More losses as Broo extends ALM deal nationwide

This article, originally titled Broo extends ALM Deal, has been updated following the subsequent release of the company’s half-year results.

Troubled Broo has announced a half-year loss of $1.036 million as well as an extension to its distribution agreement with Australian Liquor Marketers (ALM).

Broo announced the extension of the distribution arrangement with ALM, which appears to be a fairly routine distribution arrangement standard to many breweries, in the morning following a two-day trading halt. After the daily close of the ASX, the company announced its loss.

Half-year results

Broo’s results showed revenue from continuing operations was just $671,527 down from $994,980 for the corresponding previous half-year. Two-thirds of its operating revenue or $245,212 was made up of government COVID stimulus and rent relief.

The company announced that it had sold the loss-making Sorrento Brewhouse for $60,000. It also noted that it had settled an outstanding $1.3 million loan from founder Kent Grogan through issuing 60,455,000 shares, valued at $1.088 million, with the balance in cash.

Worryingly for investors, the company’s auditor again raised its ongoing uncertainty relating to Broo’s ability to continue as a going concern, noting the half year loss and that the company had a working capital deficiency of $3.022 million as at 31 December 2020.

Expanded ALM deal

Broo made much of its ’exclusive’ agreement with ALM, which industry sources say appears to be a standard warehousing and distribution arrangement, with exclusivity being a potential downside for the business leaving it unable to capitalise on other potential sales opportunities, including its former deal with the Bundaberg-based East End group that appeared to be its primary sales outlet for some time.

The agreement came into force yesterday for an initial period of six months, with scope to extend the agreement for a further term of 12 months “by mutual agreement”.

“We are delighted to join forces with ALM,” said Broo CEO Kent Grogan. “Together, we are well positioned to offer customers a point of difference with ALM’s exclusive-to-indies approach, along with our unapologetic packaging to drive further brand awareness and category growth.”

Broo announced the extension which was preceded by a trading halt on Tuesday – an unusual step for a commonplace announcement.

The initial ALM deal, announced in January, will reportedly see ALM distribute Broo products across Queensland, where it has also previously signed a deal with East End Group.

This is not the first time Broo has been involved with ALM. It entered into an agreement with the Metcash company in 2017, it acknowledged this agreement in its latest release saying it was a non-exclusive agreement.

At that time Broo promised to “roll out an aggressive national sales and marketing strategy to optimise this new national distribution channel”.

Broo referred to the deal in market updates until January 2019 after which it appears to have lapsed without explanation or update.

Seven months later, in August 2019, it signed the deal with East End giving the latter “exclusive Queensland distribution rights” for its 4.2% abv Broo Premium Lager with a sales target of 2 million litres. At the time, Grogan told Brews News the company sold around 500,000 litres in the state.

The celebrated East End deal failed to deliver the hoped-for volumes, with Broo’s current projections under its CUB deal aiming to produce just 432,000 litres per quarter to service this national distribution deal

It is unclear the status of the formerly exclusive East End deal, but Broo stated in its announcement today that it “currently has no other exclusive distribution agreements in place”.

The company already announced earlier this year that its much-lauded Chinese distribution deal was to be terminated after it considered that Bejing Jihua was in “default of the Distribution Agreement for its failure to make payment to Broo Exports of minimum royalty payments”.

Broo, which describes itself as a “unique Australian beer company that distinguishes itself from competitors through strong brands, company ethos, unique marketing platform and quality beer products” brews in small batches from its Mildura Brewery and via a contract brewing agreement with Carlton and United Breweriesannounced last August.

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