MCD (NYSE) MENGYU SUN JUNYING SHEN CHI ZHANG October 30,2012

AGENDA Investment Summary Macroeconomic Overview Stock Market prospects Company Overview Financial analysis and Projection Valuation (DCF and Comps) Recommendation

Investment Summary (MCD) Purchased 200 shares in March 2009 @ price $52.44 Unrealized capital gain of 65.35% Current Price $86.71 (Oct 29,2012)

Industry Overview – Porter’s 5 Forces Quick-Service and Fast Casual Restaurant industry Level of Rivalry High Threats of Substitutes: High Buyers’ Power: low Suppliers’ Power: low Barriers to Entry: Low Basis of Competition Competition in this industry is high and the trend is increasing Competition factors influence the level of rivalry between operators in a sector (internal competition) and operators in other sectors (external competition). Within this industry, competition is currently high and increasing. Internal competition Although there is usually significant price-based competition within this industry, fast-food establishments also compete on the basis of location; food quality and consistency; style and presentation; and food range. New products, including healthier items, are introduced regularly, while variety and service, including the availability of drive-thru, is also important. There is significant competition between franchised and multi-establishment operators, and other operators. Although franchised or chain operators account for a relatively small share of establishments, their share of industry revenue is much larger. This relates to the distribution of their establishments, mostly in high traffic and profile locations, as well as the continuing investment in marketing their brands. There is, however, an increasing trend towards the co-location of several different fast food establishments in the same geographic area or in food courts at shopping malls and airports in developed nations. Threats of Substitutes Industry competition arises from other food service areas, including all other foodservice industries, such as cafes, cafeterias and full-service restaurants, many of which also offer take-out and home delivery services. Barriers to entry in this industry are low and are increasing Barriers to entry outline the factors that prevent or limit a new operator from entering a particular industry. Within the Global Fast Food Restaurant industry, entry barriers are low given that new operators can easily lease premises and equipment, furniture and fittings, which lowers the initial capital costs, outlays and borrowings. The top four global companies in this industry are estimated to account for only a low market share of about 23.5% of total industry revenue in 2012, with the top eight firms making up around 27.5% of industry revenue. This provides an indication of the small business and fragmented nature of this industry. Entry to this industry can also occur through a franchise agreement, which includes fit-out and equipment, as well as training and systems being in place. There is significant competition among the major franchised companies within this industry to obtain suitable sites, which has increased the costs of prime sites. However, some major franchised operators are now co-locating within an area or single building, or within shopping centers or malls, to save costs.

Industry Overview – Key Challenges Consumption Expenditure Health Concern Changes in Consumer Preference Intense Competition Health Concern: Popular books such as Fast Food Nation and documentaries like Super Size Me have increased public awareness of the negative health consequences of fast food. Fast food companies have responded by adopting healthier choices and have had some measure of success, but the shadow of bad press still hangs over the industry. Changes in consumer preference, Towards casual dining. Intense competition: Market saturation is also a relevant issue in the fast food industry today, at least in the U.S. There is a McDonald franchise is in almost every town, and it usually sits in a row with several competitors. With so many competitors which offer similar products there are fewer customers per location. Increasingly fast food restaurants are also losing market share to fast casual, a relative newcomer in the restaurant space. Consumption expenditure: Fast food had been thought to be largely recession proof, and indeed the industry did not suffer nearly as much as other discretionary spending sectors. In fact, there was some increase in consumer visits as people choose cheaper fast food options over fast casual or traditional restaurant choices. But overall, the recession hurt spending, and consumers overall purchased less with each trip. Fast food franchises fared reasonably well but still felt some pain. Overall: The fast food industry is still a large and diverse industry with plenty of opportunity. As one would hope, challenge is being answered with innovation, and fast food franchises are responding with new offerings, pricing and strategies to lure consumers back in. Non-traditional fast food franchises are springing up and gaining traction, and more creativity will always be welcome! Consumers are now on the look-out for new ways to eat fast and healthy. And as the industry continues to evolve and the economy strengthens, fast food franchise profitability will continue to grow. http://www.franchisehelp.com/industry-reports/fast-food-industry-report

