AGM 2019

May 23, 2019

Information in this presentation contains certain forward looking statements that reflect management's expectations regarding future events and operating performance and speak only as of May 23, 2019. These forward looking statements are not guarantees of performance and involve a number of risks and uncertainties. Except as required by law, we do not undertake to update these forward looking statements. A list of the factors that could cause actual results to differ materially from those expressed in or underlying our forward looking statements is detailed in the company's filings with the SEC, such as its annual and quarterly reports. Access our SEC filings by going to the Investor Relations page of the McDonald's website. Our website also includes reconciliations of non GAAP financial measures we mentioned in our presentation, if any, to their corresponding GAAP measures. These reconciliations may be found at www.investor.mcdonalds.com. Good morning, everyone. It's a great day to gather here with all of you. My name is Hernandez and I'm honored to serve as Chairman of your Board of Directors. So I'm welcoming you now to the McDonald's 2019 Annual Shareholders Meeting and I call this meeting to order. In addition to everyone here, we are joined by those of you listening on our audio cast. For those of you in the room, you have a copy of the agenda for our meeting today and information about our procedures and rules of conduct. With me on stage are President and Chief Executive Officer, Steve Easterbrook to his left, our General Counsel and Corporate Secretary, Jerry Krulowicz and to Jerry's left, our Chief Financial Officer, Kevin Ozan. Thank you, gentlemen. I'm also pleased to introduce the Board of Directors who are nominees for election at this meeting. In addition to Steve Easterbrook and me, they are Lloyd Dean, CEO of Common Spirit Health Bob Eckert, operating partner of Freitman, Fleischer and Loew, excuse me Margo Georgiadis, CEO of Ancestry Rick Lenny, Non Executive Chairman of Conagra Brands John Mulligan, Executive Vice President and Chief Operating Officer of Target Sheila Penrose, Non Executive Chairman of Jones Lang LaSalle John Rogers, Jr, Founder, Chairman, CEO and CIO of Aerial Investments Paul Walsh, Chairman of Compass Group and Miles White, Chairman and CEO of Abbott Laboratories. Also with us today is Chairman Emeritus, Andy McKenna. I'd like the directors to all stand and be recognized. Thank you all very much. We will begin with the presentation of the proxy proposals and later you'll hear from Steve. I'll also offer a few comments. But at this time, I'd like to turn to Jerry Krulowicz, our Corporate Secretary, to describe our procedures for the business of this meeting. Thank you, Rick. I can advise that a quorum of the company's shares outstanding is present to conduct the meeting. The polls are open and will close following the presentation of the proposals. In consideration of all the shareholders joining us today, we ask that you maintain a respectful and orderly environment throughout the meeting. You may review the rules of conduct which are printed in your program. And here is the order of events. First, the Chairman will introduce each proxy proposal and the presenter of the shareholder proposal. The presenter will be allowed up to 2 minutes to present the shareholder proposal. A chime will indicate the expiration of that time. Following the presentation of all of the proposals, the Chairman will ask for a motion and a second on all the proposals at one time. There will not be a comment period during the presentation of the proposals. However, following the meeting and the CEO's remarks, there will be a question and answer panel with our management team led by our Global Chief Communications Officer, Robert Gibbs. Also, if you have not already voted your shares and need a ballot, please raise your hand and Anusha will provide one to you. If you have already submitted your proxy, you do not need to vote by ballot. Broadridge Financial Solutions, the independent Inspector of Election, receives and tallies all votes. Preliminary voting results will be announced after Steve's remarks. I'll now turn the meeting back to our Chairman for the presentation of the proposals. Thank you, Gerry. Our first order of business is the election of the following directors, Lloyd Dean, Steve Easterbrook, Robert Eckert, Margaret Georgiadis, myself, Richard Lenny, John Mulligan, Sheila Penrose, John Rogers, Jr, Paul Walsh and Myles White. The second item is an advisory vote to approve executive compensation. The 3rd item is an advisory vote to approve the appointment of Ernst and Young LLP as independent auditor for 2019. The 4th item is a vote to approve an amendment to the company's certificate of incorporation to lower the authorized range of the number of directors on the Board to 7 to 15 Directors. The 5th item is an advisory