ANNUAL15 REPORT 2015 Operations 1 The year in brief 2 CEO’s comments 4 Customer needs 5 BUSINESS INTELLIGENCE AND MACRO 7 MARKET OVERVIEW 10 Our offer 11 NEW CONSTRUCTION – ADVANTAGES 16 JM’S 10 LARGEST PROJECTS 19 Profitability 20 BUSINESS CONCEPT AND STRATEGY 21 FINANCIAL TARGETS 22 VALUE GENERATION IN JM’S BUSINESS 24 RESIDENTIAL BUILDING RIGHTS 26 PROJECT PROPERTIES 27 STRUCTURED PROJECT DEVELOPMENT 29 RISKS AND RISK MANAGEMENT 33 Sustainability 34 SUSTAINABLE URBAN PLANNING 39 ENVIRONMENT 44 EMPLOYEES 48 SUPPLIERS 50 BUSINESS ETHICS 51 Business segments Financial statements 57 BOARD OF DIRECTORS’ REPORT Group: 61 INCOME STATEMENT 62 BALANCE SHEET 64 CASH FLOW STATEMENT 66 CHANGES IN EQUITY 67 NOTES – GROUP Parent company: 83 INCOME STATEMENT AND CASH FLOW STATEMENT 84 BALANCE SHEET 85 CHANGES IN EQUITY 86 NOTES – PARENT COMPANY 90 FIVE-YEAR OVERVIEW – GROUP 92 QUARTERLY OVERVIEW – GROUP 93 QUARTERLY OVERVIEW – BUSINESS SEGMENTS 94 PROPOSED DISPOSITION OF EARNINGS 95 AUDITORS’ REPORT 96 DEFINITIONS AND GLOSSARY Shareholder information 97 CORPORATE GOVERNANCE REPORT 104 BOARD OF DIRECTORS AND AUDITORS 105 EXECUTIVE MANAGEMENT 106 THE JM SHARE 108 NOTICE OF ANNUAL GENERAL MEETING AND FINANCIAL CALENDAR 109 About the Sustainability report 109 GLOBAL REPORTING INITIATIVE – GRI 112 GRI INDEX 115 GLOBAL COMPACT 116 ADDRESSES Sweden Finland Norway Denmark Belgium JM is one of the leading developers of housing and residential areas in the Nordic region. Operations focus on new production of homes in attractive locations, with the main focus on expanding metropolitan areas and university towns in Sweden, Norway and Finland. We arealso involved in project development of commer cial premises and contract work, primarily in the Greater Stockholm area. JM seeks to promote long-term quality and environ mental considerations in all its operations. Annual sales total approximately SEK 14 billion, and the company has around 2,300 employees. JM AB is a public limited company listed on NASDAQ Stockholm, Large Cap segment. From the very start in 1945, JM has worked to develop residential projects, which means we have extensive experience in terms of identifying customer needs. We have developed effective construction processes and accumulated sound experience in carrying out large and complex projects. Project development at JM means that vacant or built land is acquired and refined into attractive housing or commercial premises. JM’s apartment building Kajen 4 at Liljeholmskajen was rewarded 2015 Stockholm Building of the Year by the City of Stockholm. The award takes into consideration the building’s esthetics, sustainability, function, innovation and importance for the city. Architect: Gert Wingårdh. This Annual Report is a translation of the original text in Swedish, which is the official version. The year in brief 1 Strong sales and higher level of housing starts. According to segment reporting, revenue increased SEK m 2015 2014 2013 to SEK 14,447m (13,869) and operating profit amounted to Revenue (segment reporting) 14,447 13,869 12,652 SEK 1,590m (1,716). The operating margin decreased to 11.0 Operating profit (segment reporting) 1,590 1,716 1,576 percent (12.4) due to a change in the project composition in Operating margin (segment reporting), % 11.0 12.4 12.5 JM Residential Stockholm Revenue 1) 13,939 14,216 12,603 Operating profit 1) 1,499 1,819 1,523 Restated in accordance with IFRIC 15, reve- Profit before tax 1) 1,427 1,744 1,464 nue decreased to SEK 13,939m (14,216) and operating profit Operating margin, % 1) 10.8 12.8 12.1 decreased to SEK 1,499m (1,819). The restatement is related Cash flow from operating activities –230 978 898 to JM International and had a negative effect on earnings of Return on equity, % 1) 23.7 28.7 25.0 SEK –91m (103) Equity/assets ratio, % 1) 38 37 40 Earnings per share, SEK 1) 14.50 17.00 14.10 Number of residential units sold 3,770 3,195 3,265 Profit before tax decreased to SEK 1,427m (1,744). Number of housing starts 3,731 3,445 2,953 Profit after tax decreased to SEK 1,085m (1,306) Number of residential units in current production 7,212 6,375 5,609 Return on equity for the past twelve months amounted 1) According to IFRIC 15. to 23.7 percent (28.7). Earnings per share during the year The Group applies IFRIC 15 Agreements for the Construction of Real Estate amounted to SEK 14.50 (17.00) to its income statement and balance sheet. This means that revenue and profit and loss for JM’s operations outside of Sweden, JM International, are reported according to the completed contract method. Segment reporting and pro- ject management are reported according to IAS 11, percentage of completion Consolidated cash flow including net investment in method. The description of operations is based on segment reporting. properties was SEK –230m (978) For definitions, see page 96. Revenue Operating profit The number of sold residential units increased by business segment by business segment to 3,770 (3,195) and housing starts increased to 3,731 (3,445) SEKm SEKm 7,000 1,400 6,000 1,200 Surplus value of development properties was SEK 4.2bn (2.8) 5,000 1,000 4,000 800 The Board of Directors proposes a dividend 3,000 600 of SEK 8.25 (8.00) for 2015, as well as renewed buy-back 2,000 400 authorization. 