Broo Says Cheers to Beer Major CUB

Summary

• Broo has signed a contract brewing agreement with CUB Pty Ltd for the production of beer products, Broo Premium Lager and Australia Draught.
• Broo is a unique Australian beer company, boasting unique marketing platform, strong brands, company ethos and quality beer products, while CUB is a national leader in the commercial production and supply of beer.
• In line with Broo’s product specifications, CUB will produce and package the beer products.
• Broo, which is actively managing its cash flow, has undertaken necessary measures to mitigate the impacts from government-imposed restrictions.

Unique Australian beer company, Broo Ltd (ASX:BEE) has signed a contract brewing agreement with CUB Pty Ltd to produce Broo Premium Lager and Australia Draught. Broo is primarily focused on the production, marketing and sale of its two beer products, Broo Premium Lager and Australia Draught, and it is currently producing these beer products at the Company-owned brewery facility in Mildura.

It is to be noted that Carlton & United Breweries (CUB) is a national leader in the commercial beer production and supply with industry-leading breweries operational in Queensland, Victoria and Tasmania.

Why is the Agreement Important for Broo?

With this agreement, Broo will have increased production and supply capacity for the Broo Premium Lager and Australia Draught products. The agreement will enable the beer company to meet and capitalise on market demand for these brands through its diverse retail distribution channels.

Agreement Terms: The agreement, which commenced this month, will continue for two years expiring on 31 August 2022 (Term). Both the parties can end the CUB agreement at any given time during the Term without giving any reason. The party terminating the agreement needs to provide no less than 120 days written notice to the other party.

During the Term, CUB will be responsible for the production and packaging of these two products - Broo Premium Lager and Australia Draught in line with its technical brewing recipes, packaging artwork and other product specifications.

Broo expects to place orders with CUB for at least 48,000 cases (24 x 375 ml bottles) every quarter during the Term. As per the CUB agreement, Broo plans to place its first order with CUB for the production of Broo Premium Lager in October 2020.

Also read: Beer in Bullish Zone: Bets for ASX Stocks and boost through Campaigns by CUB

Operations Update Amid COVID 19

Drinks industry has been experiencing many challenges, owing to fact that pubs, clubs, bars, and restaurants are either closed or not able to fully operate due to government-imposed restrictions to curb the spread of the virus. These restrictions have resulted in a decline in the sales of beer, wine and other such drinks.

The late-July market update by the Company highlighted that Broo would continue its operations on a scaled-down basis until the restrictions around COVID 19 get relaxed in the coming months. Due to the ongoing pandemic, BEE witnessed a decline in trading activity in the June 2020 quarter.

Broo is actively managing an extremely challenging economic environment and is looking for new opportunities with possible strategic partners. Its iconic Mildura Brewery continues to produce beer under current sales arrangements, and its main focus remains on increasing domestic sales and distribution.

Its businesses that are dedicated to the hospitality sector - Sorrento Brewhouse and Mildura Pub had closed temporarily due to pandemic related restrictions. BEE has already taken the required measures to reduce costs of these businesses until the restrictions get lifted.

BEE is anticipating a lesser level of trading cash flow for the quarter ending 30 September 2020, based on various mitigating circumstances.

Update on Cash Flow Management: Besides actively managing its cash flow, the Company has already taken several necessary steps to mitigate the economic effect of pandemic-related government restrictions.

Measures undertaken include:

• Broo reduced staff numbers at hospitality venues and wherever relevant. The Company also applied for the JobKeeper allowance.
• Reduced organisation's overhead costs, wherever possible.
• Along with its corporate advisor, the Company is also reviewing assets that may be surplus to the core activity of beer production and sales.
• BEE is evaluating various long-term sources of capital of a strategic nature that can aid in expanding the operations.

Ever since the onset of COVID 19 pandemic, people are maintaining social distancing and avoiding social gatherings and parties. Amidst this scenario, there have been changes in drinking habits.

A report released by the Australian Bureau of Statistics (ABS), based on survey of 1,000 Australians between 21 April and 23 April, revealed that more than 85 per cent of Australians have been drinking responsibly during the pandemic shutdown.

Stock Performance - On 14 August 2020, BEE closed the day's trade at AUD 0.020, inching upward by 5.263 per cent from its previous close. The Company has a market cap of AUD 13.49 million and its stock has delivered a return of more than 35.71 per cent in the last three months.

Good Read: Five-Point Action Plan to Survive COVID-19 Storm