vote on the shareholder proposal requesting the ability for shareholders to act by written consent. And at this time, I call upon Alexa Kaczmarski, who is here to present the proposal number 5. Alexa, please. Good morning. Good morning. My name is Alexa Kaczmarski with Corporate Accountability presenting Proposal 5, shareholder right to act by written consent sponsored by John Chevedden. Shareholders request that the Board of Directors take necessary steps to permit written consent by the shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting. This common sense proposal would more easily allow shareholders to raise important issues outside of the corporation's normal meeting cycle, issues that impact the reputation of McDonald's, which in turn impacts McDonald's bottom line. And right now over 100 companies allow shareholders to call special meetings and act by written consent. Last year, this proposal won 42% of support and it's important to have this right at McDonald's, which has one of the weakest versions of a shareholder right to call a special meeting, requiring an enormous effort and budget from the pockets of shareholders. Shareholders, workers, educators, parents and health professionals have concerns that the corporation is not adequately addressing. 2 days ago, workers filed 23 complaints on sexual harassment, workplace retaliation and gender based discrimination against the corporation and its franchisees, adding to the 10 complaints filed last year. And earlier this year, the American Federation of Teachers, the 2nd largest teachers' union in the country, formally rejected McDonald's predatory marketing to children through McTeacher's Nights. Year after year, McDonald's has taken steps to make this meeting less accessible in what can only be imagined as an attempt to prop up an alternative reality for shareholders and create distance from the protests and demands of 1000 of workers and activists outside. But McDonald's can't escape the overwhelming demands for change. Workers are protesting outside the meeting right now with FIFO 15 activists, demanding McDonald's take steps to address sexual harassment in stores, stop attacks on workers right to a union and start a dialogue with workers. The corporation can avoid accountability on these and other issues forever. Please vote yes, shareholder right to act by consent. Proposal 5. Thank you, Alexa. Is there a motion to move on all of the proposals? So moved. Is there a second? Thank you very much. The Board also recommends a vote against the shareholder proposal. The reason for the Board's recommendations are outlined in the proxy statement. If you're voting at this meeting, please complete and sign your ballot and motion for an usher to collect it. If you've already submitted your proxy, you do not need to vote by ballot. So at this time, I'd like to welcome Sister Susan Micah of the Benedictine Sisters of Boerne, Texas to present a statement on antibiotics. Sister, good morning. Thank you. I am Sister Susan Meek. I'm with the Benedictine Sisters in our monasteries in Boerne, Texas. We and a number of other groups from the Interfaith Center on Corporate Responsibility filed a shareholder resolution asking McDonald's for a policy on antibiotics in the beef supply chain. In December, McDonald's did publish a new policy which is an important step forward in McDonald's antibiotics journey. It sends an unmistakable market signal to beef producers worldwide. We urge McDonald's to set ambitious antibiotics use reduction targets at the end of the pilot phase as well as to publicly report regularly on their progress. Consumers want assurance that pledges are being met by suppliers and we feel that building in a 3rd party verification program will be important to increase confidence in McDonald's plans. We will continue to meet with and monitor McDonald's progress towards implementation of this important policy. Thank you. Thank you, Sister. The polls are now closed. I should have asked, does anybody need a ballot collected? And I can't see any hands, but if you do, please provide them to an usher. The preliminary voting results will be announced at the end of today's program. This concludes the formal business of the meeting and the Annual Shareholders Meeting is now adjourned. But before I turn the podium over to Steve, I'd like to say a few words. First, on behalf of Steve and the entire McDonald's Board of Directors, I would like to say thank you, Dallas, for allowing us to host our meeting in this really tremendous city. While we're here, we're spending time connecting with local management team, our owners and operators and community leaders who are working together each day to ensure the company's success here in Dallas. Engaging with these teams on the ground gives us a much deeper appreciation for the particular challenges and opportunities that exist at the market level and better informs us on the