Celsius Inc.

TO: Clark Hansen, CEO, AMDP

FROM: Brenton Gerhardt, R&D, AMDP

DATE: March 8, 2024

SUBJECT: Investment Proposal: Celsius Holdings Inc.

As part of AMDP's ongoing efforts to identify innovative and sustainable investment opportunities, I am excited to present an analysis of Celsius, a company that has shown remarkable growth in the functional beverage sector. Celsius is known for its scientifically backed, fitness-dedicated energy drinks that promise to provide healthy energy and metabolism-boosting benefits without compromising on taste or health. This memo outlines the reasons for considering an investment in Celsius by examining its alignment with AMDP's investment standards and detailing its potential for growth and sustainability.

AMDP Investment Standards

AMDP prioritizes investments in companies that adhere to a set of core standards, emphasizing not only financial returns but also social responsibility and environmental sustainability. These standards include:

Triple Bottom Line: AMDP values investments in companies that measure success not just by financial performance but also by their impact on people and the planet. (Miller)

•     Profit: Companies should demonstrate a strong potential for profitability while also showing efficiency in cost management and risk mitigation.

•     People: The societal impact of a business is paramount. Companies should contribute positively to the lives of their customers, employees, and the broader community.

•     Planet: Businesses should actively contribute to environmental sustainability, making efforts to reduce their carbon footprint and promote a healthier planet.

Corporate Social Responsibility (CSR): Businesses should proactively engage in practices that benefit both the environment and local communities, acknowledging that although such measures may incur initial expenses, they can lead to beneficial outcomes in the long run. (Reckmann)

Social Enterprise: Social enterprises are businesses that generate profit whilst primarily focusing on tackling societal needs. Such as conducting operations with integrity and/or directing profits back into community development programs. (Bullen)

Carbon Footprint: A carbon footprint encompasses all the greenhouse gas emissions for which an organization is responsible. Typically expressed in terms of carbon dioxide, it also includes gases like methane produced during the manufacturing of goods and distribution of services. It is crucial to minimize these footprints to help mitigate the impact of climate change and prevent further environmental issues. (Conservation)

Overview of Celsius & Company

Celsius Holdings, Inc., established in 2004 and based in Boca Raton, Florida, was born from the ambition to introduce a healthier, scientifically validated alternative in the energy drink sector. The spark for Celsius emerged from the recognition of the need for an energy drink that not only boosts energy but also supports an active lifestyle, without the common downfalls of traditional energy drinks, such as high sugar content and artificial additives. 

Celsius offers a range of products tailored to meet the needs of various targeted consumers:

• CELSIUS Originals: Aimed at fitness enthusiasts looking for a pre-workout boost or a midday pick-me-up.

• CELSIUS Heat: This line includes an increased level of caffeine and is packed with L-citrulline and electrolytes.

• CELSIUS On-the-Go: A convenient powder packet form of the original formula

• CELSIUS BCAA + Energy: This product line is enhanced with Branched-Chain Amino Acids (BCAAs), vitamin D3, and electrolytes. 

Financial Success

In 2022, Celsius Holdings witnessed a significant financial growth, reporting a remarkable 108% increase in its annual revenue, reaching $653.6 million, up from $314.3 million in the previous year. This surge in revenue highlights the company's successful expansion and the growing popularity of its fitness drink products in the market. (Celsius)

Company Mission

The company ensures that its co-packing and distribution operations have minimized the packaging materials, energy consumption, and water usage, while at the same time reducing the carbon footprint. The move is in line with other initiatives that the company has put in place in a bid to boost its commitment towards customers in achieving sustainability. 

To fulfill the company’s aspiration of sustaining the planet, some things Celsius has done include (Celsius, ESG Report): 

- Celsius primarily uses aluminum for packaging, accounting for over 90% of its products, due to its sustainability benefits and contribution to the circular economy.

- Nearly all products are offered in 12oz cans, which are fully recyclable, enhancing environmental responsibility.

- Minimize transportation miles through smart warehouse placement and optimizing load efficiency, significantly reducing the carbon footprint associated with distribution. 

Seeking Alpha

Celsius Holdings has a phenomenal value proposition for growth, positioning it as a standout non-tech growth stock for many years to come. With a powerful combination of strategic market positioning, aggressive international expansion, and strong financial health.

