Annual Financial Report 2013 National Australia Bank Limited ABN 12 004 044 937 This Annual Financial Report (Report) is lodged with the Australian Securities and Investments Commission and ASX Limited. National Australia Bank Limited (the Company) is publicly listed in Australia and overseas. The Report contains information prepared on the basis of the Banking Act 1959 (Cth), Corporations Act 2001 (Cth) and Accounting Standards and Interpretations issued by the Australian Accounting Standards Board. The Group deregistered from the United States Securities and Exchange Commission (SEC) effective 20 September 2007. Accordingly, the Company is not required to include SEC-related disclosures in the Report for either the current or comparative financial years. The Company no longer produces a concise report under section 314(2) of the Corporations Act 2001 (Cth), and instead compiles a non-statutory Annual Review which can be viewed online at www.nabgroup.com. To view the Report online, visit www.nabgroup.com. Alternatively, to arrange for a copy to be sent to you free of charge, call Shareholder Services on 1300 367 647 from within Australia, or +61 3 9415 4299 from outside Australia. Nothing in the Report is, or should be taken as, an offer of securities in the Company for issue or sale, or an invitation to apply for the purchase of such securities. All figures in the Report are in Australian dollars unless otherwise stated. Table of Contents Contents Financial Report 65 Report of the Directors 3 175 Operating and Financial Review 3 Directors’ Declaration 176 Directors’ Information 19 Independent auditor’s report to the members of the National Australia Bank Limited Auditor’s Independence Declaration 28 Shareholder Information 178 Remuneration Report 29 Glossary 182 Corporate Governance 52 Diversity 62 2013 Annual Financial Report 1 Table of Contents Report of the Directors Operating and Financial Review 3 Environmental Regulation 25 Principal Activities 3 Non-audit services 27 Significant changes in the state of affairs 3 Auditor’s Independence declaration 28 Strategic Highlights and Business Developments 3 Remuneration Report* 29 Financial Review Introduction 29 Financial performance summary 5 Overview of the Group’s approach to performance 30 Information about cash earnings 5 and reward Group and Divisional Results 6 Remuneration governance 30 Group Balance Sheet review 7 Senior executive remuneration 31 Capital Management & Funding review 7 Remuneration policy for senior executives 31 Dividends 9 Linking remuneration and performance for 2013 35 Recent market conditions 9 Five year Group performance 36 Outlook 10 Overview of actual senior executive remuneration 37 Risk Management Framework and 11 Statutory remuneration data for senior executives 39 Material Business Risks Summary of prior LTI grants 44 Directors’ Information 19 Non-executive director remuneration 47 Directors’ attendance at meetings 22 Insider trading and derivatives policy 49 Executive performance options and performance 23 Table of key terms 49 rights Corporate Governance 52 Other Matters 25 The Board of directors 52 Litigation and disputes 25 Board and Committee operations 56 Events subsequent to reporting date 25 *The Remuneration Report has been audited 2 NATIONAL AUSTRALIA BANK Report of the Directors Operating and Financial Review The directors of National Australia Bank Limited (Company) present early 2014. All other Group Executive changes took effect in April to their report, together with the financial statements of the Group, ensure an orderly transition to the new operating model. being the Company and its controlled entities, for the year ended 30 On 8 May 2013 Mrs Louise Thomson was appointed as Group September 2013. Company Secretary to replace Ms Michaela Healey following Ms Certain definitions Healey’s appointment to the expanded role of Group Executive, People, Communications and Governance and subsequent The Group’s financial year ends on 30 September. The financial year retirement as Group Company Secretary. ended 30 September 2013 is referred to as 2013 and other financial years are referred to in a corresponding manner. The abbreviations On 24 July 2013 the Company announced the appointment of Mr $m and $bn represent millions and thousands of millions (i.e. billions) Craig Drummond as Group Executive Finance and Strategy. Mr of Australian dollars respectively. Any discrepancies between total Drummond commenced with the Group on 23 October 2013. and sums of components in tables contained in this report are due to On 1 October 2013 the Group’s new organisational structure rounding. (announced in March 2013) came into effect. The Group will report on Key terms used in this report are contained in the Glossary. the new basis