Board for strategic oversight role by equipping us with a more informed point of view, one that is grounded in the day to day realities of McDonald's restaurants. It also gives us an opportunity to thank the many talented people who are working in and partnering with the McDonald's system to grow the business here. Members of the management team are also taking time to visit a local sustainable beef and ranching operation that's prized for its eco friendly water, soil, pasture and livestock stewardship. It's really a great example of where sustainable ranching and beef production are heading and we're proud to be partners in this transformative effort. We're excited to be here and we're grateful for the Texas hospitality that's been shown to us already by so many. So thank you very much, Dallas. Over the past 4 years under Steve's leadership, McDonald's and our extraordinary people all around the world have executed one of the most impressive turnarounds in this company's 60 plus year history. The Velocity Growth Plan, which you'll hear more about in a moment, it's firmly in place and generating positive results. Without question, McDonald's is a company on the move. You see it, you sense it, you know it. The momentum we're building is apparent to our customers who seek the convenience and value of that delicious iconic Big Mac, Fries, Chicken McNuggets, Egg McMuffins and more served quickly by the millions each day. That same momentum is apparent to our people who are inspired by the changes they are seeing with technology, new restaurant decor and design, menu innovations and more. And that momentum is apparent to industry observers who are watching the successful transformation of the world's leading global food service retailer, McDonald's. Our financial results for 2018 clearly demonstrate a company on the move. We ended the year with our 14th consecutive quarter of global comparable sales growth. Equally important, free cash flow was up 14% this past year to $4,200,000,000 We prioritized reinvesting back into the business, which enabled the exciting transformational innovation Steve will talk about shortly. At the same time, we also prioritized returning cash to shareholders. Last year, we returned $8,500,000,000 to shareholders through a combination of dividends and share repurchases. And we expect to return $25,000,000,000 for the 3 year period ending in 2019. So as you can see, we're absolutely committed to your investment today, tomorrow and for as long as we have the privilege of your support. For all of us here today, company employees, owner operators, business partners and shareholders, this is an exciting time to be part of McDonald's and the McDonald's story. This business is well positioned for the future and its leadership and strategies have earned the confidence of the entire Board. Our Board is committed to upholding the role of reviewing, challenging and helping shape our strategic direction so that McDonald's continues to serve the interest of customers, employees and shareholders for the long term. For example, in 2018, we gathered at the company's new headquarters in Chicago for the annual strategy session. During that session, the management team presented an update on the Velocity Growth Plan as well as other deep dive topics, including the use of technology to enhance customer experience and improve restaurant efficiencies, franchising, the U. S. Business and global markets and our long term outlook. We on the Board also conduct periodic market visits and this year visited the Strategy and Innovation Center to learn more about efforts to run great restaurants and about restaurant innovation. We're committed to ongoing Board refreshment. In January 2019, we elected Paul Walsh, Chairman of the Compass Group PLC as a new independent Director. As former CEO of Diageo and Chairman and President of Pillsbury, Paul's wealth of experience in the food, beverage and consumer goods industries will be an invaluable addition to the Board. At this time, we also want to express our sincerest gratitude to Gene Jackson, CEO of MSP Capital, who has served on our Board since 1999. Jean decided not to stand for reelection. And while we certainly respect her decision, we'll miss her invaluable counsel and partnership. As a Board, we will also ensure we have the right directors in place to oversee the company's business and your investments. As our business evolves, so will our Board. Finally, shareholder outreach remains vital to us. We will maintain a robust year round engagement program and the insights we learn from our shareholders will inform our decision making process. Together, we're all committed to winning and winning is contagious. I believe the momentum that Steve and his team have started is setting a foundation of success for many, many years to come. So thank you for taking the time to be with us here this morning and thank you for your support