ANNUAL REPORT 2018 JM AB OPERATIONS 1 THE YEAR IN BRIEF 2 CEO’S COMMENTS 4 Strong costumer focus 5 BUSINESS INTELLIGENCE AND MACRO 7 MARKET OVERVIEW 10 New Construction – Advantages 11 JM’S OFFER 16 LARGEST PROJECTS 19 Profitability 20 BUSINESS CONCEPT, VISION AND STRATEGY 21 TARGETS AND OUTCOME 22 VALUE GENERATION IN JM’S CORE BUSINESS 25 RESIDENTIAL BUILDING RIGHTS 27 PROJECT PROPERTIES 28 STRUCTURED PROJECT DEVELOPMENT 30 RISKS AND RISK MANAGEMENT 34 Sustainability 35 SUSTAINABLE URBAN PLANNING 45 EMPLOYEES 47 SUPPLIERS 49 BUSINESS ETHICS FINANCIAL INFORMATION Group according to segment reporting: 52 BUSINESS SEGMENTS 57 INCOME STATEMENT 58 BALANCE SHEET 60 CASH FLOW STATEMENT 62 CHANGES IN EQUITY 63 QUARTERLY OVERVIEW 64 FIVE-YEAR OVERVIEW 66 BUSINESS SEGMENT QUARTERLY OVERVIEW 67 DEFINITIONS AND GLOSSARY Annual Report documents according to the Annual Accounts Act 71 BOARD OF DIRECTORS’ REPORT Group according to IFRS: 76 INCOME STATEMENT 77 BALANCE SHEET 78 CASH FLOW STATEMENT 80 CHANGES IN EQUITY 81 NOTES – GROUP Parent company: 100 INCOME STATEMENT 101 BALANCE SHEET 102 CASH FLOW STATEMENT 103 CHANGES IN EQUITY 104 NOTES – PARENT COMPANY 108 PROPOSED DISPOSITION OF EARNINGS 109 AUDITOR’S REPORT SHAREHOLDER INFORMATION 113 CORPORATE GOVERNANCE REPORT 116 BOARD OF DIRECTORS, CEO AND AUDITORS 122 EXECUTIVE MANAGEMENT 124 THE JM SHARE 126 NOTICE OF ANNUAL GENERAL MEETING AND FINANCIAL CALENDAR 127 About the Sustainability report 127 GLOBAL REPORTING INITIATIVE – GRI 131 GRI INDEX 134 GLOBAL COMPACT 135 ADDRESSES Sweden Finland Norway JM is one of the leading developers of housing and residential areas in the Nordic region Vald karta - ok per mail från Monica 13 dec Operations focus on new production of homes in attractive locations, with the main focus on expanding metropolitan areas and university towns in Sweden, Norway and Finland. We are also involved in project development of commercial premises and contract work, primarily in the Greater Stockholm area. JM should promote long-term sustainability work in all its operations. Annual sales total approximately SEK 16 billion, and the company has around 2,600 employees. JM AB is a public limited company listed on Nasdaq Stockholm, Large Cap segment. GEOGRAPHIC DISTRIBUTION OF REVENUE, % Stockholm, 47% (53) Rest of Sweden, 27% (25) International, 26% (22) This Annual Report is a translation of the original text in Swedish, which is the official version. We are convinced that society will progress where people are happy and feel good. Continuing to develop sustainable life environments is what we do. Just like in all our projects, it all begins with a piece of land that we have developed. Not for our sake. But for the people who live and work there today. Because we know that how we live affects our quality of life. We are laying the foundation for a better life. It is what we did yesterday, it is what we are doing today, and it is what we will do tomorrow. YEAR IN BRIEF Positive sales development during the year – good level of housing starts Revenue decreased to SEK 16,161m The number of residential units sold (17,008) and the operating profit decreased to 2,463 (3,100) and housing decreased to SEK 1,886m (2,369). starts decreased to 3,135 (3,873) The operating margin decreased to Surplus value of development properties 11.7 percent (13.9) was SEK 7.0bn (7.2) Profit before tax decreased to SEK 1,817m Dividend for 2018. The Board of Directors (2,579)1). Profit after tax decreased to SEK proposes a dividend of SEK 12.00 (11.00) 1,438m (2,194)1) 1) Including gains from sale of participations in Småa of Return on equity for the past twelve months SEK 275m in 2017. decreased to 22.2 percent (38.7)1). Earnings per share during the year decreased to SEK 20.60 (31.00)1) Unless otherwise specified, the amounts and comments on Consolidated cash flow including net pages 21, 57–70 are based on JM’s segment reporting. For an overview of the difference between segment reporting investment in properties was SEK –473m and IFRS, see Segment reporting on page 83. (2,013) For definitions, see pages 67–70. REVENUE BY BUSINESS SEGMENT OPERATING PROFIT BY ACCORDING TO SEGMENT REPORTING BUSINESS SEGMENT SEK m SEK m SEK m 2018 2017 2016 8,000 1,600 Revenue 16,161 17,008 15,752 7,000 1,400 Operating profit 1,886 2,369 2,011 6,000 1,200 1,000 Operating margin, % 11.7 13.9 12.8 5,000 800 Profit before tax 1,817 2,579 1,951 4,000 600 Cash flow from operating activities –473 2,013 1,957 3,000 400 Return on equity, % 22.2 38.7 31.4 2,000 200 Equity/assets ratio, % 41 40 40 1,000 0 0 –200 Earnings per share, SEK 20.60 31.00 21.20 2016 2017 2018 2016 2017 2018 Number of residential units sold 2,463 3,100 3,843 JM