Karuturi Global net profit down 88% at Rs 8 cr

Company based in Bangalore facing severe unrest in Kenya over unpaid wages and payments to vendors and creditors

Karuturi Global, which rose to fame as among the top exporters of cut roses, is being pushed further into a corner by creditors even as the company reported a sorry 88% drop in net profit of close to Rs 8 crore for the third quarter of Fy14 as compared to the corresponding quarter of previous fiscal. The company is in various stages of discussions with a lender in Kenya, where Karuturi has expansive rose farms, to repay a part of the outstandings in the next couple of weeks and relieve the receiver.

The publicly held company based in Bangalore has been facing severe unrest in Kenya over unpaid wages and payments to vendors and creditors and has been battling many a fire since September 2013. Revenues for the company dropped by 12% to Rs 147 crore, while the interest payout hit the agriculture and floriculture company to the core.

Finance costs shot up almost 6 times to Rs 20 crore as it had to provision for FCCB interest liability besides forking out interest to the loans. The promoters, who by end of December 2013 held around 8% of the company, have further sold a part of their holding to raise resources and pay creditors to buy some breathing time. Karuturi in a statement said that there is an outstanding of $4 million as compared to the asset valuation of $93 million under receivership and they are in discussion with CFC Stanbic Bank to tide over the crisis.

Karuturi employed 4,000 workers and at its peak, exports 1.5 million cut-roses per day to Europe. Its farm in Naivasha is home to 40 species of roses. The management of Karuturi Global was not available for further comments. The company's management further noted earlier that they are working with relevant employee unions to ensure that all employment issues are managed and employees have a good working environment, and receive a fair renumeration and most of the salaries have been paid.

The flagship roses exports business of Karuturi Global started to get into trouble after a winding-up petition filed by a packaging company which is part of the Aga Khan Development Network. Karuturi Global, which rose dramatically onto the global stage as among the leading rose exporters to Europe from Africa, is already in various stages of untangling issues over its ambitious agriculture foray in Ethiopia, which is facing backlash and is midst of various problems.

Karuturi Global expanded its base in Africa by acquiring Kenya-based Sher Agencies (now Sher Karuturi) in September 2007 from Dutch horticulturists Gerrit & Peter Barnhoorn. The acquisition brought into Karuturi's fold a 188-hectare farmland in the rich Naivasha region of Kenya. Of this, about 135 hectares are under greenhouse cultivation and 42 hectares in open cultivation and has an average daily output of about 1.5 million stems that are exported from Kenya to Europe.

This latest setback for Karuturi is compounding the problems for the company, which over the past four years, has been trying to establish an expansive agriculture exports business in Ethiopia. It has embarked on an ambitious $300 million agriculture foray in Ethiopia by growing a range of cereals and plantation crops in which it suffered a severe setback in late 2011 due to heavy floods in the region and had to take a hit of $15 million as its first maize crop was hit severely.

The company has acquired 311,000 hectares on a lease-hold basis from the Ethiopian government in the Baka and the Gambela region to cultivate short, medium and long-gestation crops. In the first phase, the company intends to cultivate cereal crops (rice and maize) on 70,000 hectares and oil palm on 20,000 hectares.

Even as the company is going through the painful recovery from the devastating floods, it has been facing allegations of land grab. Human Rights Watch (HRW), a global independent organisation dedicated to defending and protecting human rights, had earlier raised a red flag on corporates from India expanding in Ethiopia.

According to the HRW, the Ethiopian government under its "villagisation" programme is forcibly relocating approximately 70,000 indigenous people from the western Gambella region to new villages that lack adequate food, farmland, healthcare and educational facilities.

State security forces have repeatedly threatened, assaulted and arbitrarily arrested villagers who resisted the transfers, the report added. Karuturi, on its part said that the report is biased and does not reflect the truth on the ground. "We are empowering the locals with jobs and we are not into grabbing land. The report is totally baseless," the company has maintained

Another globally-reputed Oakland Institute also came down heavily on Karuturi on various issues and also noted that the Kenyan government found Karuturi Global guilty of tax evasion to the tune of nearly $11 million, the first time an African government has taken a large global company to court for transfer mispricing through a fully public process.

As part of its financial restructuring, the company in September restructured FCCBs worth $55 million.