With its founder and former CEO no longer on the board, land in Ballarat it claimed would become the "world's greenest brewery" lying idle after a failed property sale, and accumulated losses of $22 million, Melbourne-based brewer Broo (ASX: BEE) has placed three subsidiaries into voluntary administration.
The company, listed in 2016 on a promise to tap the booming Chinese market with a beer brand that whiffed of souvenir store Australiana, has seen its shares plummet more than 20-fold in less than six years as bold ambitions failed to materialise in its balance sheet.
In February 2017, Broo announced the $2.1 million acquisition of industrial land in Ballarat where it planned to build a world-class facility for $95 million. Around 18 months later, the company hosted a delegation of executives from its Chinese partner Beijing Jihua Information Consultant at the site to discuss opportunities for collaboration and hold meetings with government officials.
Broo had struck a deal with Beijing Jihua on a 'take or pay' basis for 1.5 billion litres over seven years with an estimated value of $120 million, sourcing beer from its brewery partner Jinxing Beer Group, but as the years went by the company continued to report zero revenue from China.
In January 2021, while Broo continued to rack up losses, the group terminated its agreement with Beijing Jihua "for its failure to make payment to Broo Exports of minimum royalty payments". Six months later, and the prospective "world's greenest brewery" was officially dead in the vat, as Broo had switched its focus to contract brewing through Carlton & United Breweries.
More recently, Broo announced that a planned $7.5 million deal to sell the Ballarat site to Bentley Property Group had fallen through as the buyer had not yet received approval from Development Victoria. This came just two weeks after majority shareholder, founder and CEO Kent Grogan stepped down from the directorship alongside fellow board member Mathew Boyes.
Given the December departure of Matthew Newberry, this meant that of the four directors listed in the group's most recent half-year results, only one now remains on the board - David Zhu, who was appointed to the role of executive director on 29 April after being on the board since October last year.
On that same day Kobe Li, a non-executive director appointed to the board on the day Grogan stepped down as CEO, became Broo's chairman.
"I am proud to have developed Broo from inception to an ASX listed company. Now is the appropriate time for me to step down and hand over leadership of the company," the founder said at the time, amidst an ongoing strategic review.
"I am fully confident in the new revitalised board’s ability to lead the Company through its next phase of growth and build on the foundations that have been laid.
"I look forward to providing my continued support to Broo in my capacity as general manager and major shareholder."
But before the announcements of Broo's sky-high goals for a Ballarat brewery and widespread Chinese beer distribution, one of Broo's first points of call after listing was to buy the Mildura Brewery, in operation since 2014 on the site of the city's former Astor Theatre, for $1 million.
The acquisition was made so the company could immediately brew its own beer brands Broo and Australia Draught, as well as Mildura Brewery's suite of beers. In announcements, the company claimed it had invested in significant upgrades to the Mildura Brewery to provide for increased production capacity and greater efficiencies.
However, with the group having run at a $1.26 million loss in FY21 and an even worse loss of $2.9 million in the December half (half of which came from impairments), something had to give.
Con Kokkinos and Matthew Jess from Worrells have been appointed voluntary administrators for the Mildura Brewery, Mildura Brewery Pub, and Australia Draught.
"The Worrells’ teams are now investigating the Companies’ financial position and considering the options for the businesses going forward," Worrells said in a statement.
"The management team of Broo Ltd had been exploring options of a sale of the Mildura Brewery and Mildura Brewery Pub in the lead up to the voluntary administration and these discussions will be continued by the administrators."
As for Broo itself, in its half-year report the company noted a conditions - including the aforementioned net loss, a working capital deficit of $2.7 million, and cash outflows from operating activities of $1.36 million - that "indicate a significant or material uncertainty about the consolidated entity’s ability to continue as a going concern".
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