JM Annual Report 2005

JM develops new residential areas in attractive locations for people who demand high standards in their living environment. Our work is characterised by a holistic approach and attention to detail – we want to take lasting pride in the homes and residential areas we develop. Contents

– NOTICE OF ANNUAL GENERAL MEETING – FINANCIAL CALENDAR 2005 ■ 1 THE YEAR IN BRIEF ANNUAL REPORT – JM ■ 2 CEO’S COMMENTS ■ 4 SHARE DATA

T – JM J – RT O P E R L A U N N A 2005 ■ 6 BUSINESS CONCEPT, GOALS AND STRATEGIES ■ 8 JM’S CORE BUSINESS ■ 10 MARKET OVERVIEW ■ 13 JM’S RESIDENTIAL BUILDING RIGHTS ■ 15 JM’S PROJECT PROPERTIES ■ 16 SUSTAINABLE URBAN PLANNING ■ 20 EMPLOYEES ■ 23 RISKS AND RISK MANAGEMENT ■ 27 JM RESIDENTIAL STOCKHOLM – BUSINESS SEGMENT ■ 28 JM RESIDENTIAL SWEDEN – BUSINESS SEGMENT ■ 29 JM INTERNATIONAL – BUSINESS SEGMENT ■ 30 JM PROPERTY DEVELOPMENT – BUSINESS SEGMENT ■ 31 JM PRODUCTION – BUSINESS SEGMENT ■ 32 CORPORATE GOVERNANCE REPORT ■ 37 BOARD OF DIRECTORS’ REPORT ON INTERNAL CONTROL

FINANCIAL REPORTS ■ 40 BOARD OF DIRECTORS’ REPORT ■ 45 CONSOLIDATED INCOME STATEMENT WITH COMMENTS ■ 46 CONSOLIDATED BALANCE SHEET WITH COMMENTS ■ 48 CONSOLIDATED CASH FLOW STATEMENT WITH COMMENTS ■ 50 CONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY ■ 51 PARENT COMPANY’S INCOME STATEMENT ■ 52 PARENT COMPANY’S BALANCE SHEET ■ 54 PARENT COMPANY’S CASH FLOW STATEMENT ■ 55 PARENT COMPANY’S CHANGES IN SHAREHOLDERS’ EQUITY ■ 56 NOTES ■ 74 FIVE-YEAR SUMMARY – GROUP ■ 76 QUARTERLY OVERVIEW – GROUP ■ 77 QUARTERLY OVERVIEW – BUSINESS SEGMENTS ■ 78 TRANSITION TO IFRS ■ 80 PROPOSED DISPOSITION OF EARNINGS ■ 81 AUDIT REPORT

■ 82 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES ■ 86 JM’S PROPERTIES ■ 92 DEFINITIONS

This Annual Report is a translation of the original text in Swedish, which is the official version.

JM AB (publ) Mailing address SE-169 82 Stockholm Visitors’ address Telegrafgatan 4, Solna Telephone +46 (0)8-782 87 00 Fax +46 (0)8-782 86 00 Company reg. no. 556045-2103 Website www.jm.se JM develops new residential areas in attractive locations for people who demand high standards in their living environment. Our work is characterised by a holistic approach and attention to detail – we want to take lasting pride in the homes and residential areas we develop. Contents

– NOTICE OF ANNUAL GENERAL MEETING – FINANCIAL CALENDAR 2005 ■ 1 THE YEAR IN BRIEF ANNUAL REPORT – JM ■ 2 CEO’S COMMENTS ■ 4 SHARE DATA

■ 82 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES ■ 86 JM’S PROPERTIES ■ 92 DEFINITIONS

This Annual Report is a translation of the original text in Swedish, which is the official version.

JM AB (publ) Mailing address SE-169 82 Stockholm Visitors’ address Telegrafgatan 4, Solna Telephone +46 (0)8-782 87 00 Fax +46 (0)8-782 86 00 Company reg. no. 556045-2103 Website www.jm.se JM is one of the Nordic region’s leading developers of Welcome to housing and residential areas. Operations focus on new production of homes in attractive locations, with the JM’s Annual main focus on expanding metropolitan areas and university towns in Sweden, Norway, Denmark and Belgium. We are also involved in project development of com- General Meeting mercial premises and contract work, primarily in the HEAD OFFICE AND STOCKHOLM OFFICE SOUTH REGION SUBSIDIARIES ABROAD Greater Stockholm area. JM seeks to promote long-term JM AB Halmstad Belgium Shareholders in JM AB are hereby invited to attend quality and environmental consideration in all its opera- Telegrafgatan 4, Solna Brogatan 1, SE-302 43 Halmstad JM Construction S.A. the Annual General Meeting to be held at 4:00 p.m. on tions. Annual sales total approximately SEK 10 billion and SE-169 82 Stockholm Tel. +46 35-299 42 51, fax +46 35-10 67 45 Avenue Louise 287, Bte 1 Thursday April 27, 2006 at JM’s head office, Telegrafgatan the company has some 2,300 employees. Tel. +46 8-782 87 00, fax +46 8-782 86 00 B-1050 Bruxelles 4, Solna, Sweden. JM is a public limited company and is listed on the Internet: www.jm.se Helsingborg Tel. +32 2 646 11 12, fax +32 2 646 96 26 Stockholm Stock Exchange A list. Prästgatan 24, SE-252 24 Helsingborg www.jmconstruction.be NOTIFICATION REGIONAL AND LOCAL OFFICES Tel. +46 42-28 98 90, fax +46 42-13 82 24 Shareholders who wish to participate in the meeting EAST REGION Denmark must be entered in the register of shareholders maintai- Geographical breakdown Uppsala (regional office) Lund (regional office) JM Danmark A/S of income ned by VPC AB by Friday, April 21, 2006, and must have Sylveniusgatan 2 Åldermansgatan 13 Vester Farimagsgade 37 informed the Company of their intention to participate Box 1334, SE-751 43 Uppsala Box 1334, SE-751 43 Uppsala DK-1606 København V by 4 p.m. on Friday, April 21, 2006, using one of the fol- Tel. +46 18-66 03 00, fax +46 18-66 0310 Tel. +46 18-66 03 00, fax. +46 18-66 03 10 Tel. +45 33 45 70 00, fax +45 33 45 70 70 lowing channels: Norway www.jmdanmark.dk CENTRAL REGION Malmö Mail: JM AB, SE-169 82 Stockholm, Sweden Jönköping Jörgen Kocksgatan 9 Norway

Telephone: +46 (0)8-782 87 00 Stockholm 51 % Sweden Herkulesvägen 6, SE-553 03 Jönköping Box 327, SE-201 23 Malmö Byggholt AS (head office) Fax: +46 (0)8-782 86 12 Rest of Sweden 29 % Tel. +46 36-12 03 40, fax +46 36-12 03 66 Tel. +46 40-16 56 00, fax +46 40-16 56 01 Bærumsveien 473 E-mail: [email protected] International 20 % Postboks 33 JM AB’s website: www.jm.se Linköping (regional office) SUBSIDIARIES IN SWEDEN N-1306 Bærum Brigadgatan 24, SE-581 31 Linköping AB Borätt Tel. +47 67 17 60 00, fax +47 67 17 60 01 In order to be entitled to participate in the meeting, sha- Tel. +46 13-37 14 00, fax +46 13-37 14 09 Sjöängsvägen 17 www.byggholt.no reholders whose shares are registered in the name of a Box 956, SE-191 29 Sollentuna nominee must request that their shares be temporarily Strängnäs Tel. +46 8-626 66 30, fax +46 8-626 98 20 Bergen registered in their own name by Friday April 21, 2006. Trädgårdsgatan 15, SE-645 31 Strängnäs www.boratt.se Damsgårdsveien 125 Tel. +46 152-222 56, fax +46 152-222 59 Postboks 178, Laksevåg Admission cards to the Annual General Meeting will not Seniorgården AB N-5847 Bergen be sent out. Västerås Sjöängsvägen 17 Tel. +47 55 15 53 00, fax +47 55 15 53 01 Kopparbergsvägen 8, SE-722 13 Västerås Box 956, SE-191 29 Sollentuna DIVIDEND, REDEMPTION PROGRAM, SHARE SPLIT Tel.+46 21-81 20 00, fax +46 21-81 20 10 Tel. +46 8-626 66 30, fax +46 8-626 98 20 Skien The Board of Directors proposes that a dividend be Denmark www.seniorgarden.se Lundegate 4C paid to shareholders of SEK 10 per share. If the Annual Örebro Postboks 45 General Meeting resolves to adopt the proposal the divi- Vasastrand 11, SE-703 54 Örebro JM Entreprenad AB N-3701 Skien dend would be sent by VPC on Monday May 8, 2006. In Tel. +46 19-764 15 10, fax +46 19-764 15 15 SE-169 82 Stockholm Tel. +47 35 54 33 50, fax +47 35 54 33 60 addition, the Board proposes a redemption program for Tel. +46 8-782 87 00, fax. +46 8-782 86 01 about SEK 1.0 billion and a 4:1 share split. BUSINESS CONCEPT WEST REGION Visiting address: Strandbergsgatan 57 Stavanger To create attractive living and working environments that Gothenburg www.jm-entreprenad.se Gamle Forusvei 14 Financial Calendar satisfy individual needs both today and in the future. Gårdatorget 2, SE-412 50 Gothenburg N-4033 Stavanger April 27, 2006: Interim report January – March 2006 The business concept means that JM is a project deve- Tel. +46 31-703 57 00, fax +46 31-335 88 70 Tel. +47 40 00 15 15, fax +47 51 57 57 13 loper of housing and to a selective extent of commercial The reports are available in Swedish and English and may premises. JM gives priority to high quality and a holistic Tønsberg be ordered from JM AB, Corporate Communications, approach in its design. The aim is to create living and wor- Ås kontorsenter, Sem tel. +46 (0)8-782 87 00, fax +46 (0)8-782 86 10, or on king environments that will remain attractive over time. Postboks 2053 www.jm.se Belgium N-3103 Tønsberg VISION Tel. +47 33 30 03 00, fax +47 33 30 03 33 JM shall be a leading developer of high-quality residential pro- Production: JM, Karl Andersson and Inte Rio jects in the Nordic region. Text: JM, BBD Corporate Communications and Newsec Cover photo: Garnisonen’s old military base in Hagaberg, OBJECTIVE FOR SHAREHOLDER VALUE Translation: Interverbum Linköping, is being converted into a new district. JM offers a broad selection of housing alternatives, from cozy small apart- The goal is to give shareholders a higher total return, dividends Photography: Torbjörn Bergkvist, Pawel Flato, Gro Storteig and JM ments to spacious terrace apartments, close to town in lovely plus JM share price appreciation, than other companies with Printing: Ljungbergs, Klippan 2006 green surroundings. similar operations and risk profiles. Paper: Munken Lynx 240g (cover), Munken Lynx 130g (inside pages)

j m a n n u a l r e p o r t 2 0 0 5 JM is one of the Nordic region’s leading developers of Welcome to housing and residential areas. Operations focus on new production of homes in attractive locations, with the JM’s Annual main focus on expanding metropolitan areas and university towns in Sweden, Norway, Denmark and Belgium. We are also involved in project development of com- General Meeting mercial premises and contract work, primarily in the HEAD OFFICE AND STOCKHOLM OFFICE SOUTH REGION SUBSIDIARIES ABROAD Greater Stockholm area. JM seeks to promote long-term JM AB Halmstad Belgium Shareholders in JM AB are hereby invited to attend quality and environmental consideration in all its opera- Telegrafgatan 4, Solna Brogatan 1, SE-302 43 Halmstad JM Construction S.A. the Annual General Meeting to be held at 4:00 p.m. on tions. Annual sales total approximately SEK 10 billion and SE-169 82 Stockholm Tel. +46 35-299 42 51, fax +46 35-10 67 45 Avenue Louise 287, Bte 1 Thursday April 27, 2006 at JM’s head office, Telegrafgatan the company has some 2,300 employees. Tel. +46 8-782 87 00, fax +46 8-782 86 00 B-1050 Bruxelles 4, Solna, Sweden. JM is a public limited company and is listed on the Internet: www.jm.se Helsingborg Tel. +32 2 646 11 12, fax +32 2 646 96 26 Stockholm Stock Exchange A list. Prästgatan 24, SE-252 24 Helsingborg www.jmconstruction.be NOTIFICATION REGIONAL AND LOCAL OFFICES Tel. +46 42-28 98 90, fax +46 42-13 82 24 Shareholders who wish to participate in the meeting EAST REGION Denmark must be entered in the register of shareholders maintai- Geographical breakdown Uppsala (regional office) Lund (regional office) JM Danmark A/S of income ned by VPC AB by Friday, April 21, 2006, and must have Sylveniusgatan 2 Åldermansgatan 13 Vester Farimagsgade 37 informed the Company of their intention to participate Box 1334, SE-751 43 Uppsala Box 1334, SE-751 43 Uppsala DK-1606 København V by 4 p.m. on Friday, April 21, 2006, using one of the fol- Tel. +46 18-66 03 00, fax +46 18-66 0310 Tel. +46 18-66 03 00, fax. +46 18-66 03 10 Tel. +45 33 45 70 00, fax +45 33 45 70 70 lowing channels: Norway www.jmdanmark.dk CENTRAL REGION Malmö Mail: JM AB, SE-169 82 Stockholm, Sweden Jönköping Jörgen Kocksgatan 9 Norway

j m a n n u a l r e p o r t 2 0 0 5 THE YEAR IN BRIEF

SIGNIFICANTLY INCREASED PROFITABILITY AND CONTINUED STRONG SALES • Income increased by 16 percent to SEK 9,887m (8,532) and the number of sold residential units totaled 4,240 (4,315) • Earnings before tax improved substantially to SEK 1,151m (647) and profit after tax for the year rose to SEK 976m (474). The operating margin increased to 12.5 percent (9.3) • Property sales of SEK 1,752m (1,018) provided capital gains of SEK 247m (164) • Return on equity increased to 28.8 percent (14.4). Earnings per share increased to SEK 37.00 (16.90) • Interest-bearing net liabilities decreased by SEK 2.1 billion to an interest-bearing net receivable of SEK 1.5 billion (-0.6). The Group’s cash flow including property sales was robust and totaled SEK 3.4 billion (2.2) • The Board of Directors propose a dividend of SEK 10 (7) per share. In addition, the Board proposes a distribution of approximately SEK 1.0 billion through redemption of shares corresponding to a total of approximately SEK 40 per existing share. • The Board of Directors proposes a 4:1 share split.

SEKm 2005 2004 Income 9,887 8,532 Operating profit 1,231 792 Profit before tax 1,151 647 Cash flow from operating activities 3,368 2,161 Operating margin (%) 12.5 9.3 Return on equity (%) 28.8 14.4 Equity ratio (%) 41 42 Earnings per share (SEK) 37.00 16.90 Number of housing starts 4,476 3,943 Number of sold residential units 4,240 4,315

For definitions see page 92.

JM’s annual accounts have been prepared in accordance with International Financial Reporting Standards – IFRS. The 2003 financial year and earlier are not restated according to IFRS.

Income by Operating profit by business segment business segment

JM Residential Stockholm 37% JM Residential Stockholm 39% JM Residential Sweden 29% JM Residential Sweden 26% JM International 20% JM International 14% JM Property Development 2% JM Property Development 16% JM Production 12% JM Production 5%

j m a n n u a l r e p o r t 2 0 0 5 CEO’S COMMENTS

Fabulous Year for JM and for our Shareholders

It is with great pleasure that we present JM’s results for 2005 – a year when Operating margin, % 2005 2004 most of our undertakings went our way. JM Residential Stockholm 13.1 8.6 JM Residential Sweden 11.3 8.4 During all my 20 years at JM, I have never experienced a single year that has gone so well JM International 8.8 6.3 throughout the entire business. Sales reached a record high in 2005, housing starts main- JM Production 4.8 4.6 tained a brisk pace, and we continued to streamline both operations and our capital struc- Group 12.5 9.3 ture. Thanks to a record strong cash flow JM was debt-free at the end of the year. Earnings before tax totaled SEK 1,151m, an improvement of 78 percent. Earnings from our core business, project development of residential properties, are the best JM ever achieved.

PROGRESS AT EVERY LEVEL Strong demand for newly built homes contributed to our excellent performance, but mainly it is the result of our own efforts in sales, production, purchasing, and pre-construction. Innovations in procedures and customer relations are driving our growth. Some of the most important factors underpinning JM’s improved profitability are the implementation of common pre-construction procedures for housing production and more strategic procurement procedures, which have led to substantial improvements in productivity, decreased costs, and improved quality. We are now building more efficiently and at a lower total cost than we did a few years ago, without compromising on the values that are important to our customers. Our robust sales show that we develop housing and residential areas that appeal to a large group of homebuyers. Other reasons for our fine performance are that we continue to focus on control, For a sustainable society oversight, and follow-up in current projects and that we have dedicated and motivated JM works systematically with environment and quality issues, which employees. I would like to extend a sincere thank you to all of my co-workers, who should are central for our contribution to a truly be proud of what we have accomplished! sustainable society.

Sustainability issues also include the PROFITABILITY TARGET REACHED company’s social responsibilities, such In 2005 profitability improved in all of the Group’s business units. The Group achieved an as in relation to its employees. A recent operating margin target of 10 percent at the end of the third quarter. In the Stockholm employee survey shows that JM’s market, which is so important to JM, the operating margin was 13 percent and profitability employees are proud to work here, are dedicated to their jobs, and work was also highly satisfactory in the rest of Sweden and our international markets. toward clear objectives. These are encouraging results. GREAT INTEREST IN NEWLY BUILT HOMES We are working to make JM the natural With today’s strong trends in interior design, more and more people want to put their first choice when buying a new home own touch on their homes. Interest in newly built homes is steadily rising, and I believe we and activities such as branding are have encouraged this interest by creating light, well-planned homes in attractive areas. For therefore crucial. During the year we customers who do not want to get involved in bidding wars and extensive renovation pro- further defined JM’s core values and customer promises. We also developed jects, a newly built home offers a great advantage - the possibility of personalized housing a plan to ensure that the JM expe- with known total costs. rience will be similar, no matter which part of the company the homebuyer encounters. Brand management is now SENSITIVITY TO CUSTOMER NEEDS a natural element at every level of the I am convinced that a customer-focused approach is the key to JM’s continued success, Group.

j m a n n u a l r e p o r t 2 0 0 5 CEO’S COMMENTS

especially in light of the growing competition. We have to understand how people want to live and we have to make the purchase of a JM home a positive and inspiring experience. Doing business with JM has to be stimulating! JM is well positioned to meet changing customer demands, which is especially important as the customer base changes. For example, we see a clear increase in 30 to 35-year olds among our buyers. We are at a good starting point, working closely with our customers, and can offer attractive residential units in diverse environments to meet a variety of needs. We also have a high percentage of satisfied customers. JM’s “Customer satisfaction index” for 2005 totaled 4.17 on a scale of one to five.

Liljeholmstorget in Stockholm. STRATEGIC SHIFT IMPLEMENTED JM has gradually shifted from a traditional construction and property management com- JM is experienced at developing new pany to a leading project developer of residential units. In 2005 JM implemented this strate- well-functioning neighborhoods with gic shift through the continued sales of fully developed properties, as well as the sale of the a good living and community environment. Our Liljeholmstorget project in painting company Timblads Måleri. During the past three years, JM has sold properties for Stockholm was awarded the Stockholm about SEK 5 billion. JM has also streamlined internal processes and capital utilization. These prize during the year. We also recei- measures have allowed large one-time capital transfers to the shareholders. In 2005, SEK ved, together with the architects at 966m was transferred and JM’s Board of Directors has proposed a transfer of about SEK KUBArkitekter, the Housing Prize of the Year from Sweden’s architects for 1.0 billion for 2006. the Godhemsberget residential area in Göteborg. GOOD PROSPECTS JM is entering 2006 with good prospects. Demand in all of JM’s housing markets continues to be strong, a large percentage of ongoing production is sold, and we feel that we have good control of the risks associated with implementation. We have acquired several interesting building rights and the building rights portfolio currently includes about 23,200 residential units. Despite the expected interest rate increases, I believe that housing prices will remain stable. Demographic developments, employment growth and economic growth support JM’s business in all segments and we expect to see moderate interest rate increases.

LEADING NORDIC HOUSING DEVELOPER JM is active in towns and cities where population growth and demand for residential units are the biggest. We are currently the market leader in Sweden and have a strong position in Norway. JM also has a leading position in the Copenhagen region in Denmark and in the Brussels area in Belgium. We are looking for growth in volume mainly by strengthening our positions in existing segments. JM has long had our eye on the Finnish market and the time is right for action. We plan to establish operations in Finland in 2006, which will strengthen its Nordic platform. JM was founded by builder John Mattsson in 1945 and is now a 60-year-old of which we can be proud. Extensive experience of housing construction and a corporate culture that stands for professionalism and customer service have strengthened JM’s position as housing developer. If you want to lead developments you have to constantly ensure that your own house is in order. Our priorities in 2006 include continued quality improvement measures with a focus on good customer relations, cost consciousness and high expertise – that’s the only way for JM to be a world-class company.

Stockholm, March 2006

Johan Skoglund

“We work to make JM the homebuyer’s natural President and CEO first choice.”

j m a n n u a l r e p o r t 2 0 0 5 SHARE DATA

Favorable Price Trend

SHARE CAPITAL JM shares are listed on the A list of the Stockholm Stock Exchange. Share capital amounts to SEK 98.7m, represented by 24.7 million shares, each with a par value of SEK 4 and equal voting rights. Each trading block consists of 100 shares.

SHAREHOLDERS JM’s shareholder will receive a higher total return (total of dividend, redemption right and Shareholders as at December 31, 2005 increased value) than shareholders in companies with a similar risk profile and business Shareholder Percent of shares activities. Robur Funds 8.9 AFA Försäkringar 7.4 SEB Funds and Gamla Livförsäkrings AB SHARE PRICE TREND AND RETURN SEB Trygg Liv 4.7 JM shares are included in the Stockholm Stock Exchange index “SX4040 Real Estate.” In Stefan Persson Placering AB 4.3 2005, JM’s share price rose 84 percent, compared with an increase of 34 percent for the Fourth Swedish National Pension Fund 3.8 SX4040 and an increase of 23 percent for the SX 2020, another relevant comparative Catella Funds 3.4 Handelsbanken Funds 2.3 index. The general index on the OMX Stockholm Stock Exchange, OMX Stockholm_PI, AMF Pensionsförsäkrings AB 2.2 rose 33 percent in 2005. The highest listed price during the year was SEK 359.50 on Livförsäkrings AB Skandia 1.3 November 29 and the lowest SEK 183.50 on January 13. Dividend yield--proposed divi- Second Swedish National Pension Fund 1.2 dend in relation to the market price at year-end--was 2.8 percent. Total return in 2005 Länsförsäkringar Funds 1.1 amounted to 91 percent (85). Foreign shareholders 40.3 Other shareholders 19.1 Total 100.0 TRADING AND MARKET CAPITALIZATION In 2005 JM shares were traded to a total value of SEK 8.0 billion (3.4). Average daily trading Number of shareholders: 5,447 was about SEK 30m (13). The turnover rate--the liquidity of the shares--was 123 percent Number of shares: 24,676,380 (88) during the year compared with an average for the entire stock exchange of 115 percent (81). The company’s market capitalization amounted to SEK 8.7 billion (5.4) at year-end.

OWNERSHIP STRUCTURE The number of shareholders as at December 31, 2005 was 5,447 (4,573). The ten largest Transfer to shareholders, SEKm Swedish shareholders accounted for 39.5 percent (37) of capital and foreign shareholders Dividend Buyback Redemption Total for 40 percent (39). 2001 332 841 1,173 2002 420 116 536 2003 281 154 435 DIVIDEND POLICY 2004 140 140 Over time, the dividend should reflect the earnings trend in total operating activities. The 2005 196 966 1,162 average dividend over a business cycle should correspond to 50 percent of consolidated Total ,369 ,111 966 3,446 profit after tax. Capital gains from property sales are a natural part of JM’s project development operations and are therefore included in the calculation of dividends. The proposed dividend for 2005 amounts to SEK 10 (7) per share.

REDEMPTION OF SHARES AND SHARE SPLIT JM prioritizes active management of the consolidated balance sheet. To the extent the visible equity ratio and interest coverage are assessed as exceeding the optimal capital structure on a continuing basis, capital will be transferred to shareholders in a form that is appropriate at the time. In addition to the proposed increase of the dividend for 2005, JM’s

j m a n n u a l r e p o r t 2 0 0 5 SHARE DATA

Board has proposed a redemption program of approximately SEK 1.0 billion. The redemption program should be completed around early July 2006. JM have continued good financial capacity for new projects after the redemption program. Taking into account the price development of the JM share, the Board decided to propose a 4:1 share split to the Annual General Meeting, to be implemented in mid-June.

SHARE DATA

SEK per share 2005 2004 2003 2002 2001

Share price as at Dec. 31 352 191.5 106 162 217.5 Highest price during the year 359.5 193 162 272 263 Lowest price during the year 183.5 101 82 150 182 Dividend yield as at Dec. 31 (%) 2.8 3.7 4.7 6.2 6.4 Market capitalization as at Dec. 31 (SEKm) 8,686 5,375 2,975 4,889 6,523 Earnings per share1) 4) 37.00 16.90 6.60 8.50 36.30 Project properties Market value 59 92 114 118 212 Book value 48 80 101 94 157 Shareholders’ equity (reported) 134 123 117 121 128 Dividend 10.00 2) 7.00 5.00 10.00 14.00 Dividend as a % of profit after tax 27 41 75 118 37 P/E ratio as at Dec. 31 4) 10 11 16 19 6 Number of shares as at Dec. 31 24,676,380 28,065,407 28,065,407 29,436,614 3) 29,989,363 5) 1) Earnings per share after dilution 4) 37.00 16.90 6.60 8.50 36.10 2) Proposed by the Board 3) Excluding 900,000 repurchased shares 4) The 2003 financial year and earlier are not restated according to IFRS. This means that the IFRS principles for goodwill and for using the percentage of completion method as a basis for calculations did not affect the years between 2001 and 2003 5) Excluding 300,000 repurchased shares

OWNERSHIP STRUCTURE AS AT DEC. 31, 2005

Size of holding Number of shareholders Percent of all shareholders Total number of shares owned Percent of share capital

1 - 500 4,412 81.0 615,637 2.5 501 – 1 000 443 8.1 369,607 1.5 1 001 – 5 000 339 6.2 807,252 3.3 5 001 – 20 000 106 2.0 1,137,205 4.6 20 001 – 100 000 89 1.6 4,141,450 16.8 100 001 - 58 1.1 17,605,229 71.3 TOTAL 5,447 100.0 24,676,380 100.0

CHANGES IN SHARE CAPITAL 2001 - 2005

Year New issue, SEKm Redemption of shares, SEKm Number of shares Par value/ share Share capital, SEKm

2001 1.5* -13.3 30,289,363 SEK 4 121.2 2002 0.2* 30,363,614 SEK 4 121.4 2003 0.007* -9.2 28,065,407 SEK 4 112.2 2004 28,065,407 SEK 4 112.2 2005 -13.5 24,676,380 SEK 4 98.7 * Conversion of debenture loans

500 12,000,000

10,000,000 400

8,000,000 300

6,000,000

200 4,000,000

100 2,000,000 JM SX4040 Real Estate 0 0 OMX Stockholm_Pl No. of shares traded 000s Source: SIX 2000 2001 2002 2003 2004 2005

j m a n n u a l r e p o r t 2 0 0 5 BUSINESS CONCEPT, GOALS AND STRATEGIES

Strategy for High Total Return

BUSINESS CONCEPT To create attractive living and working environments that satisfy individual needs both today and Key figures and financial targets in the future. Target Outcome The business concept means that JM is a project developer of housing and selectively, of 2005 2004 commercial premises. JM gives priority to high quality and a holistic approach in its design. Dividend, share 1) The aim is to create living and working environments that will remain attractive over time. of profit after tax, % 50 27 41 Operating margin. % 10 12.5 9.3 Equity ratio, % 35 41 42 VISION 1) Proposed by the Board JM creates houses where people feel at home. According to this vision, people will be just as content living in their JM homes in the dis- tant future as they are today. Financial targets

Dividend target – The average OBJECTIVE FOR SHAREHOLDER VALUE dividend over a business cycle should The goal is to give shareholders a higher total return, dividends plus JM share price appreciation, correspond to 50 percent of consolida- than other companies with similar operations and risk profiles. ted profit after tax.

Margin target – Operating margin STRATEGY should amount to 10 percent, including In order to achieve its vision and meet its shareholder value objective within the framework of its gains from property sales of 1-2 percen- business concept, JM has the following strategies: tage points.

JM shall be the leading project developer of high-quality residential projects in the Equity ratio target –The visible Nordic countries. Leading in terms of market position in JM’s markets as well as the qua- equity ratio should amount to 35 per- lity of our product. Development of housing will be made in growth areas with good cent over a business cycle. To the extent demographic and socio-economic conditions over time. A growing population and a good the visible equity ratio and interest coverage are assessed as exceeding purchasing power trend increase the potential for success in JM’s business. the optimal capital structure on a The focus must be clearly on high quality and eco-compliant homes and workplaces continuing basis, capital will be transfer- with a high customer value and in attractive locations. Homes will mainly be sold for pri- red to shareholders in a form that is appropriate at the time. vate ownership, but may also include rentals. Project development of commercial properties will be limited and primarily support housing development in large projects, where offices may be a natural planning prerequisite. Continued volume growth will be generated both organically and through acquisitions, with the priority of strengthening the Group’s position in existing markets. Growth will be achieved subject to good profitability and a market-leading position. International growth will be approached with caution, while paying attention to the importance of managing the operational risk in JM’s capital-intensive business. Production starts will take place in response to guaranteed demand as well as quality assured pre-construction and production planning. Compliance with JM’s “milestones” is a central requirement, including an adequate percentage of reservations and signed contracts for residential units before starting production. JM should long-term secure production costs and will therefore maintain a limited but effective construction and contracting business. However, the company’s own efficiency must always be evaluated in relation to costs of external production resources. JM will focus on cash flows and effective utilization of the balance sheet. This will be achieved by maintaining a high rate of start-ups, implementation and sales of property projects.

j m a n n u a l r e p o r t 2 0 0 5 BUSINESS CONCEPT, GOALS AND STRATEGIES

ASSETS AND CAPITAL STRUCTURE JM’s ambition is to maintain an optimal composition of assets and capital structure over time, suitable for the company’s project development activities. The building rights portfolio will be optimized continuously with regard to demand, planned production and tied-up capital. The balance sheet should normally not contain development properties exceeding four years’ production, expressed in number of building rights. The balance sheet item project properties will entirely comprise project assets and mainly consist of residential properties for project development, in the form of conversion to tenant-owned apartments or densification. JM’s aim is that the balance sheet should not contain any fully developed commercial properties; these should be sold following completion. The cyclical nature of commercial project development and a varying supply of residential properties for sale mean that the item project properties can vary in size. The equity ratio target is a simplified consequence of a more extensive analysis where shareholders’ equity has been allocated to the balance sheet’s different asset classes and types of operations, taking assessed operating risk into account. With the existing focus of operations and structure of working capital, JM’s tenant-owned unit business is assessed to have an average net debt over time of zero. However, because of the internal relationships among the Group’s different business risks and asset classes an optimized debt/equity ratio for the Group can vary. Moreover, capital structure planning also includes other long-term considerations than a pure model-based calculation of an optimal capital structure.

REQUIRED RATE OF RETURN In order to generate the highest possible shareholder value, JM must have good knowledge of which investments are profitable and achieve the Group’s required rate of return. Every investment in a project must therefore generate a return that covers its cost of capital. The investment’s cash flow is calculated and discounted on the basis of a required rate of return.

Cost of capital, shareholders’ equity Risk-free return – current assessment of sustainable return on ten-year government bonds is about 3 to 4 %. Risk premium – for the risk the investor takes when investing in JM shares, the risk premium is estimated at 5 %. Required rate of return on shareholder’s equity (risk- free return plus risk premium) is therefore 8 to 9 %.

Cost of capital, borrowed capital Risk-free return – current assessment of sustainable return on government bonds with a maturity of 2 years, corresponding with an average project time, amounts to 2.5 to 3.5 %. Risk premium paid on loan financing is assumed to be an average of 1 %. Tax deduction – since interest expenses reduce the profit on which tax is paid, the actual cost is lower, with corporate tax at 28 % the interest expense after tax is reduced by 28 % to 2.5 to 3.2 %.

Capital structure Debt/equity ratio – JM’s target for the debt/equity ratio in the individual projects is to reach an average of 1.0.

New projects’ weighted average cost of capital (WACC) therefore amounts to 5.7 %. This means that the Group’s average investments must generate a cash flow after payment of all operating costs and tax, but before interest expense, of at least 5.7 % of the basic investment in order to be profitable.

j m a n n u a l r e p o r t 2 0 0 5 JM’S CORE BUSINESS

Value Generation through Project Development

Project development means acquiring built or vacant land. These properties are transformed through new construction or renovation into attractive housing or commercial premises. The ‘Dockan’ area, Malmö’s new district by the harbor, is one of JM’s larger projects.

HOUSING JM is one of the Nordic region’s leading developers of housing. Operations focus on new production of homes with the main focus on expanding metropolitan areas and university towns in Sweden, Norway, Denmark and Belgium. Project development at JM covers every link in the value chain, from acquisition of land to the sale of the new home. In many cases JM’s projects mean creating new residential areas.

JM’S COMPETITIVE ADVANTAGES Successful project development presumes knowledge and experience of land and property acquisitions, pre-construction and planning processes as well as production and sales. JM has extensive experience in mastering this holistic approach in a way that generates value, particularly through our close relations with our end customers. The projects are often large and complex, such as the conversion of the Essinge Udde industrial park in Stockholm into a popular residential area. Other large current projects are Liljeholmen in Stockholm, Eriksbergsområdet in Göteborg and the Dockan area in Malmö, which are being transformed into new neighborhoods. JM has worked with residential project development for 60 years and is a leader in customer relations and quality and environmental issues.

PROJECT DEVELOPMENT PHASES JM’s projects usually start with an acquisition of land. JM conducts market surveys regularly to analyze customer preferences with regard to type of housing, design and local services. Many important decisions are made based on these surveys, both prior to land acquisitions and before projects begin. The process from buying the land until the new homes are ready for occupancy always takes several years and begins with a dialogue and collaboration with the involved municipality to determine how the land can be used. Next follows a pre-construction phase in which architects and other consultants are involved. Sales begin and once homebuyers have reserved a certain percentage of the planned residential units, construction can begin. Project development value chain JM’s involvement covers approximately two years after occupancy. Value Price decision Sales decision GROWTH IN VALUE (residential units) Management The land acquisition and concept phases are extremely important in project development. Building decision

Finding land that can be developed at the right price and developing concepts that appeal Construction to customers are crucial for profitable project development. Concept and planning Price decision (commercial premises) Value generation is at its greatest during the planning process, when JM works with the Acquisition decision involved municipality to define land use. In this phase the raw land is converted into building rights. Value grows step by step, as land use is defined. Full land value is attained when the Time detailed plan becomes legally binding, or approved, and building permits are obtained – a Value generation is at its greatest during the planning process when raw land is converted process that can take from one to five years – and the project has been sold to customers. into a building right and land use is defined.

j m a n n u a l r e p o r t 2 0 0 5 JM’S CORE BUSINESS

Property owners can influence the planning process, but it is also dependent on the municipal planning process and any appeals. In addition to acquiring raw land, JM also acquires developed properties that can be further developed into attractive homes or modern offices. Here JM creates growth in value through densification, conversion into tenant-owner co-operatives, planned demolition, or conversion and extension.

