Broo Executive Director Kent Grogan is ‘very comfortable’ with where the company is despite announcing a $4 million loss last Friday.
The publicly listed brewing company’s annual report revealed the loss of $4.4 million for the year, following a $3.4 million loss the previous year.
“We’re very comfortable where we are, and we’re pretty excited about the next 12 months,” Grogan told Brews News.
“We’ve got a lot happening. So no reason for concern.”
Grogan’s confidence comes despite the company’s auditor expressing concern about the company’s future in its audit report.
“The consolidated entity has incurred a net loss of $4,436,359 for the period ended 30 June 2018 (30 June 2017: $3,488,544) has a working capital deficit of $1,689,110 at reporting date and had cash outflows from operating activities of $2,949,984 (30 June 2017:$4,627,036),” the report states.
“These conditions indicate a significant or material uncertainty about the consolidated entity’s ability to continue as a going concern.”
Grogan dismissed these concerns.
“They do that, but they also even initially from the initial capital raise during the float, all of that cash was converted into assets,” he said.
“And as you’d see, even if you look at a balance sheet, they really haven’t, well we haven’t valued our assets.
“Those reports are so black and white, they don’t actually give much to the background noise. Yeah, no, not concerned at all mate.”
Grogan reiterated what the company reported in February, that he is looking to his venues to provide increased cashflow.
“Obviously, we haven’t really put much focus into the domestic market, which we’re starting to at the moment,” Grogan advised.
“So we’ve done some further upgrades in Mildura, we’ve now built sufficient pipeline stocks, we’ve just opened up Liquid Mix in Western Australia as a distributor.
“We’ve literally just opened up Victoria in ALM, we’re opening the ACT, New South Wales, we’ve engaged with banner groups there.”
Aggressive pricing to drive business
Grogan said was wasn’t concerned about the competitiveness of the domestic market and that the strategy would be based around aggressive with pricing.
“I still think based on the discussions that we’re having, there’s still ample opportunity,” he explained.
“I mean, our domestic operations are quite small, so we don’t need to set the world on fire in regard to how many venues we get assigned, but we’ve got some good partnerships happening at the moment and part of that is the on-premise roll out.
“There’s opportunity for us to obviously initially run some reasonably aggressive deals on premise, and we also have Australia Draught, which is a fantastic main pour, so we can actually come in there with a suite of products that gives them the ability to run a main core with a craft focus as well.
“So we can leverage off the two. We can run some very aggressive on the main pour and then some good all round deals on our craft stuff.”
Grogan doesn’t feel that that ‘aggressive’ pricing would be counter-productive in generating the cash flows and profitability the company needs.
“On premise there’s actually sufficient room margin-wise to be able to run those aggressive programs and still be cost effective, and still be profitable,” he explained.
“We’re probably, well I would actually deem, Australia’s the most lucrative on-premises market in the world, which is why the majors so aggressively control their taps.
“You still can actually match the guys, the big guys, on those programs, quite comfortably to be honest.
“We’re not looking to go toe-to-toe with them, but there is an opportunity for us to sneak into some venues mate and get some accounts.”
China results to be released soon
Grogan said the company’s much heralded ‘take or pay’ China deal was yet to start to pay dividends, but that the company would be getting volume updates in October.
“There’s KPIs, yearly and tiered over the seven years. I wouldn’t be able to discuss that as obviously that’s commercially sensitive to the marketplace,” he said.
“But I can say that it is KPI’d against yearly tiers, so every parameter is a certainty that has to be achieved for them to retain exclusivity of the brand.”
He said the first payments under the deal would be coming on stream in November 2020.
Broo’s shares are trading at $0.12 well down from a 12-month high of $0.39, with a market capitalisation of $82.1 million. Western Australia’s Gage Roads Brewing, which announced a strong result in September, is currently trading at $0.125 with a market cap of $126.4 million.