- Market Dominance: With the third-largest share in this rapidly growing category of energy drinks and double-digit growing percentage figures that surpass all but two competitors, Celsius is very well-grounded. This positioning not only shows its market acceptance, but it also lays roots for further growth. 

- Global Expansion Strategy: Proactive in making expansion goals in global markets, evident from the recent partnership with PepsiCo in Canada. Targeting big markets like the UK, Germany, Japan, and Australia, Celsius has proactively positioned itself. 

- Financial Capability and Development Potential: The developing market share and the accumulation of financial resources provide Celsius a strategic advantage over competition. This financial strength is a key enabler for the company to pursue international expansion, acquisitions, and investment in projects promising long-term growth and longevity. 

In conclusion, Celsius Holdings is a very good company to buy and hold for long-term investment in a growing industry. Their relatively healthy and tasty energy drink has developed quite a loyal following among its consumers. (Blumenthal, 2024)

PepsiCo Investment

The strategic partnership between PepsiCo and Celsius, marked by a significant deal, is a development that underlines PepsiCo's ongoing efforts to expand its beverage portfolio and tap into the growing market for healthier and functional drinks. This collaboration aligns with both companies' objectives: for PepsiCo, it represents an expansion into the burgeoning energy drink sector with a brand that emphasizes health and wellness; for Celsius, the partnership provides an unparalleled opportunity to leverage PepsiCo's extensive distribution network, thereby significantly enhancing its market reach and penetration.

On the back of its impressive historical revenue growth rate of 56%, Celsius is on track to double its revenue toward an estimated $12 billion by 2028. This, therefore, goes to confirm the great consistency within the company, with the operating earnings placed at around $2.52 billion during that same period. It’s predicted that Celsius's enterprise value will reach $75.6 billion in 2028. Discounted at a 10% rate, the Celsius valuation comes out quite compelling at $47 billion. Strategic initiatives include business expansions and acquisitions that may need a 50% increase in the share count, thus diluting the total shares of the company to $340 million. Factoring all, Celsius was forecasted to have a value of $138 per share. This indicates a decent 114% uplift from its prevailing market price, evidently shedding light on a strong investment opportunity with a promising growth trajectory open for the investors. (Tran, 2023)

Final Recommendation 

In conclusion, Celsius Holdings stands out as a great investment opportunity for AMDP. Its impressive growth, smart partnerships, and strong position in the growing health and wellness market align with our goals. I confidently recommend investing in Celsius because it promises good financial returns and fits our strategy of supporting innovative companies. It's a smart choice for both immediate gains and long-term value.

If you have any questions, please do not hesitate to reach out. Thank you for your time and consideration!

WORKS CITED

August 2021 | ESG Report, www.celsiusholdingsinc.com/wp-content/uploads/2021/08/CELH-ESGFINAL.pdf. Accessed 8 Mar. 2024. 

Blumenthal, Jake. “Celsius Holdings: The Best Non-Tech Growth Story In The Market.” Seeking Alpha, 2024, seekingalpha.com/article/4662836-celsius-holdings-the-best-non-tech-growth-story-in-the-market. 

Bullen, Piroska Bisits. “What Is a Social Enterprise?” Tools4dev, 26 Jan. 2022, tools4dev.org/resources/what-is-a-social-enterprise/. 

Macaluso, Mike. “Celsius Holdings, Inc., Reports Record Annual and Fourth Quarter 2022 Financial Results.” Celsius Holdings Inc., 1 Mar. 2023, www.celsiusholdingsinc.com/2023/03/celsius-holdings-inc-reports-record-annual-and-fourth-quarter-2022-financial-results/. 

Tran. “Celsius Holdings Has Upside Potential Following Meteoric Share Price Rise.” Yahoo! Finance, Yahoo!, finance.yahoo.com/news/celsius-holdings-upside-potential-following-130003133.html. Accessed 8 Mar. 2024. 

“The Triple Bottom Line: What It Is & Why It’s Important.” Business Insights Blog, 8 Dec. 2020, online.hbs.edu/blog/post/what-is-the-triple-bottom-line. 

“What Is a Carbon Footprint?” What Is a Carbon Footprint, www.conservation.org/stories/what-is-a-carbon-footprint. Accessed 8 Mar. 2024. 

“What Is Corporate Social Responsibility (CSR)?” Business News Daily, www.businessnewsdaily.com/4679-corporate-social-responsibility.html. Accessed 8 Mar. 2024.