COMMERCIAL PREMISES Most of JM’s operations involve residential units, but JM also develops commercial premises. Because economic developments have a greater effect on project development of commercial premises than on residential development projects, they are more cyclical in nature. Attractive locations as well as modern, flexible and effective offices are factors for success when developing commercial projects. Project development of commercial premises mainly takes place in the Stockholm region, primarily to support residential development projects. An area under develop- JM’s subsidiary Seniorgården builds comforta- ment may need both residential and commercial buildings in order to create an attractive ble and functional senior housing. The picture is from Lillängen in Nacka. neighborhood. Older residential areas can be densified with homes and associated commercial centers can be modernized. Developing rental housing is included in JM’s commercial operations. When project development is completed, JM usually tries to sell the building or use the fully developed property to trade for new project properties or building rights.

JM sells any acquired Cash flow in housing development Toc pays for land JM invoices toc Final invoice residential units

Payments in

Payments out

JM acquires land Production costs JM acquires any unsold Acquisition decision Contractor and purchase contract signed between JM and Toc. residential units Production start decision Toc = Tenant-owner co-operative

CASH FLOW MANAGEMENT Efficient cash flow management is essential because of the long-term nature of JM’s projects. JM’s control systems and processes are structured to support and stimulate an optimal cash flow approach in all project phases and thus achieve maximized value development in the Group. Decisions concerning acquisitions and starting production are crucial business decisions that have a major impact on cash flow and therefore undergo special scrutiny and evaluation. The illustration above provides a schematic diagram of cash flows during a project. Processes in a housing project 1) When JM acquires land it is recognized in the balance sheet, but when production starts Advance reservations required for production start it is transferred from the balance sheet into the appropriate project phase. The land is sold to a newly formed tenant-owner co-operative, which is invoiced regularly while the pro- Market survey

Pricing ject is underway according to an agreed payment plan. The cooperative finances the land

Reservations acquisition and contract work with a building loan. Project conception Sales Planning Appeals Customization Detail plan/ building permit Occupancy/Living Pre-construction

Production Management for tenant-owner cooperative (toc)

0 1 2 3 4 5 6 Conception phase Market process Production process Year

1) Timing is indicative and can vary considerably in different projects.

j m a n n u a l r e p o r t 2 0 0 5 10 MARKET OVERVIEW

Continued Strong Nordic Housing Markets

Demand in JM’s main markets in Sweden, Norway and Denmark continued to Assessed market position be strong in 2005, spurred by stable economic growth, a housing shortage and Market JM Major competitors

low interest rates. An explicit political desire to encourage production of new Sweden 1 NCC, Skanska, HSB housing has influenced the markets. and Riksbyggen Norway 4 Selvaag, Skanska and Veidekke RESIDENTIAL Denmark 4 * Sjaelsø Gruppen, JM’s housing production is mainly concentrated to the metropolitan areas and other Nordicom and NCC Belgium 6 ** CIB, Thoma & Piron growth areas in Sweden, Norway and Denmark. In 2005 production started on 4,476 resi- and Strabag dential units, 86 percent of which were units in apartment blocks and 14 percent single- * Copenhagen region family homes. ** Brussels

Widespread Housing Shortage in Growth Areas Population growth has had a strong impact on demand for new housing. In the Nordic countries the population is increasing most in the metropolitan areas and in university and college towns, as well as in communities within commuting distance. Migration is also increasing the need for new housing. Almost 60 percent of Sweden’s population lives in cities and towns with a housing shortage. In many of the largest cities, such as Stockholm, Göteborg, Malmö, Oslo and Copenhagen, public policies have been adopted to increase new housing starts.

Price trend Tenant-Owned Rising Housing Prices Apartments (Sweden), Freehold Apartments (International) Prices for Swedish tenant-owned units increased an average of 8 percent in 2005; in the SEK, NOK, DKK/sq.m. metropolitan areas of Stockholm, Göteborg and Malmö the upturn was between 15 and 40 000 20 percent. Prices in Stockholm’s inner city rose 20 percent. In Norway prices increased 35 000 9 percent, including in Oslo. Danish prices for tenant-owned units climbed 25 percent; in Copenhagen prices jumped over 30 percent. Prices rose less in Norway because of 30 000 implemented and announced interest rate increases combined with large new production 25 000

volumes in recent years. The substantial Danish price hikes can be explained in part by the 20 000 introduction of interest-only loans, which analysts believe have had a temporary effect 15 000 on the price trend. Despite the substantial price hikes, according to most market analysts the risk of a substantial drop in prices is low. Households’ growing indebtedness is offset 10 000 by lower interest rates and in general prices are governed by normal supply and demand 5 000

conditions. 0 2000 2001 2002 2003 2004 2005

Increased Housing Production in Sweden and Denmark Göteborg Malmö Stockholm Inner City Greater Stockholm Oslo Copenhagen

In Sweden new production of housing in 2005 is expected to exceed 30,000 residential Source: Mäklarstatistik NEF, EFF, FINN.no, ECON units for the first time in 13 years, up from over 28,000 residential units in 2004 (source: and the Association of Danish Mortgage Banks Nordea Analys). In Copenhagen and Frederiksberg, where JM has its Danish operations, housing construction has risen sharply in recent years. In Norway the number of housing starts slipped 3 percent in 2005.

j m a n n u a l r e p o r t 2 0 0 5 MARKET OVERVIEW 11

JM’s largest segments are the metropolitan areas Stockholm, Göteborg and the Öresund region, as well as the Oslo area and Bergen. Housing production is also carried out in Belgium.

STOCKHOLM JM is the market leader in new production of housing in Greater Stockholm with projects in most municipalities in the county, as well as in neighboring municipality Uppsala. Market share is approximately 40 percent in terms of new production of tenant-owned apartments. Some of JM’s larger, current projects include Långbro, Liljeholmen/Årstadal, Bolinder Strand/Järfälla, Silverdal/Sollentuna, Norra Frösunda/Solna, Hägernäs/Täby and Hotellviken/Saltsjöbaden. The City of Stockholm aims to produce new detailed plans for 20,000 new residential units between 2003 and 2006, and both land allocation and housing production have increased in recent years. Large new construction projects are in progress in Hammarby Sjöstad and in Liljeholmen/Årstadal. Planning is in progress for northwest Kungsholmen, one of the largest new construction areas in the inner city over the next few years. Demand is strong for housing in locations close to water and locations with good communications. Sharply rising prices in the inner city also lead to increased demand for hou- JM offers convenient housing close to both sing in the surrounding municipalities. nature and the city in Norra Frösunda/Solna.

GÖTEBORG JM is the market leader in new housing production in the Greater Göteborg area, with over 10 projects currently underway, mostly in Göteborg municipality but also in the surrounding municipalities Kungälv and Kungsbacka. Market share for new production of tenant-owned apartments is around 30 to 40 percent. The Norra Älvstranden project, with its location close to the water, accounts for a large part of the volume. Major infrastructure investments such as the Götaleden tunnel and the new construction project at Norra Älvstranden are helping to redraw Göteborg’s urban image. Parts of the former airfield at Torslanda are being converted into the new Amhult neighborhood. Activity is also high in Göteborg’s surrounding municipalities, driven by favorable population growth.

ÖRESUND REGION JM is the market leader in new housing production in the Malmö/Lund area with a market share of 30 to 40 percent for new production of tenant-owned apartments. JM is one of the largest players in the Copenhagen area with a market share of 10 percent. JM has about 15 projects in the Öresund region. The biggest involve new construction in former harbor areas: Västra Hamnen in Malmö, Lomma Hamn outside Malmö, and Islands Brygge/ Havnestaden and Sydhavnen/Sluseholmen in Copenhagen. In Denmark financial actors also build residential projects. The Öresund region is becoming increasingly integrated and the number of people moving in and out is rising, as are commuters between Sweden and Denmark, albeit from low levels. In both Malmö and Copenhagen large new construction projects are under way JM is one of the largest players in the in former industrial parks by the water, such as Västra Hamnen in Malmö and Islands Brygge Copenhagen region. The photo shows terraced houses in Amager, Copenhagen. in Copenhagen. Favorable population growth is a clear driving force underpinning demand.

NORWAY JM, through its subsidiary Byggholt, is one of Norway’s five largest residential builders with operations in the Oslo region, Vestfold, Grenland, Bergen and Stavanger. JM’s market share varies among the segments and amounts to an average of about 10 percent. JM’s biggest segments in Norway are the Oslo area and Bergen, with about 40 projects in production

j m a n n u a l r e p o r t 2 0 0 5 12 MARKET OVERVIEW

at year-end. Major projects include Billingstadlia in Oslo, Bragenes Strand in Drammen and Stongafjellet in Askoy, outside Bergen. The Norwegian housing market has a somewhat lower growth rate than the Swedish and Danish markets, in terms of both price increases and new housing starts. Financial actors in Norway also build residential projects. In Norway the possibility of buying residential units in order to rent them out second hand has created an investment market. Oslo is planning extensive new construction in the harbor areas around the city (Project Fjordbyen), and projects in Tjuvholmen and Björvika are well underway.

BELGIUM JM develops homes in the Brussels area and in Wallonia. The customer base includes Belgian Number of residential units and international8,000 private individuals, companies and institutions. Investment in housing is mainly for7,000 personal use, but also for rentals. JM is one of the 15 leading housing developers in Belgium6,000 and the top 10 in the Brussels region. 5,000 4,000 3,000 2,000 1,000 0 General plan Detailed plan Building permit

2003 2004 2005 Breakdown of sales start of JM’s Breakdown of sales start for JM’s Average price at sales start for JM’s resi- residential units by size band, Sweden residential units by price band, Sweden dential units, Sweden Number of residential units SEK/unit % 3,000 % 40 60 2 500 000 35 2,500 50 2 000 000 30 2,000 40 25 1 500 000 1,500 20 30 15 1,000 1 000 000 20 10 500 500 000 10 5 0 0 General plan Detailed plan Building permit0 0 30-50 51-70 71-90 91-110 111-130 131-150 >150 SEK 4m 2000 2001 2002 2003 2004 2005 Size, sq.m. 2003 2004 2005 2003 2004 2005 2003 2004 2005 Stockholm Rest of Sweden About 80 percent of JM’s supply of residential 58% of residential units had a stake (price) of Mean area of JM’s residential units increased by units fall within the size band of 51 - 110 SEK 1 - 2m. About 6 % are >SEK 3m. 4% during 2005 and the average price (stake) sq.m.. Over the past year the average size has increased 15%. increased somewhat.

% Required rate of return residential properties, Stockholm 12

2 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

City Rest of inner city Inner suburbs Outer suburbs

j m a n n u a l r e p o r t 2 0 0 5 JM’S RESIDENTIAL BUILDING RIGHTS 13

Residential Building Rights

Number of residential units at different JM continuously invests in land that can be developed for future production and had 23,200 planning phases, Greater Stockholm available building rights at year-end. The building rights were geographically distributed Number of residential units 8,000 with 39 percent in Greater Stockholm, 36 percent in the rest of Sweden and 25 percent in 7,000 Norway, Denmark and Belgium. 6,000Number of residential units The available building rights portfolio contains two types of building rights: about 15,000 8,000 5,000 7,000 building rights that are on the balance sheet, and about 8,200 building rights that are made 4,000 6,000 3,000 available through conditional acquisitions or cooperation agreements. Building rights made 5,000 2,000 available through conditional acquisitions or cooperation agreements are not recognized 4,000 1,000 on the balance sheet. In many cases JM has the opportunity to decide both whether and 3,000 0 2,000 General plan Detailed plan Building permit when to buy the land. JM also has about 3,000 residential building rights that it does not

1,000 2003 2004 2005 intend to use over the next five to six years. Capital tied up in development properties 0 General plan Detailed plan Building permit (building rights in the balance sheet) for residential units totaled SEK 2,786m (2,783) at the Number of residential units end of the year. 2003 2004 2005 3,000 Number of residential units at different planning phases, Rest of Sweden 2,500 Number of residential units Good Composition 2,0003,000 JM’s planned residential units are located in both traditional strong housing markets and in 1,5002,500 new emerging markets. Many of our planned residential units satisfy homebuyers’ demands

1,0002,000 for good communications, location close to water and service.

1,500500 Rising housing prices have led many prospective buyers to look for homes farther away

1,0000 from the big cities. Improved communications have also made it possible for people to General plan Detailed plan Building permit 500 accept longer commutes. This expansion of the urban regions has made new housing mar- 2003 2004 2005 kets attractive. 0 General plan Detailed plan Building permit

2003 2004 2005

% 12 JM’s available residential building rights

% 1210 Region Number of Building Rights Greater Stockholm excl. Sigtuna, Vallentuna, Norrtälje 9,200

108 Malmö/Lund/Helsingborg/Halmstad 2,850 Greater Göteborg 2,450

86 Uppsala incl. Sigtuna, Vallentuna, Norrtälje 1,650 Västerås, Linköping, Jönköping, Örebro 1,450 Market value breakdown is as follows: 64 Oslo Region, Bergen, Stavanger 4,600 SEKm Market value Book value Greater Copenhagen 700

42 Stockholm 2,139 1,337 Brussels 300 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Rest of Sweden 1,238 817 Total (approx.) 23,200 InternationalCity Rest943 of inner city 632 Inner suburbs Outer suburbs 2 JM has good prospects for retaining a high level of housing starts, since a large number of planned residential units are 1990 1991 1992Total 1993 1994 4,3201995 1996 19972,7861998 1999included2000 in completed2001 2002 local2003 plans. 2004 2005 City Rest of inner city Inner suburbs Outer suburbs

j m a n n u a l r e p o r t 2 0 0 5 14 JM’S RESIDENTIAL BUILDING RIGHTS

MARKET VALUATION – RESIDENTIAL BUILDING RIGHTS At year-end 2005, Newsec Analys performed a valuation of all JM’s residential development properties. The appraisals are made based on an assumed sales price for the properties at actual cash values, whereby future development gains are not taken into account. The valuations are based on the location, attractiveness, scope and type of building planned, the stage in the planning process and the time remaining until production starts. The assessed market value of JM’s residential development properties amounts to SEK 4,320m (3,895). The corresponding book value is SEK 2,786m (2,783). The approximately JM’s carpenters install kitchens in the 8,200 residential units available through conditional acquisitions were not included in the Lovisedal project, Norra Frösunda/Solna. appraisal. Some of the development properties have old existing buildings that generate operating net with future plans for renovation or demolition. The valuation of these buildings is based on current rental revenue and future use, taking costs for essential conversion and extension into account. The market value of these buildings amounts to SEK 127m (83) and is included in the above summary. Newsec has assessed the properties’ locations and attractiveness in four classes, A – D. Class A location represents a prime site in the housing market concerned and includes good communications, proximity to commercial services, as well as locations close to water. Class B is a good to normal location in the respective housing market. Class C indicates a housing location slightly farther from communications and commercial services, while D locations are in peripheral areas in the housing market. Newsec also classified the phases of the planning process into four planning phases: raw land, general plan, detailed plan and building permit. The diagrams below show a breakdown of the value of JM’s development properties into different locations and planning phases. The detailed planning phase covers the period from the start of detailed planning work until the application for a building permit.

Market value, residential building Market value, residential building Market value, residential building rights, Stockholm rights, Rest of Sweden rights, International Market value Market value Market value SEK 000s SEK 000s SEK 000s 2,000,000 600,000 1,000,000

500,000 800,000 1,500,000 400,000 600,000

1,000,000 300,000

400,000 200,000 500,000 200,000 100,000 Planning phase 0 0 Planning phase 0 Planning phase 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 03 04 05 Raw land General Detailed Building Raw land General Detailed Building Raw land General Detailed Building plan plan permit plan plan permit plan plan permit Class A Class B Class C Class D Class A Class B Class C Class D Class A Class B Class C Class D

j m a n n u a l r e p o r t 2 0 0 5 JM’S PROJECT PROPERTIES 15

Project properties

SEKm JM’s property sales JM’s project development of residential portfolios and commercial premises 4,500 is concentrated to Greater Stockholm. Project development of commercial 4,000 properties shall be done on a selective basis to support housing development

3,500 projects. Residential properties with tenure for tenancy rights.

3,000 RESIDENTIAL PROPERTIES 2,500 The market for residential properties in Greater Stockholm has shown positive develop- 2,000 ment for many years, driven by strong demand, low vacancies and low housing production. 1,500 Buyers include property management companies, real estate investors and tenant-owners’ 1,000 associations formed by residents of rental properties. Both prices and interest in buying 500 new homes are on the rise. Low interest rates and strong demand for properties have 0 contributed to falling yield requirements. Rental levels in properties with tenancy rights as 2000 2001 2002 2003 2004 2005 form of tenure are controlled by the utility value system, a principle that means that rental Book value Capital gains development is linked to the cost development in the municipal housing company in the location concerned. Market valuation JM owns housing stock in Vaxholm and Älta, both acquired in 2003. At the same time – project properties 1) that JM is working on further developing its portfolio through new construction, it has also Book sold properties, mainly to tenant-owners’ associations formed by the residents. SEK m Market value value JM is working on a proposal in cooperation with Nacka municipality that will involve Residential units new production of about 500 – 600 residential units in Älta. The project began during the (rented apartments) 859 643 Properties under development 220 191 year with renovations of Älta center. Fully developed commercial properties 369 349 COMMERCIAL PROPERTIES Total project properties 1,448 1,183 Stockholm’s commercial market is on the road to recovery, though at a slow pace due to 1) Market valuation made by Newsec at year- relatively weak growth in employment. The vacancy rate is falling, though it remains high, end 2005/2006 about 12 percent for Stockholm as a whole (source: Newsec). However, variations among segments are great. Vacancies are low in modern, space-efficient offices in areas such as Frösunda or Stockholm’s inner city and in some cases rents are rising. The situation is Office rentals and vacancies in central Stockholm just the opposite for older commercial properties in less desirable locations. As a whole, SEK/sq.m. Vacancy 5 000 25% rents were essentially stable in 2005, with some recovery for offices in the CBD (Central Business District) and attractive suburban locations. Demand was mainly driven by the 4 000 20% companies’ needs to relocate into more space-efficient premises, more than as a result of expansion. 3 000 15% Investor interest, from both domestic and foreign players, continued to be strong,

2 000 10% pushing rents upward. Interest is greatest in modern newly built or renovated buildings in prime locations in the city center or in attractive inner suburbs that have tenants with 1 000 5% long leases. Because of the shortage of such “A” properties for sale, investors are even

0 0 interested in properties in more peripheral locations. 1990 1993 1996 1999 2002 2005 In 2005, JM completed several sales of fully developed commercial properties. JM also Rent Vacancy began production of a large office project in Frösunda Park in Solna, with an option to build three more commercial properties along the E4 highway, close to both downtown Stockholm and the airport at Arlanda. Occupancy of the first building is expected in late 2006.

j m a n n u a l r e p o r t 2 0 0 5 16 SUSTAINABLE URBAN PLANNING

Sustainable urban planning

JM helps to create well functioning communities for the people of today and tomorrow; the houses JM builds today will stand for at least a century. At the same time, JM’s work, and that of the entire construction industry, involves considerable impact on the environment. “Sustainable urban planning” is therefore a concrete, important position; JM’s customers and employees must feel sure that they will have a sound and secure living and working environment, knowing that JM accepts its responsibility for the environment of future generations.

HIGH-PRIORITY ENVIRONMENTAL ISSUES For JM, sustainable urban planning involves social, financial, and environmental accountabi- lity. In addition to the obvious goal of creating attractive and secure housing, JM focuses on environmental issues, since the company has its greatest social impact in its capacity as project developer of housing and communities. JM’s high-priority environmental issues are: • Energy consumption when the buildings are in use • Choice of building materials Low-Energy House in Järinge • Handling of building waste In the Järinge neighborhood of Tensta, north of Stockholm, JM is building • Use of transports and construction machinery a low-energy project to test new • Handling of contaminated soil. energy-efficient design solutions. Energy-efficient construction and good environmental performance will go ENERGY hand in hand with reasonable costs and JM’s most important environmental objective is to decrease energy consumption in order good operating economy – without to minimize the company’s contribution to the greenhouse effect. Since energy consump- compromising on customer demands tion is greater in the user phase, JM’s development initiatives focus on making the houses for convenience and comfort. After evaluation the solutions being tested more energy efficient. in this house may become standard JM Back in 1999 JM decided to stop using direct electricity in all JM housing, which would features. The project will be included instead have water-borne heating systems, with district heating or heat pumps as standard. in a housing exhibition in autumn 2006 arranged by the Stockholm Association JM also decided that all residential units would be equipped with extra insulated thermal of Building Contractors. windows as well as top-rated energy efficient (Class A) refrigerators and freezers. In addition, only hydroelectric power that meets environmental standards is used at all construction sites. In-House Environmental Assessment System MATERIALS JM developed its own environmental JM’s residential units are built using sound, proven natural materials such as tile, clinker and assessment system back in the mid- 1990s in order to steer the use of wood. JM has monitored its building supplies since the mid-1990s in its own environmental building materials toward reducing assessment system to ensure that neither customers nor employees are exposed to any the burden on the environment. Only health or environmental risks. JM’s environmental assessment of building supplies has been approved materials are used. Material groups that are assessed include adapted to the criteria developed within the framework of BASTA – the construction paint, adhesives, putty, flooring and industry’s joint project to discontinue the use of hazardous substances. roofing. JM has gathered the results in an environmental product database. Monitoring building supplies via JM’s BUILDING WASTE environmental product database is Every year vast quantities of building waste are produced. More and more, JM is sorting one of the company’s most important waste such as packaging, wood and plaster at the source for recovery. In 2001 JM decided environmental procedures.

j m a n n u a l r e p o r t 2 0 0 5 SUSTAINABLE URBAN PLANNING 17

that by 2005 it would halve the amount of waste brought to the landfill per square meter of newly produced apartment space. This goal was achieved in 2005. Waste brought to the landfill cannot be recycled or returned to the ecocycle. JM has facilitated its oversight and development of waste management procedures by preparing a strategic framework agreement with a few preferred waste management entrepreneurs. Clean Cars Clean cars are cars that run on ethanol, TRANSPORTS AND MACHINERY biogas or are electric hybrid vehicles. Construction machinery and transports of goods and people are responsible for conside- As of December 2005, 35 percent of JM’s company cars are ‘clean’ cars. rable emissions of substances that impact health and the environment. JM contracts out most of its work with construction machinery and shipping of goods to its suppliers. JM can significantly reduce the environmental impact by improving its logistics procedures in relation to these suppliers. Such a project has begun, but much remains to be done. Today JM makes demands about the fuel shipping companies use; for example, only alkylate-based fuel can be used in small gasoline-driven machines. During the year JM also implemented requirements that all company cars must be “clean” cars, thereby reducing carbon dioxide emissions. All company cars will be replaced by clean cars within a three-year period.

CONTAMINATED SOIL Many of JM’s projects are built in old industrial parks where the soil is contaminated by chemicals. The company has extensive experience sanitizing soil and preparing it for new construction. JM’s own contractors often take care of sanitizing the contaminated soil.

Good Electrical Environment HOW WE WORK We minimize exposure to electrical GUIDED BY PRECAUTIONARY PRINCIPLE and magnetic fields in accordance with the precautionary principle. In part we The Precautionary Principle means that sometimes JM rejects products at the mere sus- always use a five-wire system, which picion of a negative impact on the environment – even though they are commonly used in limits the magnetic fields throughout the construction sector. Cedar and other allergenic wood species were phased out in 2002 the building, and in part we avoid locating distribution boxes close to the in all JM houses, mainly for occupational health reasons. In 2005, the Work Environment bedroom. Authority issued a warning that the material may cause serious allergy problems when handled. Another example is PVC in walls and flooring, which has not been used in JM housing since 1999.

ORGANIZATION JM’s quality and environmental council, with the CEO and the company’s business unit and regional managers, has ultimate responsibility for environmental issues. The Group’s quality and environmental department is responsible, together with regional quality and environment coordinators, for coordination, development and support in environmental initiatives. We address environmental issues in all our daily work and expect extensive commitment throughout the company and among both wage-earners and salaried employees. JM has held comprehensive environmental training programs for all employees for many years.

OVERSIGHT AND FOLLOW-UP JM develops its environmental initiatives within the framework of its operations system in a quality and environmental program with measurable and detailed quality and environmental objectives. JM employees follow up on targets and requirements with nonconformity and key figure reports, as well as with internal audits. JM has chosen, in every substantial way, to meet the requirements of the quality and environmental management standards ISO 9001 and ISO 14001.

j m a n n u a l r e p o r t 2 0 0 5 18 SUSTAINABLE URBAN PLANNING

PARTNERS Good Sound Environment Much of JM’s impact on the environment occurs via the company’s external partners such Many people perceive loud sounds and noise as one of the biggest problems as subcontractors and materials suppliers. All strategic framework partners undergo an in the residential environment. Our environmental assessment in order to ensure that they only use products that meet envi- residential units are quieter than what ronmental standards and that they have reliable procedures for waste management, and Swedish building regulations require. documentation. Our extra thick walls and floor structure provide outstanding insulation between apartments. Our exterior INDUSTRY ISSUES doors are required to have a good Environmental issues are sometimes industry-wide and environmental initiatives therefore sound-transmission class and we avoid mail slots in doors by placing mailboxes require broad cooperation across corporate boundaries in order to succeed. JM is a dri- in the entry to the stairwells. ving force in Byggsektorns Kretsloppsråd (The Ecocycle Council). JM is also active in organizations such as BASTA – the construction industry’s common project to discontinue the Sensitivity to People with Allergies Research has shown that there may be a use of hazardous substances. JM is affiliated with the Government’s “Bygga-Bo” dialogue relationship between allergic problems project, in which several companies, municipalities and the Government have jointly agreed in children and PVC. JM’s residential to carry out certain measures within the areas of efficient energy consumption, efficient units have PVC-free walls and flooring. resource utilization, and a healthy indoor environment. The landscaping surrounding JM houses use nontoxic plants and trees that are suitable for people with aller- PROFITABLE ENVIRONMENTAL PROGRAM gies, such as apple trees and roses. For JM environmental initiatives are a matter of good business and profitability, in both the Kitchens and bathrooms should be easy to clean. JM avoids dusty shelves in short and the long term. Only by addressing urgent environmental problems and accepting the kitchen by installing cabinets that go responsibility for future environmental issues can JM continue to create long-term share- up to the ceiling. In bathroom the tub is holder growth. designed so that it is easy to keep the floor and floor drain clean. Measures conducted from this perspective also give added value to JM’s customers. For example, energy-efficient houses, installations that conserve water, and logical spaces for Energy-Saving Windows sorting waste all help to lower operating costs for households. Environmental aspects and Large windows are popular for light measures that are particularly important for JM’s customers include: homes and offices, but windows are often a major source of energy loss; • Damp protection measures to combat formation of mildew and unpleasant odors therefore all windows in JM’s residential • Decontamination of ground contaminants in central locations and areas close to water units have extra thermal insulation. • Good sound and electrical environment • Good air quality. Credit ratings agencies and mutual fund companies actively follow JM’s progress within sustainable development. Robur Etik- och miljöfond (specializing in investment vehicles selected based on ethical and environmental considerations) lists JM among its environ- mentally approved companies. Each year Folksam’s Klimatindex measures carbon dioxide emissions of Swedish listed companies and reports on what the companies do to reduce emissions – in 2005 JM was the best in the industry.

ENVIRONMENTAL IMPACT OFPROJEKTUTVECKLINGENS PROJECT DEVELOPMENT MILJÖPÅVERKAN

FÖRACQUISITIONVÄRV PLANERINGPLANNING BUILDINGBYGGARBETSPL SITEATS FINISHEDFÄRDIG BYGGNAD BUILDING RIVNINDEMOLITIONG Time in process months 1/2 year – years 1-2 years >100 years months JM’s influence major major major decreasing minor Scope to prevent environmental impact major major minor minor minor Impact on the environment minor minor moderate major moderate

j m a n n u a l r e p o r t 2 0 0 5 SUSTAINABLE URBAN PLANNING 19

JM’S QUALITY AND ENVIRONMENTAL POLICY JM shall promote long-term quality and environmental management in all its operations. The company shall focus on customer needs and strive for sustainable development of society. To accomplish this, we shall: • Preserve and contribute environmental aesthetic values to the urban and natural landscapes. • Produce buildings with a healthy living and working environment. • Work in a structured and systematic manner that leads to continual improvements in environmental and quality performance. • Prevent the production and dispersal of pollutants and promote resource conservation and closed cycles. • Actively contribute to development of knowledge and raise employee awareness of quality and environmental issues. • Apply environmental standards that are more rigorous than existing legal requirements.

QUALITY AND ENVIRONMENTAL OBJECTIVES • We shall focus on quality, the environment and ethics so that every customer and project is a good reference. • Our projects shall be structured, implemented and managed so as to minimize energy consumption and its impact on the environment. • We shall reduce the volume and hazardousness of waste. • We shall use materials and methods that reduce environmental impact and contribute to a healthy indoor and working environment.

ENVIRONMENTAL FACTS AND KPI

2005 2004 2003

Internal quality and environmental audits within residential project development 125 90 105 Carbon dioxide emissions JM (tonnes) 13,000 14,200 13,900 Carbon dioxide emissions JM (tonne/SEK m) 1.9 2.0 2.2 Project properties with district heating (%) 88 1) 93 1) 89 1) Products in environmental product database 1,880 1,700 2) 2,165 Company cars that are clean cars (%) 35 3 - Projects with KPIs (%) 95 98 88 Projects with KPIs 55 55 42

Target 2005 2005 2004 2003

Newly produced homes’ estimated energy requirement, normal home adjusted (kW/sq.m. UFA) 110 3) 115 127 131 Newly produced homes’ estimated carbon dioxide emissions from energy consumption (kg CO2/sq.m. UFA) - 7 8 7 Landfilled waste (kg/sq.m. GFA) 6 4 4) 9 8 Proportion of landfilled waste (%) - 164) 33 29

1) Others are acquired housing with direct electric heating. 2) Database revised. 3) Target adjusted. Applies to newly planned homes. 4) Reduction due in part to changed calculation method with post-sorting of waste.

j m a n n u a l r e p o r t 2 0 0 5 20 EMPLOYEES

Average number of Employees employees by country

In a market where customers demand higher quality and service, skills deve- Sweden 1,977 Norway 230 lopment and supply are becoming an increasingly important issue. Creating a Denmark 26 workplace that attracts and retains the best expertise is therefore a strategic Belgium 16 high-priority issue at JM. Total 2,249

JM’s ETHICAL GUIDELINES The creation of an attractive working environment for JM’s employees is an ongoing pro- Consideration for our colleagues cess that affects many areas within the company. The goal is clear: JM shall be the best • We respect every individual employee. employer in the industry. These efforts mainly focus on: • We accept no form of discrimination or harassment, neither in our relations • Skills development and supply with our colleagues nor with people • Leadership development and supply outside the company. • Salaries and benefits • We look out for one another and inform • Gender equality and diversity a superior if a colleague is in difficulty. • Work climate. Responsible • We do not risk taking short-term decisions that might weaken the value SKILLS DEVELOPMENT AND SUPPLY OF EXPERTISE of the JM brand. JM is an organization with a high degree of delegated responsibility, which means that indi- • We take responsibility for keeping vidually adapted training programs are particularly important for developing employees’ ourselves informed about our own activities, even if this leads to difficult knowledge and abilities. For both salaried employees and wage earners, skills development decisions. largely involves job rotation and active on-the-job learning. At the annual performance • We do not accept that time and cost review an individualized three-year development plan is formulated for the employees’ requirements take precedence over worker protection and a good wor- skills development needs. king environment. One of the most important challenges for JM in the future is to be able to attract skilled • We do not make commitments out- individuals. JM cooperates with upper secondary schools to ensure a supply of skills for the side our professional mandates. future. • We except neither pilfering nor theft. • We comply with current legislation as a matter of course. Rönninge Building School Formal agreements JM has established an alliance with Rönninge Gymnasiet south of Stockholm and its three- • We follow and respect signed cont- year building curriculum for wood and concrete construction workers. All students in the racts and agreements. program are guaranteed trainee positions at JM. Beginning in 2005, a new education initia- • We do not accept unauthorized labor on our sites. tive offered secondary school engineering students the opportunity to combine theory • We do not accept price cartels. with on-the-job experience at JM. Each student has a personal advisor at JM who serves as Professional relationships without mentor during the three-year program. The initiative hopes to attract 25 students to the personal gain program for the 2006/2007 academic year. • We do not act in such a way that our counterparty or we is placed in a position of personal dependence. Nackademin • We should be highly restrictive as Since 2002 JM has cooperated with Nackademin’s post-upper secondary school program regards gifts and benefits to and from in house construction and contracting. Students in the two-year program are offered trai- suppliers and business partners. • We do not allow suppliers and busi- nee positions at JM and the company participates in designing the course content. ness partners to pay for our travel and subsistence, nor does JM pay for travel LEADERSHIP DEVELOPMENT AND SUPPLY and subsistence for suppliers and busi- JM mainly uses internal recruitment to meet requirements for managers and leaders. ness partners (unless this is already regulated in an agreement) Internal recruitment provides good opportunities for individual development within the • We do not use the company’s resour- company while the corporate culture is strengthened and knowledge of “the business” ces for private gain

j m a n n u a l r e p o r t 2 0 0 5 EMPLOYEES 21

is retained. Since 1994 JM has held a three-year trainee program to ensure its supply of leadership. The program is successful; of the 85 employees who completed the program since it began, a full 68% chose to remain within the Group. In 2005, 9 employees partici- pated in the program. All JM managers are also tasked with identifying future managers at an early stage to more easily follow their progress from year to year and adapt the training program to the employee’s needs.

SALARIES AND BENEFITS About 300 of JM’s managers and executives participate in a performance-based salary system. Concrete workers at the Hägernäs project Normally the total amount varies between 1 and 7 monthly salaries, depending on position. outside Täby. In the foreground is Peter Skogert, employee representative on the Board In 2001 JM launched a pension plan, JM 10 Plus, with improved retirement and insu- of Directors. rance benefits for employees with a pension-qualified annual salary over ten official “base amounts”. JM 10 Plus pays 5 percentage points more in retirement benefits than the traditional ITP plan. Since 2001 JM has compensated employees for loss of income during parental leave. This compensation amounts to a maximum of 80 percent of the employee’s salary for up to six months. One of the purposes is to help increase gender equality in the Group. In 2005, 49 employees –20 women and 29 men – took advantage of this benefit and in 2004, 70 employees took advantage of the program.

