ANNUAL REPORT 2014  Operations 1 the Year in Brief 2 CEO’S Comments

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ANNUAL REPORT 2014  Operations 1 the Year in Brief 2 CEO’S Comments ANNUAL REPORT 2014 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 CREATION IN JM’S BUSINESS 24 RESIDENTIAL BUILDING RIGHTS 26 PROJECT PROPERTIES 27 STRUCTURED PROJECT DEVELOPMENT 28 RISKS AND RISK MANAGEMENT 32 SUSTAINABILITY 33 SUSTAINABLE URBAN PLANNING 37 ENVIRONMENT 45 EMPLOYEES 48 BUSINESS ETHICS 49 SUPPLIERS 50 CODE OF CONDUCT FOR SUPPLIERS 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 GRI INDEX 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, Denmark, Finland and Belgium. We are also involved in project development of commercial 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 14bn, and the company has around 2,200 employees. JM AB is a public limited company listed on NASDAQ Stockholm, Large Cap segment. Sweden Finland Norway Denmark GEOGRAPHIC DISTRIBUTION OF REVENUE FOR 2014 (2013) International Belgium 21 % (22) Stockholm Rest of Sweden 59 % (56) 20 % (22) Cover : Solid craftsmanship and materials that meet environmental standards – how we build real homes that last for generations. This Annual Report is a translation of the original text in Swedish, which is the official version. PROJECT CONCEPT TRANSFER OF MARKET EXPERIENCE ANALYSIS MANAGE- LAND MENT ACQUISI- VALUE CREATION TION THROUGH PROJECT DEVELOPMENT OCCUPANCY PLAN- NING PRODUCTION PRE- CONSTRUCTION SALES 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. THE YEAR IN BRIEF 1 GOOD DEMAND IN JM’S PRIMARY MARKETS AND HIGHER LEVEL OF HOUSING STARTS • According to segment reporting revenue increased to SEK REVENUE BY 13,869m (12,652) and operating profit to SEK 1,716m (1,576). BUSINESS SEGMENT, SEKm The operating margin was 12.4 percent (12.5) 7,000 • Restated in accordance with IFRIC 15, revenue increased to SEK 6,000 14,216m (12,603) and operating profit to SEK 1,819m (1,523). 5,000 The restatement is attributable to JM International and had a 4,000 positive effect on earnings of SEK 103m (– 53) 3,000 • Profit before tax increased to SEK 1,744m (1,464). Profit after 2,000 tax increased to SEK 1,306m (1,104) 1,000 • Return on equity for the past 12 months increased to 28.7 0 percent (25.0). Earnings per share during the year increased to 2012 2013 2014 SEK 17.00 (14.10) • Consolidated cash flow including net investment in properties was SEK 978m (898) OPERATING PROFIT BY • The number of sold residential units was 3,195 (3,265) and BUSINESS SEGMENT, SEKm housing starts increased to 3,445 (2,953) 1,400 • Surplus value of development properties was SEK 2.8bn (2.4) 1,200 • The Board of Directors proposes a dividend of SEK 8.00 (7.25) 1,000 for 2014, as well as renewed buy-back authorization. 800 600 SEKm 2014 2013 2012 400 Revenue (segment reporting) 13,869 12,652 13,134 200 Operating profit (segment reporting) 1,716 1,576 1,398 0 Operating margin (segment reporting), % 12.4 12.5 10.6 –200 1) Revenue 14,216 12,603 12,480 2012 2013 2014 Operating profit 1) 1,819 1,523 1,374 Profit before tax 1) 1,744 1,464 1,318 Operating margin, % 1) 12.8 12.1 11.0 Cash flow from operating activities 978 898 979 JM Residential Stockholm Return on equity, % 1) 28.7 25.0 21.9 JM Residential Sweden Equity/assets ratio, % 1) 37 40 38 JM International Earnings per share, SEK 1) 17.00 14.10 11.70 JM Property Development Number of residential units sold 3,195 3,265 2,952 JM Production Number of housing starts 3,445 2,953 3,163 Number of residential units in current production 6,375 5,609 5,988 1) According to IFRIC 15. The Group applies IFRIC 15 Agreements for the Construction of Real Estate 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 project management are reported according to IAS 11, percentage of completion method. The description of operations is based on segment reporting. For definitions, see page 96. JM ANNUAL REPORT 2014 2 CEO’S COMMENTS GOOD CONDITIONS FOR VALUE DEVELOPMENT Revenue and profit improved in 2014, and Stockholm take a comprehensive approach and create new residential areas continued to be JM’s largest market, generating almost and neighborhoods. The trend in the major cities is clear – the 60 percent of the revenue. We also have a lot of building high levels of migration mean that we must densify the cities, but rights in attractive locations here for future production. in a responsible manner. Dalénum on Lidingö is a good example of a really large project where we, in addition to around 1,000 residential units of differ- In the past year demand for JM’s residential units progressed ent types, are developing commercial premises, schools, senior favorably and sales in Stockholm continued to be strong. Demand housing accommodation and infrastructure. In the Our Offer in the rest of Sweden and Norway also improved. section on page 18 we describe how the neighborhood is being developed with JM’s collective competence. HOUSING STARTS Thanks to strong demand and an improved situation in terms of THE CUSTOMER IN FOCUS the planning processes, we were able to increase the number of I would like to emphasize that we purposefully take a customer- housing starts in all business segments. We started production and market perspective in our work. JM should offer eco- on 3,445 residential units and over time we should be able to compliant homes and premises with a high standard and high increase this number to around 4,000 housing starts. customer value, which requires a constant dialogue. Through Almost 300 of the housing starts in 2014 were rental units strategic intelligence, customer surveys and partnerships with and residential care units in Stockholm and the ambition is to strategic suppliers, we gain good insight into our customers build a few hundred rental units every year over the next few and accumulate “housing knowledge”. By also being skilled at years. Rental units are developed for long-term management by the construction process and focusing on costs, we are facing JM or an external party. good conditions for being able to continue to develop a good, There are 6,375 residential units in current production, which sustainable product. is just over 700 more than last year. One important area for our customers is the durability of the interior design with regard to both quality and design. Our STRONG FINANCIAL POSITION partnerships with architects and strategic suppliers in the areas Good profitability and a strong cash flow helped us reach our of housing design, kitchens, bathrooms and storage offer not financial targets; the operating margin was 12.8 percent (target only inspiration but also concrete proposals for development. 10 percent) and the equity/assets ratio was 37 percent (target For example, during the year we took the decision to increase 35 percent). the floor space in the bathroom slightly and build balconies that JM continues to have a strong balance sheet, and during the are more furniture-friendly. year we distributed SEK 558m to shareholders as the regular Our most satisfied customers have selected the JM Original dividend for 2013. interior design in their new home, which shows that it pays to For the period following the 2014 Annual General Meeting develop well thought-out solutions – both in terms of floor lay- (AGM) until the end of December, we bought back our own out and interior design. One sign that we are making the right shares for a total of SEK 375m and we plan to continue buying decisions is that JM had the most satisfied customers for the back shares until the AGM in April 2015. sixth consecutive year in the Customer Satisfaction Index, which is measured by the residential development industry in Sweden. BUILDING RIGHTS PORTFOLIO I am very proud that we once again are at the top of the list and JM continues to have an attractive building rights portfolio with have received confirmation that listening to the needs of our good central locations as well as outside of the city center close customers gives results.
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