McDonald's is cutting its expansion plans by 45% after reporting an 11% year-on-year fall in third quarter earnings.

The company said it would now be opening a net 600 McDonald's in 2003, 450 fewer than this year. In 1996 annual openings peaked at nearly 2,000.

The plan is intended to conserve cash for operational improvements, boost future earnings and regain the approval of Wall Street analysts.

Jack Greenburg, the company's CEO, said: "This year certainly has proven to be even more challenging than we had anticipated."

The company has 30,000 company-owned and franchised stores worldwide. Despite cutting back on burger bars, it could nearly double outlets for other food concepts it owns, primarily the Chipotle Mexican Grill.

McDonald's said it would significantly reduce its capital investments in Asia, Latin America the Middle East and Africa "where returns have been pressured in recent years."

The biggest fall in sales came in the United States where outlets open for more than a year saw a 2.8% drop and they fought competition from other burger operators such as Wendy's, and from fast-growing fried chicken and pizza chains. In Europe, McDonald's reported a 1.3% fall. Customers have been complaining that the global burger giant has allowed standards of food, service, and cleanliness to slip, although McDonald's says its customer surveys show that perceptions are improving again.

The company reported revenue for the period of $4.0bn (£2.6bn), against $3.9bn in the third quarter of 2001. Net income was $487m, compared with $545m in the previous year.

McDonald's third-quarter system-wide sales were $10.9bn, up 1% from $10.6bn a year earlier.

The group warned that it would need to see a "significant improvement" in trading to meet full year expectations.