GENDER EQUALITY AND DIVERSITY Today, 37 percent of JM’s employed salaried employees and 28 percent of its department heads are women. Swedish society is characterized by increased cultural, social and religious diversity. For JM this means more business opportunities and a chance to reach new customer groups. Personal Development Essential Anette Frumerie is JM’s regional Diversity among employees is therefore a top priority for the company. JM works within manager in Uppsala. She has worked the framework of a drug prevention alliance with the mentor organization to strengthen for the Group for 12 years and has held relationships between adults and young people – including students with immigrant back- no fewer than eight different positions since she was hired in 1993 as a sales grounds. A project is also underway to formulate group-wide diversity guidelines. representative in Stockholm. “Curiosity is, and has always been, WORK CLIMATE the most important driving force for me,” says Anette Frumerie. “I want to be JM is a big company with the advantages of a small company, through efforts such as short able to come home from work and feel decision-making paths. It is easy to be seen and recognized at JM. A large measure of that ‘today I learned something new.” freedom also stimulates personal responsibility and development, key factors for creating One year after graduating from the satisfied employees. JM has a tradition of dialogue and mutual understanding, which avoids Royal Institute of Technology Anette was admitted to JM’s trainee program. conflicts. We believe this is one reason that so few conflicts have been reported at the During the three-year program she company’s work sites that have led to disputes and negotiations. alternated studies with her job as JM’s management has clearly stated its policy that the Group’s employees shall achieve a supervisor and site engineer. Since then the training programs and chal- good balance in life between work and family. lenges have continued. Most recently In December 2005 JM surveyed its employees to measure attitudes toward and com- she completed Ruter Dam’s manager mitment in the company, mainly pertaining to the work climate, leadership and organi- development program for women and previously she also attended the zation. A total of 76 percent of employees responded to the questionnaire, which gave Stockholm School of Economics’ pro- a Satisfied Employee Index (NMI) of 3.76, measured on a scale of one to five. A full 86 gram for engineers. percent of employees stated in the survey that they would recommend JM as an employer. “I’ve always had the opportunity to Staff turnover was 6.1 percent in 2005. try new exciting duties at the same time that I’ve been able to combine practical experience with theory both on and off JM’S SOCIAL RESPONSIBILITY the job at JM,” says Anette. “In addition The employees’ health, well-being and development constitute pillars of JM’s social accoun- I’ve always been encouraged to come up with my own ideas relating to my tability. JM works actively with wellness programs to minimize the number of on the job personal development.” accidents.

j m a n n u a l r e p o r t 2 0 0 5 22 EMPLOYEES

WELLNESS PROGRAM Preventive care and wellness programs are essential tools for reducing sickness absence Focus on fast rehabilitation JM’s rehabilitation initiatives are based and work-related injuries. Measures include daily warm-up and stretching during working on cooperation among the central per- hours, strength training, massage and physical therapy. In 2005, long-term absence due to sonnel function, the manager respon- illness among salaried employees was 2.0 percent and 4.8% among wage-earners. sible, the person on the sick list and the care providers. JM works actively during Long-term absence due to sickness among wage-earners is mainly due to musculoskele- the illness process by initiating and tal disorders and strain-related injuries, as well as recreational and occupational accidents. paying for measures designed to enable Job rotation is an important component of preventing ill-health among wage-earners. the employee to return to work as Stress is becoming less common as a reason for long-term sick leave among JM salaried soon as possible. Such initiatives include neck and back school, counseling by employees. For the past few years the company’s department heads and employees have therapists and psychologists, treatment been offered the opportunity to attend a special stress management program. The purpose by physical therapists and naprapaths, is to be able to identify tendencies for stress at an early stage in order to prevent illness. and when needed, vocational guidance. Increased Customer Focus GOOD ORDER ON SITE During the year JM wage-earners par- JM has a zero tolerance position on strain-related injuries and accidents at work. ticipated in the “Arbetsduken” project with the theme “Job Security Through The “Good Order on Site” program was started in 2002 primarily to reduce injuries Satisfied Customers” to increase their due to falls. The program, which is carried out by JM’s senior safety representative through focus on customers. The project has a number of yearly and unannounced work site inspections, is intended to reduce the given employees an opportunity to have number of injuries through better workplace disposition, well-cleaned job sites and sen- more influence in the workplace, raised the quality of the final product and in sible waste management. the end, produced more satisfied custo- JM employees reported 68 injuries in 2005. About half of the people who suffer from mers. Several employee suggestions strain-related injuries are older than 50. for changes have been followed up and implemented as a result of the project, which was carried out in cooperation with the Swedish Building Workers’ Absence due to illness – SWEDEN Union.

2005 2004 Total absence due to illness, % 6.0 5.1 Absence due to illness during consecutive period of at least 60 days1), % 60.0 58.0 Women’s absence due to illness, % 4.4 4.2 Men’s absence due to illness, % 6.3 5.3

1) In relation to total absence due to illness.

Employee Structure – GROUP

2005 2004 2003 Number of employees as at Dec. 31 2,283 2,155 2,368 – number of salaried employees 1,074 1,025 1,090 – number of wage-earners 1,209 1,130 1,278 Average age, salaried employees 44 42 44 Average age, wage-earners 41 38 40 Percentage of college graduates among salaried employees 25 25 25 Percentage of women among salaried employees 37 36 36

j m a n n u a l r e p o r t 2 0 0 5 RISKS AND RISK MANAGEMENT 23

Controlled Risk-Taking Decisive for Good Profitability

Making well-balanced risk assessments is extremely important for a project development company, where risk management and value creation are strongly linked. The goal for a project developer is at an early stage to identify and acquire land that can be developed and then produce and sell residential units in a manner that optimizes customer values, revenues and costs. Throughout this entire process the project developer faces a number of risks that if handled correctly contribute to improved profitability. JM’s main risks can be attributed to macroeconomic risks such as substantial and lasting interest rate hikes, a global economic downturn, increased unemployment in JM’s main markets and stronger competition. These factors pose risks for the revenue level of our projects. If the structure of the building rights portfolio is not ideal the result could be lost opportunities or elevated costs, thus posing another significant risk. Risks associated with implementation are now considered to be lower after the focused work in recent years with oversight and control. Risk management is an integrated part of decision-making at all levels within JM and is subject to strategic contributions from management and the Board. All significant business and project decisions are analyzed with regard to both risk and feasibility. Routines for project oversight, monitoring and follow-up are designed to reduce business risks.

MACROECONOMIC RISKS Economic Growth Demand for new housing is mainly affected by population growth and economic development in the individual towns and cities. The new residential units’ location and attractiveness, consumer spending power, current interest rates, prices and price development on the second-hand market affect demand and the price obtained by JM. If national or regional growth conditions deteriorate or employment decreases this can have a negative impact on JM. JM’s strategy is to operate in areas that have the best long- term demographic and economic conditions. Demand for housing is high in many places where JM operates. Despite rising housing prices, several credit institutions consider that the risk of falling prices is low since households’ housing expenditure has not yet reached worryingly high levels. Housing expenditure’s proportion of disposable income accounted for approximately 25% in 2005 for Sweden as a whole. Global economic development also affects JM – in the short term due to psychologi- cal effects, since the world’s financial markets are tightly linked and changed expectations spread fast, and in the longer perspective because global economic changes also have an impact on the highly internationalized Scandinavian companies. The general interest rate situation is both a risk and an opportunity. Low interest leads to increased demand and higher prices for houses, while interest expenses on the Group’s net borrowing decrease. The opposite therefore applies when interest rates are high. The prevailing interest rate situation also affects return requirements and valuations in connection with property sales and acquisitions. A lower interest rate leads to a lower required rate of return and a higher price. JM tries to meet macroeconomic risks primarily by ensuring a clear demand for planned housing projects. A certain number of residential units must already be sold or reserved when production starts. By starting large projects in a number of phases, prices can be

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adapted to the prevailing market situation. Through continuous monitoring of the business environment, both internally and with the aid of external consultants, JM tries to form a well-founded perception of trends for significant business environment factors. Reduced production costs are another way to reduce business risks. In this way weaker demand and lower prices do not need to have a full impact on earnings. The new pre-construction procedures introduced for apartment blocks in 2003 and for single-family homes in 2004 are important initiatives in JM’s efforts to reduce costs. These procedures involve a more industrial way of working and production methods. They have also made it possible to increase savings with regards to production costs.

Competitive Scenario JM’s competitors in project development of new housing include both large national players and small local project development companies. Several of the large players have expressed an ambition to grow within the housing segment. The risk is that increased competition will lead to a higher supply of housing and price pressure. JM tries to distinguish itself through its overall corporate culture and agility, expertise in acquisitions, project implementation, quality profile and marketing. The competitive situation in each local market is monitored continuously.

Political Risks A number of political risks are associated with housing construction. The conditions for different forms of tenure (tenancy rights, tenant owner, freehold) can change and affect demand for JM’s housing. Political decisions related to infrastructure development as well as regional and municipal planning can have an impact on operations. JM tries to meet these risks by having detailed plans that are as flexible as possible and by deciding form of tenure relatively late. Political decisions also affect tax conditions for housing. The political climate is characterized by a willingness to increase and facilitate, not limit and obstruct, housing construction.

OPERATIONAL RISKS Risks Related to Building Rights Portfolio At year-end 2005 JM had building rights corresponding to 23,200 residential units for future production. These were mainly concentrated to metropolitan areas and university and college towns. The risk that JM has too few or too many building rights or that the building rights are in the “wrong” area, can lead to lost opportunities and high costs. As was already mentioned, it is essential that land for development and planned housing are in attractive locations in places with high demand for new housing. They must also offer development with JM’s requirements on profitability and return. What and how much can be built, and when housing starts can take place, depend on planning work and cooperation with the municipality. The risk that JM after acquisition does not obtain a detailed plan that has gained legal force (a detailed plan approved by the municipality through a political decision) within the prescribed period may result in increased costs and/or reduced revenues. Due to its long experience of project development and long-term relationship with the municipalities, JM can reduce these risks. In order to reduce tied-up capital and risks JM tries to have building rights available through option agreements or conditional acquisitions; for example the acquisition may be subject to an approved detailed plan. At year-end 2005, 8,200 building rights were available for future production through such agreements. There is also a possibility to separate and sell development land from acquired land without affecting the number of available building rights. JM has historically been successful in identifying and developing areas where people want to live. At the end of 2005, 85% of the residential units in JM’s ongoing production were sold or reserved. One explanation is that JM works in close cooperation with poten-

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tial homebuyers so that the planned projects will meet demand.

Implementation Risks Major projects can correspond to order values of several billion kronor and it is important that both pre-construction and production are carried out according to plan. Inadequate planning and analysis can lead to delays, increased costs and insufficient customization. There is also a risk that the pre-construction process does not focus at the same time on customer values, revenues and costs. In order to reduce implementation risks, JM recently introduced stricter routines for monitoring, oversight and control. Defined decision points precede the start of pre-construction, sales and production. No project can start without a decision from the business unit management or group management alternatively, for major projects, by the Board. For more information please see page 36.

Unsold Units JM acts to ensure that all residential units are sold at final inspection. Units that remain unsold are purchased by JM from the tenant-owner co-operative and are then sold. Units that are still unsold six months later constitute a risk. At the end of 2004, JM held unsold units for a value of SEK 38m (243) in the balance sheet. Starting projects in phases, with requirements for a specific level of sales and reservations, reduces the risk of unsold units. Phased starts also mean that JM can better match prices to demand. A summary of this 2005 purchases and sales can be seen in note 20, page 69.

Sensitivity analysis by cost category, Cost Control and Internal Oversight housing development projects In recent years JM has taken a number of measures to improve internal oversight and cost Share of Category costs 1) Change Effect control. Most production costs are related to project development of housing in Sweden

Land 15% +/-10% +/- SEK 87m and were about SEK 5 billion for 2005. Pre-construction 3% +/-10% +/- SEK 18m In order to ensure quality requirements and production competence and contribute to Developer’s Costs 10% +/-10% +/- SEK 55m Salaries/wages 12% +/-10% +/- SEK 67m effective cost control, JM maintains some construction contractor resources. These resources Materials 14% +/-10% +/- SEK 81m are limited, however, which makes JM dependent on cost developments from subcontractors. Subcontracting 40% +/-10% +/- SEK 230m Overhead 6% +/-10% +/- SEK 32m In general resources are contracted well ahead of time, which means that JM normally

1) Share of cost base for project development has a controlled cost situation. The number of projects, volume, development phase and of housing in Sweden was approximately utilization of subcontractors vary from year to year. SEK 5.7 billion in 2005. Land pertains to the acquisition cost for land. Developer’s costs are costs not directly FINANCIAL RISKS related to contracting, such as interest on Financial Functions loans, municipal connection charges and registration of title. Pre-construction mainly JM’s finance unit handles the Group’s short- and long-term financing, liquidity planning, cash relates to costs for technical consultants. Overhead refers to incidental expenses for management and financial risk management. The division of responsibility, organization and setting up the building site and rent for leased control of the Group’s overall financing activities are regulated by a finance policy establis- fixed assets such as plant and equipment. hed by the Board. The finance policy specifies the objectives for finance operations, overall responsibility and specific rules and limits.

Finance Strategy JM’s basic finance strategy is to clearly link cash flows from projects in progress and project properties to the company’s borrowing and interest rate risk management. This strategy provides the best control of financial risks. In order to maintain flexible administration and cost-effective debt management, existing loan agreements are guaranteed by JM’s excellent creditworthiness, which means that no mortgage deeds are provided.

Financial Risks The Group’s financial risks primarily consist of interest rate risk, financing risk, liquidity risk

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and, to a limited extent, currency risk. The choice of maturities and fixed interest spread is FINANCIAL POLICY governed by several factors, such as capital tied up in ongoing projects, business risk, antici- The finance policy specifies the objec- pated dates for sale of properties, the terms of leases in project properties and the Group’s tives for finance operations, overall responsibility and specific rules and financial position in general. These factors are summarized in the Board’s established guide- limits. The objectives for the finance lines for fixed interest spread and maturity structure with scope for deviations within cer- operations are to: tain limits based on the current market situation. There are also rules for handling interest • Support operating activities in residential and commercial project rate risk in building loans during the construction period as well as recommendations for development final financing of tenant-owner co-operatives. • Optimize use of capital and cash Cash is usually kept at a low level and any surplus liquidity may only be invested in flow management • Control and manage the financial Swedish banks and in Swedish fixed-income securities without currency risk. Payment pre- risks to which JM is exposed. paredness is maintained through overdraft facilities and committed credit lines. Currency risk on transactions is eliminated as far as possible. Transaction volumes in Sensitivity analysis, present value foreign currency between JM AB and subsidiaries, and to external suppliers, are very limi- in SEKm for JM’s residential ted. Hedging of balance sheet exposure is selective. Derivative instruments may only be building rights portfolio used in order to minimize risks. Revenue/sq.m., SEK 21 000 22 000 23 000 24 000 25 000 Expenses/ Sensitivity Analysis – Residential Building Rights sq.m.,SEK 16,000 5,200 6,400 7,600 8,800 10,000 One way to reflect the dynamics in the building rights portfolio is to perform a sensitivity 17,000 4,000 5,200 6,400 7,600 8,800 analysis where all anticipated cash flows from the portfolio are calculated at present value. 18,000 2,700 4,000 5,200 6,400 7,600 19,000 1,500 2,700 4,000 5,200 6,400 The analysis include a number of simplified assumptions designed to reveal the present 20,000 300 1,500 2,700 4,000 5,200 value of JM’s building rights portfolio, at a number of assumed sales prices. In all, 23,200 residential building rights are evenly distributed over a 6-year production Sensitivity analysis, present value in SEK/share for JM’s residential period. The initial investment is excluded since the calculation is intended to show the building rights

value of the portfolio. However, investments not yet made of approximately SEK 1,500m Revenue/sq.m., SEK for conditional acquisitions or deferred payments are included in the analysis as a future 21 000 22 000 23 000 24 000 25 000 Expenses/ constant outgoing cash flow during the period. sq.m.,SEK JM’s standard residential unit is assumed to be 87 sq.m., the assumed tax rate is 28% and 16,000 208 257 306 355 404 17,000 160 208 257 306 355 the discount rate is 5.7%. The calculation does not take possible inflation into account and 18,000 110 160 208 257 306 is not a forecast. 19,000 62 110 160 208 257 20,000 13 62 110 160 208 The table shows the assumed revenue and project expenses per sq.m. of apartment space excluding VAT. If a specific revenue project expense per sq.m. is assumed to apply to the entire building rights portfolio and outgoing cash flow for conditional acquisitions are taken into account, a value is created, expressed as present value. The analysis shows a strong leverage effect in value creation depending on the company’s ability to manage both revenues and expenses effectively, and not least the general trend for house prices during the period. A price or cost change of SEK 1,000 per sq.m. corresponds to about SEK 1,200m or almost SEK 50 per share according to the basis for this calculation.

MANAGEMENT OF SIGNIFICANT RISKS

Risk factor Risk Management Significant interest rate hike Reduced demand, need for price reductions Production does not start until a certain proportion of units in the project are Global economic downturn sold or reserved. Internal efforts to reduce costs. Increased unemployment in JM’s markets Product range in several price bands. Changes in regional prospects for growth Business environment monitoring and market analysis Increased competition Increased supplies, price pressure Business environment monitoring and market analysis Decision gates in connection with important project decisions Continuous efforts to maintain competitiveness in every respect Unoptimized structure in building rights portfolio Reduced demand, need for price reductions Strategic acquisition planning Business environment monitoring and market analysis Continuous evaluation of asset structure Pre-construction not focusing at the same time Reduced demand, need for price reductions Market analysis, high-quality extensive surveys on customer values, revenues and expenses Broad compilation of skills in the project Requirement for skills development Adopted detailed plan delayed and/or changed Increased costs, decreased revenues Clear requirements on formulation of pre-construction and building permit documents. Quality assurance of building permit applications

j m a n n u a l r e p o r t 2 0 0 5 JM RESIDENTIAL STOCKHOLM – BUSINESS SEGMENT 27

The JM Residential Stockholm business segment develops residential projects in Greater Stockholm. Operations JM Residential Stockholm comprise acquisition of development properties, planning, pre-construction, production and sales of residential units.

JM RESIDENTIAL STOCKHOLM EARNINGS DEVELOPMENT Demand has been strong during the year, with rising housing prices, which continued to Share of Group’s rise cautiously at the end of the year. The supply of new housing in the Stockholm area is Operating increasing, as is competition for land in prime locations due to strong demand. Income profit Employees The business segment’s income increased by 11 percent to SEK 3,816m (3,438) and operating profit improved to SEK 500m (296) including property sale of SEK 34m (1). The operating margin increased to 13.1 percent (8.6). Earnings and margin were impacted by strong sales and very good results in several completed projects at the end of the year. JM Residential Stockholm The increased income is attributed to gradual increase in the number of housing starts over the past two years. Business segment in brief Financial performance has gradually improved over the past few quarters due to the SEKm 2005 2004 phase-out of older projects with low results, higher prices in the projects, completed effi- Income 3,816 3,438 Operating profit 1) 500 296 ciency enhancements and lower infrastructure costs in larger ongoing projects. Cash flow Operating margin (%) 13.1 8.6 for the year is strong mainly due to the large number of housing starts and good margins Average operating capital 1,488 2,356 in the projects. Return on operating capital (%) 33.6 12.6 Operating cash flow 1,416 956 BUILDING RIGHTS Book value of During the year JM acquired building rights equivalent to over 1,000 residential units development properties 1,337 1,702 Number of available through purchases or signing land leases, the majority in Stockholm, Solna, Sollentuna and building rights 9,200 9,100 Täby. In addition, a property on Östermalm in Stockholm was sold. Number of housing starts 1,937 1,706 Number of sold residential units 1,754 1,968 HOUSING STARTS Number of employees 788 710 During the year production started on 1,937 residential units, including 412 at Liljeholmskajen

1) Of which property sales 34 1 and the remaining 153 at Essinge Udde, as well as 523 in the rest of Stockholm, 265 in Nacka and 113 in Solna.

JM is one of several companies developing a new district in southern Sollentuna – Silverdal. The district is being built as a garden town with terraced and detached houses.

j m a n n u a l r e p o r t 2 0 0 5 28 BUSINESS SEGMENT – JM RESIDENTIAL SWEDEN

The JM Residential Sweden business segment develops residential projects JM Residential Sweden in growth areas in Sweden, excluding Greater Stockholm. Operations comprise acquisition of development properties, planning, pre-construction, production, and sales of residential units. Contracting operations are also conducted to a limited extent.

EARNINGS DEVELOPMENT JM RESIDENTIAL SWEDEN Demand has been strong during the year with rising housing prices. Housing prices are stable or cautiously increasing in all markets within the business segment. The supply of Share of Group’s newly built homes is increasing in most markets. Despite the increased supply, demand is Operating still greater than supply. Income profit Employees The business segment’s income increased by 25 percent to SEK 3,012m (2,417) and operating profit increased by 69 percent to SEK 341m (202), including capital gains from property sales of SEK 16m (3). The operating margin was 11.3 percent (8.4). Earnings and

margins were impacted by strong sales and good results in several completed projects at JM Residential Sweden the end of the year.

The increased income can be attributed to the gradual increase in the number of hou- Business segment in brief

sing starts over the past two years. SEKm 2005 2004 Earnings gradually improved over the past few quarters due to increased demand, higher Income 3,012 2,417 prices for projects and completed efficiency enhancements. Cash flow improved due to Operating profit 1) 341 202 the higher number of housing starts and increased earnings. Operating margin (%) 11.3 8.4 Average operating capital 539 808 Return on operating BUILDING RIGHTS capital (%) 63.2 25.0 During the year JM acquired almost 2,100 building rights, the majority in Västerås, Uppsala, Operating cash flow 544 413 Book value of Linköping, Malmö, Kungsbacka and Göteborg. In addition a commercial property in Lund development properties 817 687 and a small commercial property in Uppsala were sold. Number of available building rights 8,400 7,400 Number of housing starts 1,451 1,218 HOUSING STARTS Number of sold During the year production started on 1,079 residential units in apartment blocks, inclu- residential units 1,411 1,225 Number of employees 600 513 ding 242 in Göteborg, 258 in Uppsala, 102 in Malmö, 74 in Västerås and 74 in Helsingborg. Production also started on 372 single-family homes, including 62 in Uppsala, 42 in Mariefred, 1) Of which property sales 16 3 39 in Malmö, 37 in Vallentuna and 33 in Härryda.

JM is refurbishing a historic block at Packhusplatsen in the heart of Göteborg. Existing buildings are being converted into modern residential units adapted to today’s demands for function and comfort.

j m a n n u a l r e p o r t 2 0 0 5 JM INTERNATIONAL – BUSINESS SEGMENT 29

The JM International business segment develops and sells residential properties in Norway, Denmark and Belgium. JM International

JM INTERNATIONAL EARNINGS DEVELOPMENT A long period of rising housing prices has attracted new players to JM’s international mar- Share of Group’s kets, which in turn has forced up prices of new building rights. However, JM’s current hol- Operating ding of building rights and quality improvement initiatives in project implementation pro- Income profit Employees vide generally favorable conditions for JM’s business. The business segment’s income rose 11 percent to SEK 2,069m (1,866) and operating profit climbed to SEK 183m (117), attributable in part to gains on property sales in JM Belgium. The operating margin increased to 8.8 percent (6.3). JM International In 2006, JM intends to establish a project development business for residential units in Finland. Business segment in brief SEKm 2005 2004 Income 2,069 1,866 Norway Operating profit 1) 183 117 The housing market in Norway is characterized by continued good demand and cautiously Operating margin (%) 8.8 6.3 rising prices. The supply of newly built homes is large, at the same time that competition for Average operating capital 1,118 1,000 Return on operating residentially zoned land has intensified. There has also been an increase in production costs capital (%) 16.4 11.7 during the year. In 2005, 717 residential units (734) were sold and housing starts totaled 852 Operating cash flow 115 139 (725). More than 300 of the production starts during the year were made in Oslo and about Book value of development properties 632 394 300 in Bergen. The large number of residential units sold in 2004 was due in part to a shift Book value of from 2003. Available building rights correspond to about 4,600 residential units (4,200). project properties 271 306 Number of available building rights 5,600 5,400 Denmark Number of housing starts 1,088 1,019 Demand for newly built homes in Copenhagen remains high, resulting in continued favora- Number of sold residential units 1,075 1,122 ble sales for JM Denmark. Housing prices continue to climb at the same time that competi- Number of employees 271 266 tion for building rights has intensified. During the year 251 residential units (307) were sold 1) Of which property sales 11 1 and housing starts totaled 166 (194). During the year production began on Sluseholmen and in Havnestad Syd, which are both in attractive harbor areas in central Copenhagen. Available building rights correspond to Left to right: The photos show projects in over 700 residential units (900). Larvik in Norway, Parc de Woluwe in Belgium and Åhavnen, Køge in Denmark. BELGIUM The supply of new homes increased over the past year and housing prices rose. Production in JM’s ongoing residential projects is progressing according to plan. During the year 107 residential units (81) were sold and production began on 70 residential units (100). Efforts to rent out the commercial property, Science, continue. Available building rights correspond to about 300 residential units (300).

j m a n n u a l r e p o r t 2 0 0 5 30 BUSINESS SEGMENT – JM PROPERTY DEVELOPMENT

The JM Property Development business segment develops residential and JM Property Development commercial properties in Greater Stockholm. The business segment’s portfolio entirely comprises properties for project development.

EARNINGS TREND JM PROPERTY DEVELOPMENT The business segment’s income totaled SEK 211m (276) and operating income climbed to SEK 212m (201). The change is mainly attributable to property sales during the year. Share of Group’s Net operating income totaled SEK 65m (100). Operating Income profit Employees

PROPERTY TRANSACTIONS Gains from property sales in 2005 totaled SEK 186m (154). During the year property sales totaled SEK 1,390m (955), including sales to tenant-owners’ associations of SEK 475m,

equivalent to 582 residential units in Älta and Vaxholm. Cash flow in 2005 rose to SEK JM Property Development 1,247m (803).

Newly developed commercial properties sold during the year include Barnängen 6, Business segment in brief

Stockholm for SEK 303m and Västerbotten 18 for SEK 147m. SEKm 2005 2004 The commercial properties Paradiset 23, Holar 1 and Skogskarlen 1 and 3 were sold to Income 211 276 Fabege for SEK 335m. Operating profit 1) 212 201 Vaxholm Municipality purchased Kommunhuset Bävern 1 and three properties for senior Average operating capital 1,704 2,330 housing for a total of SEK 100m. The majority of the year’s property sales were conducted Return on operating during the fourth quarter. capital (%) 12.4 8.6 Operating cash flow 1,247 803 Book value of PROJECT DEVELOPMENT development properties 136 185 During the year production began on an approximately 11,000 sq.m. office building in Book value of project properties 840 1,789 Frösunda Park/Solna and negotiations are underway with several potential tenants. Number of employees 29 90 During the third quarter a senior housing project and a group housing project were started in Silverdal, Sollentuna municipality, which are proceeding according to plan. 1) Of which – property sales 186 154 In Älta, work on detailed planning for new residential building rights is progressing – impairment losses according to plan. Refurbishing and modernization of Älta center is proceeding through on properties - -15 expansion and rehousing of tenants with the purpose of creating an attractive local center.

BUILDING RIGHTS JM has building rights for commercial project development totaling about 84,000 sq.m. with a book value of SEK 136m. In Frösunda after starting construction of housing JM still has building rights for about 24,000 sq.m. In Silverdal, Sollentuna municipality, about 25,000 sq.m. remain after starting construction of group and senior housing.

j m a n n u a l r e p o r t 2 0 0 5 JM PRODUCTION – BUSINESS SEGMENT 31

The JM Production business segment carries out construction work for external and internal customers in the JM Production Greater Stockholm area.

JM production EARNINGS DEVELOPMENT Demand for contracting operations in the Stockholm market continues to develop favora- Share of Group’s bly with good orders for the business segment. Operating The business segment’s income totaled SEK 1,197m (931) and operating profit rose to Income profit Employees SEK 58m (43). The operating margin was 4.8 percent (4.6). Operating profit for the corresponding period in 2004 included a property sale (land) of SEK 5m. The strong cash flow is mainly attributable to decreased working capital, but also to a

JM Production strong financial performance.

Business segment in brief PROJECTS

SEKm 2005 2004 During the end of the year, the business segment received a few large land development Income 1,197 931 projects including roadwork and wiring in Hjorthagen for the city of Stockholm, as well as Operating profit 1) 58 43 road and pier improvements within the Liljeholmen area for JM Residential Stockholm. Operating margin (%) 4.8 4.6 Other large current projects include the district heating line for Vattenfall in Södertörn, Operating cash flow 155 45 Number of employees 513 505 the renovation of Hotel Anglais for AFA Sjukförsäkringsaktiebolag, renovation of the commercial property Bremen in the Gärdet area for Vasakronan and new construction of offi- 1) Of which property sales - 5 ces in Frösunda for JM Property Development. In addition to the above projects the business segment is also currently active at over fifty construction sites.

ORGANIZATION As part of the initiative to streamline the core business an agreement was reached for the sale of JM Production’s painting business without any effect on profits after 1 January 2006.

By refurbishing Kallbadhusen, building 110 new homes and expanding the marina, JM is turning Hotellviken Saltsjöbaden outside Stockholm into a vital residential area.

j m a n n u a l r e p o r t 2 0 0 5 32 CORPORATE GOVERNANCE REPORT

Corporate Governance Report for the 2005 Financial Year

BACKGROUND The focus on corporate governance issues further strengthens Beginning on July 1, 2005, the Swedish Code of Corporate JM’s credibility as a long-term, professional and socially commit- Governance (the Code) is to be applied by the biggest Swedish ted player in the Nordic Project Development Market. listed companies. In addition to the purposes stated in the Code, JM intends to use the corporate governance report to inform APPLICATION OF THE CODE AT JM AB shareholders and other stakeholders about how the Board of JM complies with the code from the time that each regulation in Directors and the management ensure shareholder require- the code is implemented for the first time after it goes into force ments for return on invested capital. High ethical standards, JM’s on July 1, 2005, though with the exceptions described in the table core values, professionalism, transparency and JM’s contribution below, which will be dealt with if or when necessary. to social development are particularly high-priority aspects. JM has been working on corporate governance issues for several ANNUAL GENERAL MEETING years, which has been reflected in increased transparency, an The company publishes notification of the Annual General Meeting evaluation of the work of the Board of Directors, and a systema- (the meeting at which the consolidated accounts and audit report tic work by the Board of Directors through committees. In recent for the Group are presented) no earlier than six weeks and no later years considerable efforts have been devoted to strengthening than four weeks before the meeting. The company announces the corporate governance through measures such as improved con- time and place of the Annual General Meeting in connection with trol and oversight of investment, sales and production decisions, the third quarter report, normally at the end of October. as well as during the project implementation phase. The possibility of shareholders following or participating in the

ANNUAL GENERAL MEETING

Article Rule in the Code Exception today Proposed corrective measure

1.2.1 AtBolaget each skallshareholders’ inför varje meeting bolagsstämma, the company om så äris motiveratto provide av share - Has not yet been applied. NotInte ekonomisktfinancially motiveratmotivated atför this närvarande, time, and to holdersägarkretsens with sammansättningthe option of following och med or beaktande participating av vad in the som meet är - dateoch utländska foreign shareholders aktieägare har have hittills been repre- ingekonomiskt from another försvarbart, location ge in aktieägarna the country möjlighet or abroad att medwith the help sentedrepresenterats by Swedish av svenska representatives. ombud. ofhjälp modern av modern communications kommunikationsteknik technology följa if it eller is warranted delta i by the ownershipstämman från structure annan ortand inom financially eller utom feasible. landet.

1.4.3 SimultaneousSimultantolkning interpretation av bolagstämmo of AGM- deliberations Has not yet been applied. See above, article 1.2.1 andförhandlingarna translation of samt AGM översättning materials. av stämmomaterialet.