Residential Stockholm JM International JM Construction Number of housing starts 3,135 3,873 4,187 JM Residential Sweden JM Property Development Number of residential units in current production 7,835 8,200 7,984 Revenue according to IFRS 15,680 17,275 15,291 Operating profit according to IFRS 1,876 2,456 1,931 Earnings per share according to IFRS, SEK 20.40 31.90 20.30 JM ANNUAL REPORT 2018 1 ceo'S comments Good conditions for sustainable housing For JM, 2018 has been a challenging year with a cautious market and decreased sales, but there continues to be strong interest in our residential units. SALES AND HOUSING STARTS EFFECTIVE MANAGEMENT WITH JM@HOME In general, the housing market in Stockholm continued to be In 2018, we built up the operations in JM@home in the Stock- cautious, in particular with regard to new production with a long holm region, and the ambition in the long term is to expand the time to occupancy. The residential units we sold in the Stock- operations. JM@home has management packages within both holm area largely have estimated occupancy in one to two years. technical and economic management for newly built tenant- We were pleased to see here that customers’ willingness to sign owners associations, but it also offers services to properties a contract early in the process increased slightly during the previously built by JM. The feedback has been very positive, and second half of the year as the market stabilized. the initiative is meeting a current need. Many boards of tenant- The housing market in the rest of Sweden was cautious, owners associations are in need of this type of qualitative service. particularly in Uppsala, but demand was primarily stable in other To ensure worry-free accommodation after occupancy, markets in the business segment. The average prices on the exis- JM@home also offers time-saving housing services, for example ting home markets in Sweden and Norway were more or less the cleaning subscriptions, IT, caretakers and various handyman same or decreased slightly during the year. In Norway, the acti- services. All services are environmentally certified and quality- vity level on the housing market was good, and the housing mar- certified by JM. ket in Finland was stable. However, the amount of time to sign The offers and processes are based on digital solutions that a contract on these markets was slightly longer than in previous are at the forefront of the market, and experienced managers years. Despite a more positive development in demand at the ensure a proactive and reliable delivery. I also believe that we can end of the year, total sales in the Group decreased to 2,463 be even better in our project development and production by residential units sold compared to 3,100 the year before. reconnecting via JM@home. In addition to demand, planning processes continue to be an important criterion for the rate of housing starts. We started TENANT-OWNED APARTMENT PROJECTS production on more than 3,100 residential units, a reduction of The tenant-owned apartment plays an important role in Sweden around 700 compared to the year before. The decrease was lar- in a functional housing market, and JM is one of several partici- gest in Stockholm, where profitability in the current production pants on the market who have seen a need for transparency, volume continued to be good despite price adjustments. Inclu- comparability and responsibility for tenant-owners associations ding around 600 rental units in current production, we ended the and their finances. Trygg Bostadsrättsmarknad i Sverige (Trygg year with continued high capacity utilization even in our opera- Brf – an industry initiative to promote transparency on the tions in Stockholm. Norway and Finland represent a significant tenant-owned apartment market) was formed during the year to part of the year’s housing starts. At the end of the year, we had strengthen consumer protection. Companies that choose to join just over 7,800 residential units in current production. this initiative and have their tenant-owned apartment projects I am pleased overall with the development in JM, that despite approved undertake to report critical KPIs. I consider this step the challenges we faced we were able to maintain a relatively high to be very important for JM as a serious project developer, and level of housing starts and that we are continuing to see strong I am convinced that the possibility of being able to compare diffe- interest in JM’s projects. rent tenant-owners associations will ultimately lead to greater security for the customer. LAND FOR FUTURE PRODUCTION We acquire land at the same pace that we put land into produc- SUPPORT FOR RESIDENTIAL PROJECT tion.