REAL TIME NOTES FROM MCD PRESENTATION

03/10/10 10:00AM EST

Management commentary on business performance and prospect

MCD has advantages in its scale, brand, and family fun elements.

In 2010, three areas to focus on

  • Menu
  • Service
  • Reimaging

Service

  • Expanding demand in beverages and desserts
  • Value at all price tiers
  • Extended hours and better service
  • Service times are better since rolling out McCafe, aided by POS

Global up-to-date brand on the move

  • Updating interiors and exteriors of the restaurants
  • Of 2.4bn capex plan, 50% is reimaging (reimaging 2,000 restaurants in 2010)
  • New restaurants  - 1,000 in 2010

U.S.

U.S. was 45% of consolidated sales in 2009

  • 2009 comp sales up 2.6%
  • Operating income increased 6%
  • QSR market share of 14.5%
  • In January launched McSnack wrap – snack version of Big Mac. Fits well into growing snack daypart.
  • Breakfast dollar menu, voted in by franchisees, gives MCD a national voice on breakfast

McCafe coffee has worked well

  • Coffee sales increased 25% in 2009
  • 3m cups per day
    • More than 5% of total U.S. restaurant sales
  • Rolling out frappes and fruit smoothies
  • Frappes rolling out nationwide this spring
  • Smoothies nationwide in the summer

Tech

  • Free WiFi makes MCD the largest venue for free WiFi in the country
  • POS cash registers
  • Drive thru displays

Reimaging is key

  • 50% of U.S. base have interior remodeled image
  • Even fewer have exteriors that are enhanced
  • 2010, more than 400-500 reimages in the U.S., 150 new sites
  • Sales increases for remodels in U.S. have been 6-7% higher than for those that were not remodeled

Europe

Europe was 38% of consolidated operating income in 2009

  • 5.2% comp store sales
  • 8% operating income
  • 4.3% in Jan, 5.4% in Feb
  • 2009 informal eating out category market share grew
    • 3 tier menu platform
    • Low price
    • Core
    • Premium
    • Value at every level
  • Enhancing fourth tier
  • Expanded “p’tit plaisirs” in France and fourth tier in UK
  • Snack Deluxe lineup in Germany
  • In Germany, expanded breakfast lineup and it is yielding solid results
  • Media support in UK helped highest breakfast sales ever
  • Espressos are very important in European markets
    • All 1,600 restaurants in Europe have premium coffee available
    • Either via counter or McCafe
    • McCafe has been expanded across Europe
    • 1300 McCafe’s in Europe by end 2010
  • 260 new restaurant openings in Europe in 2010

Reimaging program is critical

  • By end of 2011, more than 85% of European interiors will be reimaged
  • Major remodels increase sales 6%

APMEA


APMEA was 14% of 2009 consolidated operating income

  • Comparable store sales up 3.4%
  • Operating income up 23%
  • Given economic climate, working to make sure menu and value initiatives are compelling
  • Australia seeing much success with Angus burger
    • Jan comp sales +4.3%, Feb 10.5% in Australia
  • MCD breakfast available in 19 countries in APMEA
    • 13% of sales in restaurants where breakfast is offered
    • Breakfast is 25% of restaurant sales in U.S.
  • Closing 430 lower performing restaurants in Japan
  • Australia has reimaged nearly all free standing restaurants

Conclusion:

MCD continues to keep the brand compelling to customers.  Companies combined operating margin grew 900 bps since 2005. U.S. and Europe grew by 500 bps over the same period.

  • Goal is to continue to improve operating margin
  • Track record of comp sales growth (82 consecutive quarters)
  • G&A control, disciplined operations, supply chain efficiencies
  • Strong owner operator and franchisee base
    • Locally relevant brand
  • Last few years saw more than 1,000 refranchised
  • Worldwide system is 81% franchised

2009 consolidated Return on Invested Capital stood at 20.9%

  • U.S. 24.6%
  • Europe 20.7%
  • APMEA 21.3%

Predictable cash flow and strong balance sheet allow a strong return of cash to shareholders

16.6bn returned to shareholders from 2007-2009 through repurchases and dividends.

  • $2.20 per share annualized dividend is more than triple the 2005 amount
  • First priority is to reinvest in the business. Above that, MCD will continue to repurchase and pay dividends

Important Q&A points:

Q: Average Check?

A: Average check for 2010 YTD has been stable compared to prior year.  Dollar menu hit a little but then we expect that average check comes back

Q: Can you explain the discrepancy between operating margins in developed markets – U.S. vs Europe?

A: Operating costs in Europe are higher. Rent, occupancy, labor are the main differences

Q: U.S. Comps ex weather have picked up? change in consumer behavior in US?

A: not really, more breakfast activity but nothing significant in terms of rate of growth

Q: How much of beverage guidance is smoothies and frappes?

A: Haven’t broken down the guidance of 125 by product. Expect them both to be big drivers. Dollar menu breakfast was about regaining traction and bringing customers in (TC’s).

Q: How important is couponing?

A: In some markets customers are conditioned to use coupons but we find that every day predictable value is a more successful tactic but in markets where it is prevalent we will do it

Q: What % of total revenue is drive thru?

A: 66% of sales in US. Only 66% of restaurants in Europe have drive through, and of those that have it, 45% of those restaurants’ sales are drive-thru. There is an opportunity to expand drive through in Europe and APMEA.

Q: Where do you expect an upturn in consumer spending?

A: Hoping it’s everywhere. Asia is where we’re seeing consumer confidence at lower levels (China and Japan). In Europe, Germany is the most price sensitive consumer, confidence levels really affect traffic.

Q: Competitive environment, race to bottom, in 2010?

A: We put the dollar menu up back in 2003. Didn’t have to react to deteriorating economy because we had an every-day affordability strategy. Did evolve it to bring breakfast in. Virtually all of the restaurants had breakfast value strategies in place but we needed a unified voice at breakfast.

Don’t see dollar menu dramatically expanding or shrinking.

Q: Taking price in 2010?

A: commodity costs in 2010 are going to be pretty benign. Consumer prices are holding fairly well. Don’t see a tremendous opportunity to take price. Typical year of 2/3%, this year will be something less than that. In this cost environment that won’t hurt us. We’ll be ready to take price when the opportunity arises.

Howard Penney

Managing Director

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