20200930: AMDP Investment Proposal Memo

TO:                  Professor Clark Hansen, CEO, AMDP
FROM:            Dennis Doyle, R&D Chief Analyst, AMDP
DATE:             September 30, 2020
SUBJECT:      Investment Recommendation Memo

My team and I have completed the analyses of the best investment opportunities available to AMDP in 4Q2020. The results indicate that financial support of Oatly, the Swedish oat-beverage manufacturer, is most in accordance with AMDP’s values based on the grading criteria we used. This memo is structured in the following manner:

• Selection Criteria Concepts
• Oatly Overview
• Third-Party Opinions
• Recommendation

Please direct any questions to the R&D team.

Selection Criteria Concepts

Before I proceed with our analysis, I would like to briefly restate the four main concepts behind AMDP’s investment activities:

• Triple Bottom Line:     A reimagining of the performance indicator: net income. Social and environmental (ecological) “bottom” lines supplement the traditional economic profit/loss. Commonly framed in terms of people, planet, and profit (“Triple Bottom Line (TBL) Definition,” 2020).
• Corporate Social Responsibility (CSR):     A “private business...that aims to contribute to societal goals...by engaging in or supporting volunteering or ethically-oriented practices” (Wikipedia Contributors, 2020).
• Social Enterprise:      “An organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being” (Wikipedia Contributors, 2020).
• Carbon Footprint:      “Total greenhouse gas (GHG) emissions caused by an...organization…expressed as carbon dioxide equivalent” (Wikipedia Contributors, 2020). GHG emissions are the main contributor to climate change. If the release of these gases is reduced, the rate of global warming will also lower.

Basically, the R&D team searched for a social enterprise that engages in corporate social responsibility, as measured by its triple bottom line and carbon footprint.

Oatly Overview

In 1994, Oatly started producing an oat beverage using research from Lund University in Sweden (“About Oatly | Oatly | the Original Oat Drink Company,” 2019). The oat milk market is projected to be $490 million by 2026 (Global Market Insights, Inc, 2020). Currently, Oatly is the unchallenged leader of this segment and quickly becoming a force in the global vegan beverage segment (Franklin-Wallis, 2019).

According to Oatly’s 2018 Sustainability Report (the 2019 report isn’t released yet), the firm is affecting society in a positive way. 50% of “Management level” positions are occupied by women. Gender equity is a something the R&D team looks for when measuring a candidate’s social responsibility. However, none of the Board members are female, but this is something AMDP could influence with a significant investment.

Oatly also seeks to improve society by shifting its diet to plant-based foods. It is doing this by “lending Oatly fridges to schools (and other large-scale caterers)” to expose children to the benefits of this diet early in life. The beverage manufacturer also awards a Sustainable Artist of the Year grant as part of its publicity campaign (“Oatly | the Original Oat Drink Company,” 2019).

The report also makes the claim that the amount of energy to produce one liter of product has lowered from 0.45 kilowatt hour (kWh) in 2016 to 0.36 kWh in 2018. 87% of that energy is derived from renewable sources. Water consumption has also decreased from 7.5 L of H2O used to produce one liter in 2015 to 5.3 L in 2018 (“Oatly | the Original Oat Drink Company,” 2019).

Third-Party Opinions

In the summer of 2020, Oatly sold a 10% ownership stake to a Blackrock-led investor group for $200 million. The investors likely noted that Oatly entered the US market in 2016, and by 2019, sales had grown to $200 million. This is double its 2018 figure and even with COVID-19 disrupting global supply chains, sales are expected to double again in 2020 (Dummett, Gottfried, & Chung, 2020). 400% sales growth in two years definitely meets our economic eye-test.

~65% of the global population has some level of lactose intolerance (Genetics Home Reference, 2020). These people can consume oak milk without any ill effects and are likely one of the reasons Chinese sales numbers are soaring. Oat milk also has a number of health benefits: high fiber content, cholesterol free, and high levels of vitamins and minerals (Raman, 2019). We consider more people consuming this healthy beverage to be a socially beneficial activity.

