Calgro makes ‘value out of nothing’ with new cemetery undertaking

IF it’s a cradle-to-grave approach to business you’re after, then Calgro M3’s memorial park concept, launched this week in Johannesburg, is worth a gander. Business Times spoke to the integrated housing firm’s chief financial officer,

about the project . . .

Well, we only launched it on Wednesday. There’s been a lot of interest. We effectively opened for sale on Thursday morning and to date we haven’t sold any, but I think that people in the next two to three weeks will come by the site, see what it’s about, and then go back and make a decision. I think we have to appreciate that the first month is going to be slow.

On completion, the park accommodates 39 000 burial plots and 17 000 remembrance plaques and interments. What’s been serviced is 22 000 plots plus 17 000 plaques.

The plots will be sold from R10 000 up to R45 000. The associated cost is the acquisition of the land, but remember in future Calgro won’t be acquiring land. This is actually the use [we found] for our unusable land in our current township development. If you take Fleurhof, which is a long-standing project, we’re developing on old mining land which connects Soweto and the northern suburbs corridor, and you’ve got all these residential, commercial and industrial shopping centres that are going up.

But in the middle you have a green belt where it’s been too undermined to do any construction on — but it’s very suitable for cemeteries and memorial parks. The question was always: What do we do with the land? We can’t just go and develop a park because someone will have to maintain it.

There’s so much pressure on service delivery on the councils for various other needs that there’s just not enough money to keep maintaining these parks. That’s how the challenge arose and we derived the cemetery concept.

So we develop a memorial park, and then let’s capitalise an evergreen maintenance fund from the revenue. What I mean by that is: let’s take a portion of the revenue, we’ll invest it in an independently managed trust— typically like your insurance free float. Asset managers will invest it in the market; the first hurdle rate will be to be recapitalised to beat inflation; the next hurdle rate will be utilised to actually do the maintenance and security, and whatever is left is Calgro’s profit or loss.

In terms of landscaping, we installed about R20-million to date, and then we took this project off the grid, as everybody knows. We invested between R15-million and R20-million in green technologies.

Your total cost structure on the project currently equals R75-million, your total when we fully develop will be close on R150-million.

This will be, in the long run, a very profitable project and we’ll most prob- END RESULT: Wikus Lategan is Calgro’s chief financial officer ably achieve a return on capital way in excess of 30%.

Conservatively, capital should be recouped in 18 to 24 months, after which profit will start being generated.

If you look at the roll-out plan, we’ll predominantly focus on Johannesburg and then Gauteng for the foreseeable future. The national roll-out plan is between three and five years [by which time] we plan to be a national cemeteries company.

In terms of growth forecast for Calgro, the focus will always remain on being the biggest integrated development [firm] in South Africa in terms of residential sites.

Having said that, we believe the memorial park business can be as big as Calgro is today within five years [in terms of profit].

I think it’s a very big diversification: we’re creating value out of nothing. The biggest challenge now is to get the first one sold! The next three months will be the moment of truth: Excel is a very patient tool and it’s fine to dream up this idea — we’ve done three years of research and we believe everything is there to make a brilliant project, but the market dictates and sometimes you get it wrong.

Yes. This is a pilot project. This is specifically the reason why we didn’t do this first one on one of our current projects. The Nasrec property we acquired. We said we can’t go and pay our school fees and test the market on one of our current [housing] projects and run the risk that it doesn’t work and then influence the housing sales.

Until the first one is working and the sales have picked up, we won’t commence with a second one.

Well, we developed this in association with them. We specifically say we don’t want to go into competition with the authorities, we want to add value to their service delivery. If you look at what Calgro’s business model is really about, we deliver on the government’s behalf where the government, because of a lack of budget, couldn’t deliver. The same with cemeteries. All our research was in conjunction with the City of Johannesburg, all our roll-out plans were in conjunction with the city, they gave input every step of the way, all our statistics will be kept in association with the city, so it’s really a project to say: let’s assist from the private sector side to build the world-class city they intend to be.

Talevi is a BDTV presenter