# TO OUR SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NYSE_GIS_2017/NYSE_GIS_2017.mmd` · pages 3-9_

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TO OUR SHAREHOLDERS

Fiscal 2017 was a year of significant change for General Mills. We implemented a new global organizational structure to enhance our agility in a rapidly changing consumer environment. We also implemented a business plan that aggressively shifted resources to our best growth opportunities and eliminated low-return investments and volume. While these actions were the right thing to do for our company, we did not execute up to our standards in certain areas and our results fell short of our plan. In 2018, we are focused on delivering improved performance, with a balance between sales growth and margin expansion, and building on our track record of superior value creation for our shareholders over the long term.

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## FISCAL 2017
PERFORMANCE

General Mills consolidated net sales for the fiscal year ended May 28, 2017, declined 6 percent to \(15.6 billion. Organic net sales declined 4 percent.* Total segment operating profit decreased 2 percent to \)2.95 billion. On a constant-currency basis, total segment operating profit declined 1 percent.

Diluted earnings per share were comparable to last year at \(2.77. Adjusted diluted earnings per share, which excludes certain items affecting comparability of results, rose 5 percent to \)3.08. Excluding the impact of foreign exchange, adjusted diluted earnings per share increased 6 percent. Our total shareholder return, which is a combination of stock price appreciation and dividends, declined 6 percent, reflecting our challenging topline performance during the year.

In the third quarter of the fiscal year, we reorganized our reporting segments to align with our new global organization structure. We combined our U.S. Retail operating units and Canada region into a North America Retail segment, due to their similar product portfolio and go-to-market structure. We divided our International segment into two segments: Europe & Australia and Asia & Latin America. Our fourth reporting segment, Convenience Stores & Foodservice, remained unchanged from our previous structure.

Fiscal 2017 net sales for North America Retail, our largest segment, declined 7 percent to \(10.2 billion, due in large part to sales declines in our yogurt, refrigerated dough, cereal and soup businesses. This net sales decline also included the impact of the divestiture of the North American Green Giant vegetables business in fiscal 2016. On an organic basis, net sales declined 5 percent. Segment operating profit decreased 2 percent as reported and on a constant-currency basis, driven by the Green Giant divestiture.

Our Convenience Stores & Foodservice segment posted a 3 percent net sales decline, driven primarily by market index pricing on bakery flour and declines on frozen dough products. Segment operating profit increased 6 percent for the year, exceeding $400 million. These results reflect our

## Total Shareholder Return

Fiscal years, stock price appreciation plus reinvested dividends, compound annual growth

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Source: FactSet

## Dividends per Share

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New annualized rate

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## CEREAL GOODNESS AROUND
THE GLOBE

We've been gaining share in many cereal markets around the world. From Lucky Charms and Cinnamon Toast Crunch in the U.S. to Honey Nut Cheerios in Canada to new Lion Wild cereal in France, we're driving growth by emphasizing the great taste and nutrition of our well-known brands. And we continue to promote the whole grain goodness of our cereals worldwide.

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continued focus on six key product platforms in growing foodservice channels: cereal, snacks, yogurt, mixes, biscuits and frozen meals. These businesses, which account for half of the segment's sales and 70 percent of the segment's operating profit, posted combined net sales growth of 2 percent for the year.

Net sales for our Europe & Australia segment declined 9 percent to \(1.8 billion and operating profit declined 18 percent, primarily reflecting unfavorable foreign currency exchange. On an organic basis, segment net sales decreased 4 percent. Segment operating profit decreased 9 percent in constant currency. We posted good growth on Häagen-Dazs ice cream, Old El Paso Mexican foods, and Nature Valley snacks across the segment. These results were partially offset by declines on our yogurt business in Europe and an extra month of results for Yoplait Europe last year, as we aligned that business to our fiscal calendar.

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Net sales for our Asia & Latin America segment grew 1 percent and segment operating profit increased 21 percent. Segment net sales increased 3 percent on an organic basis, and segment operating profit grew 20 percent in constant currency. Good growth in China, led by Häagen-Dazs ice cream and Yoplait yogurt, along with growth in India, was offset by a challenging operating environment in Latin America. We also benefited from an extra month of results in Brazil, as we aligned that business to our fiscal calendar.