APPOINTMENT OF BOARD OF DIRECTORS AND AUDITORS

Article Rule in the Code Exception today Proposed corrective measure

2.3.3 Information prior to selection of auditors. SuchSå detaljrik detailed information information has AdaptationAnpassning totill theKoden Code vid at nästa next election nothar hittillsyet been inte provided. lämnats. ofrevisorsval. auditors. (2008)

BOARD OF DIRECTORS

Article Rule in the Code Exception today Proposed corrective measure

3.2.1 BehandlarAddresses styrelsenscomposition sammansättning of the Board andsamt states anger that att theen jämn Board shall 2 avof 88 stämmovalda directors elected ledamöter by theär kvinnor. For owners/nomination committee to handle. könsfördelningaim to achieve anskall equal eftersträvas. gender distribution. AGM are women. . SENIOR MANAGEMENT

Article Rule in the Code Exception today Proposed corrective measure

4.2.2 TheStyrelsen Board skall is to på present ordinarie a proposal bolagsstämma for the presentera company’s förslagpolicy till This has not yet happened. ThePrinciperna policy will skall be presenteras presented atpå thebolagsstämma, AGM, onprinciper remuneration för ersättning and other och termsandra ofanställningsvillkor employment for för senior bolags- butmen will inte not föreläggas be submitted denna for för itsgodkännande. approval. managementledningen för togodkännande the annual generalav stämman. meeting Förslaget for its skall approval. återfinnas TheDetta Board skall will istället address göras this av styrelsen.issue instead. Thepå bolagets proposal hemsida. is to be posted on the company’s website.

j m a n n u a l r e p o r t 2 0 0 5 CORPORATE GOVERNANCE REPORT 33

general meeting from other cities has not been evaluated as finan- Annual General Meeting chose Ernst & Young AB as its auditing cially motivated, and to date Swedish representatives have repre- company, with auditors Ingemar Rindstig and Lars Träff. The elec- sented foreign shareholders. The same applies to the possibility tion covers the period up until the 2008 Annual General Meeting. of simultaneous interpretation of discussions at the deliberations In addition to JM, Ingemar Rindstig provides auditing services for and translation of presented materials into other languages. clients such as Castellum, Vasakronan, Veidekke, Svenska Bostäder The Annual General Meeting is the decision-making body and Sagax. In addition to JM, Lars Träff provides auditing services at which all shareholders can participate. The Annual General to clients such as Föreningssparbanken, Observer, Ticket, TV4 and Meeting addresses the company’s developments, and decisions Vattenfall. Ingemar Rindstig and Lars Träff have no assignments are taken in several key issues, such as dividends, amendments with other companies that affect their independence as auditors to the Articles of Association, election of auditors (every fourth for JM. The extent of the auditing company’s services to JM in year), discharge from liability for the Board, compensation to the addition to auditing is provided in note 5 on page 64. Board of Directors and auditors, as well as election of a new In proposals for the election of new auditors, JM will adapt to Board up until the next AGM. the requirements of the Code regarding posting information on The 2005 Annual General Meeting was held on 28 April. A the company’s website that may be of significance when evalua- total of 84 shareholders representing 38 percent of the total ting the expertise and independence of the new auditors. number of shares were present. The minutes from the 2006 Annual General Meeting will be JM’S BOARD OF DIRECTORS posted on the company’s website. JM’s foreign owners are usu- COMPOSITION ally represented by Swedish-speaking representatives and there- According to the Articles of Association, JM’s Board of Directors fore to date simultaneous interpretation of deliberations at the shall consist of a minimum of three and a maximum of nine meeting has not been provided (See under Application of the directors elected by the Annual General Meeting. Directors are Code at JM AB above). elected for one year at a time. In addition, the employees’ orga- The 2006 Annual General Meeting will be held on 27 April. nizations are entitled by law to appoint two ordinary members and two deputies. NOMINATION COMMITTEE The 2005 Annual General Meeting elected eight directors. Board Members are nominated by the Nomination Committee The employee organizations have appointed two directors and prior to election at the Annual General Meeting. This committee two deputies. consists of representatives for the four largest shareholders in The composition of the Board of Directors can be seen the company, at any time, who wish to participate. The Chairman below, as can participation in committees of the Board convenes the meeting, but is only a member of (A = Audit Committee, C = Compensation Committee, the Nomination Committee if the committee should decide to I = Investment Committee) and attendance at board meetings include the chairman. (Attendance B). Agreed remuneration is reported in article 4.7 The Nomination Committee’s task is mainly to submit pro- below. The Board held 10 meetings during the calendar year. posals to the Annual General Meeting for Directors and their remuneration and, where appropriate, to submit proposals for Name Function Elected Committee Attendance B election of auditors. Lars Lundquist Chairman 2005 C (chairman), The Chairman of the Board convened the Nomination I (chairman) 6* Committee for the 2006 Annual General Meeting in October Elisabet Annell member 2002 A 8 last year. The following people are on the Committee: Eva-Britt Gustafsson member 2005 A 5* Bengt Larsson member 2004 C 10 KG Lindvall representing Robur Funds AB Berthold Lindqvist member 2001 A (chairman) 7 Anders Algotsson representing AFA Försäkringar Johan Skoglund member 2003 - 10 Mats Tunér representing SEB Funds Torbjörn Torell member 2004 I 10 Jens Engvall member resigned Björn Franzon representing the Fourth Swedish National May -05 1* Pension Fund and, after a decision by the Nomination Committee, Jonatan Sundelin employee repr. 2004 - 10 Lars Lundquist, chairman of the board of JM. Johan Wegin employee repr. 2002 I 9 Magnus Rehbinder employee repr., dep. 2003 - 9 At the time of the appointment they represented about Peter Skogert employee repr., dep. 2005 - 2** 25 percent of shareholders. The Chairman is KG Lindvall. The Nomination Committee met four times between October 2005 * Elected at the Annual General Meeting 28 April, 2005. and March 2006. Directors on the Nomination Committee have ** Appointed by Swedish Building Workers’ Union July 29, 2005. not received any remuneration from JM. Further information about the Board’s Directors according to After a proposal by the Nomination Committee, the 2004 article 2.2.3 in the Code is specified on page 83.

j m a n n u a l r e p o r t 2 0 0 5 34 CORPORATE GOVERNANCE REPORT

The Code’s requirement to strive for equal gender distribution survey. The secretary of the Board compiles the results of the is an issue for the owners/Nomination Committee to handle. questionnaire. The Chairman then conducts individual conferences with each Director to discuss the survey results. INDEPENDENCE Subsequently the results of the survey and conferences are pro- All directors with the exception of Johan Skoglund as President vided to the Nomination Committee. are to be considered independent in relation to the Company and all are independent in relation to the owners. The Board’s evaluation of the President Employee representatives are not independent of the company. The Board of Directors evaluates the President’s performance annually. DUTIES AND RESPONSIBILITIES Duties of the Board of Directors THE DUTIES OF THE COMMITTEES The Board’s duties deal with strategic issues such as the business Conditions concept, key policies, the market, finance and financial position, The committees usually meet in conjunction with board mee- risks, human resources and leadership, control and efficiency, as tings or when necessary. Minutes are kept and shared with the well as decisions concerning production starts, acquisitions and Board of Directors and the auditors. No committees have been sales of development properties and fully developed properties delegated the right of decision except for the Compensation over certain amounts. Committee, which approves salaries and other terms and condi- The most important governing documents are: tions for the Executive Management excluding the President, and • Articles of Association the Audit Committee, which discusses the plan for the work of • Rules of Procedure for the Board of Directors, Instructions the external auditors and approves the internal audit. for the Allocation of Duties between the Board and the All directors elected by the AGM, excluding Johan Skoglund President, Instructions for Financial Reporting (President), participate in committee work. • JM’s Authorization Regulations The Chairman of the Board also chairs the Compensation • JM’s policies (Quality and Environmental Policy, Employee policy, Committee and the Investment Committee. The Chairman of the Information Policy, Financial Policy and Purchasing Policy) Audit Committee is Director Berthold Lindqvist. The President • JM’s Ethical Guidelines. may be present at committee meetings after notification from the chairman of the respective committees. Newly elected directors are introduced to the company’s busi- The CFO reports at Audit Committee meetings. ness concept, market, policies and its systems for internal control and risk management. Audit Committee The duties of the Chairman of the Board are assessed as The Audit Committee was established in 2003 and currently has amounting to approximately 50 working days per year and for three members: Berthold Lindqvist (chairman), Elisabet Annell and external Board members to approximately 20 working days per Eva-Britt Gustafsson. The committee met five times during the year. year, including duties in the committees. The committees’ duties During the year the Audit Committee mainly focused on: are usually established in conjunction with the Board meetings. • Review and analysis of financial statements and interim reports Duties of the Chairman of the Board • Review of the audit plan The chairman of JM’s Board of Directors has ultimate respon- • Quality assessment of systems and procedures for internal sibility for the company complying with the established stra- control and oversight tegic focus. In this context the chairman has regular contact • Progress report on detailed project reviews of certain large with the company’s President and serves as discussion part- projects conducted by external and internal auditors ner to the President. The Chairman’s duties in general comply • Progress report from reviews with auditors and management with the requirements of the Code. • Preparation of the Corporate Governance Report and the Board of Directors’ Report on Internal Control over Financial Secretary to the Board Reporting. The company’s Chief Legal Advisor is secretary to the Board. He is not a member of the Board of Directors. Compensation Committee The Compensation Committee was established in 2003 and cur- Board of Directors’ evaluation of its own duties rently has two members: Lars Lundquist (chairman) and Bengt The Chairman of the Board evaluates the performance of the Larsson. The committee met three times during the year. Board annually during the autumn by conducting an anonymous The duties of the Compensation Committee during the year

j m a n n u a l r e p o r t 2 0 0 5 CORPORATE GOVERNANCE REPORT 35

Annual General Meeting Nomination Committee

Audit Committee have been to: Board of Directors Compensation Committee • Prepare proposal for salary, pension benefits and other Investment Committee terms and conditions for the President Internal Audit • Prepare proposals regarding general principles for remune- President ration to all other employees, especially in terms of variable Group Staff: Advice and committees: compensation Legal Affairs and Development Quality and Environmental Council • Approve salary and other terms and conditions for the Business Development Business Committee Executive Management excluding the President. Finance and Treasury Purchasing Council The Board will not comply with the Code’s requirement that Communications IT/R3 Council Human Resources Market Council the Board present a proposal at the Annual General Meeting for Purchasing a policy on remuneration and other terms of employment for Executive Management for approval by the general meeting. The Business units Board of Directors decides on remuneration terms. The reason that this is a decision for the Board and not the general meeting Regions is that such a decision requires thorough knowledge and experience of the company and the industry’s specific structure in terms of remuneration and benefits. As a consequence of the Code’s requirements, the Board of Directors, through the Audit Committee, focused during spring Investment Committee 2005 on the quality and efficiency of JM’s internal control and made The Investment Committee was established in 2004 and cur- the assessment that internal control maintains a high standard. rently has three members: Lars Lundquist (chairman), Torbjörn In recent years the Board of Directors has placed special Torell and Johan Wegin. The Investment Committee met four emphasis on building effective control structures. times during the year. The quality of JM’s processes and systems for ensuring good The Investment Committee’s duties during the year have internal control are based on the control environment, which been, within the framework of JM’s order of delegation, to: includes the Board’s adopted rules of procedure and instructions • Evaluate the strategy for scope and focus pertaining to for financial reporting. In establishing the Audit Committee, the Development properties and Project properties. Board has resulted in closer contact with both internal and exter- • Prepare proposals to purchase or sell properties or shares nal auditors, enabling the Board and its committees to learn about and participation rights in companies or investments in exis- the company’s financial position in various ways. Consequently, the ting Development Properties and Project Properties. external auditors meet the Audit Committee four to five times per year and in addition, the entire Board twice a year. FINANCIAL REPORTING The main task of JM’s central Internal Audit function is to The President shall ensure that the Board receives progress examine the effectiveness of the operations and its efficiency by reports on JM’s operations, including JM’s financial performance, checking compliance with the business-critical requirements of financial position and liquidity as well as information about the JM’s Operations system. The Internal Audit has the special task of status of major projects and other significant events. These examining the financial risks associated with larger projects. The reports shall be of such nature that the Board can make a well- Board’s assessment is that JM has a solid project and financial informed evaluation. The financial reporting that the Board recei- management, which is ensured through regular communication ves can be seen in the Board of Directors’ Report on Internal with internal and external auditors. Control over Financial Reporting. JM’s Board of Directors concludes that the internal control system functions in a satisfactory manner, that over the past INTERNAL CONTROL AND RISK MANAGEMENT three years the Board has particularly focused on these issues, The Board has ultimate responsibility for establishing an effective that in its evaluation of the reporting and control systems the internal control and risk management system. The responsibi- Board found that the level of control was further improved and lity for maintaining an efficient control environment and regular that the Board has improved tools to be able to evaluate the work with internal control and risk management is delegated to company’s risk exposure. the President. Risk management is an integrated part of deci- Thus it is the opinion of the Board of Directors that JM has sion-making at all levels within JM. For a detailed description of good internal control and in a systematic and structured manner JM’s processes for risk management please refer to Page 23 in has sought to ensure the quality of the financial reporting and the Annual Report. communication with the company’s auditors. The Governance Structure can be seen in the diagram: Also, please see the Board’s special report on internal control.

j m a n n u a l r e p o r t 2 0 0 5 36 CORPORATE GOVERNANCE REPORT

REMUNERATION TO THE BOARD OF DIRECTORS AND SENIOR EXECUTIVE MANAGEMENT MANAGEMENT JM’s business is operationally divided into five business units. Each After a proposal from the Nomination Committee, the 2005 business unit manager reports directly to the President. Executive Annual General Meeting resolved: Management (EM) comprises all heads of business units and staff • that the fee paid to the Chairman of the Board shall be heads, a total of 10 people, and meets at least once a month. SEK 500,000 and SEK 225,000 for Directors who are not Management responsibility includes always working to ensure employed by the company compliance with guidelines issued by the Board and the President. • that the fee for work in the Investment, Compensation and The organization can be seen in the diagram below. Audit Committees shall be a total of SEK 300,000 to be allocated among the members of these committees who are GOVERNANCE AND REPORT STRUCTURE not employed by the company. At JM, a large number of projects are in production at any given Salary, pension benefits and other remuneration for senior time. It is not unusual for a project to involve more than 100 people management are decided by the Board of Directors for the with an estimated order value of more than SEK 100m. Every pro- President, and by the Compensation Committee for the ject is run by a project manager who is responsible for the project’s Executive Management excluding the President. The Board shall revenues and expenses. The project manager reports to the regional decide on general remuneration policies after preparation by manager, who is directly subordinate to the business unit manager. the Compensation Committee. Information on remuneration to All these people have profit responsibility. The business unit mana- the President and Executive Management is provided in note 3. ger is responsible for deciding the revenue level in the project. About 300 of JM’s department heads and executives, including Decisions to begin work on a project are made by business the President and the Executive Management, are covered by a per- unit management or Executive Management, or by the Board for formance-based salary system. The total salary comprises a basic major projects. Follow-up of sold and reserved residential units and a variable component with a maximum result for the variable takes place on a weekly basis, with reporting to regional mana- component that, depending on position, varies between one and ger, business unit manager and the President. Complete reviews seven monthly salaries. In addition to financial result, which car- and reconciliation of each project’s revenues and expenses are ries the greatest weight, the variable salary component is based on performed every quarter. individual target fulfillment and the Customer Satisfaction Index More intense monitoring routines have been introduced (CSI). The principle is that the basic salary combined with a normal for large projects. The business unit manager and the regional result for the variable component should result in a market salary. manager present quarterly reports to the President and CFO. Assessment data include the financial history of the project, MANAGEMENT AND CORPORATE STRUCTURE future anticipated revenues and expenses and the current sales ORDER OF DELEGATION – PRESIDENT’S RIGHT OF DECISION and reservations situation. The largest projects are examined by The Board has delegated to the President the right of decision the auditors and presented in the Audit Committee. for purchases and sales of properties (to a maximum value of SEK Stockholm, 13 March, 2006 100m), investments in properties (up to SEK 400m), production Board of Directors starts of housing projects (up to a total project cost of SEK 400m excluding purchase price for the property), and the raising of new AUDITORS’ REPORT loans that are not linked to acquisition of a property (up to a total This report has not been examined by the company’s auditors. of SEK 400m per year for loans with a shorter maturity than one year, up to a total of SEK 250m per year for loans with a longer President maturity than one year). In other cases the Board decides. These Johan Skoglund amounts are chosen to meet the Board’s needs to exercise con- Legal Affairs/ trol and management’s need of freedom of action. The President Development Finance and Treasury Claes Magnus Åkesson has the right to further delegate some of the above decision rights. Urban Lilja Matters are prepared by a committee consisting of business unit Communications Business Development and regional managers, and by corporate management. For JM’s Zdravko Markovski Lennart Henriz international companies decisions are made by each company’s Human Resources Purchasing board and transferred, if so prescribed in the Order of Delegation, Helene Hasselskog Östman Sören Bergström onward to the Executive Management and the Board of Directors.

JM Residential Stockholm JM Residential Sweden JM Residential Öresund JM Residential Norway JM Production Zdravko Markovski Sten Hamberg Anders Wahrer Thor-Olaf Askjer Sören Bergström

j m a n n u a l r e p o r t 2 0 0 5 BOARD OF DIRECTORS’ REPORT ON INTERNAL CONTROL 37

Board of Directors’ Report on Internal Control

The Board of Directors’ Report on Internal Control over Financial Reporting for the 2005 Financial Year

According to the Swedish Companies Act and the Swedish Code of Corporate Governance the Board is responsible for internal control. This report has been prepared according to the Swedish Code of Corporate Governance, paragraphs 3.7.2 and 3.7.3, and is accordingly limited to internal control over financial reporting. This report is not part of the formal financial statements.

Description

Control Environment The control environment constitutes the basis of internal control over financial reporting, with organization, channels for decisions, authorities and responsibilities documented and communicated in normative documents such as internal policies, guidelines, manuals and codes; for example, the distribution of work between on the one hand the Board and on the other hand the CEO and the other bodies that the Board establishes, instructions for approval powers, as well as accounting and reporting instructions.

Risk Assessment The Company applies a method or process for risk assessment and risk management to ensure that those risks to which the company is exposed are managed within the established frames and that the risks are handled within the framework of existing processes and systems.

Control Activities The company manages identified risks relating to financial reporting through control activities documented in process and procedure descriptions. Examples of control activities in which risk assessments are managed: – The Operations system that documents the operation’s processes and established business-critical demands – Project reviews prior to acquisition, pre-construction, production, and sales – Business committee meetings and Group Executive Management meetings preparing for investments in properties and initiation of residential production projects. Heads of business units, staff heads and regional managers participate at these meetings (monthly) – Forecast reviews with business unit managers. (quarterly) – Close monitoring of large projects at which the President, Chief Financial Officer, business unit manager and regional manager participate. (quarterly) – Group management meetings in larger projects. (quarterly) – Board meetings at subsidiaries.

Information and Communications The company has implemented Information and communication channels to encourage completeness and accuracy in financial reporting; for example, by informing the involved

j m a n n u a l r e p o r t 2 0 0 5 38 BOARD OF DIRECTORS’ REPORT ON INTERNAL CONTROL

personnel that normative documents in the form of internal policies, guidelines, manuals and codes pertaining to financial reporting are available. JM’s principal normative documents are Rules of Procedure for the Board of Directors, Instructions for the Allocation of Duties between the Board and the President, Instructions for Financial Reporting and JM’s Authorization Regulations Other normative documents in the form of policies, guidelines, instructions and manuals for financial reporting are available on JM’s Intranet as well as in the operations system. The most important documents are: – Schedule and instructions for forecasts and financial statements – Financial statement and forecast processes – Project management instructions – Instructions for purchases and sales – Financial policy – Controlling within JM – Accounting principles – Procedure descriptions.

Monitoring The Board of Directors receives financial reports in conjunction with the interim reports. In addition to the outcome and forecast reports the Audit Committee receives financial audit reports for larger projects. In connection with the delegation rules the Board of Directors and Investment Committee receive regular acquisition and project estimates, summaries of planned and current projects, investments, and purchases/ sales of properties. In addition, the Board of Directors’ various committees serve an important function in follow-up of the Board’s activities. The duties of the committees are described in the Corporate Governance Report on page 34. The Company follows up and reviews internal control to ensure that it works satis- factorily, in part through JM’s external auditors, in part through the company’s central Internal Audit function, which both operate based on a plan approved by the Board’s Audit Committee. The results of the audits and proposals for any measures that need to be taken are regularly reported to the Audit Committee.

Statement Based on the results of the follow-up process described above, the Board’s Audit Committee conducts an annual evaluation of how well internal control relating to financial reporting has functioned during the financial year. The Audit Committee’s evaluation is then addressed by the Board of Directors as a whole. It is the opinion of the Board that JM has good internal control and in a systematic and structured manner has sought to ensure the quality of the financial reporting and communication with the company’s auditors. In accordance with Kollegiets statement on the Board’s reporting about internal control for 2005, this report has not been reviewed by the company’s auditors.

Stockholm, 13 March 2006

The Board of Directors

j m a n n u a l r e p o r t 2 0 0 5 JM creates personal high-quality homes for people in every phase of life. Singles or couples, FINANSIELLA RAPPORTER 39 families with children or seniors. Personalized housing creates satisfaction – people enjoy their homes and want to spend time at home.

j m årsredovisning 2 0 0 5 40 Board of directors’ report

Board of Directors’ Report

The Board of Directors and the President of JM AB (publ), Company reg.no Consolidated Income Statement 556045-2103, hereby submit the annual accounts and consolidated accounts SEKm 2005 2004 for 2005. Income 9,887 8,532 Costs for production and management -8,327 -7,347 SUMMARY OF THE GROUP Gross profit 1,560 1,185 MARKET, SALES AND HOUSING STARTS Demand for newly built homes remains favorable throughout Sweden and in JM’s international Selling and administrative expenses -576 -542 markets. Continued low interest rates contribute to this favorable development. Gains on the sale of properties 247 164 The number of residential units sold in the form of signed contracts totaled 4,240 (4,315). Impairment losses on properties - -15 Operating profit 1,231 792 The high sales in 2004 were partly attributable to a shift effect relating to residential units completed in 2003, but not sold until 2004. Financial income and The number of housing starts increased and amounted to 4,476 (3,943), including expenses -80 -145 Profit//loss before tax 1,151 647 1,937(1,706) in the Stockholm area and 1,451 (1,218) elsewhere in Sweden. Housing starts in international operations totaled 1,088 (1,019). Taxes -175 -173 Net profit for the year 976 474

INCOME, OPERATING PROFIT AND OPERATING MARGIN The Group’s income during 2005 rose 16 percent to SEK 9,887m (8,532) and operating Income by business segment profit totaled SEK 1,231m (792). The operating margin was 12.5 percent (9.3). Operating SEKm 2005 2004 profit and operating margin have improved as a result of good demand and higher prices for JM Residential Stockholm 3,816 3,438 housing, as well as the efficiency enhancements completed to date. Efficiency enhancements JM Residential Riks 3,012 2,417 JM International 2,069 1,866 have focused on restructuring planning procedures more consistently within the Group and JM Property Development 211 276 establishing strategic procurement agreements with selected providers. JM Production 1,197 931 During the period JM sold properties for SEK 1,752m (1,018) with a capital gain of SEK Elimination -418 -396 Total 9,887 8,532 247m (164). Rental income from JM’s project properties totaled SEK 192m (242), with residential properties accounting for SEK 100m (140). Net operating income totaled SEK Operating profit by business segment 73m (112). SEKm 2005 2004

INCOME JM Residential Stockholm 500 296 JM Residential Sweden 341 202 Consolidated income in 2005 totaled SEK 9,887m (8,532), an increase of 16 percent compared JM International 183 117 with the previous year. The increased income is attributable to the number of housing starts JM Property Development 212 201 JM Production 58 43 that gradually increased over the past two years, mainly within JM Residential Stockholm Group-wide expenses -63 -67 and JM Residential Sweden. Total 1,231 792 JM Residential Sweden posted the strongest improvement in income with a 25 percent

jump due to the large increase in the number of housing starts. Income for JM International Operating margin by business segment increased by 11 percent, mainly attributable to operations in Norway. % 2005 2004

JM Residential Stockholm 13.1 8.6 OPERATING PROFIT JM Residential Sweden 11.3 8.4 Group’s operating profit increased 55 percent in 2005 to SEK 1,231m (792). This result JM International 8.8 6.3 JM Production 4.8 4.6 includes gains from property sales of SEK 247m (164). The JM Residential Stockholm business segment’s operating profit increased to SEK 500m (296). Financial performance has gradually improved over the past few quarters due to the phase-out of low-profit elderly project, higher prices in the project, completed efficiency enhancements and lower infrastructure costs in larger ongoing projects. The JM Residential

j m a n n u a l r e p o r t 2 0 0 5 Board of directors’ report 41

Sweden business segment increased operating profit to SEK 341m (202). Earnings have gradually improved over the past quarters due to increased demand, higher prices for projects and completed efficiency enhancements. JM International increased its operating profit to SEK 183m (117). The improved earnings were due to positive developments, particularly in Norway and Denmark. Operating profit for the JM PropertyD evelopment business segment totaled SEK 212m (201), of which SEK 186m (154) related to gains from property sales. Property sales to tenant-owners’ associations totaled SEK 475m (492). Operating profit for the JM Production business segment increased to SEK 58m (43).

Financial income and FINANCIAL INCOME AND EXPENSES expenses Financial income and expenses totaled SEK -80m (-145), an improvement of SEK 65m com- SEKm 2005 2004 pared with the previous year. The cost of early redemption of loans totaled SEK 24m (21). Interest income 47 30 Interest expenses decreased because of lower average loans and interest rates. Interest Interest expenses -127 -175 income increased as a result of a high balance of cash and cash equivalents. Financial income and expenses -80 -145 PROFIT BEFORE TAX Profit before tax totaled SEK 1,151m (647), an increase of 78 percent compared with 2004.

NET PROFIT FOR THE YEAR Profit for the year totaled SEK 976m (474). Total tax expense amounted to SEK -175m (-173), with current tax accounting for SEK -459m (-81) and deferred tax SEK -284m (-92). The tax burden is low because of the discontinuation of commitments and reassessment of deferred tax liabilities for a net of SEK 136m, recognized as deferred tax income. In addition, a lower tax burden is reported for about SEK 15m related to property sales. A charge of SEK 18m (23) was taken against earnings for property tax, which is treated as an operating expense.

Total number of residential DEVELOPMENT OF OPERATIONS building rights BUILDING RIGHTS 2005 2004 The building rights portfolio contains about 23,200 residential units (21,900), about 15,000 JM Residential Stockholm 9,200 9,100 of which (12,800) are recognized in the balance sheet. This means that 8,200 building rights JM Residential Sweden 8,400 7,400 (9,100) are controlled by agreement and are not recognized as assets. JM also has about JM International 5,600 5,400 Total about 23,200 21,900 3,000 residential building rights that it does not intend to use over the next five to six years. Capital tied up in building rights (development properties in the balance sheet) for residential Recognized in the balance sheet (development properties) units totaled SEK 2,786m (2,783) at the end of the year. In addition, the JM Property Development business segment has about 84,000 sq.m. of build- 2005 2004 ing rights for commercial premises available, with a book value of about SEK 136m (185). JM Residential Stockholm 6,600 6,700 Valuation of JM’s total development properties with a book value of about SEK 2.9 billion JM Residential Sweden 5,000 4,200 JM International 3,400 1,900 (3.0), including commercial building rights of SEK 0.1 billion (0.2), indicates a surplus value Total about 15,000 12,800 of about SEK 1.6 billion (1.1). This valuation was carried out in cooperation with an external appraisal company. JM acquired development properties during 2005 for a total of SEK 1,337m (275). Net investments in development properties increased to SEK -40 m (-672). Consequently, holdings amount to SEK 2,925m (2,971). These holdings are essential for JM’s residential development projects.

j m a n n u a l r e p o r t 2 0 0 5 42 Board of directors’ report

PROJECT PROPERTIES Rental income from JM’s project properties totaled SEK 192m (242), with residential properties accounting for SEK 100m (140). Net operating income totaled SEK 73m (112). During 2005 JM sold properties for a total of SEK 1,752m (1,018), with capital gains of about SEK 247m (164). Property sales to tenant-owners’ associations totaled SEK 475m (492). Major property sales during the year include the newly developed commercial property Barnängen for SEK 303m, three commercial properties in Stockholm for SEK 335m, and the commercial property Västerbotten 19 on Lidingö for SEK 147m. Vacancies within JM’s housing stock are negligible. For fully developed commercial properties, vacancies amount to 67 percent, mainly attributable to the commercial property Science in Brussels. The vacancy rate for properties under development amounts to about 44 percent of the annual rent. External appraisers calculated the market value of JM’s project properties to be SEK 1,448m (2,576). The equivalent book value totaled SEK 1,183m (2,246). The excess value is therefore SEK 265m (330). A breakdown of values for each category is shown below:

Market Book Area Occupancy rate Dec. 31, 2005 value, SEKm value, SEKm (000) sq.m. annual rent, %

Residential units (tenancy rights) 859 643 77 99 Properties under development 220 191 37 44 Fully developed commercial properties 369 349 20 33 Total 1,448 1,183 134 68

Investments and acquisition of project properties totaled SEK 252m (224).

FINANCIAL ITEMS INTEREST BEARING LIABILITIES AND AVERAGE INTEREST RATES As at December 31, 2005, interest-bearing net receivables/debts amounted to SEK 1,536m (-613), which means a decrease of SEK 2,149m in 2005 attributable to improved cash flow. Total interest-bearing loans as at Dec. 31, 2005, amounted to SEK 1,120m (1,930), of which provision for pensions accounted for SEK 472m (453). On December 31, the average interest rate for loans was 4.4 percent (4.6). The average fixed-interest period for the Group’s loan stock, excluding the PRI liability, was 1.6 years (2.0).

CASH FLOW Cash flow from operating activities, including acquisition and sale of properties, was strong during the year and totaled SEK 3,368m (2,161), attributable to continued work with the balance sheet and residential project development in Sweden. Cash flow from property development (project properties) made a net contribution of about SEK 1,353m (707). Cash flow for the year totaled SEK 1,349m (953).D issolution of the Group’s SEK 1.0 billion-tax allocation reserve in Sweden in 2005 will result in a tax payment of SEK 0.3 billion in February 2006.

LIQUIDITY The Group’s available liquidity totaled SEK 5,059m (4,102). In addition to cash and cash equivalents of SEK 2,634m (1,285), this amount includes unutilized overdraft facilities and credit lines totaling SEK 2,425m (2,817).

j m a n n u a l r e p o r t 2 0 0 5 Board of directors’ report 43

OTHER SHAREHOLDERS’ EQUITY AND EQUITY RATIO Consolidated shareholders’ equity as at December 31, 2005, totaled SEK 3,311m (3,465). Share capital totaled SEK 99m (112), other paid-up capital SEK 750m (750), and reserves SEK 8m (-24). Undistributed earnings totaled SEK 2,454 m (2,627), including profit for the year of SEK 976m (474). In 2005, a capital transfer to shareholders was made through a redemption of shares for SEK 966m and a regular dividend of SEK 196m. The equity ratio was 41 percent (42).

PERSONNEL The number of employees increased during 2005 by 6 percent, ending the year at 2,283 (2,155). The number of wage earners was 1,209 (1,130) and the number of salaried employees 1,074 (1,025). The average number of employees during the year totaled 2,249 (2,286), of whom 272 (267) were employed abroad. Salaries, wages, and social security expenses totaled SEK 1,246m (1,177), of which social security expenses accounted for SEK 393m (370).

THE WORK OF THE BOARD DURING 2005 At the Annual General Meeting held on April 28, 2005, eight ordinary members were elected, along with two employee representatives with two deputies appointed by the trade unions. In May 2005 one of the directors elected at the AGM resigned. The Board held ten meetings during 2005. The Board continued to focus on internal efficiency and strategy issues in 2005, including both group-wide preconstruction procedures and strategic purchasing agreements. The Directors’ attendance records can be seen in the presentation on page 33 in the annual report. The duties of the Chairman of the Board are assessed as amounting to approximately 50 working days per year and for external Board members to approximately 20 working days per year. The Chairman of the Board evaluates the work of the Board annually with members and reports the results to the Nomination Committee. A description of committees and directors can be seen on pages 34-35 in the annual report.

DIVIDEND, REDEMPTION PROGRAM, AND SHARE SPLIT The strong balance sheet, good cash flow and implemented sales of residential and commercial properties will allow a large capital transfer to shareholders in addition to the regular dividend. For 2005 the Board of Directors proposes a dividend of SEK 10 (7) per share, for a total of SEK 247m. In addition the Board proposes a redemption program for about SEK 1.0 billion. These proposals entail a total transfer of about SEK 1.2 billion to shareholders during 2006, or the equivalent of about SEK 50 per existing share. The Board’s complete proposal pertaining to the redemption program will be available in the middle of April. The redemption program is expected to be completed around early July 2006. The proposed record date for the dividend is Wednesday, May 3, 2006. Provided the Annual General Meeting decides in favor of the proposal, dividends are expected to be paid by VPC on Monday May 8, 2006. Taking into account the price development of the JM share, the Board decided to propose a 4:1 share split to the Annual General Meeting, to be implemented in mid-June.

j m a n n u a l r e p o r t 2 0 0 5 44 Board of directors’ report

PROFITABILITY TARGET Considering the fact that the relative significance of the recorded balance sheet for earnings has decreased, in the future return on capital is less appropriate as a profitability target. Consequently, in the future JM will only use the existing operating margin target of 10 percent and will thereby drop the target of a 10-15 percent return on booked equity.