Key Challenges (cont’d) The growth of this industry is sensitive to changes in consumer spending. During a recession, the spike in unemployment generally led to declines in consumption levels. When personal consumption expenditure is high, consumers will be more likely to spend money on eating out at fast-food restaurants. This driver is expected to increase in 2012, providing a potential opportunity for the industry. Healthy eating indexThe healthy eating index is expected to decrease slowly in 2012 as consumers’ diets continue to get progressively poorer. Still, consumers are also becoming increasingly aware of issues related to weight and obesity, fatty-food intake and food safety issues. This factor particularly affects the often meaty and greasy fast-food industry. Despite any long-term aggregate declines in healthy eating, consumers are now more aware of the health issues associated with fatty foods and are increasingly going out of their way to avoid them. This is a potential threat for the industry. Source: http://clients1.ibisworld.com/reports/gl/industry/default.aspx?entid=1480

Changing Preferences http://blog.bodellconsulting.com/tag/nations-restaurant-news/ The Nation’s Restaurant News newsletter shares a recent study that shows spending habits of consumers flip-flopping between quick service and casual segments. During the recession, the quick service sector got a boost from tightening spending habits. Now the casual sector has retaken the majority of dining dollars.

Industry Overview- Geographic North America – 63% revenue share Europe – 10% revenue share North Asia – 9.2% share and expanding rapidly Industry shares will shift gradually from developed regions towards high population, high income and middle class growing areas. Industry growth is continuing to be driven by population size and, particularly, income level and growth. This translates to an estimated 63% revenue share in North America, but with about 58% of global revenue concentrated in the US, the home of the franchised and chained fast-food concept, with the emergence of McDonald's in the 1960s. Other developed regions also have a concentration of industry revenue, including Europe at about 10%, with particularly high concentration in Germany, as the powerhouse economy for the EU, and to a slightly lesser extent, France, and Oceania at 2.7%, but concentrated around Australia. However, across most of these regions, the industry has, or is close to, reaching saturation, and in the mature stage of its life cycle. There are numerous operators each fighting for their fair share of a very subdued growth industry. Given this, the emerging high growth regions, include North Asia, particularly China, with its share at 9.2% and expanding rapidly. Other countries and regions including India, Africa and the Middle East and South America, have a relatively small share which is expected to remain as such given low income and/or population factors. Within South America, however, Brazil is now a standout growth prospect for this industry, given its large population and rising middle class. Overall, over time, industry shares will shift gradually from developed regions towards high population, high income and middle class growing areas. Back to top < Industry OutlookCompetitive Landscape > Source: http://clients1.ibisworld.com/reports/gl/industry/default.aspx?entid=1480

Industry Outlook- Developed Nations Industry is mature in developed nations such as the United states Some operations and stores have closed The rate of new store openings has slowed Operators are concentrating on international openings There is heavy price-based competition Health concern and changing preferences Profitability is low

Industry Outlook- Developing Nations Developing nations’ share of global fast-food revenue is expected to climb to 20% by 2017. High populations and growth rates are driving demand in developing countries Growth in middle income households is driving demand for fast-foods in developing nations

Industry Outlook - Overall Revenue Outlook Growth % 2013 2014 2015 2016 2017 US 2.2 2.1 1.0 1.9 Global 2.7 2.4 1.7 1.5 ????? Source: http://clients1.ibisworld.com/reports/gl/industry/default.aspx?entid=1480

Company Overview Franchises & operates McDonald's restaurants in the global restaurant industry Either by the Company or by franchisees Assure consistency & high quality Substantially uniform menu, although there are geographic variations

Strategic Decision Plan to Win (5P) More than 33,500 restaurants in 119 countries Plan to Win (5P) People Products Place Price Promotion nearly 59% are conventional franchisees 21% are licensed to foreign affiliates or developmental licensees nearly 20% are Company-operated

Total Revenues (6 years) Source: http://www.aboutmcdonalds.com/mcd/investors/financial_highlights.html

