The UK subsidiary - seen as one of McDonald's most lucrative overseas outposts - has been hit by a dramatic shift in consumer tastes towards healthier fast food alternatives, such as sandwich bars.

The parent - headquartered in Oak Brook, Illinois - does not publicly break down its overseas results on a country-by-country basis. However, recently filed financial results for McDonald's Restaurants Limited, the East Finchley-based main UK operating company, reveal that pre-tax profits dropped 20% last year from £104.3m to £83.8m, their lowest since 1998.

Although profits have fallen before, that was usually because of the high costs of expanding the chain. This time, the UK business has been hit by a much more worrying trend - stalling sales growth.

Turnover at the UK subsidiary, which has had Lady Thatcher's former spin chief Sir Bernard Ingham on the board since 1991, slipped from £1.14bn to £1.13bn. The underlying fall was much steeper after stripping out the effect of new restaurant openings.

A spokeswoman for the company blamed a rise in 'fixed and variable costs' for the profits decline but said McDonald's remained committed to further expansion in Britain.

The company sounded an unusually downbeat note in its review of the year, saying merely that 'turnover has remained flat in 2002 due to a contraction in existing restaurant turnover and the sale of owned restaurants to franchisees, offset by new restaurant openings'.

By contrast, the group had always previously boasted in its accounts that it had enjoyed 'another outstanding year for the company'.

The profit fall has forced McDonald's to slow its breakneck British expansion programme with fewer openings planned for 2003, than the 57 last year, and 63 in 2001. In the late 1990s, openings were running at the rate of 100 a year.

Around a dozen underperforming outlets - including the Haymarket branch in London, the fifth to open in the UK - are reported to be earmarked for closure. There are 1,230 McDonald's restaurants in the UK, of which the company owns around 780 with the others franchised out.

The 2002 accounts also reveal that McDonald's highest paid UK director, who is not named, received a package worth £636,000 last year, comprising pay of £405,000, a £26,000 pension contribution and a profit on share options of £205,000. The package compares with the average £6,000 paid to the company's 50,000 UK staff, many of whom are part-time. The average hourly rate for restaurant staff is £4.88.

The UK operations are led by chairman and chief executive Andrew Taylor, 45, who joined McDonald's as trainee restaurant manager at its Wembley branch in 1981.

McDonald's, which will next year celebrate the 30th anniversary of the first British restaurant opening, has long regarded the UK as one of the jewels in its crown. The British public has embraced its formula of burgers, shakes and fries with an enthusiasm matched in few other countries. However, the relationship has turned sour as increasingly health conscious Brits lose their appetite for fast food.

John Band, analyst at business information supplier Datamonitor, claimed: 'All the companies that make up 'the burgery' such as McDonald's, Burger King and KFC are falling out of fashion and that is because they are associated with lard and grease.'

Ronald's slow take-off in the UK

RONALD McDONALD landed in Britain in October 1974 with the opening of the inaugural restaurant at the inauspicious location of Powis Street, Woolwich in south-east London. Amazingly, it was three years before a second branch came along - in Holloway, north London. After that the rollout accelerated with number 100 opening in Manchester in 1983.

In 1993, it famously won a 13-year battle to erect the golden arches in the intellectuals' quarter of Hampstead, north London. That branch is earmarked for closure. The 1,000th branch was opened at the Millennium Dome in 2000.

In 1986, two environmental campaigners distributed a leaflet called What's Wrong with McDonald's accusing the company of environmental rape, exploiting its workers and serving unhealthy food. The subsequent libel case entered legal history after dragging on for 314 days. Although the company won, it later abandoned hope of collecting damages awarded by the court.  
 
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