PARENT COMPANY The Parent Company’s core business is project development of residential and commercial properties. Net sales in 2005 for the Parent Company totaled SEK 6,953m (6,134). The Parent Company’s profit before appropriations and tax totaled SEK 1,072m (123). Investments in project properties totaled SEK 192m (112). The average number of employees was 1,467 (1,488), including 1,207 men (1,234) and 260 women (254). Wages, salaries and social security expenses totaled SEK 829m (832). An account of the number of employees and salaries and remuneration is provided in the notes to the financial statements.

j m a n n u a l r e p o r t 2 0 0 5 CONSOLIDATED INCOME STATEMENT 45

Consolidated income statement

SEKm Note 2005 2004 1 Income 2 9,887 8,532 Costs for production and management 3, 4 -8,327 -7,347 Gross profit 1,560 1,185

Selling and administrative expenses 3, 4, 5 -576 -542 Gains on the sale of properties 6 247 164 Impairment losses on properties 7 - -15 Operating profit 1,231 792

Financial income 8 47 30 Financial expenses 8 -127 -175 Profit before tax 1,151 647

Taxes 10 -175 -173 Net profit for the year 976 474

Attributable to: Shareholders of the Parent Company 976 474

Earnings per share before and after dilution (SEK) attributable to shareholders of the Parent Company 11 37.00 16.90

Proposed dividend per share (SEK) 11 10.00 7.00

Income by business COMMENTS segment

INCOME SEK +1,355m GAINS ON THE SALE OF SEK +83m (2005: SEK 9,887m, 2004: SEK 8,532m) PROPERTIES Income consist mainly of recognized revenue in projects. (2005: SEK 247m, 2004: SEK 164m) Recognized revenue is reported according to the percent- In 2005 JM sold properties for a total of SEK 1,752m (1,018), age of completion method, which means that revenues are with capital gains of about SEK 247m (164). Most of the sales recognized period by period as the projects are completed took place during the last quarter of the year, when properties and sold. for SEK 1,213m were sold. Sales to tenant-owners’ associa- Income increased a total of 16 percent, with JM Residential tions accounted for SEK 475m of total sales. JM Residential Stockholm 37% (39) Sweden reporting the biggest increase, 25 percent, for an JM Residential Sweden 29% (27) improvement of SEK 595m. Income increased 11 percent for FINANCIAL INCOME SEK +65m JM International 20% (21) both JM Residential Stockholm and JM International. AND EXPENSES JM Property Development 2% (3) The increased income can be attributed to a gradual (2005: SEK -80m, 2004: SEK -145m) JM Production 12% (10) increase in the number of housing starts over the past Financial income and expenses decreased SEK 65m compared two years. In 2005 JM had 553 more housing starts than with 2004. Costs for early redemption of loans totaled SEK in 2004. 24m. Interest income increased as a result of a high balance of cash and cash equivalents and interest expenses decreased GROSS PROFIT SEK +375m because of lower average loans and interest rates. (2005: SEK 1,560m, 2004: SEK 1,185m) In all, gross profit increased 32 percent to SEK 1,560m. JM TAXES SEK -2m Residential Stockholm contributed an increase of SEK 178m, (2005: SEK –175m, 2004: SEK -173m) JM Residential Sweden SEK 130m, and JM International The recognized tax expense, 15 percent of earnings before SEK 73m. tax, is less than the nominal tax of 28 percent. The tax burden Gross profit has improved substantially because of the is low because of the discontinuation of commitments and completion of all of the older projects that had a low profit reassesment of deferred tax liabilities for a net of SEK 136m, level, implementation of efficiency enhancements, good recognized as deferred tax income. In addition, a lower tax demand and rising housing prices. burden is reported for about SEK 15 m related to property sales.

j m a n n u a l r e p o r t 2 0 0 5 46 Consolidated balance sheet

Consolidated balance sheet

SEKm Note 2005-12-31 2004-12-31 1 Consolidated assets Assets 2

Fixed assets Goodwill 12 59 55 Plant, property and equipment 13 40 45 Participations in associates 14, 16 5 6 Other interest-bearing financial assets 14 22 32 Other financial assets 14 8 17 Deferred tax receivable 18 - 2 Development properties 36% (36) Total fixed assets 134 157 Cash and cash equivalents 32% (16) Current assets Other current assets 16% (19) Project properties 19 1,183 2,246 Project properties 14% (27) Development properties 19 2,925 2,971 Fixed assets 2% (2) Participations in tenant-owner co-operatives, etc. 20 38 243 Accounts receivable, trade 392 389 Other current receivables 21 126 241 Prepaid expenses and accrued income 17 22 Consolidated capital structure Recognized revenue less progress billings 22 706 698 Cash and cash equivalents 23 2,634 1,285

Total current assets 8,021 8,095

TOTAL ASSETS 8,155 8,252

EQUITY AND LIABILITIES 2 Other liabilities Equity attributable to shareholders of the parent company * and provisions 46% (35) Share capital 99 112 Shareholders’ equity 40% (42) Other paid-up capital 750 750 Interest-bearing liabilities 8% (18) Reserves 8 -24 Provisions for interest- Undistributed earnings 2,454 2,627 bearing pensions 6% (5) Total shareholders’ equity 3,311 3,465

Liabilities Long-term liabilities Long-term interest-bearing liabilities 27, 28 626 1,169 Provisions for interest-bearing pensions 25 460 449 Other long-term provisions 26 131 84 Deferred tax liabilities 18 259 495 Total long-term liabilities 1,476 2,197

Current liabilities Accounts payable, trade 574 464 Current interest-bearing liabilities 27 22 308 Other current liabilities 428 155 Derivative instruments 28 17 43 Current tax liabilities, payable 436 143 Progress billings in excess of recognized revenue 29 1,179 804 Accrued expenses and deferred income 30 649 612 Current interest-bearing provisions 25, 26 12 4 Other current provisions 25, 26 51 57 Total current liabilities 3,368 2,590

Total liabilities 4,844 4,787

TOTAL EQUITY AND LIABILITIES 8,155 8,252

Pledged assets and contingent liabilities 31

* See the section Changes in consolidated equity.

j m a n n u a l r e p o r t 2 0 0 5 Consolidated balance sheet 47

COMMENTS Asset turnover rate and interest coverage ratio 1) times times PROJECT PROPERTY SEK -1,063m OTHER NONCURRENT (2005: SEK 1,183m, 2004: SEK 2,246m) PROVISIONS SEK +47m 1.5 12 The project property portfolio decreased by 47 percent and (2005: SEK 131m, 2004: SEK 84m) 10 the majority of properties were sold during the year. During Other noncurrent provisions mainly consist of the majority 1.2 8 the year JM sold project properties for a book value of SEK of product warranty provisions. Product warranty provi- 6 1,360m, including SEK 1,037m during the fourth quarter. sions increased during the year mainly because several large times times 0.9 4 The commercial properties Barnängen and Västerbotten projects were finished and product warranty provisions were 1.5 12 19 are examples of larger property sales during the fourth therefore recognized. Residential projects in Täby, Järfälla and 2 10 quarter of 2005. Älvsjö are examples of larger projects that were finished 0 0.61.2 8 during the year in the Stockholm region. 2001 2002 2003 2004 2005 DEVELOPMENT PROPERTIES SEK - 46m 6 Asset turnover rate (2005: SEK 2,925 m, 2004: SEK 2,971m) DEFERRED TAX LIABILITIES SEK -236m 0.9 4 Development properties decreased 2 percent during the (2005: SEK 259m, 2004: SEK 495m) Interest coverage ratio year, compared with a decrease of 18 percent last year. The Deferred tax liabilities decreased primarily through the 2 turnover rate in development properties increased during discontinued commitments and a revaluation of deferred 0.6 0 the year because of the higher rate of acquisitions and more tax liabilities. Deferred tax liabilities also decreased due to SEKm 2001 2002 2003 2004 2005 times housing starts. the Group’s dissolution of all tax allocation reserves, for a 6,000 Asset turnover rate 6 The number of building rights in the balance sheet total of SEK 1 billion. 5,000 Interest coverage ratio 5 increased by about 2,000, from 13,000 to 15,000. Building Interest-bearing net debt/receivable and debt/equity ratio 1) rights in the balance sheet from JM International in particular CURRENT INTEREST- 4,000 4 increased the equivalent of SEK 238m, while JM Residential BEARING LIABILITIES SEK -286m 3,000SEKm 3times Stockholm continues to reduce its tied up capital in develop- (2005: SEK 22m, 2004: SEK 308m) ment properties by SEK 365m. Current interest-bearing liabilities decreased SEK 286m, as 2,0006,000 26 the strong cash flow made it possible to pay off a consider- 1,0005,000 15 PARTICIPATIONS IN TENANT- able amount of debt. OWNER CO-OPERATIVES, ETC. SEK -205m 4,0000 04 (2005: SEK 38m, 2004: SEK 243m) OTHER CURRENT RECEIVABLES SEK -273m -1,0003,000 -13 Unsold tenant-owned units are purchased by the settlement (2005: SEK 428m, 2004: SEK 155m) 2,000 2 day at the latest. Such purchases are due to the commitment Other current liabilities increased during the year, mainly -2,000 -2 2001 2002 2003 2004 2005 in the construction contract with each tenant-owner coop- because payment was deferred on acquired properties. 1,000 1 erative. JM Residential Stockholm’s holdings in particular 0 Interest-bearing net debt/receivable0 decreased during the year by a total of SEK 180m. PROGRESS BILLINGS IN EXCESS Debt/equity ratio, times OF RECOGNIZED REVENUE SEK +375m -1,000 -1 OTHER CURRENT RECEIVABLES SEK -115m (2005: SEK 1, 179m, 2004: SEK 804m) -2,000 -2 (2005: SEK 126m, 2004: SEK 241m) Progress billings in excess of recognized revenue have 2001 2002 2003 2004 2005 Other current receivables will be reduced by SEK 115m, increased during the year because the higher number of mainly because of a decrease in receivables from prop- housing starts resulted in higher accumulated billing on Interest-bearing net debt/receivable erty sales and receivables for shares sold in tenant-owner account for work in progress. Debt/equity ratio, times cooperatives. 1) The 2003 financial year and earlier are not restated CASH AND CASH according to IFRS. EQUIVALENTS SEK +1,349m (2005: SEK 2,634m, 2004: SEK 1,285m) Cash and cash equivalents increased considerably for the second year running, mainly due to strong cash flows from property sales and current operations.

j m a n n u a l r e p o r t 2 0 0 5 48 CONSOLIDATED CASH FLOW STATEMENT

Consolidated cash flow statement

SEKm Note 2005 2004 1 OPERATING ACTIVITIES Operating profit before financial items 1,231 792 Depreciation, amortization, and impairment losses 20 39 Adjustment for non-cash items 32 -205 -189 Sub-total, cash flow from operating activities 1,046 642

Interest received 31 29 Dividends received 1 1 Interest paid and other financial expenses -105 -170 Taxes paid -97 -69 Cash flow from operating activities before change in working capital 876 433

Investments in development properties, etc. 33 -1,188 -1,056 Payment on account for development properties, etc. 34 1,770 2,059

Increase/decrease accounts receivable -24 -47 Increase/decrease in other current receivables, etc. 41 283 Increase/decrease accounts payable 111 -54 Increase/ decrease other current operating liabilities 429 -164 Cash flow before investments and sales of project properties 2,015 1,454

Investments in project properties, etc. 35 -250 -224 Sale of project properties etc. 36 1,603 931 Cash flow from operating activities 3,368 2,161

INVESTING ACTIVITIES, OTHER Investments in plant, property, and equipment -14 -18 Plant, property, and equipment sold 1 7 Change in financial assets 19 0 Cash flow from investing activities, other 6 -11

FINANCING ACTIVITIES Loans raised 105 213 Amortization of loans -968 -1,270 Redemption of own shares -966 - Dividends -196 -140 Cash flow from financing activities -2,025 -1,197

Cash flow for the year 1,349 953

Cash and cash equivalents, January 1 1,285 332 Cash and cash equivalents, December 31 2,634 1,285

INTEREST-BEARING NET RECEIVABLES/ DEBT 27 Interest bearing liabilities and provisions -1,120 -1,930 Cash and cash equivalents 2,634 1,285 Interest-bearing receivables 22 32 Interest-bearing net receivables (+)/-debt (-), December 31 1,536 -613

j m a n n u a l r e p o r t 2 0 0 5 CONSOLIDATED CASH FLOW STATEMENT 49

COMMENTS

OPERATING ACTIVITIES SEK +1,207m QUARTERLY COMMENTS 2005 (2005: SEK 3,368m, 2004: SEK 2,161m) During the year cash flows for each quarter fluctuated sub- Cash flow from operating activities improved to SEK 3,368m stantially, which is natural in a project development company. (2,161), mainly due to property sales and limited investments Project starts and property sales can take place irregularly in development properties, combined with strong cash flow over time. During the quarters JM sold property portfolios for from present projects and the large number of housing starts later payment. The net effect, sales proceeds minus receivables, on all markets within the Group. affected cash flow by approximately SEK 248m, 32m, 40m, and 1,283m for Q1–Q4 2005. Cash flow was affected by the Cash Flow From redemption of shares for SEK 966m and a dividend of SEK Operating Activities SEK +404m 196m in the second quarter. (2005: SEK 1,046m, 2004: SEK 642m) Operations, before interest and tax, contributed SEK 1,046 SEK m (642). This is an improvement of SEK 404m after adjustment for gains on property sales of SEK 247m, reported under sales for each type of property, and elimination of non-cash items. Cash flow from operations improved due to the increased number of project starts combined with higher margins.

Cash flow from operating activities before change in working capital SEK +443m (2005: SEK 876m, 2004: SEK 433m) Net interest received and paid decreased from SEK -140m in 2004 to SEK -73m in 2005 due to reduced borrowings in 2005 as well as lower average interest on loans. Paid tax increased from SEK -69m 2004 to SEK -97m 2005 attributable to improved profit after financial items.

Net development properties, etc. SEK -421m (including participations in tenant-owner co-operatives) (2005: SEK 582m, 2004: SEK 1,003m) JM invested in new development properties for SEK 1,337m (275). At the same time, SEK 1,232m (892) went into production in conjunction with project starts. During the year the Group reduced its holdings of participations in tenant-owner co-operatives with a positive net flow of SEK 243m (372).

Current receivables and liabilities SEK +539m (2005: SEK 557m, 2004: SEK 18m) Change in current receivables and liabilities in total had a positive effect on cash flow of SEK 557m (18) during the year.

Net project properties SEK +646m (2005: SEK 1,353 m, 2004: SEK 707m) Both sales and to a limited extent investments in project properties increased compared with the previous year, which meant that the net contribution to cash flow rose SEK 646m.

FINANCING ACTIVITIES SEK -828m (2005: SEK -2,025m, 2004: SEK -1,197m) In 2005, JM redeemed shares totaling SEK 966m. Cash flow from operating activities was also used for shareholder dividends, SEK -196m (140) and net amortization of loans SEK -863m (-1,057).

j m a n n u a l r e p o r t 2 0 0 5 50 CONSOLIDATED CHANGES IN SHAREHOLDERS’ EQUITY

Changes in consolidated shareholders’ equity

Attributable to shareholders of the Parent Company Share Other Retained Total share- SEKm capital paid-up capital Reserves earnings holders’ equity Opening balance January 1, 2004 112 750 -22 2,293 3,133 Translation difference - - -2 - -2 Net sum of all entries charged or credited directly to equity - - -2 - -2 Net profit for the year - - - 474 474 Total income and expenses for the year - - -2 474 472

Dividend to the Parent Company’s shareholders - - - -140 -140 Closing balance December 31, 2004 112 750 -24 2,627 3,465

Opening balance January 1, 2005 112 750 -24 2,627 3,465 Effect of IFRS adjustments, IAS39 - - -31 - -31 Adjusted opening balance 112 750 -55 2,627 3,434 Cash flow hedges - - 21 - 21 Translation difference - - 42 - 42 Net sum of all entries charged or credited directly to equity - - 63 - 63 Net profit for the year - - - 976 976 Total income and expenses for the year - - 63 976 1,039

Redemption of shares -13 - - -953 -966 Dividend to the Parent Company’s shareholders - - - -196 -196 Closing balance December 31, 2005 99 750 8 2,454 3,311

COMMENTS

Consolidated equity in the balance sheet is reported divided Statement. into share capital, other paid-up capital, reserves and retained During the second quarter of 2005 JM carried out a earnings. redemption program of its own shares. According to the offer, Share capital includes the registered share capital for the every eighth share could be redeemed for a cash payment Parent Company. Other paid-up capital includes transactions of SEK 285. A total of 3,389,027 shares were redeemed and with shareholders. Those transactions that have occurred a total of SEK 966m was transferred to the shareholders at are new issues at a premium and correspond with capital the end of the second quarter. After the redemption JM’s received in addition to the nominal amount. Reserves include share capital amounted to SEK 98.7m (112.2) represented those revenues and expenses that are recognized directly in by 24,676,380 shares (28,065,407). equity. They consist of translation differences attributable The dividend to shareholders of the Parent Company to translation of foreign subsidiaries according to IAS 21 and totaled SEK 196m (140), corresponding with SEK 7.00 (5.00) cash flow hedge reserve attributable to cash flow hedges per share. reported in accordance with IAS 39 (beginning on Jan. 1, The effect of this changed accounting policy as at January 2005). Retained earnings (profit carried forward) including 1, 2005, means that the fair value, excluding the tax portion profit for the year corresponds with the accumulated total for cash flow hedge reserve, amounts to SEK 31m. This gains and losses generated for the Group. amount was recognized as a decrease of the opening balance of shareholders’ equity. Impairment losses for the year and SHAREHOLDERS’ EQUITY SEK -154m dissolution of cash flow hedge reserve had a positive effect (2005: SEK 3,311m, 2004: SEK 3,465m) on consolidated equity of SEK 21m, which means a closing Shareholder’s equity decreased somewhat compared with the balance of SEK -10m in shareholders’ equity. end of 2004. Consolidated equity as at December 31, 2005, The weakening of the Swedish krona against the Norwegian totaled SEK 3,311m (3,465), which corresponds with SEK 134 krone is the primary reason for the increase in translation (123) per share. Return on equity is 28.8 percent (14.4). differences. Change for the year amounts to SEK +42m (-2) Profit for the year improved substantially and totaled and the accumulated translation difference in equity is SEK SEK 976m (474); see notes to the Consolidated Income 18m (-24).

j m a n n u a l r e p o r t 2 0 0 5 PARENT COMPANY’S INCOME STATEMENT 51

Changes Parent company’s in consolidated shareholders’ equity income statement

SEKm Note 2005 2004 1 Net sales 6,953 6,134 Production costs and operating expenses 3, 4 -5,840 -5,251 Gross profit 1,113 883

Selling and administrative expenses 3, 4, 5 -392 -390 Gains on the sale of properties 6 133 98 Impairment losses on properties 7 - -15 Operating profit 854 576

Result from financial items 8 Result from group companies 301 -252 Result from other financial fixed assets 17 35 Result from financial current assets 57 48 Interest expenses and similar profit/loss items -157 -284 Profit before appropriations and tax 1,072 123

Appropriations 9 943 12 Profit before tax 2,015 135

Taxes 10 -375 -20 Net profit for the year 1,640 115

j m a n n u a l r e p o r t 2 0 0 5 52 PARENT COMPANY’S BALANCE SHEET

Parent company’s balance sheet

SEKm Note Dec. 31, 2005 Dec. 31, 2004 1 ASSETS

Fixed assets Plant, property, and equipment Machinery and equipment 13 9 14

Financial fixed assets 14 Participations in Group companies 15 917 1,696 Long-term interest-bearing receivables in Group companies 404 614 Participations in associates 16 10 10 Long-term receivables at associated companies 43 43 Other securities held as fixed assets 17 0 2 Other long-term interest-bearing receivables 8 19 Other long-term receivables 6 14 Deferred tax receivables 18 25 23 1,413 2,421

Total fixed assets 1,422 2,435

Current assets Project properties 19 247 828 Development properties 19 1,894 2,161 Participations in tenant-owner co-operatives, etc. 20 26 221

Current receivables Accounts receivable 117 198 Other current receivables 21 44 119 Current interest-bearing receivables in Group companies 891 557 Recognized revenue less progress billings 22 333 468 Prepaid expenses and accrued income 13 11 1,398 1,353

Cash and cash equivalents 23 2,427 1,196

Total current assets 5,992 5,759

TOTAL ASSETS 7,414 8,194

j m a n n u a l r e p o r t 2 0 0 5 PARENT COMPANY’S BALANCE SHEET 53

SEKm Note Dec. 31, 2005 Dec. 31, 2004 1 EQUITY & LIABILITIES

Shareholders’ equity* Share capital 99 112 Statutory reserve 754 687 Premium reserve - 67 Restricted shareholders’ equity 853 866

Profit carried forward 282 1,068 Net profit for the year 1,640 115 Non-restricted equity 1,922 1,183

Total shareholders’ equity 2,775 2,049

Untaxed reserves 24 - 766

Provisions Provisions for pensions and similar obligations 25 468 448 Other provisions 26 128 94 596 542

Liabilities Long-term liabilities Long-term interest bearing liabilities 27, 28 388 1,125 Other long-term liabilities - 1 388 1,126

Current liabilities Accounts payable 297 276 Current interest bearing liabilities 27, 28 22 50 Current tax liabilities 407 12 Other current liabilities 225 108 Current interest-bearing liabilities to Group companies 27 1,336 2,174 Progress billings in excess of recognized revenue 29 924 639 Accrued expenses and deferred income 30 444 452 3,655 3,711

Total liabilities 4,043 4,837

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 7,414 8,194

Pledged assets 31 100 100 Contingent liabilities 31 5,370 5,378

* See the section Changes in the parent company’s shareholders’ equity.

j m a n n u a l r e p o r t 2 0 0 5 54 PARENT COMPANY’s CASH FLOW STATEMENT

Parent company’s cash flow statement

SEKm Note 2005 2004 1 Operating activities Operating profit before financial items 854 576 Depreciation, amortization, and impairment losses 9 30 Adjustment for non-cash items 32 -100 -118 Sub-total, cash flow from operating activities 763 488

Interest received 62 82 Dividends received 719 102 Interest paid and other financial expenses -136 -276 Taxes paid 53 -30 Cash flow from operating activities before change in working capital 1,461 366

Investments in development properties, etc. 33 -777 -845 Payment on account for development properties, etc. 34 1,399 1,637

Increase/decrease accounts receivable 81 26 Increase/decrease in other current receivables, etc. -243 70 Increase/decrease accounts payable 21 -123 Increase/ decrease other current operating liabilities 234 217 Cash flow before investments and sales of project properties 2,176 1,348

Investments in project properties, etc. 35 -192 -112 Sale of project properties etc. 36 938 415 Cash flow from operating activities 2,922 1,651

INVESTING ACTIVITIES, OTHER 37 Investments in plant, property, and equipment -5 -5 Plant, property, and equipment sold 0 2 Investment in Group companies -104 -100 Change in financial assets 252 567 Cash flow from investing activities, other 143 464

FINANCING ACTIVITIES Loans raised 50 150 Amortization of loans -833 -1,226 Group contributions received 111 52 Redemption of own shares -966 - Dividends paid -196 -140 Cash flow from financing activities -1,834 -1,164

Cash flow for the year 1,231 951

Cash and cash equivalents, January 1 1,196 245 Cash and cash equivalents, December 31 2,427 1,196

INTEREST-BEARING NET RECEIVABLES/DEBT Interest bearing liabilities and provisions -2,214 -3,797 Cash and cash equivalents 2,427 1,196 Interest-bearing receivables 1,303 1,190 Interest-bearing net receivables (+)/-debt (-), December 31 1,516 -1,411

j m a n n u a l r e p o r t 2 0 0 5 PARENT COMPANY’S CHANGES IN shareholders’EQUITY 55

Changes in parent company’s shareholders’equity

Share Statutory Premium Profit carried Total share- SEKm capital reserve reserve forward holders’ equity Opening balance January 1, 2004 112 687 67 1,308 2,174 Effect of changed accounting principle, IAS 11 - - - -151 -151 Adjusted opening balance 112 687 67 1,157 2,023

Group contributions received - - - 71 71 Tax effect of Group contributions received - - - -20 -20 Dividends - - - -140 -140 Net profit for the year - - - 115 115 Closing balance December 31, 2004 112 687 67 1,183 2,049

Opening balance January 1, 2005 112 687 67 1,183 2,049 Effect of changed accounting principle, IAS 39 - - - -28 -28 Adjusted opening balance 112 687 67 1,155 2,021 Transfer to statutory reserve - 67 -67 - - Group contributions paid - - - -17 -17 Tax effect of Group contributions paid - - - 5 5 Group contributions received - - - 171 171 Tax effect of Group contributions received - - - -48 -48 Cash flow hedges - - - 18 18 Merger of group companies - - - 147 147 Redemption of shares -13 - - -953 -966 Dividends - - - -196 -196 Net profit for the year - - - 1,640 1, 640 Closing balance December 31, 2005 99 754 - 1,922 2,775

Number of shares (1 vote/share) as at December 31, 2005 amounts to 24,676,380. Par value per share is SEK 4.

Proposed dividend for 2005 is SEK 10 per share (7).

j m a n n u a l r e p o r t 2 0 0 5 56 NOTES

NOTE 1 – ACCOUNTING AND VALUATION PRINCIPLES Amounts in SEKm unless otherwise stated.

Company Information amounts of assets and liabilities and the reported amounts of These annual accounts and consolidated accounts for JM AB revenue and expenses, as well as other information disclosed. have been approved by the Board and the President on March Actual results could differ from those estimates, which can be 13 and will be presented for adoption at the 2006 Annual seen in particular in the field of revenue and income recognition General Meeting. JM AB (publ) has its registered office in relating to the percentage of completion method in residential Stockholm and is a Swedish public limited company listed on projects, where reported profits and financial position for each the Stockholm Stock Exchange A-list. period are based to some extent on these evaluations and assumptions. Changed Accounting Principles The consolidated accounts for the year 2005 are the first to Current and Noncurrent Liabilities, Current and have been prepared with full implementation of the IFRS. IFRS Noncurrent Assets (classification) 1 (First-time Adoption of IFRS) states a set of transition rules Liabilities and provisions in the balance sheet are reported as for first time adopters. According to the main rule, standards in current or noncurrent. Current liabilities are debts that are effect on December 31, 2005 shall have retrospective applica- expected to be settled within twelve months of the balance tion. There are certain exceptions to this main rule. Differences sheet date; the same applies to the breakdown between current between IFRS and previously applied accounting principles and noncurrent assets. are presented on page 79 of the annual accounts, including a detailed analysis of the effects on opening equity as of January Business Combinations 1, 2004 and on comparative figures for the income statement IFRS 3 applies to acquisitions implemented beginning on January and balance sheet for 2004. Exceptions from the main rule for 1, 2004, that are in compliance with IFRS 1 and therefore an retroactive application that have been used are as follows: exception to the main rule for retroactive application of IFRS. – Employee benefits/ pensions. Please see the Employee According to IFRS 3, the fair value of identifiable assets and Benefits section. liabilities in the acquired business is established at the time – Business combinations/goodwill. Please see the Business of acquisition. These fair values also include the percentage Combinations section. of assets and liabilities that are attributable to any remaining minority shareholders in the acquired business. Identifiable Statement of Compliance with Applicable Rules assets and liabilities also include assets, liabilities and provi- The consolidated accounts have been prepared in accordance sions, including commitments and claims from outside parties, with International Financial Reporting Standards – IFRS. Since which are not recognized on the balance sheet of the acquired the Parent Company is an enterprise within the EU, only EU- business. The difference between the acquisition value of the approved IFRS will be applied. acquisition and the acquired share of net assets in the acquired Moreover, the consolidated accounts are prepared in com- business is classified as goodwill and recognized as an intangible pliance with Swedish law through the application of Swedish asset in the balance sheet. Financial Accounting Standards Council recommendation RR 30 The useful life of each intangible asset is set and written off (Supplementary Accounting Regulations for Groups). over the useful life of the asset. If the useful life of the asset is The Parent Company’s annual accounts have been prepared assessed to be indeterminate it is not amortized An assessment in compliance with Swedish law and with application of the that concludes that an intangible asset has an indeterminate Swedish Financial Accounting Standards Council’s recommenda- useful life considers all relevant conditions and is based on the tion RR 32 (Reporting for Legal Entities). This means that IFRS fact that there is no predictable maximum time limit for the valuation and disclosure rules are applied with those deviations net cash flow that the asset generates. Goodwill is generally that can be seen in the section about the Parent Company’s assumed to have an indeterminate useful life. accounting policies. Associated Companies Basis for preparation of the accounts Companies in which the Group has a significant influence, which The consolidated accounts are based on historical acquisition is assumed when the holding amounts to at least 20% and not values, with the exception of financial derivatives. Unless stated more than 50% of the voting rights, are reported as associates. otherwise, all amounts are specified in millions of Swedish This also assumes that ownership is part of a lasting connec- kronor (SEK m). tion and that the holding is not a joint venture. Associates are included in the consolidated accounts according to the equity Basis for Consolidation method. JM’s holding of associates is negligible. The consolidated accounts include the Parent Company and its subsidiaries. The financial statements for the ParentC ompany Joint Ventures and the subsidiaries that are included in the consolidated Companies that are not subsidiaries and which conduct opera- accounts relate to the same period and have been prepared tions in consortium-like forms, i.e. with joint ownership and according to the accounting policies that apply for the Group. control and operations for a limited period, are consolidated A subsidiary is included in the consolidated financial state- according to the proportional method. JM’s joint ventures are ments from the date on which the Parent Company acquires a limited in scope. controlling influence over the company, and is included until the date on which the Parent Company’s controlling influence in Receivables and Liabilities in Foreign Currencies the company ceases. Exchange rate differences are reported in the income state- Internal balances and profits and losses from internal trans- ment. Monetary receivables and liabilities in foreign currencies actions are eliminated. are valued at the exchange rate applying on the balance sheet date. Transactions in foreign currencies are reported at the Accounting Estimates conversion rate on the transaction date. The preparation of financial statements requires management to make estimates and assumptions that affect the reported

j m a n n u a l r e p o r t 2 0 0 5 NOTES 57

Translation of Foreign Operations Revenue recognition according to the percentage of comple- All foreign group companies conduct their business activities tion method is carried out already at the preliminary stage of in the local currency of the respective country. Balance sheets the project and continues according to the same principle until and income statements are translated according to the current the project is completed. method, whereby all assets, provisions, and other liabilities are The percentage of completion method is also applied in the translated at the closing day rate and all items in the income Parent Company. statement are translated at the average rate during the year. Most of JM’s operations pertain to housing projects con- Translation differences thus arising are transferred directly ducted by JM for subsequent sale. These operations consist of to consolidated equity, as are any translation differences in projects on JM’s own land for production of housing for sale as those financial instrument held to hedge these net assets. tenant-owned/freehold apartments or tracts of single-family In the event of a sale of a foreign business, the accumulated homes for sale directly to consumers. translation difference is recognized in the income statement. In residential project development the development property is normally owned by JM at the start of the project. Segment Reporting When production starts the property is transferred by For the purpose of reporting according to IAS 14, Segment carrying amount to the project and included in the project’s Reporting business segments and geographical segments, the other production costs. Interest expenses are included among Group’s operations have been divided into a primary segment production costs from the start of production. comprising the geographical areas Sweden and International. The Swedish operations are also divided into four business Income Tax segments, JM Residential Stockholm, JM Residential Sweden The Tax item in the income statement includes current and (rest of Sweden), JM Property Development and JM Production, deferred income tax for Swedish and foreign group units. The which are reported separately within the Sweden segment. JM’s companies in the Group are liable for tax according to existing secondary segment comprises project development. Since there legislation in each country. The state income tax rate in Sweden is only one secondary segment, information is provided in the was 28% during the year. The tax is calculated on nominal income statements, balance sheets and cash flow statements. book profit with an addition for non-deductible items and a The classification into segments described above is consistent deduction for non-taxable income and other deductions. The with internal control and governance at the JM Group. balance sheet method is applied to accounting for income taxes. According to this method deferred tax liabilities and assets Revenues are reported for temporary differences between carrying Sales of project properties and development properties that are amounts and fiscal values respectively for assets and liabilities not the object of project development are usually recognized and for other fiscal deductions or deficits.D eferred tax assets as revenue in the period during which the parties entered into are recognized net against deferred tax liabilities if they can a binding sale agreement. Gains from land sales in conjunc- be used against deferred tax liabilities. Deferred tax liabilities tion with residential development projects are included in the and tax assets are calculated on the basis of the anticipated tax reporting for the entire residential project. rate when the temporary difference is canceled. The effects JM’s business activities relating to residential development of changes in applicable tax rates are taken against income in projects and contracting operations are reported according to the period the change becomes law. Deferred tax assets are IAS 11 Construction Contracts. reduced to the extent the company cannot stipulate that it is probable that the underlying tax asset can be realized within the Construction Contract (Percentage of foreseeable future. Completion Method) Project revenues relating to contracting and residential Intangible Assets (goodwill) development projects are reported in compliance with IAS 11 The need for impairment is tested at least annually for intangi- Construction Contracts. The Swedish Construction Federation ble assets, including goodwill, with an indeterminate useful life. Industry recommendation relating to the percentage of Goodwill is tested for an impairment loss as described completion method for residential projects for sale applies in below. this case. This recommendation, which is a clarification of IAS Goodwill value, which is established at the time of acquisi- 11, prescribes revenue recognition that is calculated as stage of tion, is allocated among cash-generating units, or groups of completion multiplied by sales rate. cash-generating units. Each such cash flow to which goodwill is This means that a stage of completion of 50 percent and allocated corresponds with the lowest level within the Group at a sales rate of 50 percent is recognized as 25 percent of the which goodwill is monitored in the company’s governance and forecast final gains in the project. is not a larger part of the Group than a segment. The percentage of completion method is based on the view An impairment loss is present when the recoverable amount that an assignment is carried out in pace with completion of relating to a cash-generating unit (or groups of cash-generating the respective project. Revenue and profit in the project are units) is less than the carrying amount. A write-down is then reported period-by-period, in pace with recognition, providing reported in the income statement. a direct link between financial reporting and the operations conducted during the period. Plant, Property and Equipment Stage of completion is mainly determined based on project Plant, property and equipment are recognized at acquisition expenses incurred in relation to total estimated project cost after deduction for accumulated amortization and write- expenses. downs, if any. Depreciation according to plan is applied on a Sales refers to the number of residential units sold in the straight-line basis and based on the assets’ cost and assessed form of binding contracts with end customers. Revaluations useful life. (changes in forecasts) of anticipated project revenues lead to adjustment of previously recognized revenue in the project Project and Development Properties concerned. This adjustment is included in the net profit for the Project properties are all properties that are not classified as period. development properties as described below. JM shall not own Anticipated losses are charged to the profit for the period properties for long-term management. Project properties shall in full. be sold after they are fully developed and are therefore classi-

j m a n n u a l r e p o r t 2 0 0 5 58 NOTES

fied as current assets and valued according to IAS 2 Inventory. Other pension plans are defined benefit. Obligations and Production costs for JM’s fully developed properties include costs relating to defined benefit pension plans are calculated both direct costs and a reasonable share of indirect costs. according to the Projected Unit Credit Method. The intention Interest expenses pertaining to production of project prop- is that anticipated future pension payments should be expensed erties are recognized as an expense in the Parent Company. In in a manner that provides more even costs over the employee’s the consolidated accounts the same amount is added to the period of service. Anticipated future salary increases and antici- cost of project properties. pated inflation are included in the calculation. The present value Properties, undeveloped or developed, that are intended for of obligations is discounted in the first place based on a market production of tenant-owned apartments/freehold apartments return on first-class corporate bonds on the reporting date. In or single-family homes and land for investment properties are Sweden and Norway, where there is no functioning market for reported as development properties. The properties are nor- such bonds, the market return on government bonds is used mally sold soon after the start of production. Operating profit and a premium for a longer maturity added based on the dura- from development properties is reported as profit from project tion of the pension obligations. development operations. Interest is not included in the cost of The fair value of obligations is deducted from the estimated development properties. Development properties are reported value of the obligations. In order to avoid substantial fluctua- in accordance with IAS 2 Inventory. tions in pension costs between years, changes within a certain level (known as the corridor) can be left unrecognized in the Borrowing costs income statement and in the balance sheet. The corridor means Borrowing costs are included in the consolidated accounts in that actuarial gains and losses only affect the Group’s profit or the acquisition cost of buildings in progress (project properties). loss to the extent that they exceed the higher of 10% of the In general, borrowing costs added to acquisition cost are limited present value of pension obligations compared with 10% of to assets that take a significant time for completion which in the fair value of the plan assets. Excess amounts (outside the the Group’s case comprise construction of project properties. corridor) are allocated over the average remaining length of Interest expenses are included in the acquisition value until the employment. JM has recognized all actuarial gains and losses as time that the building is complete. of January 1, 2004, in accordance with the optional exception If special borrowing has been arranged for the project the provided for in the transition to IFRS. The recognized return actual borrowing cost is used. In other cases the borrowing cost on plan assets relates to the estimated return at the beginning is calculated based on the Group’s borrowing cost. of the year and therefore normally differs from the actual return during the year. This variance is an actuarial gain or loss. Impairment Losses Information about the Group’s pension obligations is provided If on the balance sheet date there is any indication that plant, in Note 25. property or equipment, or an intangible asset has impaired in Independent actuaries conduct annual calculations relating value, a calculation is performed of the recoverable amount to the defined benefit plans found at JM. of the asset. The recoverable amount is the greater of net Only an insignificant part of the Group’s defined benefit realizable value and value in use. If the estimated recoverable pension obligations have been financed through premiums to amount is lower than the carrying amount, an impairment loss is Alecta. Since the requisite information cannot be obtained from recognized on the asset’s recoverable amount. Alecta, these pension obligations are reported as a defined An impairment loss is reversed when the basis for the contribution plan. impairment, wholly or partly, no longer exists. Taxes payable on pension costs, such as the Swedish payroll The term impairment loss is also used in conjunction tax on pension costs, are taken into account when calculating with revaluation of properties reported as current assets. pension obligations as described above, which is in accordance Valuation of these properties is performed, however, according with pronouncement no. 43 issued by the Emerging Issues Task to the lower of cost and market principle and follows IAS 2 Force, Accounting for special employer’s contribution and yield Inventories. tax. At the Parent Company, defined benefit pension plans are Leases reported in accordance with Swedish accounting practice that Leases are classified as either finance or operating leases. A has applied so far, which is based on the regulations in the Law finance lease substantially transfers the financial risks and on Safeguarding of Pension Commitments. rewards of ownership to the lessee. If this is not the case, it is an operating lease. Briefly, a finance lease means that the asset is Financial Instruments recognized as an asset in the balance sheet of the lessee, while IAS 32 Financial Instruments, Disclosure and Presentation, and a matching liability is recognized as a liability item in the balance IAS 39 Financial Instruments, Recognition and Measurement, sheet. will be applied from 2005 without restatement of the compara- In an operational lease, the asset is recognized in the balance tive year 2004. IAS 39 requires financial assets and financial sheet of the lessor. Lease fees in operational leases are recog- liabilities to be classified in different categories in order to then nized linearly over the term of the agreement. JM’s holdings of be recognized and measured according to the principles that leases with JM as lessee are of limited scope. apply to each category. Cash and cash equivalents and short- term investments are classified as assets that are measured Employee benefits/pensions at fair value and where changes in value are recognized in the Employee benefits are reported in accordance with IAS 19 income statement. Employee benefits Financial liabilities are measured at amortized cost. This A distinction is made between defined contribution pension is calculated so that a constant effective interest is obtained plans and defined benefit pension plans relating to post-employ- over the borrowing period provided maturities are not short. ment benefits.D efined contribution pension plans are defined Accounts payable and similar short-term liabilities are thus as plans where the company pays set charges to a separate recognized at nominal amounts. legal entity and does not have any obligation to pay additional Financial derivative instruments are recognized in the bal- charges even if the legal entity does not have sufficient assets to ance sheet at fair value. Changes in value are recognized in the pay the benefits to employees attributable to their service until income statement. The Group’s policy is that derivatives may the reporting date. only be held for hedging purposes. However, hedge account-

j m a n n u a l r e p o r t 2 0 0 5 NOTES 59

ing normally is not applied. Cash flow hedges have been made Cash and cash equivalents are classified as cash and bank through interest rate derivatives in order to convert floating balances and short-term financial investments that are traded interest to fixed interest. on the open market at known amounts and are associated with only marginal risk for value fluctuations.C ash and cash Provisions and Contingent Liabilities equivalents also include short-term investments with a maturity Provisions are reported when JM has or is considered to have a of less than 3 months from the acquisition date. commitment as a result of events that have occurred and where The year’s paid tax is reported in full under operating it is probable that payments will be required in order to meet activities. the commitment. It also must be possible to reliably estimate the amount that will be paid. Parent Company’s Accounting Policies Provisions are made for future costs on the basis of The Parent Company’s accounting policies deviate from the guarantee commitments. This calculation is based on the Group’s on the following points: estimated costs for the project concerned or for a group of – Employee benefits/ pensions similar projects, calculated according to a ratio that historically Defined benefit pension plans are reported in accordance with provided a satisfactory provision for these costs. The same Swedish accounting practice that has applied so far, which is ratio can for example function as a proportion of income or based on the regulations in the Law on Safeguarding of Pension estimated cost per completed residential unit. Commitments Contingent liabilities are possible commitments originat- – Income tax ing from events that have occurred and whose existence is Untaxed reserves are reported in their entirety without being confirmed only by one or more uncertain future events, which allocated between shareholders’ equity and deferred tax. are not completely in the Company’s control, will occur or – Participations in subsidiaries, associate companies and joint not occur. Obligations that originate from events that have ventures are recognized at cost of acquisition less any impair- occurred, but that are not recognized as liabilities or provisions, ment losses. because it is not probable that an outflow of resources will – In the Parent Company borrowing costs relating to build- be required to settle the obligation or because the size of the ings under construction (project properties) are expensed and obligations cannot be reliably estimated, are also recognized as recognized as a financial cost in the income statement. contingent liabilities. Mergers Cash Flow Statement In the Parent Company, mergers of wholly owned group compa- The cash flow statement has been prepared according to nies are reported according to the consolidated value method, the indirect method in accordance with IAS 7 Cash Flow whereby all assets and liabilities are taken over at values based Statements. The analysis has been adapted to JM’s operations. on the acquisition analysis carried out in connection with the Since buying and selling project and development properties original acquisition of the group company in question. The are included in JM’s ongoing activities, these are reported under merger difference is taken directly to shareholders’ equity. the corresponding sections of the cash flow statement. The item Mergers are reported in accordance with general advice from payment on account for project properties mainly refers to the Swedish Accounting Standards Board. utilization of properties for production and is matched by a cash flow in the form of invoicing. Buying and selling of plant, property and equipment not pertaining to properties are reported under Investing activities, other.