In addition to these four operating segments, we hold 50-percent, non-consolidated interests in two joint ventures outside of North America. Constant-currency net sales for Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ) grew 3 percent and 8 percent, respectively, in fiscal 2017. Together, these joint ventures contributed \(85 million in after-tax earnings in 2017. This was 6 percent below last year on a constant-currency basis, driven primarily by an asset write-off for CPW, partially offset by volume gains on HDJ.

In fiscal 2017, we returned \(2.7 billion to shareholders through net share repurchases and dividends. We repurchased approximately 25 million shares of common stock, reducing our average number of diluted shares outstanding by 2 percent, which is in line with our longer-term goal. In June 2017, we increased our quarterly dividend rate by 2 percent. The new annualized rate of \)1.96 per share represents a yield of around 3.5 percent at recent prices for General Mills stock. Our goal is to continue to increase dividends as earnings grow.

## OUR PRIORITIES FOR
FUTURE GROWTH

For the past 150 years, General Mills has been living its purpose of serving the world by making food people love. We aspire to continued growth for our brands and our company.

## EXPANDING OUR
YOGURT PORTFOLIO

In the U.S., we're introducing some delicious yogurt products, including new Oui by Yoplait, a thick and creamy yogurt that builds on Yoplait's French heritage. Yoplait yogurt in China is gaining market share, as we expand distribution in existing cities and prepare to enter new ones. And Carolina yogurt competes in the large yogurt category in Brazil, with varieties ranging from beverages to decadent, dessert-style yogurts.

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## IT'S ALWAYS SNACK TIME!

Our portfolio of snack bars satisfies consumers everywhere. The Nature Valley brand can be found in 90 markets worldwide. We launched Fiber One bars in Europe in 2016 and continue to expand distribution. And retail sales for Lârabar fruit and nut bars and EPIC meat snacks grew by strong double-digit rates in 2017, as we increased distribution for these natural and organic snacks in North America.

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## General Mills Long-term Growth Model

Growth Factor

Organic Net Sales

Total Segment Operating Profit

Adjusted Diluted Earnings per Share

Dividend Yield

Total Return to Shareholders

 \( ^{*} \) In constant currency

Our goal is to create market-leading growth that will deliver top-tier returns to shareholders.

We remain committed to our long-term growth model. While the operating environment has been challenging in the short term, over the long run, we believe our businesses can generate low single-digit organic net sales growth, mid single-digit constant-currency total segment operating profit growth and high single-digit growth in adjusted diluted earnings per share on a constant-currency basis. Adding in a dividend yield of between 2 and 3 percent, we should deliver double-digit returns to shareholders over the long term.

To drive future growth, we are focused on our Consumer First strategy where we work to gain a

Compound Growth Rate

Low single-digit

Mid single-digit \( ^{*} \) 

High single-digit \( ^{*} \) 

2 to 3 percent

Double-digit

deep understanding of consumer needs and respond quickly to give them what they want. Whether it's bringing marshmallow news to Lucky Charms cereal in the U.S. or providing consumers in China with the creamy yogurt they desire, we have many examples of how this strategy has driven growth across our product portfolio, and we see plenty more opportunities for future growth. We're also making strategic choices about our level of investments and expectations for growth across our businesses. We continue to manage three quarters of our company as a Growth portfolio, where we are focusing the majority of our investments for long-term growth. Our Foundation portfolio represents the remaining quarter of our company and provides strong,

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consistent profit and cash generation that helps fund topline growth initiatives. We are making selective investments in our Foundation brands, focusing on strong returns.

With our Consumer First strategy and our Growth and Foundation designations firmly in place, we're focused on the following key priorities for fiscal 2018.

## Grow Cereal Globally

According to Euromonitor, cereal is a $23 billion category worldwide, and it's projected to grow at a low single-digit rate over the next several years. With our North America cereal business and CPW combined, we compete in more than 130 markets around the world and hold leading share positions

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## MORE OPTIONS FOR
TASTY MEALS

Old El Paso Mexican foods are popular worldwide with their zesty flavors, use of fresh ingredients, and innovative products, like new varieties of Stand 'N Stuff shells. Wanchai Ferry dumplings in China make authentic Chinese meals convenient, and we recently introduced a line for kids. Totino's pizza snacks continue to grow in the U.S. with bold flavors and strong consumer support. And watch for Progresso organic soup varieties in the upcoming soup season.