Oat milk is the best vegan alternative to cow-based milk when GHG emissions released, acreage of arable land used, and volume of water needed to produce one standard glass are compared (Guibourg, 2019). This satisfies the environmental component of what AMDP thinks a social enterprise should be.

However, rumors have circulated indicating that Oatly may be the acquisition target of a large food conglomerate. Typically, the activities of these large corporations don’t align with our commitment to CSR, and if Oatly were acquired by one of these firms, there is no way to guarantee our investment would continue to be used in accordance with our company values (Dummett, Gottfried, & Chung, 2020). The R&D department believes an injection of capital from AMDP would help Oatly organically meet global demand and stave off any takeover attempt.

Recommendation

The R&D division analyzed a non-trivial number of different investment options, including an environmental development cooperative, a pharmaceutical company, and an organic coffee producer. Investment in any of these firms would be keeping with AMDP’s adherence to the tenets of Corporate Social Responsibility and a lot of environmental and social good would be gained.

However, after crunching the limited financial data, matching leadership’s remarks with their actions, and projecting the potential social and ecological good to be had, we believe investment in Oatly is optimal. The company is young and small enough that substantial capital funding would go far at guaranteeing it continues on the sustainability path.

 

 

Works Cited

About Oatly | Oatly | the Original Oat Drink Company. (2019). Retrieved September 28, 2020, from Oatly.com website: https://www.oatly.com/int/about-oatly

 

Dummett, B., Gottfried, M., & Chung, J. (2020, July 14). Oat-Milk Company Oatly Draws Investment From Blackstone-Led Group Including Oprah. Retrieved September 27, 2020, from WSJ website: https://www.wsj.com/articles/oat-milk-company-oatly-draws-investment-from-blackstone-led-group-including-oprah-11594701001

 

Franklin-Wallis, O. (2019, January 29). White gold: the unstoppable rise of alternative milks. Retrieved September 28, 2020, from the Guardian website: https://www.theguardian.com/news/2019/jan/29/white-gold-the-unstoppable-rise-of-alternative-milks-oat-soy-rice-coconut-plant

‌Genetics Home Reference. (2020). Lactose intolerance. Retrieved September 28, 2020, from Genetics Home Reference website: https://ghr.nlm.nih.gov/condition/lactose-intolerance#sourcesforpage

Global Market Insights, Inc. (2020, April 2). Oat Milk Market revenue to hit $490 million by 2026, Says Global Market Insights, Inc. Retrieved September 28, 2020, from GlobeNewswire News Room website: https://www.globenewswire.com/news-release/2020/04/02/2010557/0/en/Oat-Milk-Market-revenue-to-hit-490-million-by-2026-Says-Global-Market-Insights-Inc.html

‌‌Guibourg, C. (2019, February 22). Climate change: Which vegan milk is best? BBC News. Retrieved from https://www.bbc.com/news/science-environment-46654042

Oatly | the Original Oat Drink Company. (2019). Retrieved September 28, 2020, from Oatly.com website: https://www.oatly.com/int/

‌Raman, R. (2019, January 24). Oat Milk: Nutrition, Benefits, and How to Make It. Retrieved September 28, 2020, from Healthline website: https://www.healthline.com/nutrition/oat-milk#recipe

Triple Bottom Line (TBL) Definition. (2020). Retrieved October 7, 2020, from Investopedia website: https://www.investopedia.com/terms/t/triple-bottom-line.asp

‌‌‌‌‌Wikipedia Contributors. (2020, September 27). Carbon footprint. Retrieved September 27, 2020, from Wikipedia website: https://en.wikipedia.org/wiki/Carbon_footprint

‌Wikipedia Contributors. (2020, September 27). Corporate social responsibility. Retrieved September 27, 2020, from Wikipedia website: https://en.wikipedia.org/wiki/Corporate_social_responsibility

Wikipedia Contributors. (2020, September 2). Social enterprise. Retrieved September 27, 2020, from Wikipedia website: https://en.wikipedia.org/wiki/Social_enterprise