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NOTE 2 – CONSOLIDATED INCOME STATEMENT BY SEGMENT Unallocated Unallocated JM Residential JM Residential JM Property JM items within Sub-total JM Sub-total items within Total Group 2005 Stockholm Sweden Development Production Sweden Sweden International Group Group Group

Revenues - external 3,816 3,012 211 779 --- 7,818 2,069 9,887 - 9,887 Revenues - internal - - - 418 -4181) - - - - - Total revenues 3,816 3,012 211 1,197 -418 7,818 2,069 9,887 - 9,887 Costs for production and management* -3,173 -2,571 -146 -1,081 4181) -6,553 -1,774 -8,327 - -8,327 Gross profit 643 441 65 116 --- 1,265 295 1,560 - 1,560 Selling and administrative expenses* -177 -116 -39 -58 - -390 -123 -513 -632) -576 Gains on the sale of properties 34 16 186 - - 236 11 247 - 247 Operating profit 500 341 212 58 - 1,111 183 1,294 -63 1,231 Financial income and expenses -803) -80 Profit before tax 1,294 -143 1,151 Taxes -1753) -175 Profit for the year 1,294 -318 976 * Of which: depreciation and amortization of property, plant and equipment -4 -2 -1 -1 -3 -11 -9 -20 - -20

Unallocated Unallocated JM Residential JM Residential JM Property JM items within Sub-total JM Sub-total items within Total Group 2004 Stockholm Sweden Development Production Sweden Sweden International Group Group Group

Revenues - external 3,438 2,417 276 535 6,666 1,866 8,532 - 8,532 Revenues - internal - - - 396 -3961) - - - - - Total revenues 3,438 2,417 276 931 -396 6,666 1,866 8,532 - 8,532 Costs for production and management* -2,973 -2,106 -173 -847 3961) -5,703 -1,644 -7,347 - -7,347 Gross profit 465 311 103 84 --- 963 222 1,185 - 1,185 Selling and administrative expenses* -170 -112 -41 -46 - -369 -106 -475 -672) -542 Gains on the sale of properties 1 3 154 5 - 163 1 164 - 164 Impairment losses on properties - - -15 - - -15 - -15 - -15 Operating profit 296 202 201 43 - 742 117 859 -67 792 Financial income and expenses -1453) -145 Profit before tax 859 -212 647 Taxes -1733) -173 Profit for the year 859 -385 474 * Of which: depreciation and amortization of property, plant and equipment -4 -3 -1 -2 -6 -16 -6 -22 - -22

Income by country Sweden Norway Denmark Belgium Total 2005 7,818 1,315 492 262 9,887** 2004 6,666 1,136 507 223 8,532** ** Of which rental revenue of SEK 272m (335).

Income by business segment Operating profit by business segment 2004 2005 2004 2005 SEKm SEKm 5,000 500 4,000 400 3,000 300 2,000 200 1,000 100 0 0 -100

DevelopmentJM Production JM International DevelopmentJM Production JM Residential Sweden JM International JM Residential Stockholm JM Property JM Residential Sweden Group-wide expenses JM Residential Stockholm JM Property

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Note. 2 continued.

CONSOLIDATED BALANCE SHEET BY SEGMENT Unallocated JM Residential JM Residential JM Property JM Sub-total JM Inter- Sub-total items within Total Group Dec 31, 2005 Stockholm Sweden Development Production Sweden national Group Group Group

ASSETS Fixed assets - - - - - 59 59 754) 134 Project properties 69 3 840 - 912 271 1,183 - 1,183 Development properties 1,337 817 136 3 2,293 632 2,925 - 2,925 Participations in tenant-owner co-operatives, etc. 7 18 1 - 26 12 38 --- 38 Current receivables 242 255 17 151 665 497 1,162 795) 1,241 Cash and cash equivalents ------2,6344) 2,634 Total current assets 1,655 1,093 994 154 3,896 1,412 5,308 2,713 8,021 TOTAL ASSETS 1,655 1,093 994 154 3,896 1,471 5,367 2,788 8,155

EQUITY & LIABILITIES Shareholders’ equity ------3,3114) 3,311 Long-term liabilities ------1,4764) 1,476 Current liabilities 639 638 42 242 1,561 330 1,891 1,4775) 3,368 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 639 638 42 242 1,561 330 1,891 6,264 8,155 Total operating capital by business segment 1,016 455 952 -88 - 1,141 - - - Investments in plant, property, and equipment ------156) 15

Unallocated JM Residential JM Residential JM Property JM Sub-total JM Inter- Sub-total items within Total Group Dec 31, 2004 Stockholm Sweden Development Production Sweden national Group Group Group

ASSETS Fixed assets - - - - - 55 55 1024) 157 Project properties 69 82 1,789 - 1,940 306 2,246 - 2,246 Development properties 1,702 687 185 3 2,577 394 2,971 - 2,971 Participations in tenant-owner co-operatives, etc. 187 33 1 - 221 22 243 - 243 Current receivables 392 294 42 165 893 358 1,251 995) 1,350 Cash and cash equivalents ------1,2854) 1,285 Total current assets 2,350 1,096 2,017 168 5,631 1,080 6,711 1,384 8,095 TOTAL ASSETS 2,350 1,096 2,017 168 5,631 1,135 6,766 1,486 8,252

EQUITY & LIABILITIES Shareholders’ equity ------3,4654) 3,465 Long-term liabilities ------2,1974) 2,197 Current liabilities 436 441 14 160 1,051 114 1,165 1,4255) 2,590 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 436 441 14 160 1,051 114 1,165 7,087 8,252 Total operating capital by business segment 1,914 655 2,003 8 - 1,021 - - - Investments in plant, property, and equipment ------186) 18

JM Residential JM Residential JM Property JM JM Operating cash flow by business segment Stockholm Sweden Development Production International

2005 1,416 544 1,247 155 115 2004 956 413 803 45 139

Notes: The geographical areas Sweden and International constitute the JM Group’s 4) The assets and liabilities and shareholders’ equity that are not included in JM’s definition primary basis of division for segment reporting. The Swedish operations are also divided of operating capital are not allocated by segment. They are reported as unallocated items into four business segments: JM Residential Stockholm, JM Residential Sweden, JM since they mainly cannot be allocated in a reasonable and fair manner. Property Development and JM Production, which are reported separately within the 5) The items within current receivables and liabilities that are included in JM’s definition Sweden segment. JM’s secondary segment comprises project development. Since there is of operating capital are allocated by segment. Other items are reported as unallocated only one secondary segment, information is provided in the income statements, balance items. sheets and cash flow statements. 6) Plant, property, and equipment are not included in JM’s definition of operating capital 1) Unallocated items within Sweden comprise elimination of intragroup invoicing between and these investments are therefore reported as an unallocated item. business segments. 2) Pertains to group-wide costs. 3) Financial income and expenses, as well as tax, are not allocated by segment, but reported as unallocated items.

j m a n n u a l r e p o r t 2 0 0 5 62 NOTES

NOTE 3 – EMPLOYEES AND PAYROLL EXPENSES

Average number of employees Of which, Of which, 2005 Men 2004 Men

Parent Company Sweden 1,467 82% 1,488 83% Subsidiaries Sweden 510 96% 531 95% Norway 230 83% 227 86% Denmark 26 50% 27 56% Belgium 16 75% 13 77% Total subsidiaries 782 90% 798 91% Total Group 2,249 85% 2,286 86%

Salaries/wages, other renumeration, and social security expenses 2005 2004 Salaries/wages Social security Salaries/wages Social security and remuneration expenses Total and remuneration expenses Total

Parent Company 548 281 829 548 284 832 (of which, pension costs) - 1021) 102 - 1051) 105 Subsidiaries 305 112 417 259 86 345 (of which, pension costs) - 23 23 - 18 18 Total Group 853 393 1,246 807 370 1,177 (of which, pension costs) - 1252) 125 - 1232) 123

1) Of the Parent Company’s pension costs, SEK 1.3m (1.9) pertains to the President and 2) Of the Group’s pension costs, SEK 3.5m (3.5) pertain to the President and Vice President. Vice President. The company’s outstanding pension commitments to them amounts to The Group’s outstanding pension commitments to them amounts to SEK 1.9m (15.5). SEK 0.3m (14.0). The company has no pension costs or pension commitments to the rest of the Board.

Wages, salaries and other remuneration by country and distribution between the Board and President and other employees

2005 2004 Board Other Board Other and President employees Total and President employees Total

Parent Company Sweden 5 543 548 5 543 548 (of which, variable compensation) 0 35 35 0 30 30 Subsidiaries Sweden 3 154 157 2 135 137 (of which, variable compensation) 2 4 6 1 4 5 Norway 2 119 121 1 97 98 (of which, variable compensation) 1 9 10 1 5 6 Denmark 2 16 18 2 16 18 (of which, variable compensation) ------Belgium 2 7 9 1 5 6 (of which, variable compensation) 1 - 1 - - - Total subsidiaries 9 296 305 6 253 259 (of which, variable compensation) 4 13 17 2 9 11 Total Group 14 839 853 11 796 807 (of which, variable compensation) 4 48 52 2 39 41

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Note. 3 continued The result for variable compensation for other members of Executive Management for the 2005 financial year totaled SEK 5,500,000 (3,800,000), which will be paid in spring Definitions 2006. Salaries and benefits of senior executives are reported according to the recommendation of the Industry and Commerce Stock Exchange Committee, NBK. Pensions The Swedish members of Executive Management, excluding the President, are covered Compensation committee by parts of the ITP plan and an alternative ITP plan. JM has had a Compensation Committee since February 2003. The President and some other members of Executive Management are covered by a Compensation to the Board of Directors premium-based supplementary plan. The President, according to this plan, is entitled JM’s Board of Directors, excluding the President, comprises a total of ten people, eight men to an annual premium provision of 35% of basic salary. According to the same sup- and two women. The Chairman of the Board received a total of SEK 505,000 (463,000) plementary plan some other members of Executive Management are entitled to an in board fees. Other non-executive Board members, 5 people, received total fees of SEK annual premium provision of SEK 50,000–100,000. 1,420,000 (1,312,000). Provided the President is employed in the company when he reaches the age of 60, either Compensation to the President and Executive Management party is entitled to request the President to leave his position as President and CEO. Compensation to the President and other members of Executive Management comprises basic salary, variable compensation, other benefits and pension provisions. Other members of Executive Management have a retirement age of 65, with a few exceptions who are entitled to retire at the age of 60 with 70% of salary until the age 65. Compensation to the President is drafted by the Compensation Committee and decided by the Board. Compensation for other members of Executive Management is decided Notice periods / Severance pay by the Compensation Committee. Compensation is decided after comparisons with For the President the period of notice is 12 months in the event of termination by the the total private labor market. company. If no other employment has been secured by the end of the notice period, compensation shall be paid for a further 12 months. In the event of termination by the Variable compensation for the President for the 2006 financial year will be based to 50% President the notice period is six months. No additional compensation will be paid after on the financial result for the Group, 40% on return on operating capital, and 10% on a the six months. Other members of Executive Management have notice periods of 12 measurement of how satisfied JM’s customers are (Customer Satisfaction Index, CSI). months on termination by the company and 6 months on termination by the employee. Variable compensation for the President for 2006 may amount to a maximum of SEK A few, however, have a notice period of 24 months on termination by the company and 1,740,000. The result of variable compensation for the 2005 financial year amounts to 12 months on termination by the employee. SEK 1,560,000 (490,000), which will be paid in spring 2006. Variable compensation for other members of Executive Management is based, depending on position, on the Group’s and the business units’ financial result and onC SI. Variable compensation may amount to a maximum of three and seven monthly salaries respectively, depending on position.

Summary of basic and variable compensation and pensions to the Board and Executive Management in 2005 and 2004. 2005 2004 Basic salary/ Variable Other Pension Basic salary/ Variable Other Pension SEK 000s Board fee compensation 1) benefits costs Total Board fee compensation 1) benefits costs Total

Chairman of the board 505 - - - 505 463 - - - 463 Other board members 1,420 - - - 1,420 1,312 - - - 1,312 President 3,209 490 151 1,086 4,936 2,773 180 138 976 4,067 Other members of executive management 2) 12,833 3,862 583 3,792 21,070 13,042 8,010 733 5,990 27,775 Total 17,967 4,352 734 4,878 27,931 17,590 8,190 871 6,966 33,617

1) The variable compensation reported in the table relates to amounts paid in 2005. All 1) The variable compensation reported in the table relates to amounts paid in 2004. The payments in 2005 are attributable to the 2004 financial year. President’s payment in 2004 is attributable to the 2003 financial year. For other members 2) JM’s Executive Management, excluding the President, comprised a total of ten people of executive management, SEK 1,805,000 is attributable to the 2003 financial year. The in 2005, nine men and one woman. remaining payments are attributable to earlier financial years. 2) JM’s Executive Management, excluding the President, comprised a total of eleven people in 2004, ten men and one woman.

Absence due to illness at JM, Sweden Total absence due to illness amounts to 6.0% (5.1) of regular working hours. Of the total absence due to illness, 60.0% (58.0) comprises continuous absence due to illness for more than 60 days.

Breakdown of absence due to illness by age 2005 2004

- 29 years 5.1% 4.6% 30 - 49 years 5.1% 4.0% 50 years and older 7.9% 7.2%

Breakdown of absence due to illness by gender 2005 2004

Men 6.3% 5.3% Women 4.4% 4.2%

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NOTE 4 – DEPRECATION ACCORDING TO PLAN NOTE 6 – GAINS ON THE SALE OF PROPERTIES Group Parent Company Group Parent Company 2005 2004 2005 2004 2005 2004 2005 2004

Plant and machinery -3 -3 0 0 Sales revenues Equipment and other tools -15 -19 -9 -15 Project properties 1,565 945 900 457 Other tangible assets -2 - - - Development properties 187 73 220 52 Total -20 -22 -9 -15 Total 1,752 1,018 1,120 509 Book value NOTE 5 – FEES AND REMUNERATION Project properties -1,360 -799 -808 -374 Development properties -145 -55 -179 -37 Group Parent Company Total -1,505 -854 -987 -411 2005 2004 2005 2004 Profit Ernst & Young Project properties 205 146 92 83 Auditing assignments 4,0 3,8 3,0 2,8 Development properties 42 18 41 15 Other assignments 0,4 0,4 0,2 0,2 Total 247 164 133 98 Öhrlings PricewaterhouseCoopers Auditing assignments - 1,3 - 1,0 NOTE 7 – IMPAIRMENT LOSSES ON PROPERTIES Other assignments - 0,1 - - Total 4,4 5,6 3,2 4,0 Group Parent Company 2005 2004 2005 2004

Project properties - -15 - -15 Total - -15 - -15

NOTE 8 – FINANCIAL INCOME AND EXPENSES / RESULT FROM FINANCIAL ITEMS Financial income Group 2005 2004

Dividends 1 1 Interest income 34 29 Revaluation derivatives 12 - Total 47 30

Financial expenses Group 2005 2004

Interest expense -93 -153 Effect of impairment loss for derivative from equity -7 - Revaluation derivatives -8 - Interest portion in this year’s pension costs -19 -22 Total -127 -175

Result from Result from other financial Interest expenses Result from financial current and similar Group companies assets assets profit/loss items Total Parent company 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Dividends 547 101 1 1 - - - - 548 102 Sales -40 ------40 - Impairment losses -206 -353 ------206 -353 Interest income - - 1 0 24 29 - - 25 29 Interest income, Group companies - - 15 34 25 19 - - 40 53 Interest expense ------73 -133 -73 -133 Interest expense, Group companies ------53 -129 -53 -129 Effect of impairment loss for derivative from equity ------4 - -4 - Revaluation derivatives - - - - 8 - -8 - 0 - Interest portion in this year’s pension costs ------19 -22 -19 -22 Exchange differences on liabilities - - - - 0 0 0 0 0 0 Total 301 -252 17 35 57 48 -157 -284 218 -453

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NOTE 9 – APPROPRIATIONS IN THE PARENT COMPANY NOTE 11 – EARNINGS AND DIVIDEND PER SHARE Parent Company Earnings per share 2005 2004 Group 2005 2004 Depreciation in excess / below plan equipment - 4 Provision to tax allocation reserve - -10 Profit for the year attributable to shareholders of ParentC ompany 976 474 Reversal of tax allocation reserve 943 18 Profit for calculation of earnings per share Total 943 12 before and after dilution 976 474

NOTE 10 – TAXES Group Group Parent Company 2005 2004 2005 2004 2005 2004 Weighted average number of shares Profit before tax before and after dilution (SEK) 26,347,681 28,065,407 Sweden 986 579 2,015 135 International 165 68 - - Earnings per share before and after dilution (SEK) 37.00 16.90 Total 1,151 647 2,015 135 Current tax Calculation of earnings per share before and after dilution is based on profit for the year. Sweden -422 -45 -372 17 Profit for the year is attributable in its entirety to shareholders of the parent company. International -37 -36 - - Total -459 -81 -372 17 Number of shares Deferred tax During the second quarter of 2005 JM carried out a redemption program of its own Sweden 288 -93 -3 -37 shares. A total of 3,389,027 shares were redeemed. International -4 1 - - Total 284 -92 -3 -37 After redemption the number of shares amounts to 24,676,380 (28,065,407). Total tax The weighted average number of shares before and after dilution for 2005 was Sweden -134 -138 -375 -20 26,347,681 (28,065,407). International -41 -35 - - JM has no option, convertible debenture, or stock program at this time; therefore, no Total -175 -173 -375 -20 dilution may occur. Difference between reported tax and nominal tax rate 28% Cash dividend (for 2005 according to the Board of Directors’ proposal) Profit before tax x 28% -322 -181 -564 -38 Adjustment of tax from previous years 2 6 - 7 Group Difference foreign tax -1 -1 - - 2005 2004 Non-taxable income 17 18 193 13 Non-deductible expense -6 -3 -2 -2 Per share (SEK) 10.00 7.00 Tax untaxed reserve (tax allocation reserve) -8 - -8 - Total (SEKm) 247 196 Discontinuation of commitment 106 - - - Recalculation of deferred tax from NOTE 12 – GOODWILL previous years 37 -12 6 - Group Total -175 -173 -375 -20 Goodwill 2005 2004

Accumulated cost Opening balance, January 1 55 55 Translation differences 4 0 Closing balance, December 31 59 55

The reported goodwill mainly pertains to goodwill at acquisition of Byggholt AS and AS Prosjektfinans in Norway. AS Projektfinans merged with Byggholt AS 2003 and operations are considered fully integrated in Byggholt and the Byggholt Group is therefore the lowest cash-generating unit. The book value for the Byggholt Group was tested for impairment as of December 31, 2005 and the recoverable value was found to exceed the book value. Consequently, no impairment loss for goodwill was necessary.

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NOTE 13 – PLANT, PROPERTY, AND EQUIPMENT Group Other plant, property, Parent Company Machinery and equipment and equipment Total Machinery and equipment 2005 2004 2005 2004 2005 2004 2005 2004 Accumulated cost Opening balance, January 1 145 147 14 13 159 160 81 90 New acquisitions 14 17 1 1 15 18 5 5 Translation differences 3 - - - 3 - - - Divestments -14 -19 - - -14 -19 -7 -14 Closing balance, December 31 148 145 15 14 163 159 79 81 Accumulated depreciation according to plan Opening balance, January 1 -112 -101 -2 -1 -114 -102 -67 -64 Amortization for the year -18 -22 -2 - -20 -22 -9 -15 Translation differences -2 - - -1 -2 -1 - - Divestments 13 11 - - 13 11 6 12 Closing balance, December 31 -119 -112 -4 -2 -123 -114 -70 -67

Closing residual value according to plan 29 33 11 12 40 45 9 14

NOTE 14 – PARTICIPATIONS IN ASSOCIATES / OTHER FINANCIAL ASSETS Participations Other financial in associates assets Group 2005 2004 2005 2004

Accumulated cost Opening balance, January 1 6 6 49 49 Additional receivables - - - 17 Settled receivables -1 - -19 -17 Closing balance, December 31 5 6 30 49

FINANCIAL ASSETS Participations Receivables, Participations Other securities Other Deferred in Group Group in Receivables, held as long-term tax companies companies associates associates noncurrent assets receivables receivables Total Parent Company 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Accumulated cost Opening balance, January 1 1,696 1,933 614 1,186 10 10 43 43 2 2 33 28 23 - 2,421 3,202 New acquisitions 104 100 ------104 100 Additional receivables ------5 2 23 2 28 Settled receivables - - -210 -572 - - - - -2 - -19 - - - -231 -572 Merger -459 ------459 - Reclassifications - 16 ------16 Impairment losses for the year -424 -353 ------424 -353 Closing balance, December 31 917 1,696 404 614 10 10 43 43 0 2 14 33 25 23 1,413 2,421

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NOTE 15 – PARTICIPATIONS IN GROUP COMPANIES

Specification of Parent Company’s shares and participation in wholly owned Group companies, SEK 000s Company No. of shares Book Company reg. no. Domicile and participations value AB Garantihus 556073-0524 Stockholm 5,000 1,000 JM Värmdöstrand Holding AB 556275-4696 Stockholm 3,300,120 292,442 AB Stockholms Badmintonhall 556037-3655 Stockholm 2,520 312 AB Borätt 556257-9275 Stockholm 500 1,978 JM Stombyggnad AB 556173-0564 Stockholm 1,000 113 Seniorgården AB 556359-9082 Stockholm 1,000 100 Fastighetsbolaget Bohusmark KB 916443-1125 Göteborg 1 120 JM Inredning i Stockholm AB 556202-8653 Stockholm 1,000 50 Bruket i Kallhäll Exploaterings KB 969653-9122 Järfälla 10 Bruket i Kallhäll Exploaterings AB 556561-0184 Järfälla 1,000 100 Olle Timblads Målerifirma AB 556072-9492 Stockholm 5,000 4,939 Tre Masar Produktion AB 556472-0323 Stockholm 5,000 11,602 AB Naryda 556046-9081 Stockholm 1,000 13,000 Stora Mossen Fastigheter i Bromma HB 969673-7999 Stockholm 58 JM Entreprenad AB 556060-8837 Stockholm 200,000 107,750 AB Vaxholmsbostäder 556041-8120 Vaxholm 15,000 35,250 JM Älta Holding AB 556638-5372 Nacka 1,000 100 Salebo HB 1) 969700-4431 Stockholm 1 Hohögs Fastighets AB 1) 556661-5158 Lund 1,000 609 Fastighets AB Uppsalamjölet 1) 556683-8289 Uppsala 1,000 184 Fastighets AB Gurvil 1) 556661-4060 Lund 1,000 100 Milud AB 1) 556395-8643 Stockholm 1,000 100 JM Hägernäs AB 1) 556675-1524 Stockholm 1,000 363 Konsulfastigheter AB 1) 556686-3667 Stockholm 100,000 100 Fastighets AB Kängen 1) 556686-9524 Uppsala 1,000 138 KB Silverklotsen 1) 969677-3812 Sollentuna 15,687 KB Silverfjärden 1) 969676-7525 Sollentuna 0 JM Construction SA, Belgium 413662141 Brussels 10,000 111,906 Byggholt AS, Norway 829350122 Oslo 20,000 127,687 JM Suomi OY 1) 1974161-8 Helsinki 1,000 77 JM Danmark AS 21410233 Copenhagen 100,000 191,267 Book value, December 31 917,143

Specification of the Group’s other holdings of shares and participations in wholly owned Group companies, SEK 000s. Company No. of shares Book Company reg. no. Domicile and participations value

Mariastaden AB 556228-8596 Stockholm 100 102 JM Värmdöstrand AB 556001-6213 Stockholm 4,400 250,000 JM Älta Centrum AB 556638-5380 Nacka 1,000 100 JM Älta 14:27 AB 556638-5281 Nacka 1,000 100 Fastighets AB Kammeriten 556653-9473 Vaxholm 1,000 100 Fastighets AB Krysoliten 556653-9408 Vaxholm 1,000 100 Fastighets AB Stanniten 556653-0431 Vaxholm 1,000 100 JM Vaxholm AB 556390-9174 Vaxholm 13,300 1,333 Förvaltnings AB Vilgur 1) 556220-7984 Stockholm 1,000 120 Förvaltnings AB Vistet 1) 556121-1979 Stockholm 1,000 2,714 Brf Mården 716300-0499 Stockholm 3,800,000 0 Seniorbo AS, Norway Bærum 1,000 19,832 Nærsnes AS, Norway Bærum 90,000 5,032 Trulsrudmarka AS, Norway Bærum 1,000 998 Peter Wessels AS, Norway Tønsberg 860 1,096 Peter Wessels KS, Norway Tønsberg 1,002 Naturtomter AS, Norway Tønsberg 10 -92 Nor-Invest AS, Norway Tønsberg 514,396 4,448 Byggholt Proff, Norway 1) Tønsberg 50 1,512 Lervig Maritim Utbyggingsselskap AS, Norway 1) Stavanger 10,000 3,274 Stavanger Naeringsselskap AS, Norway 1) Stavanger 83,451,000 45,205 Belmat SA, Belgium Brussels 360 241 QLR, Quartier Leopold Realty, Belgium Brussels 35,000 1,042 Palace 62, Belgium Brussels 6,149 567

1) Group companies acquired during the year. During the year JM sold 10 Group companies that did not have any business activities and 11 Group companies merged.

j m a n n u a l r e p o r t 2 0 0 5 68 NOTES

NOTE 16 – PARTICIPATIONS IN ASSOCIATES Specification of Parent Company’s shares and participation in associates, SEK 000s Company No. of shares % of Book Company reg. no. Domicile and participations capital value

AB Hälsingborgsbostäder 556105-9196 Helsingborg 500 50 50 AB Ramlösa Brunnsanläggning 556031-6274 Helsingborg 625 50 75 Glasberga Fastighets AB 556361-0707 Södertälje 1,000 25 100 Högmora Exploaterings AB 556395-0707 Stockholm 1,000 25 100 SMÅA AB 556497-1322 Stockholm 3,500 33 3,500 Fastighetsbolaget Glasberga KB 916643-1842 Stockholm 1 25 101 Olunda Terminal HB * 916629-6948 Järfälla 1 50 800 Exploateringsbolaget Högmora KB 916643-6258 Stockholm 1 25 1 Adolfsbergs Brunns AB 556303-8685 Örebro 340 33 34 Stockholms Mineralhantering HB * 969611-4868 danderyd 100 50 100 AB Västerås Studentbostäder 556597-0596 Västerås 500 50 500 HB Markbyggarna Silverdal * 969680-8659 Sollentuna 1 50 1 Dockan Exploatering AB 556594-2645 Malmö 333 33 5,003 Book value, December 31 10,365 * Unlimited liability.

Specification of the Group’s other holdings of shares and participations in associates, SEK 000s No. of shares % of Book Company Domicile and participations capital value

Larvik Saneringsselskap AS, Norway Larvik 100 50 543 Grefsen Utvikling AS, Norway Bærum 500 50 -3,001 Rolvsrud Utbygging AS, Norway Oslo 395,000 50 30,298 Kjørbokollen Utbygging AS, Norway Bærum 10,000 50 14,986 Bruveien AS, Norway Lier 102 50 47 Landmannstorget, Norway Asker 100 50 543 Ullensaker Naeringspark AS, Norway Ullensaker 1,000 50 1,176 Ytre Markvei 30 AS, Norway Bergen 500 50 62 Tennisveien AS, Norway Oslo 200 20 238 Book value, December 31 44,892

NOTE 17 – OTHER NONCURRENT HOLDINGS OF SECURITIES NOTE 18 – DEFERRED TAX LIABILITIES Specification of the Parent Company’s other securities held as noncurrent assets, SEK 000s AND TAX RECEIVABLES No. of shares % of Book Group Parent Company Company and participations capital value 2005 2004 2005 2004

Svenskt Fastighetsindex SFI ek.för 1 8 50 Deferred tax liability for untaxed reserves - 280 - - CGC Centralgalaxen Bygg AB 150 20 20 Other deferred tax liabilities 329 260 1 24 Haninge Turism AB 100 1 10 Other provision for tax - 7 - - Garbo AB 2 70 Sub-total 329 547 1 24 Momentum Software AB 31,686 6 0 Other shares 50 Net deferred tax assets -70 -52 -26 -47 Sub-total 200 Net provisions for tax 259 495

Added for the Group Deferred tax asset - 2 25 23 Trygg Eiendomsmegling 664 Book value, December 31 864 Deferred tax liability on untaxed reserves Tax allocation funds - 280

Other deferred tax liabilities are classified as Project properties1) 59 96 Development properties1) 18 15 Provision for taxation for depreciation that has not yet been approved 178 80 Other current assets 74 69 Total 329 260

Deferred tax assets refer to Loss carryforward -13 -11 Provisions and liabilities -57 -41 Total -70 -52

1) Fiscal difference and book value.

j m a n n u a l r e p o r t 2 0 0 5 NOTES 69

NOTE 19 – PROJECT PROPERTIES AND DEVELOPMENT PROPERTIES Group Parent Company Project- Development Project Development properties* properties properties properties 2005 2004 2005 2004 2005 2004 2005 2004

Accumulated cost Opening balance, January 1 2,448 3,067 3,192 3,852 976 1,246 2,263 2,731 New acquisitions 252 224 1,047 269 192 112 786 159 Company acquisitions - - 290 6 - - - - Reclassifications 15 16 -35 11 19 -1 -80 2 Translation differences 15 -2 29 1 - - - - Merger ------23 - Transferred to production - - -1,235 -892 - - -848 -592 Divestments -1,527 -857 -164 -55 -938 -381 -198 -37 Closing balance, December 31 1,203 2,448 3,124 3,192 249 976 1,946 2,263

Accumulated depreciation according to plan Opening balance, January 1 -107 -154 - - -62 -69 - - Reclassifications - -11 ------Translation differences -2 ------Divestments 89 58 - - 60 7 - - Closing balance, December 31 -20 -107 - - -2 -62 - -

Accumulated impairment losses Opening balance, January 1 -95 -80 -221 -221 -86 -71 -102 -102 Reclassifications 17 - - - 16 - 31 - Transferred to production - - 3 - - - - - Impairment losses for the year - -15 - - - -15 - - Divestments 78 - 19 - 70 - 19 - Closing balance, December 31 - -95 -199 -221 - -86 -52 -102

Closing residual value according to plan 1,183 2,246 2,925 2,971 247 828 1,894 2,161

Tax assessment values 470 1,303 1,507 1,832 6 587 1,275 1,658

* Interest expenses added to the cost of project properties amounted to SEK 2m (9).