Comparable Sales Source: http://www.aboutmcdonalds.com/mcd/investors/financial_highlights.html

2011 Revenue & Systemwide Restaurants by segment Number of restaurants by segment Revenue by segment 42% 32% 6% 10% 22% 21% 27% 40% Source: http://www.aboutmcdonalds.com/mcd/investors/financial_highlights.html

Segment Growth Notes: related to prjection Source: http://www.aboutmcdonalds.com/mcd/investors/financial_highlights.html

Segment Growth Drivers US Affordable products, Dollar Menu Convenient locations Remodeling program Europe Tiered menu Extended business and operating hours Services innovations APMEA Value Lunch Platform Dessert kiosks Delivery services

Recent News 10-Q: COGS up 4-4.5% in US and Europe SGA expenses down 2% Interest expense up 8-10% (net issuances of $787 MM debt) CapEx $2.5 B, half invested in opening new restaurants and half in reinvesting in existing restaurants MCD’s to list calorie information on restaurant and drive- through menu The world's largest fast-food chain continues its push to appeal to more nutrition-conscious consumers. JUNYING

Comparable Analysis Low industry concentration In 2012, the top four global players only account for about 23.5% of the available market share. This industry is highly fragmented, with a high proportional share of single-owner establishments (as distinct from franchised and chain operators) providing a diverse range of cuisine and fast-food choices to customers across the globe. By 2017, it is expected that the major global operators will only increase their market share marginally, despite the opening of more stores in high growth developing countries. Their growth in establishments will continue to be overwhelmed by local single-owner establishments offering more local, traditional and in-demand food styles. However, the concentration of the major franchised and chain operators within developed nations will undergo further consolidation, as they continue to battle with a low revenue and profit growth environment due to market saturation. Consolidation will involve underperforming site closure, as well as the possibility of mergers between the largest operators and second rung ones, who are offering products more in tune with changing consumer demands. This includes more healthy choice meals, as well as specialties such as seafood, chicken and even Mexican fast-foods. Highly competitive Source: http://clients1.ibisworld.com/reports/gl/industry/default.aspx?entid=1480

Stock Performance Over 5-Years Why wedney is so bad Doctor’s Associates, Inc: private company Burger King Corporation: went public again @ July.26.2012 Source: http://finance.yahoo.com/echarts?s=MCD+Interactive#symbol=MCD;range=1d

MCD Financials per share Comparable Analysis Stock price average = $89.2 Enterprise Value to Market Cap Price to fundamentals EBITDA EBIT Sales (mil's $) P/E P/BV P/S MCD 9.9x 8.5x 27.00 87,441 16.3x 6.2x 3.2x YUM 2.6x 2.0x 12.6x 31,581 22.1x 14.4x 2.4x WEN 0.3x 0.2x 1,626 29.7x 0.8x 0.7x BKW 0.5x 0.4x 2.3x 5,233 n/a 4.8x Industry average 22.7x 6.6x 2.1x MCD Financials per share MCD stock price Earnings 5.3 119.6 BV (equity) 13.9 91.2 27.1 56.8 Stock price average 89.21733333

Projection Depends on the revenue growths/operating income changes based on different regions. Excel!

DCF analysis Projected Stock Price $95.81 Perpetual growth rate at discount rate sensivities Perpetual growth rate $95.81 2.00% 2.50% 3.00% 4.00% 4.50% 12.25% 99.24 103.26 107.71 118.24 124.52 12.75% 93.93 97.51 101.46 110.71 116.17 13.25% 89.09 92.29 95.81 103.99 108.78 13.75% 84.66 87.54 90.69 97.96 102.18 14.25% 80.59 83.20 86.03 92.52 96.26

Valuation Market Price $86.71 $95.81 DCF 13.3% WACC Multiple $89.21

Recommendation HOLD

Triggers China Economy Hard landing Brand Concentration (Compare to Yum!) public relationship crisis (mad cow disease) Standardize (MCD) vs. localize (Yum!)