Broo's China deal collapses

Beleaguered ASX-listed brewery Broo’s future hangs in the balance with the company announcing the collapse of its vaunted ‘ Take or Pay’ deal with a Chinese distributor.

The company today advised the ASX that it has terminated the deal because its Chinese distributor Beijing Jihua has failed to make royalty payments under the agreement.

Broo announced in November 2017 that it had entered into an exclusive arrangement with the Chinese distributor.

The company said the agreement was binding on a ‘take or pay’ basis for 1.5 billion litres of Broo Premium Lager beer products over the seven-year period with Jihua paying a fixed rate per litre. It valued the seven-year agreement at RMB602 million, or approximately AUD $120 million.

A promotional video posted to the YouTube-based Broo Channel in July 2017 celebrating Broo’s contract brewing agreement in China.

The details of the agreement have never been disclosed with a Broo spokesperson telling Brews News at the time that the deal was ‘commercial-in-confidence’. It has provided little detail or sales figures since over the three years since.

Broo CEO Kent Grogan told Brews News in October 2018 that the first volume updates would be received in October of that year, with the first payments under the China deal to be received in November 2020.

In its last quarterly results, updated in December 2020, Broo announced further losses of $1.07 million, with $777,000 spent on product manufacturing. This is believed to be a payment to CUB under its recent contract brewing agreement with CUB. Broo undertook a capital raising in August to cover the cost of this purchase.

Broo’s shares are currently trading at 1.5 cents, down from the $0.30 they rose to shortly after the China announcement.

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