of McDonald's. Now let's hear from our President and CEO, Steve Easterbrook. Thank you, Rick, and good morning, everyone. We're delighted you could join us both in person and on the audio cast. A year ago, we held our final Annual Shareholder Meeting in Oakbrook, so I'd like to echo Rick's expression of gratitude to the city of Dallas. Dallas is home to one of our 10 U. S. Field offices, and coming here this week has given us an opportunity to spend time in a growth market that is very important to the future of McDonald's. So a big thank you to you, the city, for your hospitality. I'd also like to thank Rick and our Board of Directors for their partnership and unbending faith in our turnaround and growth efforts these past 4 years. Rick and the Board have been in our corner every step of the way and that's a big reason why we are indeed a company on the move. So thank you all very much. I'd also like to recognize our senior management team, many of whom are here today. These leaders have been instrumental in shaping the vision for where we're going and are passionate about working with our employees, franchisees, and supplier partners to bring that vision to life. So in addition to Gerry and Kevin, they are Lucy Brady, Chief Strategy Officer Francesca Debiasi, Global Chief Supply Chain and Sustainability Officer Joe Ellinger, President of our International Operated Markets David Fairhurst, Global Chief People Officer Robert Gibbs, Global Chief Communications Officer Daniel Henry, Global Chief Information Officer Piotr Jukka, Senior Vice President of our Global Restaurant Development and Restaurant Solutions Group Chris Kamchinsky, President of McDonald's USA Silvia Lagnado, Global Chief Marketing Officer Mason Smoot, Chief Alignment Officer and Ian Borden, President, International Developmental Markets. I'd like to ask the team to please stand and be recognized at this time. And lastly, I want to express my appreciation to all of you, our shareholders. Thank you for your investment and for joining us today both in person and on the webcast. As Rick mentioned in his comments, the momentum we're seeing in our business today is contagious and we're only getting started. We're now 2 years into our Velocity Growth plan and a few weeks ago, we reported our Q1 2019 financial results. We drove solid performance growing global sales and guest counts along with gaining critical market share across most of our key markets. The performance we've already seen this year has built up a solid 2018 where we brought greater convenience, choice and value to our customers. We accomplished it at a time when the informal eating out traffic was and continues to be muted in markets around the world. Leading the way, of course, was our delicious food. We began 2018 with a multifaceted year long celebration of the 50th anniversary of the Big Mac, the iconic burger that changed the course of our company. Let's take a look at how we celebrated the Big Mac in Australia and the U. K. We continue celebrating our menu with new items like our buttermilk, crispy chicken tenders and our fresh beef cooked when ordered quarter pounders. In Germany, customers continue to enjoy iconic favorites on the taste of McDonald's platform such as the McChicken. Canada extended the successful launch of bagels earlier in the year by introducing all day breakfast bagel sandwiches with fresh cracked eggs. And in Spain, loaded fries were popular with customers seeking a snack, and many also enjoyed adding them onto a meal. In addition to our food, last year saw us make substantial progress on our Velocity Growth Plan accelerators, delivery, experience of the future and digital. We continue to move aggressively into the delivery business. We ended 2018 with over 19,000 restaurants offering delivery. And this year, we're already in over 20,000 restaurants across more than 75 countries. That's more than half of all McDonald's restaurants globally. McDelivery has become a $3,000,000,000 business for both McDonald's company and franchise restaurants globally, and it continues to grow rapidly as we expand to additional restaurants and benefit from strong same store sales momentum. Another critical velocity accelerator is an initiative we call Experience the Future. With refreshed decor, new ordering options and an enhanced focus on providing a more enjoyable visit at our restaurants, we're now offering a new modern hospitality experience to McDonald's customers. Our guest experience leaders have been instrumental in driving an enhanced guest experience, and that's resulting in high customer satisfaction, sales and ultimately strong business results. Today, over half of our restaurants globally and over 8,000 here in the U. S. Have been converted to Experience of the Future, and many more are awaiting our guests in 2019, all underscoring a company on the move. Equally important is the progress we're making on our digital