NOTE 20 – PARTICIPATIONS IN TENANT-OWNER NOTE 21 – OTHER CURRENT RECEIVABLES CO-OPERATIVES, ETC. Group Parent Company Group Parent Company 2005 2004 2005 2004 2005 2004 2005 2004 Receivables, property sales 37 68 - 37 Accumulated cost Other 89 173 44 82 Opening balance, January 1 245 534 221 485 Total 126 241 44 119 New acquisitions 116 722 107 686 Reclassifications 5 -16 - -16 NOTE 22 – RECOGNIZED REVENUE LESS PROGRESS BILLINGS Divestments -328 -995 -302 -934 Closing balance, December 31 38 245 26 221 Group Parent Company 2005 2004 2005 2004 Accumulated impairment losses Accumulated on account billing Opening balance, January 1 -2 -7 - - for work in progress -3,286 -3,329 -1,390 -2,467 Divestments 2 5 - - Recognized revenue Closing balance, December 31 0 -2 - - in work in progress 3,992 4,027 1,723 2,935

Total 706 698 333 468 Book value, December 31 38 243 26 221

NOTE 23 – CASH AND CASH EQUIVALENTS Group Parent Company 2005 2004 2005 2004

Cash and bank balances 1,634 1,185 1,427 1,096 Short-term investments 1,000 100 1,000 100 Total 2,634 1,285 2,427 1,196

Short-term investments have a maturity of between 1 day and up to 3 months.

j m a n n u a l r e p o r t 2 0 0 5 70 NOTES

NOTE 24 – UNTAXED RESERVES IN THE PARENT COMPANY Pension costs 2005 2004

Parent Company Benefits earned during the year 33 35 2005 2004 Interest on obligations 29 28 Tax allocation reserve - 766 Anticipated return on plan assets -6 -5 Total - 766 Redemption of pension liability - 9 Pension costs, defined benefit plans 56 67 Untaxed reserves of SEK 177m were taken over in conjunction with the merger of Group companies. Dissolution of tax allocation reserves for the year totals SEK 943m Pension costs, defined contribution plans 67 61 (See note 9). Social security expenses, defined benefit and defined contribution plans 26 23 Total 149 151

NOTE 25 – PROVISIONS FOR INTEREST-BEARING PENSIONS JM uses the ”corridor” approach to recognize actuarial gains and losses are gradually AND SIMILAR COMMITMENTS amortized onto the income statement and balance sheet. This approach applies to actuarial Defined benefit plans gains and losses that arise when the outcome does not follow the actuarial assumptions JM has defined benefit plans for pensions in Sweden and Norway. that were made. Since JM’s total actuarial loss as at December 31, 2005 is greater than 10% of the actual pension obligation, JM must expense a small part of the actuarial loss Defined contribution plans in 2006. In JM’s case, this means an increased pension cost in 2006 of SEK 11m, including These plans mainly comprise retirement pension and family pension. social security costs, relating to this part. Premiums are paid regularly during the year by the Group company concerned to separate legal entities, such as insurance companies. The pension cost for the period is recognized Actuarial assumptions in the income statement. See list below for the most important actuarial assumptions as per closing day for each geographic market: Obligations regarding employee benefits, defined benefit plans Discount Plan Expected The following provisions for pension commitments have been made in the balance sheet: rate assets salary increases Inflation

Group 2005 2004 Sweden December 31, 2005 4.00% 4.00% 3.50% 2.00% Norway December 31, 2005 4.25% 4.75% 3.00% 2.50% Pension commitments as at December 31 793 591 Sweden December 31, 2004 5.00% 5.00% 3.50% 2.00% Plan assets, fair value as at December 31 -136 -97 Norway December 31, 2004 5.50% 6.00% 3.00% 2.50% Total 657 494

The discount rate is determined for each geographic market taking the market return Unrecognized actuarial gains (+), losses (-), pension commitments -182 -32 on corporate bonds on the closing date into account. In Sweden and Norway, where Unrecognised actuarial gains (+), losses (–), plan assets -3 -3 there is no functioning market for such bonds, the market return on government bonds Net liability according to the balance sheet 472 459 is used and a premium for a longer maturity added based on the duration of the pension Of which recognized as current portion 12 10 obligations.

Pension commitments, plan assets and provisions for pension obligations as well as actuarial The anticipated return on plan assets corresponds to the anticipated return over time gains/losses for the defined benefit pension plans have developed as follows. in the pension funds that secure these obligations. Plan assets mainly comprise equities

and fixed-income securities and the anticipated return also reflects the existing asset Pension obligations 2005 2004 allocation on the closing date between these asset classes. Opening balance, January 1 591 542 Benefits earned during the year 33 35 The factor anticipated salary increase corresponds to anticipated future salary increases Interest expense 29 28 as a composite effect of inflation, period of service, and promotion. Benefits paid -11 -10 Redemption of pension obligations - -36 The inflation factor corresponds in most pension plans to the anticipated pension upward Unrecognized actuarial gains (-), losses (+) 150 32 adjustment (or indexing). In this component JM has chosen to use the inflation targets Translation differences 1 0 set up by the national central banks. Closing balance, December 31 793 591 Parent Company 2005 2004 Plan assets, fair value 2005 2004 Opening balance, January 1 448 452 Opening balance, January 1 97 79 New provisions 20 26 Anticipated return on plan assets 6 5 Settlements (amortization) - -30 Funds provided by employer 32 16 Closing balance, December 31 468 448 Unrecognized actuarial gains (+), losses(-) 0 -3 Translation differences 1 0 Closing balance, December 31 136 97

Reconciliation pension provisions 2005 2004

Opening balance, January 1 459 462 Pension costs, defined benefit plans 56 67 Benefits paid -11 -10 Funds provided by the employer -32 -16 Redeemed pension liability - -44 Closing balance, December 31 472 459

j m a n n u a l r e p o r t 2 0 0 5 NOTES 71

NOTE 26 – OTHER PROVISIONS Group Parent Company Provisions Other Provisions for guarantees provisions Total for guarantees 2005 2004 2005 2004 2005 2004 2005 2004

Opening balance, January 1 125 100 10 39 135 139 94 84 Dissolution -18 -15 - - -18 -15 -17 -15 Provisions 75 40 - 10 75 50 51 39 Transfer between companies ------12 Reclassifications - - -10 -39 -10 -39 - -2 Closing balance, December 31* 182 125 - 10 182 135 128 94 * Of which short-term part of provisions for guarantees 51 51 - - 51 51

NOTE 27 – INTEREST-BEARING LIABILITIES Group Parent Company Long-term interest bearing liabilities 2005 2004 2005 2004

Liabilities to credit institutions Maturity 1-5 years from closing day 27 37 - - Other liabilities 1-5 years from closing day 2 57 2 57 Liabilities to credit institutions Maturity > 5 years from closing day 586 1,060 375 1,053 Other liabilities > 5 years from closing day 11 15 11 15 Total 626 1,169 388 1,125

Current interest bearing liabilities 2005 2004 2005 2004

Current portion 4 - 4 - Other current liabilities 18 - 18 - Liabilities to credit institutions - 308 - 50 Liabilities to Group companies - - 1,336 2,174 Total 22 308 1,358 2,224

Exposure interest risk, Group < 1 year 1-5 years > 5 years Total

2005 Loan 542 106 - 648 Effect of interest rate derivatives -200 100 100 - Total 342 206 100 648 2004 Loan 1,299 178 - 1,477 Effect of interest rate derivatives -600 400 200 - Total 699 578 200 1,477

The JM Group mainly works with short-term borrowing in credit institutions combined with derivatives in order to manage interest rate risk. The average interest rate on interest-bearing liabilities as at December 31, 2005 excluding pension liabilities was 4.5%.

Liabilities to credit institutions, confirmed credits Group Parent Company Credit agreement 2005 2004 2005 2004

Overdraft facilities 400 400 400 400 Construction loan - 120 - 120 Granted credit agreement maturity within 1 year 400 600 400 600 Granted credit agreement maturity more than 1 year 2,000 2,800 2,000 2,800 Unutilized portion -2,425 -2,817 -2,425 -2,817 Utilized credit agreement 375 1,103 375 1,103

Credit agreements carry fixed interest.

Group’s interest-bearing net receivables/ debt 2005 Change 2004 Change 2003

Current interest-bearing liabilities -22 286 -308 -75 -233 Long-term interest-bearing liabilities -626 543 -1,169 1,133 -2,302 Transferred to pensions -472 -19 -453 -2 -451 Minus: cash and cash equivalents 2,634 1,349 1,285 953 332 Minus: interest-bearing receivables 22 -10 32 -11 43 Interest-bearing net receivables (+)/ debt(-)closing balance, December 31 1,536 2,149 -613 1,998 -2,611

j m a n n u a l r e p o r t 2 0 0 5 72 NOTES

NOTE 28 – FINANCIAL RISK MANAGEMENT AND FINANCIAL The Group shall maintain cash and cash equivalents, together with confirmed unused DERIVATIVE INSTRUMENTS loans, of at least 10 percent of JM’s sales in order for the Group to handle investments and current payments. The JM Group is exposed to different types of financial risks which may influence profit, Currency risks cash flow and equity. These risks mainly comprise: The Group has not hedged against balance sheet exposure. Moreover, JM does not • Interest risks for borrowing and cash and cash equivalents. have any transaction exposure, since operations are only carried out locally in each • Financing and liquidity risks pertaining to the Group’s capital requirements. country. • Currency risk pertaining to profit and net investments in foreign subsidiaries. Valuation of financial assets and liabilities JM’s Board of Directors has adopted a policy for how to handle and control these risks JM used generally accepted methods for calculating the fair value of the Group’s financial within the Group. Financial risk management is largely concentrated to the Corporate instruments as of December 31, 2005 and 2004. The fair value of interest-bearing liabilities Finance unit, which is also mandated to support operational activities. At the same to credit institutions is assumed to correspond to the book value since they mainly have time, the International companies are responsible for local activities in accordance a short fixed-term of less than 3 months. For all other financial assets and liabilities, such with financial policy guidelines. as cash and cash equivalents, accounts receivable, and accounts payable, the book value Interest risk is assumed to provide a good approximation of the fair value. Interest risk refers to the risk that changes in interest rates would have a negative Financial derivative instruments effect on the Group’s net interest and cash flow. One of the biggest risk factors involves JM uses financial derivative instruments to manage interest risks and on a selective choosing the term for fixed rate loans for the Group’s loan portfolio. JM selects fixed basis, occasional currency risks. Derivative instrument may only be used to minimize rate terms based on the tied up capital and cash flows of ongoing projects, as well as risks. All gains and losses that arise in market valuations of instruments are recognized the current market situation for interest rates with different terms. The average term directly against profits, since the JM Group does not apply hedge accounting for exist- for fixed-rate loans excluding pension liability on December 31, 2005, was 1.6 years ing derivatives. (2.0). According to the policy, the average term for fixed-rate loans should govern for 2 According to IAS 39, beginning in 2005 all outstanding derivatives at the beginning of years, +/- 6 months. To achieve the desired term for fixed-rate loans, the Group works the 2005 financial year shall be remeasured to fair value. This amount was recognized with interest rate derivatives, mainly interest rate swaps. in equity in accordance with current regulations and is written off over the remaining maturity of each instrument. In those cases that hedged cash flow is no longer expected Interest bearing liabilities and average interest rates, including derivatives: to occur, the entire remaining value of the derivative has been transferred from equity 2005 to the income statement. 2010 and Pension The nominal amount for outstanding interest rate swaps 3 (6) amounts to SEK 318m (700), Year for interest conversion 2006 2007 2008 2009 later liability* Total of which SEK 118m relates to project development. As at Dec. 31, 2005 fixed interest Loan amount (SEKm) 325 123 100 - 100 472 1,120 rates varied between 5.3% and 5.8% (4.5% and 5.8%). The short rate is about 1.7%. Average interest (%) 3.1 5.9 6.3 - 5.8 4.3 4.4

Maturity structure derivative instrument 2006 2008 2011 2004 2009 and Pension Interest swaps (SEKm) 118 100 100 Year for interest conversion 2005 2006 2007 2008 later liability* Total

Loan amount (SEKm) 750 221 106 100 300 453 1,930 Market value for the Group’s interest rate derivatives, Dec. 31, 2005 Average interest (%) 3.5 5.6 6.4 6.6 5.8 4.2 4.6 Asset Liability

* Fixed-interest period for pension interest is 1 year. 2005 Interest swap - cash flow hedge (SEKm) - 17 A 1 percent change in the market interest rate corresponds with an effect on earnings of about SEK 3m for the part of the loan portfolio traded during 2006, including the 2004 effect of signing risk-minimizing derivative agreements. Interest swap - cash flow hedge (SEKm) - 43 The financial policy also includes interest risk management rules for construction loans during ongoing production, as well as final financing of tenant-owners’ associations. Cash and cash equivalents Cash and cash equivalents consist of cash and short-term investments. According to JM’s financial policy, the company may only invest excess liquidity in liquid instruments issued by issuers with a credit rating of at least A- according to Standard & Poor’s or similar credit rating agency. The investments are short-term with a term of between 1 day and 3 months. See note 23 for distribution between cash and investments. Financing and liquidity risk Financing and liquidity risk refers to the risk that loans could become more difficult and more expensive to refinance and that the Group cannot fulfill its current payment obligations due to inadequate liquidity. The Group manages its financing risk by signing long-term binding credit agreements with different maturities with several different institutions. The Group promises to maintain its equity ratio and interest coverage ratio (covenants) at a certain level as security for its credit agreements. According to the policy, the average maturity for framework agreements shall be two to three years.

Binding loan commitments Maturity 2006 2007 2008 2009 2010

Loan commitments (SEK m) 400 - 1,300 300 400

j m a n n u a l r e p o r t 2 0 0 5 NOTES 73

NOTE 29 – PROGRESS BILLINGS IN EXCESS OF NOTE 32 – OTHER NON-CASH ITEMS RECOGNIZED REVENUE Group Parent Company Group Parent Company 2005 2004 2005 2004 2005 2004 2005 2004 Gains on the sale of properties -247 -164 -133 -98 Accumulated billing on account Change in pension liability -19 2 -20 4 for work in progress 9,072 8,367 8,133 7,680 Other provisions, etc. 61 -27 53 -24 Recognized revenue in work in progress -7,893 -7,563 -7,209 -7,041 Total -205 -189 -100 -118 Total 1,179 804 924 639 NOTE 33 – INVESTMENTS IN DEVELOPMENT PROPERTIES, ETC. NOTE 30 – ACCRUED EXPENSES AND DEFERRED INCOME Group Parent Company Group Parent Company 2005 2004 2005 2004 2005 2004 2005 2004 Investment in development properties -1,337 -275 -786 -159 Personnel-related items 281 271 203 189 Acquisition of participations in Prepaid rental income 17 35 9 24 tenant-owner co-operatives -116 -722 -107 -686 Other accrued expenses 351 306 232 239 Financing via short-term promissory notes 265 -59 116 - Total 649 612 444 452 Total -1,188 -1,056 -777 -845

NOTE 31 – PLEDGED ASSETS AND CONTINGENT LIABILITIES NOTE 34 – PAYMENT ON ACCOUNT FOR DEVELOPMENT Group Parent Company PROPERTIES, ETC. 2005 2004 2005 2004 Group Parent Company Assets pledged to secure own provisions and liabilities 2005 2004 2005 2004 Corporate mortgages 100 100 100 100 Payment on account for development properties 1,232 892 848 592 Property mortgages 40 80 - - Sale of development properties 187 73 219 52 Total 1) 140 180 100 100 Changes in receivables sold

development properties -8 - -1 - Contingent liabilities Sale of participations in Guarantees on behalf of group companies 2) - - 1,195 1,193 tenant-owner co-operatives 359 1,094 333 993 Guarantee commitments, other 3) 4,067 4,045 3,892 3,895 Total 1,770 2,059 1,399 1,637 Guarantees in connection with assignments 473 468 273 273 Payment and rental guarantees 503 329 - 7 Other contingent liabilities 10 10 10 10 NOTE 35 – INVESTMENTS IN PROJECT PROPERTIES, ETC. Total 5,053 4,852 5,370 5,378 Group Parent Company 2005 2004 2005 2004 1) The corporate mortgage relates to the pension liability that JM Sweden has with PRI. Property mortgages are only granted to a limited extent for financing with credit Investments in project properties -252 -224 -192 -112 institutions. Adjustment for capitalized interest 2 - - - Total -250 -224 -192 -112 2) Guarantees on behalf of Group companies mainly relate to commitments for foreign companies and the subsidiaries Seniorgården AB, AB Borätt, and JM Entreprenad AB. NOTE 36 – SALE OF PROJECT PROPERTIES ETC. 3) During the production period of a tenant-owner co-operative, the JM Group provides guarantees for part of the short-term financing that exceeds a co-operative’s future Group Parent Company long-term loans. Guarantee commitments, other relate entirely to this short-term 2005 2004 2005 2004 financing. The long-term loans are secured by the mortgage deeds taken out by the Sale of project properties 1,565 945 900 457 co-operative itself. Change in receivables 38 -14 38 -42 The Group also has obligations to acquire unsold participations in tenant-owner coopera- Total 1,603 931 938 415 tives formed by JM. See note 20 Participations in tenant-owner co-operatives, etc. A tenant-owner co-operative’s only revenue is its monthly charges. In order to ensure NOTE 37 – MERGER OF GROUP COMPANIES that the estimated monthly charges are received by the co-operative, JM provides a 7- During the year 6 Group companies merged with JM AB. These transactions have not year guarantee. The guarantee comprises an undertaking to buy such apartments as are lead to any cash flow. returned to the co-operative from the first owner. JM then buys the apartment for SEK 1 and then pays the monthly charge to the co-operative until JM in its turn has sold the NOTE 38 – RELATED PARTY DISCLOSURES apartment. This guarantee has existed since 1993 and has never been utilized. JM considers Related party disclosures can be seen in notes 2, 3 and 15. The Group’s related party it unlikely that the guarantee will need to be met in other than exceptional cases. disclosure, in addition to what is specified in note 3 Employees and payroll expenses, AB Bostadsgaranti has a recourse agreement against JM AB regarding their investment only relates to associated companies and joint ventures, is only limited in scope and has guarantee for paid contributions and charges for grant of enjoyment. The guarantee occurred on market-based terms. primarily ensures that the co-operative can repay a reasonable amount (maximum contribution and charges) to the tenant-owner who has a right of termination due to significant increases in charges during the first year after final accounts, after which Bostadsgaranti has no liability to pay anything. Bostadsgaranti has not paid out anything since 1962.

j m a n n u a l r e p o r t 2 0 0 5 74 FIVE-YEAR SUMMARY GROUP

SEKm INCOME STATEMENT1) 2005 2004 2003 2002 2001

Income 9,887 8,532 7,787 8,872 8,642 Costs for production and management -8,327 -7,347 -7,152 -7,960 -7,022 Gross profit 1,560 1,185 635 912 1,620 Selling and administrative expenses -576 -542 -505 -527 -545 Gains on the sale of properties 247 164 411 523 928 Impairment losses on properties - -15 -63 -256 -39 Operating profit 1,231 792 478 652 1,964 Financial income and expenses -80 -145 -211 -284 -335 Profit before tax 1,151 647 267 368 1,629 Taxes -175 -173 -80 -115 -485 Net profit for the year 976 474 187 253 1,144

INCOME STATEMENT BY FUNCTION 1) Production Recognised revenue 9,615 8,197 7,429 8,311 7,867 Production costs -8,137 -7,134 -6,916 -7,739 -6,763 Profit from production operations 1,478 1,063 513 572 1,104

Development properties Rental income 80 93 144 163 133 Operating expenses -60 -68 -120 -105 -69 Property tax -11 -15 -11 -11 -6 Profit from development properties 9 10 13 47 58

Project properties Rental income 192 242 214 398 642 Operating expenses -112 -122 -91 -72 -145 Property tax -7 -8 -14 -33 -39 Profit from project properties 73 112 109 293 458

Selling and administrative expenses -513 -475 -443 -462 -481

Property sales Sales values 1,752 1,018 2,219 3,015 4,074 Book value -1,505 -854 -1,808 -2,492 -3,146 Gains on the sale of properties 247 164 411 523 928

Impairment losses on properties - -15 -63 -256 -39 Group-wide expenses -63 -67 -62 -65 -64 Operating profit 1,231 792 478 652 1,964

BALANCE SHEET 1) 05-12-31 04-12-31 03-12-31 02-12-31 01-12-31

ASSETS Fixed assets 134 157 168 196 210

Project properties 1,183 2,246 2,833 2,774 4,717 Development properties 2,925 2,971 3,631 3,871 4,048 Participations in tenant-owner co-operatives, etc 38 243 527 358 92 Current receivables 2) 1,241 1,350 1,654 2,833 3,169 Cash and cash equivalents 2,634 1,285 332 596 652 Total current assets 8,021 8,095 8,977 10,432 12,678

TOTAL ASSETS 8,155 8,252 9,145 10,628 12,888

EQUITY & LIABILITIES Shareholders’ equity 3,311 3,465 3,285 3,570 3,823

Long-term interest-bearing liabilities 626 1,169 2,302 3,137 4,307 Long-term provisions 850 1,028 965 879 980 Total long-term liabilities 1,476 2,197 3,267 4,016 5,287

Current interest-bearing liabilities 22 308 233 743 1,214 Other current liabilities 3,283 2,221 2,280 2,260 2,529 Current provisions 63 61 80 39 35 Total current liabilities 3,368 2,590 2,593 3,042 3,778

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 8,155 8,252 9,145 10,628 12,888 2) Of which receivables, property sales 37 68 54 1,063 1,133

j m a n n u a l r e p o r t 2 0 0 5 FIVE-YEAR SUMMARY GROUP 75

SEKm CASH FLOW STATEMENT 2005 2004 2003 2002 2001

Cash flow from operating activities 3,368 2,161 1,504 2,161 1,111 Cash flow from investing activities, other 6 -11 -25 -34 -36 Cash flow from financing activities -2,025 -1,197 -1,743 -2,183 -869 Total cash flow for the year 1,349 953 -264 -56 206 Cash and cash equivalents, December 31 2,634 1,285 332 596 652

INTEREST-BEARING NET RECEIVABLES /-DEBT Interest-bearing receivables (+)/-debt (-), January 1 -613 -2,611 -3,665 -5,220 -5,117 Change in interest-bearing receivables/liabilities 2,149 1,998 1,054 1,555 -103 Interest-bearing receivables (+)/-debt (-), December 31 1,536 -613 -2,611 -3,665 -5,220

HOUSING PRODUCTION Number of housing starts 4,476 3,943 2,714 2,711 2,900 Number of sold residential units 4,240 4,315 3,189 2,511 2,255 Number of available building rights 23,200 21,900 23,400 25,500 27,000

PROJECT PROPERTIES Market values 1,448 2,576 3,205 3,478 6,371 Book value 1,183 2,246 2,833 2,774 4,717 Surplus values before deferred tax 265 330 372 704 1,654

EMPLOYEES Average number of employees 2,249 2,286 2,566 2,602 2,502 - of which abroad 272 267 293 301 253 Salaries/wages and remuneration 853 807 890 906 790

KEY RATIOS 1) Interest-bearing loans including pensions (SEKm) 1,120 1,930 2,986 4,313 5,930 Operating margin(%) 3) 12.5 9.3 2.4 5.4 11.8 Return on equity on total capital(%) 15.6 9.5 5.2 5.9 15.9 Return on capital employed(%) 26.0 14.3 7.3 7.8 20.8 Return on equity(%) 28.8 14.4 5.5 6.8 30.1 Equity ratio(%) 41 42 36 34 30 Debt/equity ratio(times) - 0.2 0.8 1.0 1.4 Interest coverage ratio(times) 10.1 4.7 2.1 2.1 5.5 Asset turnover rate(times) 1.21 0.98 0.79 0.75 0.69

1) The 2003 financial year and earlier are not restated according to IFRS. This means that the new principles for goodwill and for using the percentage of completion method as a basis for calculations did not affect the years between 2001 and 2003. 3) The 2003 financial year and earlier operating margin corresponds to project development margin.

j m a n n u a l r e p o r t 2 0 0 5 76 QUARTERLY OVERVIEW GROUP

2005 2004 SEKm INCOME STATEMENT Full year Q 4 Q 3 Q 2 Q1 Full year Q 4 Q3 Q 2 Q 1

Income 9,887 2,876 2,419 2,538 2,054 8,532 2,562 1,805 2,183 1,982 Costs for production and management -8,327 -2,352 -2,052 -2,148 -1,775 -7,347 -2,196 -1,548 -1,887 -1,716 Gross profit 1,560 524 367 390 279 1,185 366 257 296 266 Selling and administrative expenses -576 -142 -129 -167 -138 -542 -152 -111 -148 -131 Gains on the sale of properties 247 147 31 31 38 164 68 10 25 61 Impairment losses on properties ------15 -15 - - - Operating profit 1,231 529 269 254 179 792 267 156 173 196 Financial income and expenses -80 -5 -6 -45 -24 -145 -45 -10 -42 -48 Profit before tax 1,151 524 263 209 155 647 222 146 131 148 Taxes -175 -92 26 -63 -46 -173 -51 -41 -39 -42 Net profit for the period 976 432 289 146 109 474 171 105 92 106

BALANCE SHEET Dec. 31, 2005 Sep. 30, 2005 Jun 30, 2005 Mar 31, 2005 Dec. 31, 2004 Sep. 30, 2004 Jun 30, 2004 Mar 31, 2004

ASSETS Fixed assets 134 164 191 191 157 162 158 162

Project properties 1,183 2,038 2,071 2,041 2,246 2,425 2,416 2,604 Development properties 2,925 2,629 2,734 2,893 2,971 3,124 3,275 3,488 Participations in tenant-owner co-operatives, etc. 38 43 125 167 243 276 305 407 Current receivables 1,241 1,725 1,497 1,512 1,350 1,563 1,737 2,338 Cash and cash equivalents 2,634 1,023 782 1,797 1,285 424 476 113 Total current assets 8,021 7,458 7,209 8,410 8,095 7,812 8,209 8,950

TOTAL ASSETS 8,155 7,622 7,400 8,601 8,252 7,974 8,367 9,112

EQUITY & LIABILITIES Shareholders’ equity 3,311 2,876 2,590 3,558 3,465 3,297 3,197 3,250

Long-term interest-bearing liabilities 626 794 802 1,174 1,169 1,368 1,651 2,207 Long-term provisions 850 1,002 1,101 1,056 1,028 1,021 936 912 Total long-term liabilities 1,476 1,796 1,903 2,230 2,197 2,389 2,587 3,119

Current interest-bearing liabilities 22 142 134 334 308 247 293 308 Other current liabilities 3,283 2,745 2,714 2,428 2,221 1,998 2,209 2,355 Current provisions 63 63 59 51 61 43 81 80 Total current liabilities 3,368 2,950 2,907 2,813 2,590 2,288 2,583 2,743

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 8,155 7,622 7,400 8,601 8,252 7,974 8,367 9,112

2005 2004 CASH FLOW STATEMENT Full year Q 4 Q 3 Q 2 Q 1 Full year Q 4 Q 3 Q 2 Q 1

Cash flow from operating activities 3,368 1,897 216 739 516 2,161 997 293 1,062 -191 Cash flow from investing activities, other 6 22 22 2 -40 -11 - -9 -2 - Cash flow from financing activities -2,025 -308 3 -1,756 36 -1,197 -136 -336 -697 -28 Total cash flow for the period 1,349 1,611 241 -1,015 512 953 861 -52 363 -219

Cash and cash equivalents at end of period 2,634 2,634 1,023 782 1,797 1,285 1,285 424 476 113

INTEREST-BEARING NET RECEIVABLES/-DEBT

Interest-bearing net receivables (+)/-debt (-) at beginning of period -613 -341 -557 -99 -613 -2,611 -1,597 -1,868 -2,789 -2,611 Change in interest-bearing receivables/liabilities 2,149 1,877 216 -458 514 1,998 984 271 921 -178 Interest-bearing net receivables (+)/debt (-) at end of period 1,536 1,536 -341 -557 -99 -613 -613 -1,597 -1,868 -2,789

KEY RATIOS

Operating margin (%) 12.5 18.4 11.1 10.0 8.7 9.3 10.4 8.6 7.9 9.9 Debt/equity ratio (times) - - 0.1 0.2 0.0 0.2 0.2 0.5 0.6 0.9 Equity ratio (%) 41 41 38 35 41 42 42 41 38 36 Earnings per share (SEK) 37.00 17.50 11.70 5.20 3.90 16.90 6.10 3.70 3.30 3.80 Number of housing starts 4,476 1,642 973 1,080 781 3,943 1,327 774 1,099 743 Number of sold residential units 4,240 1,282 834 1,103 1,021 4,315 966 956 1,128 1,265 Number of available building rights 23,200 23,200 23,200 22,750 22,300 21,900 21,900 22,000 22,500 23,000

j m a n n u a l r e p o r t 2 0 0 5 QUARTERLY OVERVIEW BUSINESS SEGMENTS 77

2005 2004 SEKm Full year Q 4 Q 3 Q 2 Q 1 Full year Q 4 Q 3 Q 2 Q 1

JM RESIDENTIAL STOCKHOLM Income 3,816 1,086 845 1,017 868 3,438 1,070 654 889 825 Operating profit1) 500 184 102 139 75 296 102 60 74 60 Operating margin(%) 13.1 16.9 12.1 13.7 8.6 8.6 9.5 9.2 8.3 7.3 Average operating capital 1,488 1,488 1,733 1,935 2,173 2,356 2,356 Return on operating capital(%) 2) 33.6 33.6 24.1 19.4 14.3 12.6 12.6 Operating cash flow 1,416 535 108 415 358 956 430 197 396 -67 Number of available building rights 9,200 9,200 9,700 9,500 9,400 9,100 9,100 9,600 10,000 10,300 Number of housing starts 1,937 803 287 527 320 1,706 556 404 457 289 Number of sold residential units 1,754 496 347 506 405 1,968 426 496 585 461 Book value of development properties 1,337 1,337 1,309 1,443 1,590 1,702 1,702 1,800 1,864 2,092

1) Of which, property sales 34 - - 30 4 1 2 - - -1

JM RESIDENTIAL SWEDEN Income 3,012 848 703 784 677 2,417 704 524 605 584 Operating profit1) 341 134 81 69 57 202 64 45 43 50 Operating margin(%) 11.3 15.8 11.5 8.8 8.4 8.4 9.1 8.6 7.1 8.6 Average operating capital 539 539 607 696 759 808 808 Return on operating capital(%) 2) 63.2 63.2 44.7 33.8 27.5 25.0 25.0 Operating cash flow 544 167 58 215 104 413 202 183 -52 80 Number of available building rights 8,400 8,400 8,400 7,900 7,500 7,400 7,400 7,100 7,400 7,300 Number of housing starts 1,451 453 366 343 289 1,218 404 231 370 213 Number of sold residential units 1,411 397 308 343 363 1,225 249 259 298 419 Book value of development properties 817 817 646 619 633 687 687 690 724 666

1) Of which, property sales 16 3 11 1 1 3 3 - - -

JM INTERNATIONAL Income 2,069 603 613 520 333 1,866 602 429 463 372 Operating profit1) 183 59 57 35 32 117 43 24 28 22 Operating margin (%) 8.8 9.8 9.3 6.7 9.6 6.3 7.1 5.6 6.0 5.9 Average operating capital 1,118 1,118 1,085 1,055 1,024 1,000 1,000 Return on operating capital(%) 2) 16.4 16.4 15.4 12.7 12.4 11.7 11.7 Operating cash flow 115 101 15 46 -47 139 0 76 40 23 Number of available building rights 5,600 5,600 5,100 5,350 5,400 5,400 5,400 5,300 5,100 5,400 Number of housing starts 1,088 386 320 210 172 1,019 367 139 272 241 Number of sold residential units 1,075 389 179 254 253 1,122 291 201 245 385 Book value of development properties 632 632 491 484 467 394 394 441 496 516 Book value of project properties 271 271 273 275 265 306 306 323 313 288

1) Of which, property sales 11 1 - - 10 1 1 - - -

JM PROPERTY DEVELOPMENT Income 211 36 45 66 64 276 69 67 74 66 Operating profit1) 212 150 34 5 23 201 63 33 37 68 Average operating capital 1,704 1,704 1,941 2,014 2,201 2,330 2,330 Return on operating capital(%) 2) 12.4 12.4 6.4 6.2 7.1 8.6 8.6 Operating cash flow 1,247 1,009 48 91 99 803 194 82 612 -85 Book value of development properties 136 136 181 185 201 185 185 191 189 211 Book value of project properties 840 840 1,652 1,647 1,627 1,789 1,789 1,951 1,952 2,162

1) Of which, property sales 186 143 20 - 23 154 62 10 25 57 – impairment losses on properties ------15 -15 - - -

JM PRODUCTION Income 1 197 431 286 267 213 931 313 213 212 193 Operating profit1) 58 18 16 16 8 43 13 8 9 13 Operating margin(%) 4.8 4.2 5.6 6.0 3.8 4.6 4.2 3.8 4.2 6.7 Operating cash flow 155 33 32 67 23 45 -9 31 -9 32

1) Of which, property sales - - - - - 5 - - - 5

JM OTHER Revenue (elimination) -418 -128 -73 -116 -101 -396 -196 -82 -60 -58 Operating profit (Group-wide expenses) -63 -16 -21 -10 -16 -67 -18 -14 -18 -17

2) Calculated on 12-month rolling profits and average capital. C omparative figures for quarter 3 2004 and earlier have not been converted according to IFRS.

j m a n n u a l r e p o r t 2 0 0 5 78 TRANSITION TO IFRS

EFFECTS OF THE TRANSITION ON 2004 INCOME STATEMENT AND BALANCE SHEET ACCORDING TO IFRS SEKm GROUP IFRS Jan. - Dec. IFRS 3 IAS 11 Jan. - Dec. INCOME STATEMENT 2004 Goodwill Construction contract 2004

Income 8,414 – 118 8,532 Costs for production and management -7,360 13 – -7,347 Gross profit 1,054 13 118 1,185 Selling and administrative expenses -542 – – -542 Gains on the sale of properties 164 – – 164 Impairment losses on properties -15 – – -15 Operating profit 661 13 118 792 Financial income and expenses -145 – – -145 Profit before tax 516 13 118 647 Taxes -140 – -33 -173 Net profit for the year 376 13 85 474

IFRS 3 IAS 11 IFRS BALANCE SHEET Dec. 31, 2004 Goodwill Construction contract Dec. 31, 2004

ASSETS

Noncurrent assets 144 13 – 157

Project properties 2,246 – – 2,246 Development properties 2,971 – – 2,971 Participations in tenant-owner co-operatives, etc. 243 – – 243 Current receivables 1,350 – – 1,350 Cash and cash equivalents 1,285 – – 1,285 Total current assets 8,095 – – 8,095

TOTAL ASSETS 8,239 13 – 8,252

EQUITY & LIABILITIES

Shareholders’ equity 3,518 13 -66 3,465

Long-term interest-bearing liabilities 1,169 – – 1,169 Long-term provisions 1,054 – -26 1,028 Total long-term liabilities 2,223 – -26 2,197

Current interest-bearing liabilities 308 – – 308 Other current liabilities 2,129 – 92 2,221 Current provisions 61 – – 61 Total current liabilities 2,498 – 92 2,590

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 8,239 13 – 8,252

IFRS Jan. - Dec. Effect Jan. - Dec. KEY RATIO 2004 of IFRS 2004

Operating margin (%) 7.9 9.3 Return on capital employed (%) 11.8 14.3 Return on equity (%) 11.1 14.4 Equity ratio (%) 43 42 Earnings per share 13.40 3.50 16.90

SHAREHOLDERS’ EQUITY Dec. 31, 2004

Shareholders’ equity at close of period, according to previous principles: 3,518

Effects of the transition to IFRS on shareholders’ equity are attributable to: - change in shareholders’ equity Jan. 1, 2004, IAS 11 construction contracts -210 - change in shareholders’ equity at Jan. 1, 2004, deferred tax 59 - IFRS 3 reversal of write-down of goodwill for 2004 13 - IAS 11 Construction contracts, effect 2004. 118 - Deferred tax on IFRS adjustments -33

Shareholders’ equity at close of period, according to IFRS 3,465

j m a n n u a l r e p o r t 2 0 0 5 TRANSITION TO IFRS 79

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS IN BUSINESS SEGMENTS SEKm IFRS Jan. - Dec. IFRS 3 IAS 11 Jan. - Dec. 2004 Goodwill Construction contract 2004

JM RESIDENTIAL STOCKHOLM Income 3,336 – 102 3,438 Operating profit 194 – 102 296 Operating margin (%) 5.8 – – 8.6 Average operating capital 2,423 – -67 2,356 Return on operating capital (%) 8.0 – – 12.6

JM RESIDENTIAL SWEDEN Income 2,401 – 16 2,417 Operating profit 186 – 16 202 Operating margin (%) 7.7 – – 8.4 Average operating capital 825 – -17 808 Return on operating capital (%) 22.6 – – 25.0

JM INTERNATIONAL Income 1,866 – – 1,866 Operating profit 104 13 – 117 Operating margin (%) 5.6 – – 6.3 Average operating capital 993 7 – 1,000 Return on operating capital (%) 10.5 – – 11.7

JM PROPERTY DEVELOPMENT Income 276 – – 276 Operating profit 201 – – 201 Average operating capital 2,330 – – 2,330 Return on operating capital (%) 8.6 – – 8.6

JM PRODUCTION Income 931 – – 931 Operating profit 43 – – 43 Operating margin (%) 4.6 – – 4.6

JM OTHER/ELIMINATION Income -396 – – -396 Operating profit -67 – – -67

JM GROUP TOTAL Income 8,414 – 118 8,532 Operating profit 661 13 118 792 Operating margin (%) 7.9 – – 9.3

Transition to IFRS 2005 With effect from 2005, all listed companies in the European Union must prepare their consolidated accounts in accordance with International Financial Reporting Standards (IFRS), which also include current International Accounting Standards (IAS). Since the Swedish Financial Accounting Standards Council’s recommendations (RR), which were applied by JM until and including 2004, were largely based on IAS, the consolidated accounts were mostly already adapted to the new rules.

