Including the dividend of 268 cents per share paid during the year, a RoGEV per share of 14,8% was achieved for 2017. This exceeded the 13,2% target for the year, due to strong growth in VNB and positive experience variances, investment market returns in excess of long-term assumptions, lower risk discount rates (RDR) and profit realised on the disposal of the Enterprise Group in Ghana. These factors more than offset the negative effect of a stronger rand exchange rate, write-off of goodwill recognised in respect of the BrightRock, Saham Finances and Rwandan acquisitions in terms of the EV methodology, as well as IFRS impairments of the investments in Pacific & Orient and Letshego that also affects RoGEV. Adjusted RoGEV per share, which excludes the impact of higher investment return than the long-term assumptions, interest rate changes and other one-off effects not under management control, and assuming normalised exchange rate movements, amounted to 15,8% – well in excess of the target.
South African nine-year and five-year long-term interest rates declined by 20bps and 60bps respectively in 2017, with a corresponding decline in the RDR used to value the Group’s South African businesses for GEV purposes. A discounted cash flow (DCF) valuation basis is used for essentially all of the Group’s operations, with the decline in RDR having a positive effect on the end-2017 valuations and RoGEV for 2017. This positive impact was augmented by a relatively stronger equity market performance, which supported assets under management and hence GEV valuations at Sanlam Investments (SI) and Sanlam Personal Finance (SPF). After strengthening significantly in 2016, the rand ended the year slightly stronger against most of the currencies where we operate.
The main components contributing to the return on covered business are included in the table below:
The Group’s covered business operations achieved a good overall performance, exceeding the Group hurdle rate by a healthy margin, despite the economic headwinds faced in a number of countries during 2017. Most businesses achieved returns in excess of 20%, with the notable exception being Sanlam UK, which was affected by the stronger rand exchange rate. The main items contributing to the return from covered business are:
The main components contributing to the return on other Group operations are:
Other Group operations achieved a return of 12,9%. The following impacted on RoGEV in 2017:
The Group’s investment in Santam is valued at its listed share price, which achieved a strong return of 18% in 2017.
The low return on discretionary and other capital is essentially the combined effect of the following:
Refer to the Capital management section.
The transactions were partly hedged through forward exchange contracts and the acquisition of foreign currency, which earns a very low rate of interest due to the US dollar denomination. The marked-to-market differences on the hedging instruments of R562 million after tax, that were recognised in comprehensive income in terms of IFRS, were excluded from RoGEV as these will be capitalised against the investment once finalised in 2018.