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in many of them. Wellness and taste news are delivering growth on many of our cereal brands. In fiscal 2018, we have a strong line-up of product news, including new flavors of iconic Cheerios, that we'll support with solid levels of consumer investment to grow our global cereal platform.

## Innovate to Improve Yogurt Performance

With its combination of great taste and inherent health benefits, the yogurt category is projected to grow at high single-digit rates worldwide. Our U.S. results have been challenging in recent years as our product line hasn't kept pace with consumer expectations. We believe innovating in new and fast-growing segments of the category is the key to improving our performance in yogurt. In 2016 and 2017, we introduced Annie's and Liberté organic yogurts. In 2018, we're launching Oui by Yoplait, a thick and creamy yogurt, based on a French recipe, that brings a new taste and texture to the U.S. market. We also see good growth opportunities outside of North America. Our yogurt platform in China continues to deliver strong results, and we have plans to expand into new cities in 2018.

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## Invest in High-performing Brands Worldwide

Our Häagen-Dazs and Old El Paso brands have been posting good growth around the world. In 2018, we'll expand our very successful Häagen-Dazs ice cream stick bars into new markets and also introduce mini varieties. We have new Old El Paso taco shell varieties coming in the U.S., Europe and Australia. We'll continue to expand distribution on our snack bars, including new flavors of Nature Valley granola cups, biscuits and bars. And Lärabar fruit and nut bars continue to post strong double-digit retail sales growth in North America behind increased distribution and strong advertising.

## Drive Continued Growth on Natural & Organic Products

Our natural and organic portfolio generates $1 billion in net sales in North America, and we expect to reach $1.5 billion in net sales by 2020. Annie's is our largest natural and organic brand and now competes in 14 food categories. We continue to add new offerings, including more snacks and macaroni and cheese varieties coming in fiscal 2018. We also continue to expand distribution in Canada, where the brand is only two years old, but growing quickly. And we're investing in smaller natural and organic brands that show great growth potential, such as EPIC meat snacks in the U.S.

## Manage Foundation Portfolio with Appropriate Investment

Our Foundation brands deliver stable revenue performance and solid earnings and cash flow. We're making opportunistic investments in many of them to keep them competitive

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and relevant with consumers. For example, we're launching a line of Progresso organic soups for consumers seeking a "better for you" soup option. And we're adding a new rolled pizza crust to our Pillsbury refrigerated dough offerings, making homemade pizza even more convenient to prepare.

## Building an Agile Organization

The new structure we implemented in 2017 has increased our organizational agility to operate as a truly global food company. We accelerated the global restructuring of our supply chain, organized under new operating segments and streamlined our support functions, allowing for more fluid use of resources and idea sharing around the world. We're also building new capabilities to support our businesses in the future. We're enhancing our e-commerce know-how to capture more growth in this emerging channel. And we continue to invest in strategic revenue management tools to optimize our promotions, prices and mix of products to drive sales growth.

We've entered fiscal 2018 with some significant executive changes. In June 2017, Jeff Harmening was named Chief Executive Officer. Jeff has more than 20 years of experience with General Mills, running both domestic and international businesses. Ken Powell remains as our Chairman and we thank him for the 10 years he served as our Chief Executive Officer. Ken led us through challenging and exciting times as we grew into a more global food company. Under his leadership as CEO, total returns to General Mills shareholders grew at an 11 percent compound annual rate. We also want to acknowledge Chris O'Leary, Executive Vice President and Chief Operating Officer of our former International segment, and Gary Chu, Senior Vice President and President, Greater China, who announced their retirements this year. We appreciate the contributions they made to our company during their combined 40 years with General Mills. In addition, Bob Ryan and Dorothy Terrell will be retiring from our board in September. They have provided invaluable counsel during their combined 35 years of service to General Mills.

In closing, we want to thank our 38,000 employees around the world for their dedication and commitment to our company. Their talent and skills are what drive our organization and what give us confidence that we will achieve our performance goals. We also what to thank you, our shareholders, for your investment in General Mills. We are committed to delivering on our performance goals on your behalf and appreciate your confidence in our plans for future growth.

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Kendall J. Powell
Chairman of the Board

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Jeffrey L. Harmening
Chief Executive Officer

August 1, 2017

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