 billion.
• One-year ROIIC was 15.4% and three-year ROIIC was 28.6%
for the period ended December 31, 2012.
• The Company increased the quarterly cash dividend per share
10% to $0.77 for the fourth quarter—bringing our current
annual dividend to $3.08 per share.
• The Company returned $5.5 billion to shareholders through
dividends and share repurchases.
OUTLOOK FOR 2013
We will continue to build the business in 2013 and beyond by
enhancing the customer experience across all pillars of our Plan
and our three global growth priorities to optimize our menu,
modernize the customer experience and broaden accessibility to
our brand. We remain focused on seizing the long-term oppor-
tunities in the $1 trillion IEO segment by leveraging our
competitive advantages. We have a brand advantage in con-
venience, menu variety and value, a resilient business model, and
the experience and alignment throughout the McDonald’s Sys-
tem to navigate the current environment.
Our number one priority continues to be satisfying our custom-
ers’ needs by serving great-tasting, high-quality food in
contemporary restaurants. This focus on our customers is partic-
ularly critical in this uncertain environment, where ongoing
volatility continues to negatively impact consumer sentiment and
spending. We anticipate a continued flat to declining IEO seg-
ment in many of the markets where we operate. Growing market
share will remain our focus to attain sustainable and profitable
long-term growth.
We will highlight promotions of our core menu favorites, while
strategically expanding our menu with relevant new offerings
across all dayparts, including premium products that can deliver a
higher average check. We will place an even greater emphasis on
scaling success quickly around the globe. For example, in many
McDonald’s Corporation 2012 Annual Report 13