Beleaguered ASX-listed brewer Broo has announced a $1.25 million capital raising that has seen the issue of an additional 70 million shares at $0.018 per share.
The brewer, which was earlier this week placed in a trading halt pending the announcement, said it would use the funds to pay for the beer to be produced under the contract brewing arrangement it recently entered into with CUB, as well as for ‘working capital’.
Yesterday’s ASX announcement reveals a highly dilutive share and option placement, with a parallel rights issue.
It is the latest in a series of equity placements that have kept the loss-making business afloat, while results reveal the business is yet to show significant business growth for the continues investments.
If fully taken up the raising will see an additional 339,514,308 new shares on issue representing an additional 49.9 per cent increase over the existing 710 million shares. It will will also potentially raise $7,469,315 in total for the struggling business.
The ASX announcement advised that Broo will issue 70,274,770 fully paid ordinary shares at $0.018 per share. Subject to shareholder approval these shares include the option to acquire a one share for every two placement shares at $0.03. The option can be exercised on or before 31 October 2022.
The Company also announced a non-renounceable pro-rata rights issue where existing shareholders can buy one additional new share for every five existing shares at $0.18 cents per share. Shareholders will also be given one option for every two new shares acquired under the offer.
The company said that the rights issue offer provides an opportunity for all existing shareholders to participate in the capital raising on the same basis and price as the placement.
The raising was managed by Financial Information Technology Pty Ltd, which has managed several of the last raisings by Broo. The advisor was paid a 2 per cent management fee and 6 per cent of the funds raised, and was granted 15,000,000 of the listed options exercisable at $0.03.
Financial industry observers described these fees as indicative of a raising by a ‘highly risky enterprise’.
Dilution for little value add
ASX rules permit listed companies to issue additional shares up to 15 per cent of the total in any year without shareholder approval. Though diluting shareholdings, it is a process used by companies to raise capital and can benefit shareholders when the capital is used to increase the company’s value. Despite a number of share issues, Broo is yet to show increased value for shareholders.
In its latest financial update Broo revealed it had lost $137,000, with revenues of $420,000 over the June quarter, leaving it with just $76,000 in the bank.
The results come a year after the brewery pinned its hope on a distribution agreement with Bundaberg-based East End Hotel Group.
At the time Broo’s executive director Kent Grogan described the group as “one of the state’s largest independent wholesalers”.
East End Hotel operates a network of bottleshops in Bundaberg in regional Queensland. Enquiries by Brews News reveal that Broo is currently stocked by the bottle shops retailing at $34.99 a carton, at a significant discount to CUB’s own beers raising questions about the profitability of the deal, even if the volume targets are acheived.
Broo’s shares closed yesterday at $0.023.