Interview: Tesco's FD, Andrew Higginson

Higginson’s ambitious two-pronged mandate is to create a full-service, retail bank to rival the high street and, in doing so, drive TPF’s existing £400m profits to £1bn annually. To put that in context, group operating profit for the year ended February 2008 was £2.8bn; Andy says he expects 2008-09 full-year profits of “anything up to £3bn”. He’ll do this by leveraging the loyalty of Tesco’s millions of repeat customers to buy not just groceries, clothing and consumer electronics with the supermarket, but also personal loans, credit cards, mortgages, insurance, savings accounts and if they launch them as is hoped in the future, current accounts, too.

At present, TPF has around five million customer accounts, but Tesco has 14 million Clubcard members (“active users” as they call them) and detailed data on the spending habits of every one, which gives Higginson an untapped ­ and, even better, captive ­ market to which he can roll-out a financial products platter behind one of the UK's best known brands. “The truth is we have a collection of individual products at the moment, a lot of one-year products like car insurance and there is no real stickiness to these transactions. A Tesco current account would be a way for us to build a true relationship with our customers. It’s a terrific opportunity.”

Getting stuck in
It’s no surprise to hear Andy is juggling three titles, given his propensity for mucking in: if anyone was looking for the ‘x’ factor that made him the man for one of the UK’s meatiest FD jobs, it must be his attitude to being operationally and commercially aware. His 18 years as a UK plc FD, first with Laura Ashley, Burton Group and then Tesco, have put him at the centre of everything from international business to acquisitions, bank covenant defaults and crisis management. It’s not a bad turnout for a Lancashire lad with a 2:1 in town and country planning from Birmingham Polytechnic (which must be useful in anticipating what the chaps at the Competition Commission think about plonking another Tesco Express within stomping range of a corner shop) ­ and a man who seems distinctly turned off by the whole idea of being an accountant.

“I’ve served my time,” he quips when asked if his new role signals a permanent goodbye to the finance function. “My aspirations were always to move into general management and I’ve gradually done that at Tesco, so this is a chance to go full-time into building a really good business. It’s a portfolio role and I’ve got this very talented team, so I’m very excited.”

That team includes Benny Higgins, former head of retail markets at RBS and one of the industry’s best respected figures, whom Higginson and Leahy persuaded to jump ship when the TPF deal was struck.
We press him on what we sense is a distaste for things like the minutiae of accounting standards and the audit process: “I never had an interest in pure accounting ­ it was just a means to an end really. My aim was to be involved in running a business, and my view as a student was, ‘Those accountants seem pretty involved so why don’t I do that?’ I never worked in the profession because I never wanted to be an accountant. I wanted a job in business and finance was my route in,” he says: “My internal debate when I was offered the Tesco job was not ‘Do I want to be FD of Tesco, or do I want to be FD of Burton Group?’ ­ that was obvious because Tesco is massive in comparison. The debate was whether I wanted another FD job at all. Did I not want to look around for a chief executive role?” he recalls asking himself after four years with the then-listed fashion retailer.

“But Terry persuaded me at the time that he could fulfil those aspirations at Tesco. I’m very glad he did because I’ve loved every minute of it.”

No bean counter
It makes sense, then, that Higginson thinks the beancounter analogy is well past its sell-by date. “I don’t believe in the idea of the plain vanilla FD job; a pure finance role is pretty unusual these days,” he says. “Some people are more technical, but I am more commercial and I see myself as just another member of the board who happens to come from the finance side.”

He adds that his career was always rooted in real business ­ first as a graduate trainee auditor at Unilever in 1980, where his department was referred to by everyone else as ‘Commercial’ ­ followed by a stint as a commercial manager for Lever Brothers in Hong Kong. Moving to Tesco 11 years later, he recalls joining Leahy, who was appointed Tesco chief executive a fortnight before Higginson joined, and former deputy chairman David Reed to make an informal “strategy committee” ­ but when Reed retired in 2004 and went non-executive, Higginson absorbed his role on that informal committee, giving him even more non-finance strategy scope.

It’s a great time to be taking on a CEO job of this kind in the UK grocery market. Few of the numbers Tesco has reported in the past 12 months have pointed south and CEO Leahy has adopted the mantra that “Tesco is at its best in tough markets”. Well, he would say that. But he could be proven irritatingly right in the next 12 to 24 months as Higginson takes the helm at TPF, if he can take advantage of the opportunities likely to be afforded by the failing UK retail banking sector and leverage the deep knowledge he brings from the FD role in going head-to-head with well-established banking brands at the rival grocers (only Morrisons remains outside this business line, save for its credit card product).

Higginson believes the current consolidation and nationalisation of banks in the UK will create a clutch of behemoths that will not be able to resist the temptation to squeeze margins upwards and Tesco will cash in simply by branding itself as a traditional cautious bank, “well-run, trusted” ­ ah, those quaint, vintage concepts.

“I can’t think of a better time to do it, really,” he says. “Building a business is going to be the most exciting part. The technical aspects of learning about banking is something I will have to do, as I did with IFRS or pensions, for example, because I am not a technical accountant ­ but the exciting stuff is learning how to connect with customers, how to use the fact that they trust Tesco to persuade them to think of us in financial services... and figuring out how we can make money from it.

“How can we offer these services without blowing our brains out on margins?”

Clued up
The breadth of Higginson’s operational nous raises the question of where, say, Leahy’s strategic reach ends and Higginson’s remit as group strategy director begins. And in the new gig, where any learning curves might be for one so clued up. Let’s not forget, he has been around to help the board plan and implement its internet business, its telecoms business, oversee its foray into international business and he has been chairman of the personal finance arm since inception, a year after he joined Tesco.

The effectiveness of Higginson and Leahy as a double act, whether you view Tesco as an evil capitalist mothership with unbridled power over shoppers and regulators alike, or as a triumph of Britain’s canniest business talent, is history. Should we be taking bets on how long it will be until we hear that Higginson has bumped Sir Terry out of the hotseat?

“No, I don’t think so,” he says after a pause. “Terry’s still got loads of energy and he’s one of those exceptional leaders you get once in a generation. He is younger than he looks, you know.”
Perhaps that’s a tad premature. For now Higginson just wants to warm his own seat. “The thing that really excites me about the job is, at my age, with all my experience, I’m still young enough to have a fair bit of energy, but I’m old enough to have loads of experience. I’m the most potent as a businessman than I have been; I can make a difference. Now just seems a natural time for me to step up.”