The most significant effect for the Group of the transition to IFRS pertained to revenue recognition of housing projects (Construction Contracts IAS 11). JM was also affected by accounting for Business Combinations (goodwill) (IFRS 3) and Financial Instruments (IAS 32 and 39). The Company applied IAS 32 and 39 on financial instruments and the comparative figures for 2004, in compliance with the transition rules, were not re-stated.

Construction contracts, IAS 11 In autumn 2004, the Swedish Construction Federation issued an amendment to its industry recommendations relating to the percentage of completion method in residential projects for sale. This recommendation, which is a clarification of IAS 11, prescribes revenue recognition that is calculated as stage of completion multiplied by sales rate. This means that revenue recognition will now be more cautious than previously, with a stronger link to sold residential units. For JM the change meant that equity decreased by SEK 210m, excluding deferred tax, as of January 1, 2004, and operating profit for 2004 increased by SEK 118m. This change was explained by good sales in 2004, which in part were attributable to residential units completed in 2003.

Business combinations, IFRS 3 This recommendation represents changes in the way company acquisitions are reported and means that planned amortization of goodwill will cease. The changes involve a more detailed breakdown of the purchase price. Goodwill which is not amortized on a current basis must be tested at least once a year for impairment. For JM the application of IFRS 3 meant that profit for 2004 increased by SEK 13m because of the reversal of goodwill write-downs from 2004.

j m a n n u a l r e p o r t 2 0 0 5 80 PROPOSED DISPOSITION OF EARNINGS

Proposed Disposition of Earnings

The Board of Directors and the President propose that the Parent Company’s net profit for the year of SEK 1,640,132,856 and profit carried forward of SEK 281,227,494, for a total of SEK 1,921,360,350, be distributed as follows to the shareholders as a dividend of SEK 10 per share SEK 246,763,800 carried forward to new account SEK 1,674,596,550 SEK 1,921,360,350

The undersigned hereby certifies that to the best of their knowledge, the annual accounts have been prepared in compliance with generally accepted accounting practices for listed companies and that the information presented is consistent with the actual conditions and that nothing of material value has been omitted that would affect the picture of the company presented in the annual report.

Stockholm March 13, 2006

Lars Lundquist Chairman of the Board

Berthold Lindqvist Elisabet Annell Bengt Larsson Torbjörn Torell

Eva-Britt Gustafsson Jonatan Sundelin Johan Wegin

Johan Skoglund President

j m a n n u a l r e p o r t 2 0 0 5 AUDIT REPORT 81

Audit Report

TO THE ANNUAL GENERAL MEETING OF JM AB, COMPANY REG. NO. 556045-2103 We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and President of JM AB for the 2005 financial year. The audit of the annual report encompasses pages 40-80. The Board of Directors and the President are responsible for these accounts and the administration of the company as well as the application of the Annual Accounts Act when preparing the annual accounts, and for the application of international financial reporting standards IFRSs as adopted by the EU and the application of the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable, but not absolute, assurance that the annual and consolidated accounts are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. It also includes an assessment of the accounting policies used and of their application by the Board of Directors and the President, and of the significant estimates and judgments made by theD irectors in the preparation of the annual accounts and consolidated accounts as well as an evaluation of the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the President. We also examined whether any Board member or the President has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and thereby give a true and fair view of the company’s and the Group’s financial position and results of operations in accordance with generally accepted auditing standards in Sweden. The consolidated accounts have been prepared in accordance with international financial reporting standards IFRSs as adopted by the EU and the Annual Accounts Act and give a true and fair view of the Group’s financial position and results of operations. The administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the annual general meeting that the income statements and balance sheets of the Parent Company and the Group be adopted, that the profit of the ParentC ompany be dealt with in accordance with the proposal in the Board of Directors’ Report, and that the members of the Board of Directors and the President be discharged from liability for the financial year.

Stockholm March 13, 2006

Ernst & Young AB

Ingemar Rindstig Lars Träff Authorized public accountant Authorized public accountant

j m a n n u a l r e p o r t 2 0 0 5 82 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES

Board of Directors

Lars Lundquist Elisabet Annell Eva-Britt Gustafsson Bengt Larsson Berthold Lindqvist Torbjörn Torell

Johan Skoglund Jonatan Sundelin Johan Wegin Magnus Rehbinder Peter Skogert

j m a n n u a l r e p o r t 2 0 0 5 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES 83

Board of Directors Eva-Britt Gustafsson Torbjörn Torell EMPLOYEE REPRESENTATIVES Lars Lundquist Board member and member of Audit Board member and member of the Jonatan Sundelin Chairman of the Board, chairman of Committee. Investment Committee. Born 1970. Construction worker. the Compensation Committee and the Elected to the Board: 2005 Elected to the Board: 2004 Member of the board since 2004. Investment Committee. Shares in JM: 0 Shares in JM: 0 Shares in JM: 0 Elected to the Board: 2005 Age: 55 Age: 50 Shares in JM: 3,000 shares Education: MSc, Stockholm School of Education: M.Sc.Eng, Royal Institute of Johan Wegin Age: 58 Economics. Technology, Stockholm. Born 1965. Construction engineer. Education: MSc, Stockholm School of Work experience: 18 years at Work experience: 13 years in the Member of the board since 2002. Economics, Stockholm; MBA, University Nordbanken (Nordea), including as Skanska Group, in various managerial Committee assignments at JM: of Wisconsin. bank manager; 2 years as VP of Securum positions; 3 years as CEO of Åke Larson Investment Committee Work experience: 32 years at various Finans AB. For the past 11 years, CEO of Byggare AB and 6 years as President and Shares in JM: 0 banks, brokerage firms and insurance Venantius AB. CEO of Scandiaconsult AB. For the past 2 companies of which 3 years as Chief Other significant appoint- years, President and CEO of the Bravida Group. Financial Officer and 7 years as Board ments: Chairman of the board of Magnus Rehbinder Member of Gamla Livförsäkrings AB SEB Specialfastigheter Sverige AB and board Other significant appointments: Board Born 1944. Mining engineer. Trygg Liv (with a property portfolio of member of Sixth Swedish National member of Stiftelsen Livslust and Carl SEK 12-17 billion). Chief Financial Officer Pension Fund. Bro A/S. Deputy member of the board since 2003. and VP at SEB until retirement on Shares in JM: 88 Jan. 1, 2005. Bengt Larsson Johan Skoglund Other significant appointments: Board member and member of the President and CEO since Nov. 1, 2002. Peter Skogert Chairman of the Board of Försäkrings Compensation Committee. Elected to the Board: 2003 AB ERIKA; board member and treasurer Born 1973. Construction worker. Elected to the Board: 2004 of Hjärt-Lungfonden. Nominated as Shares in JM: 5,000 Deputy member of the board since 2005. Chairman of the Board of Intrum Justitia Shares in JM: 0 Age: 43 Shares in JM: 0 AB. Age: 60 Education: M.Sc.Eng, Royal Institute of Education: Upper secondary school Technology, Stockholm and Master of SECRETARY TO THE BOARD Elisabet Annell Science Program at Stockholm School of Work experience: 20 years in various Urban Lilja Board member and member of Audit positions within the IKEA Group, Economics. Born 1952. Senior Legal Advisor at JM AB. Committee. including head of operations in Sweden, Work experience: 19 years at JM AB in Elected to the Board: 2002 Northern Europe and Europe, and a various positions such as site engineer, Secretary to the board since 1996. member of executive management project manager, regional manager and Shares in JM: 613 shares Shares in JM: 15,000 during the 1990s. business unit manager. Age: 60 Other significant appointments: Other significant appointments: AUDITORS Education: MA, Stockholm University. Board member and member of the Board member of AB Bostadsgaranti, Ernst & Young AB Work experience: 14 years at KPMG as Compensation Committee at AB Lindex. Försäkrings AB Bostadsgaranti, Swedish an authorized public accountant and cor- Construction Federation, and Mentor Ingemar Rindstig porate finance consultant; 11 years as VP Berthold Lindqvist Sverige. Authorized public accountant and CEO of three different service com- Board member and chairman of the Lars Träff panies: MGruppen, Tönnerviksgruppen, Audit Committee. and Sifo Group; 6 years as CEO and Authorized public accountant strategic consultant at SMG. For the past Elected to the Board: 2001 Ernst & Young AB were appointed 4 years, President and CEO of Univero Shares in JM: 1,875 shares Group (formerly Temogruppen). auditors of JM AB at the Annual General Age: 67 Meeting in April 2004. Other significant appointments: Education: Honorary Doctor of Board member of AB Sardus, IBS AB, Medicine, engineer. TradeDoubler AB, Catella Holding AB, Shareholdings pertain to personal holdings Livförsäkrings AB Skandia, Axel Johnson Work experience: VP at Sonesson AB; 14 or a related physical or legal person’s International AB and Danderyds Sjukhus years as President and CEO of Gambro holdings of JM AB shares and other financial AB. AB. instruments, as at Jan. 31, 2006. Other significant appointments: Chairman of the board of Munters AB, Mr. Jens Engwall, CEO of property manage- board member of Securitas AB, Cardo ment company Kungsleden AB, was elected AB, Trelleborg AB, Novotek AB and to the Board at the Annual General Meeting Probi AB. on April 28, but resigned at his own request on May 9, 2005.

j m a n n u a l r e p o r t 2 0 0 5 84 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES

Executive Management

Johan Skoglund Thor Olaf Askjer Sören Bergström Sten Hamberg Helene Hasselskog Lennart Henriz Östman

Urban Lilja Zdravko Markovski Anders Wahrer Claes Magnus Åkesson

j m a n n u a l r e p o r t 2 0 0 5 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES 85

EXECUTIVE MANAGEMENT Sten Hamberg Akzo Nobel AB 89-96. Chief Legal OTHER SENIOR EXECUTIVES Johan Skoglund Head of JM Residential Sweden business Counsel JM 96-. JM RESIDENTIAL STOCKHOLM President and CEO unit and JM Property Development Zdravko Markovski Patrik Andersson, Stockholm South City JM employee since: 1986 JM employee since: 1980 Region Head of JM Residential Stockholm Member of executive management Member of executive management business unit Magnus Berg, Stockholm Inner City since: 2000 since: 1999 Region Acting Director Corporate Shares in JM: 13,125 Shares in JM: 5,000 Communications Robert Jaaniste, Stockholm North Age: 54. LL.B., Uppsala University, 1976. Region Age: 43. M.Sc.Eng, Royal Institute of JM employee since: 1987 Technology, Stockholm 1986, and Master Former positions at JM: company lawyer, Per Johansson, Stockholm Central Member of executive management since: of Science Program, Stockholm School President AB Borätt and Seniorgården Region Nov. 2002 of Economics, 1998. AB, development manager and head Birgitta Seman, AB Borätt of Business development/Properties Shares in JM: 2,000 Former positions at JM: 19 years at JM Mats Åkerlind, JM Stombyggnad AB and business unit. Head of JM Residential Age: 41. M.Sc.Eng, Royal Institute of AB in various positions such as site engi- JM Inredning i Stockholm AB neer, project manager, regional manager Sweden business unit 05-. Technology 1987. Jarl-Inge Stormo, Property Mnagement and business unit manager. President and Former positions at JM: Project manager, - Technical Services CEO since Nov. 1, 2002. Helene Hasselskog Östman regional manager and Head of JM Board member of AB Bostadsgaranti, Human Resources (from Jan. 2006) Residential business unit. Head of JM Försäkrings AB Bostadsgaranti, Swedish JM employee since: 2006 Residential Stockholm 03-. JM RESIDENTIAL SWEDEN Construction Federation, and Mentor Shares in JM: 0 Chairman of the Board of AB Borätt, Anette Frumerie, East Region Sverige. JM Stombyggnad AB and JM Inredning i Mats Karlsson, Central Region Age: 37. BA, Human Resource Stockholm AB. Board member of SMÅA Development and Labor Relations, Thor Olaf Askjer AB and Seniorgården AB. Anders Lundberg, West Region Stockholm University 1994. Head of JM Residential Norway business Christer Lindmark, Seniorgården AB Director of Human Resources. Anders Wahrer unit Observer AB 02-05; Human Resources Head of JM Residential Öresund JM employee since: 1999 Manager, Observer Sverige AB 98-02; JM INTERNATIONAL business unit and responsible for JM’s Human Resources Manager, Posten Member of executive management operations in Belgium. Morten G. Fossum, JM Danmark A/S, since: 2004 Brev 97-98. Director of Human Denmark Resources JM 06-. JM employee since: 1982 Shares in JM: 0 Göran Sjöborg, JM Construction S.A., Member of executive management Age: 50. Degree in civil engineering, Lennart Henriz since: 2004 Belgium 1977. Business Development (Quality and Shares in JM: 13,660 President Prosjektfinans 97-03 and Environment/IT) Age: 52. M.Sc.Eng, Lund Institute of JM PROPERTY DEVELOPMENT President Byggholt 03-. JM employee since: 1978 Technology 1978. Lars-Olof Höglund, Property Member of executive management BPA foreman 78-82. Management Sören Bergström since: 1998 Former positions at JM: pre-construc- Head of JM Production business unit/ Shares in JM: 6,335 tion manager, project manager, President JM PRODUCTION Director of Purchasing Mercator (subsidiary in Portugal) and Age: 52. M.Sc.Eng, Royal Institute of Ove Sandin, President, JM Entreprenad JM employee since: 1988 Technology 1978. regional manager. Head of JM Öresund business unit 04–. Anders Rahm, Buildings Member of executive management Former positions at JM: Vice President Fredrik Kastevik, Civil Engineering since: 2001 and Business Development 00-. Claes Magnus Åkesson Shares in JM: 0 Anders Brännström, JM Fasad Finance and Treasury Age: 49. M.Sc.Eng, Royal Institute Urban Lilja JM employee since: 1998 of Technology. Master of Science Legal Affairs and Development Programme Stockholm School of Member of executive management JM employee since: 1996 Economics 1996. Executive Management since: 1998 Member of executive management Program, Stockholm School of Shares in JM: 10,000 Economics 2001. since: 1996 Age: 46. Degree in Economics Secretary to JM’s Board. Former positions at JM: project manager, and Business Administration from President of three different subsidiar- Shares in JM: 15,000 Stockholm School of Economics 1984. ies and regional manager. Head of JM Age: 53. LL.B. Lund University 1978. Production business unit 02-. Ericsson Group 87-98: senior controller Articled clerk Borås District Court Asia 94-96, head of finance and treasury Chairman of the board of O.Timblad 78–81. Lawyer Swedish Association Malaysia 96-97 and regional controller Målerifirma AB and JM Entreprenad of Registered Physiotherapists 81-82, Asia 97-98. Chief Financial Officer JM AB, as well as board member of JM lawyer Friman & Carlander Advokatbyrå 98-. Denmark/AS. 82-86, company lawyer Celsius Shareholdings pertain to personal holdings and Industrier AB 86-89 and company lawyer shares owned by immediate family members at January 31, 2006.

j m a n n u a l r e p o r t 2 0 0 5 86 JM’S properties

Project Properties and a Selection of Development Properties at 31 Dec. 2005

The following conditions apply to the schedule of properties: All commercial rental agree- Rentable space, by category ments are index-linked and the correlation with CPI is between 75 and 100 percent. In the column for ”breakdown of rental revenue”, the approximate values are stated since certain leases include several different types of space. In the ”term of lease” column, residential leases are included in the percentage for 2006. The selection of development properties has been made based on the size of the projects and the time aspect—they have been started or will be started in the next few years. Residential 52% Retail 2% PROJEct properties Garage 5% Office 21% Rental space, sq.m Residential Properties Fully developed Other* 20% (incl. garage) (leasehold) under development commercial properties * Warehouse, Industry Greater Stockholm 78,758 42,254 3,135 Rest of Sweden - - 1,796 International - - 14,765 Total 78,758 42,254 19,696

j m a n n u a l r e p o r t 2 0 0 5 JM’S properties 87

FULLY DEVELOPED COMMERCIAL PROPERTIES

Tax / Total rent- Rental revenue, Term Possible Major No Property Age Rent 2005 able space Rentable space, Revenue 2005 breakdown of lease rental tenants breakdown Hotel/ revenue Municipality Year built/ Tax ass. Hotel Residential Rental revenue Commercial 2006 Fully rented 2006 Address renovated Value commercial Other Retail 2007 Of which, leased description Retail Garage Residential 2008 Other/Garage >=2009 SEKm Sq.m. Sq.m. Sq.m. SEKm % % SEKm 1 Gjuterihuset 1 1927 19.0 596 0 0 1.6 100% 0% 2.2 design AB Propeller Stockholm 2002 596 0 0% 0% 2.2 Semcon Patentgatan 2-12 0 0 0% 0% Office 0% 100% 2 Lux 7 1908-16 26.9 2 112 0 0 4.1 44% 0% 5.3 Sthlm Läns Landsting Stockholm 2002 1,769 343 0% 33% 5.3 Restaurang Lux Primusg 112-116 0 0 0% 33% Previsor AB Office 56% 34% A. Siljeströms Arkitekter 3 Annedal 4 1970 2.1 840 0 0 0.6 0% 100% 0.6 Jysk Bäddlager Lund 0 100 100% 0% 0.6 Annedalsvägen 8 740 0 0% 0% Retail 0% 0 4 Librobäck 12:2 1987 2.6 956 0 0 0.0 3% 0.0 JM Uppsala 450 506 0% 0.0 Klockargatan 4 0 0 0% Office, warehouse 97% 5 Beitostølen 1990 0.2 90 0 90 0.0 0% 0.0 JM Beitostølen 0 0 0% 0.0 Øystre Slidre 0 0 100% cabins/lodge 0% 6 Rud 1976 5.6 1,444 0 0 0.7 0% 0.9 JM Bærum 1985 250 1,194 0% 0.7 Bærumsveien 471 0 0 0% Office/warehouse 100% 7 Rud 1978 5.2 1,855 0 0 2.7 100% 2.7 JM Bærum 1986 1,855 0 0% 2.7 Bærumsveien 473 0 0 0% Office 0% 8 Yxlö 3:51 1984 1.0 427 0 0 0.0 0% 0.0 JM Nynäshamn 1993 0 427 0% 0.0 Ådudden 0 0 0% conference facilities 100% 9 Rue de la Science 1846 11,376 0 0 0.0 0% 23.2 Vacant Brussels 1946 11,004 372 0% 0.0 Belgium 1965 0 0 0% Office 2004 100%

j m a n n u a l r e p o r t 2 0 0 5 88 JM’S properties

RESIDENTIAL (LEASEHOLD)

Total rent- Rentable space, Rental revenue, No Property Age able space breakdown Rental revenue 2005 breakdown Planning process

Municipality Year built/ Hotel Residential Hotel/Commercial Planning phase Address renovated commercial Other Retail develop. period description Retail Garage Residential Other/Garage Sq.m. Sq.m. Sq.m. SEKm % 10 Älta 1965-93 44,347 0 42,063 40.9 5% Programme Nacka 1,379 559 5% detailed plan Älta 346 0 83% for densification Residential 7% 2006-2010 11 Vaxholm 1943-94 29,921 0 25,898 29.1 4% Vaxholm 1,034 862 6% Residential, office 952 1,175 87% Retail 3% 12 Bävern 1 1960 3,482 0 3,212 2.9 0% Lidingö 0 0 0% Källängsvägen 0 270 100% Residential 0% 13 Hornlyktan 1943 1,008 0 828 0.9 26% Stockholm 180 0 0% Karlsborgsvägen 15-19 0 0 0% Residential 74%

PROPERTIES UNDER DEVELOPMENT

No Property Age Total rentable Rentable space, Rental revenue Rental revenue, Development space breakdown 2005 breakdown Municipality Year built/ Hotel Residential Hotel/Commercial description Address renovated commercial Other Retail Major tenants description Retail Garage Residential Other/Garage Sq.m. Sq.m. Sq.m. SEKm % 14 Kallhäll 1:22 1907 17,746 0 0 5.7 25% development of office Järfälla 1,282 16,464 0% and industry Fabriksvägen 0 0 0% Haglöfs etc. Light industry 75% 15 Frösunda Park 2006 15,964 0 0 0.0 100% New construction Solna 10,194 320 0% Gustav III Boulevard 0 5,450 0% Office 0% 16 Marschen 2006 3,750 0 0 0.0 0% New construction Sollentuna 0 3,750 0% Sollentuna Municipality Silverdal 0 0 0% Senior housing 100% 17 Älta 19:1 1968 4,794 0 0 4.0 42% development of Nacka 1994 94 3,319 35% centre facilities Älta 19:1 2005-2007 1,381 0 0% Ältapraktiken centre 23% ICA, Folktandvården

j m a n n u a l r e p o r t 2 0 0 5 JM’S properties 89

DEVELOPMENT PROPERTIES - RESIDENTIAL

Sales price 1) No. of residential present phase Property/project units in projects Present rent- Average (stake SEK/sq.m.) Municipality where production Development able space Rental revenue Spread Planning process Country Location not started period Dec. 2005 2005 Tenure Planning stage Production Approx Sq.m. SEKm Sweden Långbro 430 2000-2010 19,000 15,0 21,000 detailed plan – 220 res.* Stockholm 13,700-27,500 Älvsjö Tenant-owner co-op. Production start 2000 Sweden Bolinder Strand 300 2001-2009 22,700 detailed plan Järfälla 16,000-30,000 Fabriksvägen Tenant-owner co-op. Production start 2001 Sweden Liljeholmskajen 1,850 2001-2012 40,000 18.5 29,500 detailed plan – 570 res.* Stockholm 17,100-38,600 Årstadal/Liljeholmen Tenant-owner co-op. Production start 2001 Sweden Hägernäs 450 2001-2011 29,000 detailed plan – 275 res.* Täby 20,700-42,800 Close to water Tenant-owner co-op. Production start 2002 Sweden Silverdal Bostäder 240 2001-2009 20,700 detailed plan – 50 res.* Sollentuna 14,900-24,300 Sollentunavägen Tenant-owner co-op. Production start 2001 Sweden Norra Frösunda 500 2001-2011 23,600 detailed plan – 250 res.* Solna 14,700-30,300 Frösundavik Tenant-owner co-op. Production start 2003 Sweden charlottendal 480 2002-2008 19,300 detailed plan – 270 res.* Värmdö 12,900-25,650 Gustavsberg Production start 2003 Sweden Kojan 430 2000-2010 Sales not yet started detailed plan 2006 Stockholm Västra Kungsholmen Production start 2006 Sweden Liljeholmen 240 2009-2014 3,800 0 Sales not yet started detailed plan 2008 Stockholm Liljeholmen/Gröndal Production start 2009 Sweden Östermalm 540 2005-2014 15,500 detailed plan Västerås 11,300-21,000 City Tenant-owner co-op. Production start 2009 Sweden Bällstaberg 230 2001-2010 21,900 detailed plan – 34 res.* Vallentuna 20,650-23,000 Bällstabergsvägen Freehold Production start 2002 Sweden Industristaden 470 2002-2014 18,100 detailed plan – 145 res.* Uppsala 13,000-26,600 Kungsängen . Production start 2003 Sweden Kviberg 350 2003-2010 Sales not yet started detailed plan 2006 Göteborg By Säveån Production start 2006 Sweden Kolla 200 2007-2010 Sales not yet started detailed plan 2007 Kungsbacka Centre Production start 2007 Sweden Norra Älvstranden 315 2002-2008 22,700 detailed plan Göteborg 14,000-38,100 Norra Älvstranden Tenant-owner co-op. Production start 2004 Sweden dockan 500 2003-2010 26,850 detailed plan – 230 res.* Malmö 16,500-44,450 Västra Hamnen Tenant-owner co-op. Production start 2003 Sweden Lomma 600 2003-2010 11,600 4.9 25,450 detailed plan – 250 res.* Lomma 22,350-31,350 Lomma Hamn Production start 2004 Sweden Vallkärratorn 250 2005-2011 20,200 detailed plan – 185 res.* Lund 18,600-23,150 Stångby Production start 2005 Other building rights, not specified 9,225 Total building rights, Sweden 17,600 1) Sales prices specified for residential units with tenure as tenant-owner co-operative do not include loans raised in the co-operative. JM’s total revenue comprises both stakes and loans raised in the co-operative. * residential units

j m a n n u a l r e p o r t 2 0 0 5 90 JM’S properties

DEVELOPMENT PROPERTIES

Sales price No. of residential present phase Property/project units in projects Present rent- Average (stake SEK/sq.m.) Municipality where production Development able space Rental revenue Spread Planning process Country Location not started period Dec. 2005 2005 Tenure Planning stage Production Approx Sq.m. SEKm Norway Rolvsrud Park 100 2001-2010 36,000 control plan Lørenskog 32,500 - 39,450 Centre Freehold apartm. and TOC* Production start 2001 Norway Hovenga 140 2002-2011 19,700 control plan Porsgrunn 18,550 - 24,350 Centre Freehold apartm. and TOC* Production start 2004 Norway Trulsrudmarkda 110 2000-2009 26,700 control plan Bærum 25,500 - 27,850 Cclose to nature Freehold apartments Production start 2001 Norway Bragernes restfelt 180 2002-2009 40,000 19,5 36,000 control plan Drammen 33,650 - 44,100 Central, close to nature Freehold apartm. and TOC* Production start 2004 Norway Stongafjellet 380 2003-2015 34,800 detaljplan Askøj Bergen - Close to nature and water Freehold apartm. and TOC* Production start 2005 Norway Veraåsen 100 2004-2008 Sales not yet started control planning work Sandefjord Central, close to water Production start 2007 Norway Basberggrønningen vest 140 2000-2011 22,050 control plan Tønsberg 19,700 - 24,350 Central, close to nature and water Freehold Production start 2006 Norway Waldermars Hage 240 2005-2008 Sales not yet started control plan Oslo Central Production start 2006 Norway Hallermoen 200 2004-2012 Sales not yet started control plan Drammen Close to nature Production start 2006 Norway Lervig Maritim 170 2005-2010 37,100 control plan Stavanger 32,500 - 39,450 Central, close to water Freehold apartm. and TOC* Production start 2005 Norway Skoppum boligfelt 110 2000-2015 Sales not yet started control plan Horten Close to nature Production start 2007 Denmark Havnestad Syd 127 2002-2008 56,050 Local plan Köpenhamn 39,900 - 77,250 By harbor Freehold apartments Production start 2005 Denmark Sluseholmen 165 2003-2008 52,350 Local plan Köpenhamn 44,850 - 61,050 By harbor Freehold apartments Production start 2005 Other building rights, not specified 3 438 Total building rights, International 5 600

* Includes stakes and loans raised in the co-operative in Norway. TOC = Tenant-owner co-operative

j m a n n u a l r e p o r t 2 0 0 5 JM’S properties 91

PROPERTY SALES IN 2005

Property Location Purchase price, SEKm Capital gain, SEKm Skogskarlen 1 och 3, Holar 1, Paradiset 23 Solna, Stockholm 335 19 Newly developed project properties Stockholm, Lidingö 450 41 Residential properties sold to tenant-owner co-operatives Vaxholm, Nacka 475 108 Other project properties 305 37 Development properties 187 42 Total 1,752 247

j m a n n u a l r e p o r t 2 0 0 5 92 DEFINITIONS

DEFINITIONS KEY INDICATORS GLOSSARY Amounts in SEKm unless otherwise stated. Development properties Primarily attributable to land that can be developed for future projects. Dividend yield • Land with residential building rights Proposed dividend in relation to market price at December 31, 2005. 2005 • Land with commercial building rights Proposed dividend SEK 10 • Developed properties for residential projects or further development to project Share price SEK 352 properties. 2.8 percent A summary of a sampling of JM’s larger development properties can be found on page 89. Asset turnover rate Revenues for the year divided by average total assets. 2005 Revenues Recognized revenue according to the percentage of completion method, plus rental Revenues 9,887 revenue. Average total assets 8,203 1.2 times Operating capital Total goodwill, project properties, development properties, participations in tenant-owner Earnings per share co-operatives, receivables from property sales, receivables from tenant-owner co-opera- Profit for the year attributable to the parent company’s tives sold, and accounts receivable, revenue less progress billings minus accounts payable, shareholders in relation to weighted average number of shares 2005 property purchase and progress billings in excess of recognized revenue. Net profit/loss for the year 976 Average operating capital is calculated as closing operating capital on five measurement Average number of shares 26,347,681 dates (five most recent quarter-ends). SEK 37.00 Operating cash flow Return on equity Change in operating capital plus profit for the period adjusted for non-cash Profit/loss for the year as a percentage of average equity 2005 items. Net profit/loss for the year 976 Average shareholder’s equity 3,388 Project properties 28.8 percent (classified as current assets and comprise large property portfolios for further development and commercial properties) Return on capital employed • Residential (leasehold) Profit/loss before tax with the reversal of financial expenses • Commercial properties under development in relation to average capital employed. 2005 • Fully developed commercial properties. Profit/loss before tax plus financial expenses 1,278 A summary of JM’s project properties can be found on page 87. Average capital employed 4,913 26.0 percent Interest-bearing net debt Interest-bearing liabilities and provisions less cash and cash equivalents and interest- bearing receivables. Return on equity on total capital Profit/loss before tax with the reversal of financial expenses Debt/equity ratio in relation to average total assets. 2005 Interest-bearing net debt in relation to shareholders’ equity. Profit/loss before tax plus financial expenses 1,278 Average total assets 8,203 Capital employed 15.6 percent Shareholders’ equity increased plus loans.

Interest coverage ratio Recognized revenue (according to percentage of completion method) Profit/loss before tax with the reversal of financial expenses Recognized income period by period as the projects are completed and sold. in relation to financial expenses. 2005 Profit/loss before tax plus financial expenses 1,278 A more detailed description can be found in the section Accounting and valuation principles Financial expenses 127 Page 56. 10.1 times

Operating margin Operating result including property sales and impairment losses on properties in relation to revenues. 2005 Operating profit 1,231 Revenues 9,887 12.5 percent

Equity ratio Shareholders’ equity in relation to total assets. 2005 Shareholders’ equity 3,311 Total assets 8,155 41 percent

j m a n n u a l r e p o r t 2 0 0 5 JM is one of the Nordic region’s leading developers of Welcome to housing and residential areas. Operations focus on new production of homes in attractive locations, with the JM’s Annual main focus on expanding metropolitan areas and university towns in Sweden, Norway, Denmark and Belgium. We are also involved in project development of com- General Meeting mercial premises and contract work, primarily in the HEAD OFFICE AND STOCKHOLM OFFICE SOUTH REGION SUBSIDIARIES ABROAD Greater Stockholm area. JM seeks to promote long-term JM AB Halmstad Belgium Shareholders in JM AB are hereby invited to attend quality and environmental consideration in all its opera- Telegrafgatan 4, Solna Brogatan 1, SE-302 43 Halmstad JM Construction S.A. the Annual General Meeting to be held at 4:00 p.m. on tions. Annual sales total approximately SEK 10 billion and SE-169 82 Stockholm Tel. +46 35-299 42 51, fax +46 35-10 67 45 Avenue Louise 287, Bte 1 Thursday April 27, 2006 at JM’s head office, Telegrafgatan the company has some 2,300 employees. Tel. +46 8-782 87 00, fax +46 8-782 86 00 B-1050 Bruxelles 4, Solna, Sweden. JM is a public limited company and is listed on the Internet: www.jm.se Helsingborg Tel. +32 2 646 11 12, fax +32 2 646 96 26 Stockholm Stock Exchange A list. Prästgatan 24, SE-252 24 Helsingborg www.jmconstruction.be NOTIFICATION REGIONAL AND LOCAL OFFICES Tel. +46 42-28 98 90, fax +46 42-13 82 24 Shareholders who wish to participate in the meeting EAST REGION Denmark must be entered in the register of shareholders maintai- Geographical breakdown Uppsala (regional office) Lund (regional office) JM Danmark A/S of income ned by VPC AB by Friday, April 21, 2006, and must have Sylveniusgatan 2 Åldermansgatan 13 Vester Farimagsgade 37 informed the Company of their intention to participate Box 1334, SE-751 43 Uppsala Box 21, SE-221 00 Lund DK-1606 København V by 4 p.m. on Friday, April 21, 2006, using one of the fol- Tel. +46 18-66 03 00, fax +46 18-66 0310 Tel. +46 46 30 00 00, fax. +46 46 30 01 51 Tel. +45 33 45 70 00, fax +45 33 45 70 70 lowing channels: Norway www.jmdanmark.dk CENTRAL REGION Malmö Mail: JM AB, SE-169 82 Stockholm, Sweden Jönköping Jörgen Kocksgatan 9 Norway

j m a n n u a l r e p o r t 2 0 0 5 JM develops new residential areas in attractive locations for people who demand high standards in their living environment. Our work is characterised by a holistic approach and attention to detail – we want to take lasting pride in the homes and residential areas we develop. Contents

– NOTICE OF ANNUAL GENERAL MEETING – FINANCIAL CALENDAR 2005 ■ 1 THE YEAR IN BRIEF ANNUAL REPORT – JM ■ 2 CEO’S COMMENTS ■ 4 SHARE DATA

■ 82 BOARD OF DIRECTORS, AUDITORS AND SENIOR EXECUTIVES ■ 86 JM’S PROPERTIES ■ 92 DEFINITIONS

This Annual Report is a translation of the original text in Swedish, which is the official version.

JM AB (publ) Mailing address SE-169 82 Stockholm Visitors’ address Telegrafgatan 4, Solna Telephone +46 (0)8-782 87 00 Fax +46 (0)8-782 86 00 Company reg. no. 556045-2103 Website www.jm.se