accelerator from our global mobile app to our outdoor digital menu boards to our self order kiosks. We've made big strides in digital by creating an ecosystem that more and more of our customers are using to order, pay and be served McDonald's on their terms. These opportunities are possible because we've committed resources to deploy technology throughout the McDonald's system, including kiosks in nearly 20,000 restaurants and new capabilities for mobile order and pay across the U. S. And most of our major markets. And as you've seen, in 2019, we've built on that foundation with our recent acquisition of Dynamic Yields, a global leader in personalization and decision logic technology. Dynamic Yields technology allows us to suggest offers by time of day, weather and trending menu items. Over time, using data from the millions of customers that we serve daily, the technology will get smarter and smarter through machine learning. And using data based on current restaurant traffic at the drive thru, the technology will begin to suggest items for our customers to try. Long term, this technology will work across all of our digital platforms, including our self order kiosks, our global mobile app and our outdoor digital menu boards. When our technology ecosystem is linked, it will provide a seamless ordering experience for our customers. And this acquisition is just one tangible demonstration of the steps we are taking to leverage industry leading innovative technology to accelerate our growth and offer our customers an even easier, more enjoyable experience. All of this is advancing the growth of a company on the move. Another important contributor to our success was a relentless focus on running great restaurants. I'm encouraged by the greater discipline we're demonstrating in many of our markets as we simplify menus and take other actions to reduce complexity and improve our ability to provide exceptional customer experiences. One area we're focused on as we look forward is improving the experience of the drive thru and in particular, the speed of service. Many of the improvements we're exploring at scale are taken from best practices we've seen in markets around the world. In Italy, for instance, having a disciplined focus on running great restaurants every day has helped the market deliver some of the strongest sales performance in its history. As a part of their overall focus on improving operations, they identified an opportunity to improve suite of service by running multiple drive through competitions in the restaurants. Similar programs have been launched recently in the U. S. And right here in Dallas, the team shaved 20 seconds off of their drive through service time this April compared to last April. And customers told us they noticed the improvements as well. So great job to the Dallas team. Keep up the good work. We'll continue to look for ways to expand winning approaches like these to other markets. For our customers to feel good about visiting McDonald's, we also know they need to feel good about our food, our company, and the impact we have on the world. We are committed to honoring the trust they place in us as we use our scale for good. We previously announced our scale for good commitments in areas where we felt we can make the biggest difference and which intersected directly with our business operations. These areas include climate action, sustainable beef, packaging and recycling, commitment to families and youth opportunity. Since then, we've continued to make progress in those areas. For example, last August, as part of our youth opportunity focus, we announced a commitment to reduce barriers to employment for 2,000,000 young people by 2025 through pre employment job readiness training, employment opportunities and workplace development programs. As part of our program, we are proud to share that in 2018, ahead of plan, McDonald's restaurants have trained and hired over 300,000 youth in markets such as Argentina, Brazil, Canada, Colombia, Italy, Mexico, Spain, the U. K. And the U. S, including over 4,200 young people in Chicago with a program and our partners have helped get back into the workforce or on an educational pathway. Speaking of Chicago, let me just say a word or 2 about the positive impact of our move back to the city. Returning to Chicago was a coming home of sorts for us. Chicago is where our corporation began, and it's where we operate our headquarters from 1955 until 1971. As we continue our transformation to a more modern, relevant and customer obsessed business, the urban vitality of Chicago places us in the heart of an environment where our customers can be seen coming and going into our neighborhood restaurants. It's a magnet for attracting great talent, And the contemporary inspiring working environment is fostering greater speed, collaboration, and creativity. All of this is vital to the continued renewal and growth of our