1,000 200 0 0 2013 2014 2015 2013 2014 2015 JM Residential Stockholm JM International JM Construction JM Residential Sweden JM Property Development JM ANNUAL REPORT 2015 2 CEO’s comments Conditions for our business continue to be favorable. JM has been an important community builder since the company was founded 70 years ago. We are proud to acknowledge that our customers continue to demonstrate considerable interest in JM’s projects and sales are strong. The company has evolved from a traditional building and prop- Our customers should be satisfied not only with their home, erty company into a leading residential project developer, but also with the immediate surroundings. I think this holistic and it is present in the cities and towns where the population approach is well reflected in all of JM’s projects, and I think it growth and demand for housing is the greatest. In the primary will continue to increase in importance. markets in Sweden, Norway and Finland, demand for our resi- We know how important it is to have a clear vision for a new dential units continues to increase, and the strong sales in 2015 residential area. Quality housing does not just mean a good loca- resulted in a high number of housing starts. tion, well thought-out layouts or a good indoor environment. The Stockholm operations continue to represent more than Since we are involved in urban planning, we must also have some half of the Group’s revenue. One particularly positive devel- idea about how to create attractive and “living” cities. We work opment has been the strong growth for the residential hous- on a daily basis to build our “housing knowledge” by conducting ing business in the rest of Sweden, primarily Gothenburg and customer surveys, business intelligence, working together with Uppsala. our framework suppliers and focusing on safety issues in every- Thanks to strong sales and stable planning processes in our thing from land acquisition to planning and production. projects, we have been able to start production on more than JM also produces rental units, and our goal is to have a con- 3,700 residential units. There are 7,200 residential units in cur- tinuous, long-term production of 350 apartments a year. This rent production, which is just over 800 more than last year. means that we are also acquiring land for rental housing, primar- In Denmark and Belgium, we have decided not to start any new ily with leasehold rights, with a focus on the Stockholm region projects during the year. and Uppsala. Strong financial position JM’s Urban Development Day Good profitability helped us reach our financial targets; the In order to be able to speed up the building process, we are operating margin was 10.8 percent (target 10 percent) and the dependent on the planning processes of the municipalities. For equity/assets ratio was 38 percent (target 35 percent). example, there is an expressed ambition from the politicians in JM continues to have a strong balance sheet, and during the the Stockholm region to increase the rate of construction of year we distributed SEK 600m to shareholders as the regular residential units. At JM, we have land with development poten- dividend for 2014. In 2015, own shares were also repurchased tial, we know what customers want and we are good at produc- for SEK 500m. ing project ideas. JM’s project managers are proactive and have Clear vision for residential areas a good dialogue with the municipalities where we are present- Fast-growing regions need faster production of residential ing our ideas. Once the municipality has adopted the local plan- housing. JM’s work with land acquisition and land allocations ning and granted the building permit, which can take anywhere is a fundamental requirement for being able to deliver good from one to five years, we can start production. The goal is to projects in the future. In the Stockholm region, competition work together to build an enjoyable, safe and sustainable city for well-situated land has increased in recent years and with it that functions, but this requires patience and a long-term focus. the cost of land. A good location includes close proximity to In September we invited decision-makers and partners to public transportation, which often means a central location.