Broo’s plan to open the ‘World’s Greenest Brewery’ is the latest of its promise to collapse as the beleaguered brewer fights for survival.
The listed company has today advised the ASX that it has entered into a contract to sell the land it purchased in the Ballarat West Employment Zone (BWEZ) Industrial Park in 2017.
In a rare move for the company, its latest abandoned plan actually made a profit with a contract valuing the land at $7.5 million after purchasing it at a cost of $2.16 million.
The contract is conditional upon approval from Development Victoria which is responsible for Ballarat West Employment Zone, and the purchaser entering an approved use agreement with Development Victoria.
The move to sell came as pressure mounted on Broo to develop the site which was subject to a call option with the vendor having the option to buy back the land at the vendor’s discretion in the event that Broo defaulted on its obligations to complete the development of a commercial brewery at the site and ensure that at least 100 full-time employees are employed at the site within five years of settlement. This was due to expire in February 2022.
The land was also security for a fully-drawn $1.95 million loan with an interest rate of 14%.
Broo had heavily spruiked its plans to develop the 15-hectare site by investing approximately $95 million with a capability to produce 480 million bottles per year, “making it one of Australia’s largest breweries”.
As recently as January this year the company updated the ASX saying it continued to progress plans to develop the project, saying the project would enable it to realise opportunities in national and international markets.
“Upon completion, the brewery will provide significant production capacity for the Company to produce its own beverage products at large volumes and offer substantial contract production services to third party beverage and retail companies wishing to outsource production of their products,” the January statement read.
This announcement came shortly after Broo’s $120 million China deal collapsed.
Today’s sale announcement makes a departure of strategy, saying the company “has determined at this stage to focus on the outsourced production of its beer products through CUB and allocating funds towards marketing and distribution of its products, rather than seeking to allocate and raise the substantial funds of capital required for development of its own brewery at the Ballarat Property.”
Assuming the conditional sale goes ahead, the revenue will be critical for the struggling brewer that lost a further $1.1 million last quarter, taking its combined losses since its 2016 ASX listing to more than $20 million.
The March update indicated that Broo had been forced to use loans to pre-pay $855,000 for its second production order with CUB, after a capital raising to fund the first.
Stock received under its first production run is rapidly approaching its August best before date and the company has been forced to heavily discount its stock to retailers. One retailer reports its has been purchasing stock in deals that see a landed unit cost under $25, which Brews News calculates would be below the production cost.