remarkable company. As we look ahead as a company that's clearly on the move, we do so from a position of great strength. Our strategies are working. Our guests are rewarding us for the investments we are making to offer them great tasting food, a modern and hospitable environment and unparalleled convenience. Our people, owner operators and suppliers are inspired and motivated to win, and we're encouraged by our sustained growth. All of this gives us confidence about the road ahead as we continue this journey to become a better McDonald's. So thank you all for your confidence in this great business of ours. We're honored by your support, and we'll work tirelessly to protect and enhance your investment. Thank you. And now I will ask Rick to share the preliminary voting results. Thank you, Steve. The preliminary results are as follows: shareholders have elected each of the Director nominees Shareholders have approved the management proposal relating to an advisory vote on executive compensation with the support of 94% of the shares voted. Shareholders have approved Ernst and Young as the company's independent auditor for 2019 with the support of 96% of the shares voted. Shareholders have approved the amendment to the company's certificate of incorporation with the support of 98% of the shares voted. The advisory shareholder proposal requesting the ability for shareholders to act by written consent was not approved, receiving support of 42% of shares voted. And now I'd like to bring up Robert Gibbs, Global Chief Communications Officer for McDonald's to lead a brief question and answer period. Earlier, Jerry Krewelowitz reviewed the rules of order for today's meeting. And as a reminder, they're printed in your program. So I please urge everyone to follow those rules. And with that, Robert, thank you. Thank you, Rick. And good morning, everyone. At this time, I'd like to ask fellow members of McDonald's senior leadership team to join me here on the stage. Before the meeting began, we collected questions from shareholders. I will read a selection of those questions and ask a member of our leadership team to take a few moments to respond. Please note that similar questions have been grouped together. For those of you who have indicated on your question form that you would like an answer if your question is not covered today, know that we will respond via mail or e mail using the details that you've provided. Now, on to our first question. And I'm going to ask this of Sylvia Lagnado. We have seen innovation around plant based meat and a desire by some for vegan options to come to McDonald's. What are the prospects of those coming to our menu? Thank you, Robert. Hi, everyone. I lead menu under my role as global menu strategy. We're paying a lot of attention to everything that's happening very closely, not just in the U. S. But around the world. We obviously have to assess whether consumer demand at what level we believe will be sustained and make the right decision based on how model works and the importance of complexity considerations for our restaurant. So there may be more to come. But at this point, I'm not disclosing any plans, But it's a very interesting space, and thank you for the question. Thank you. Our next question is around what McDonald's is doing on chicken welfare. So I would like to invite Francesca to walk us through what McDonald's is doing specifically on chicken welfare. Thanks, Robert. McDonald's has a responsibility to ensure that all the animals in our supply chain experience good health and welfare throughout their lives and we take that responsibility seriously. That's why in October 2017, we announced 8 bold commitments related to chicken health and welfare across our global supply chain by 2024. And those commitments are based on the health and welfare outcomes, not inputs, which we think have the biggest impact. So for example, we are implementing on farm technology and on farm procedures to support stronger health and welfare in areas like lighting and housing environment. We're also ensuring that we have on farm technology to measure it and using 3rd party auditors to audit on our behalf. And finally, we have a global Sustainability Chicken Advisory Council, which is made up of external experts, which are guiding us along the way. And we feel through these commitments, we're using McDonald's size and scale for good. Thank you. Thank you, Francesca. Lastly, I'm going to read a comment that we received from Mary Carmen Munoz. She's involved in helping people bridge the barriers to employment and she writes, I'd like to applaud McDonald's for their continued community involvement in Michigan, especially in the Detroit area. I know Mary has been to several shareholders meetings, so thank you for the comment. This concludes our question and answer segment, and it also concludes our meeting. Thank you for your time this morning, and safe travels.