# To Our Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NYSE_POST_2017/NYSE_POST_2017.mmd` · pages 2-8_

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To Our Shareholders

Post had another strong year in 2017. Once again, we delivered record revenue and Adjusted EBITDA \( ^{(1)} \) . We are particularly proud of this accomplishment despite challenging year-over-year comparisons. Moreover, our results were set against a backdrop of rapid change in both our consumers and our trade partners. In fact, 2017 may prove to be a demarcation point in the way we think about channel management and consumer behavior.

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19.1%

dollar market share in the U.S. ready-to-eat cereal category

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Post Consumer Brands

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Perhaps the guiding principle behind Post Holdings is to be wary of guiding principles. This fosters a culture of opportunism well suited to rapid change and renewal. The environment we face is exciting—and we believe we are well positioned.

In addition to growing our base business in 2017, we were active on the strategic front. Specifically, we acquired one attractive business, Weetabix, and announced the acquisition of a second, Bob Evans Farms. Both are of a scale that will add materially to our company. Meanwhile, and despite committing over $3 billion to operating assets, we also shrank our equity by repurchasing 4 million shares for a total of $318 million.

## Post Consumer Brands

Our Post Consumer Brands business remains by market share the number three participant in the U.S. ready-to-eat (RTE) cereal category, with category dollar share growing to 19.1% \( ^{(2)} \) . The RTE cereal category continued to struggle in 2017, with dollar consumption declines of 3.1% \( ^{(2)} \) . We estimate that approximately one

# Perhaps the guiding principle behind Post Holdings is to be wary of guiding principles.

percentage point of the category decline is offset by a shift to unmeasured channels. The most significant declines occurred in the adult segment where consumers are seeking greater protein consumption. A benefit of our portfolio approach is that these consumers are driving growth in other segments of our business. Meanwhile, children's cereals fared better with a decline of 1.2% \( ^{(2)} \) . Our business tends to skew to children's cereals.

Post Consumer Brands was formed from the 2015 combination of Post Foods and MOM Brands. We are in the final stages of the combination and we have exceeded each of our announced goals. In 2017, we added Weetabix's North America business to Post Consumer Brands. We expect this combination and our ongoing continuous improvement efforts to drive meaningful cost reduction in this segment.

## Michael Foods Group

Last year we told you that 2017 would be a challenging year for Michael Foods and it was. Michael Foods is a terrific business in a solid category. However, it has certainly been a volatile ride since we acquired this business in 2014. Recall, in 2015 an avian influenza epidemic—generational in degree—caused the loss of approximately 25% of our egg laying hen supply. As of yet, we cannot make eggs without chickens. Without treading too much old ground, suffice to say that the impact of losing and repopulating flocks led to price volatility which led to earnings volatility. That is not the steady state for Michael Foods. Historically, it has had consistent earnings growth and we look for that to resume as we exit 2017. We are extremely proud of how we managed this crisis and communicated the degree to

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50%
Premier Protein net sales
growth in fiscal 2017

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Active Nutrition

which it would produce a hangover throughout 2017. We look forward to a return to normal.

Michael Foods is the largest processor of value-added eggs in the United States. As a result, the long term humane care of the layer flock is of critical importance to us. We are also the largest provider of value-added eggs from layers housed on cage-free farms. In 2017, we broadened our commitment to cage-free housing by investing an initial $27 million to convert our Bloomfield, Nebraska facility to a cage-free facility. We expect to continue to invest in cage-free hen housing over the coming years.

## Active Nutrition

Our Premier Protein brand, the center of our Active Nutrition segment, continued to deliver terrific results with revenues and volumes growing rapidly. We continued to gain distribution in 2017 and velocities remain strong. The brand continues to have great future growth opportunities. PowerBar was acquired in 2015 and we continue to work on renovating this brand. We introduced new products and flavors to mixed results. Meanwhile, legacy core products suffered distribution losses from new entrants. We continue to believe in the brand's equity and we are more boldly innovating around it. Our Dymatize business has stabilized—albeit at a level that does not support the price we paid for it. Weakness in its core channels have made growing the business a challenge.

## Private Brands

Our Private Brands business includes North America's leading manufacturer of private label peanut and tree nut butters as well as a dried fruit and nut business. Each of these businesses is attractively positioned in on-trend

Weetabix is our first major international expansion platform.
categories. After a slow start, we course corrected and had a solid 2017. Our business is well positioned with respect to major trends around health and private brand initiatives.

## Strategic Activities

In addition to these key operational achievements, Post broadened its portfolio through two highly strategic transactions. First, in July we acquired Weetabix Limited. Weetabix is the second largest cereal manufacturer in the United Kingdom and its flagship and truly iconic Weetabix brand is Great Britain's largest single cereal brand.

While we have smaller international business opportunities in the rest of our business, Weetabix is our first major international expansion platform. We believe it to have been the ideal first step. In considering international expansion our calculus was, and remains, that we are willing to risk the learning curve that comes with a new category or a new market—but not both. With Weetabix, we are a new entrant to the U.K. market, but in a category we know well. We believe

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10%

volume growth of organic peanut butter and other nut butters in fiscal 2017

Private Brands

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Weetabix

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#1
brand in the U.K.
ready-to-eat cereal
category

## 2017 may prove to be a demarcation point in the way we think about channel management and consumer behavior.

we entered the U.K. at a time in which political uncertainty afforded an attractive entry point when considered in U.S. dollars. We fully expect to see some volatility as the path of Brexit emerges, but we have great confidence in "this blessed plot."

In September, we announced the acquisition of Bob Evans Farms, a leading manufacturer of refrigerated side dishes and sausage products. We expect to complete this transaction in the second quarter of fiscal 2018. Bob Evans, like Michael Foods, houses both a foodservice and retail business. Upon completion of the transaction, we expect to re-organize each business around its core competitive channel position. Specifically, Michael Foods will become a pure foodservice organization, and Bob Evans pure retail. We believe this will enable each to manage in the most cost effective and focused manner, while simultaneously positioning each for add-on acquisitions.

We continue to use leverage to support acquisition activity. Since 2012 we have seen a reduction in our cost of debt as the market interest rate has remained low and our credit quality has improved. In 2017 we executed financings raising total debt of \(4.7 billion. This amount was used to refinance existing debt (\)2.1 billion), finance the Weetabix purchase ($1.8 billion) and prepare to fund the Bob Evans purchase (~$1.6 billion). Our average borrowing costs are now 4.9%.
Ultimately, our scorecard is determined by how you value our shares. From the beginning to the end of fiscal 2017 our share price rose 14% with a high and low of \(89.04 and \)68.76. While our use of leverage and orientation toward rapid change introduces some volatility, our focus remains on long-term appreciation in our share price.

In closing, we look back at 2017 with pride, but more significantly we look forward to 2018 and beyond with excitement for the promise of our business.

As always, we thank you for your support.

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William P. Stiritz
Chairman of the Board

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Robert V. Vitale
President and Chief Executive Officer