in 2014. Forward-looking statements The Group’s Business This report contains certain forward-looking statements. The words The Group is a financial services organisation with over 42,000 ‘anticipate’, ‘believe’, ‘expect’, ‘project’, ‘estimate’, ‘likely’, ‘intend’, employees, operating more than 1,800 stores and business banking ‘should’, ‘could’, ‘may’, ‘target’, ‘plan’ and other similar expressions are centres, and has more than 500,000 shareholders. intended to identify forward-looking statements. Indications of, and The Group’s main operations are based in Australia, with interests in guidance on, future earnings and financial position and performance New Zealand, Asia, the United Kingdom and the United States. The are also forward-looking statements. Group aims to have fair products and services, fair fees and charges Such forward-looking statements are not guarantees of future and world-class relationships built on the principles of help, guidance performance and involve known and unknown risks, uncertainties and advice. and other factors, many of which are beyond the control of the In 2013 the Group operated the following divisions: Group, which may cause actual results to differ materially from those • Business Banking provides a diverse range of commercial banking expressed or implied in such statements. There can be no assurance services to business customers, ranging from small and medium that actual outcomes will not differ materially from these statements. enterprises through to Australia’s largest institutions, including Further information on important factors that could cause actual many of the ASX Top 200 listed companies. Business Banking also results to differ materially from those projected in such statements provides specialist industry expertise in the Agribusiness, Property, is contained on page 11 under “Risk Management Framework and Healthcare, Natural Resources, Education and Government Material Business Risks”. sectors; • Personal Banking provides quality products and services to 5.3 Rounding of amounts million retail and small business customers. These products and services are delivered through a range of distribution channels and Pursuant to Australian Securities and Investments Commission brands including NAB, Homeside, UBank and a variety of broker (ASIC) Class Order 98/100 dated 10 July 1998, the Company has and ‘mortgage manager’ brands operated by the Advantedge rounded off amounts in this report and the accompanying Financial business; report to the nearest million dollars, except where indicated. • Wholesale Banking has seven key lines of business; Corporate Principal activities & Business Risk Management Sales, Fixed Income, Currencies and Commodities (FICC), Global Capital Markets, Treasury, Asset The principal activities of the Group during the year were banking Servicing, Specialised Finance and the Financial Institutions services, credit and access card facilities, leasing, housing and Group; general finance, international banking, investment banking, wealth • NAB Wealth provides superannuation, investments, insurance and management, funds management, life insurance and custodian, private wealth solutions to retail, corporate and institutional clients. trustee and nominee services. NAB Wealth operates one of the largest networks of retail financial advisers in Australia; Significant changes in the state of affairs • NZ Banking comprises the retail, business, agribusiness, On 5 October 2012 the UK Commercial Real Estate (CRE) business, corporate, private banking, wealth and insurance franchises in comprising assets with balances before provisions of $8,723 million, New Zealand, operating under the Bank of New Zealand (BNZ) was transferred from Clydesdale Bank PLC (Clydesdale) to the brand; Company as part of the UK Banking strategic review. The portfolio is • UK Banking offers a range of banking services for personal and being wound down in an orderly manner and since October 2012 has business customers through retail branches, business banking decreased to $6,960 million. centres, direct banking and broker based channels. It operates On 13 March 2013 the Company outlined changes to its under the Clydesdale and Yorkshire Bank brands; and organisational structure, operating model and its Group Executive • Great Western Bank provides a range of Retail, Commercial, team. As part of these changes the Company announced the Agribusiness and Wealth Management services in the mid-western departure of Mr Steve Tucker who left the Company on 31 March United States. 2013. Strategic Highlights & Business Developments At that time the Company also announced the retirement of Mr Mark The Group maintained its overall objective to deliver sustainable, Joiner, Executive Director Finance.