Interview: Tesco's FD, Andrew Higginson

Not content with running the finances behind the UK’s number one supermarket, Andy Higginson is currently engaged in not one, but three jobs. This year marks his eleventh year as group finance and strategy director for Tesco and his tenth year as chairman of Tesco Personal Finance (TPF). But he is barely into his first one hundred days as chief executive officer of Tesco Retailing Services.

And he’s doing it all with a hangover on the morning after a group-wide office party the company holds every couple of years, when Financial Director meets him at Tesco’s Cheshunt headquarters.

Must have been a good bash: Tesco’s interim results a month ago showed that in the year of the credit crunch, the grocer notched up an 11.3% increase in pre-tax profits to £1.4bn, on sales of £25.6bn, up 13.8%, in the 26 heady weeks to late August. Analysts overwhelmingly rated Tesco stock a buy or hold, a rare haven in a market all but officially certified insane since late summer.

Higginson’s latest job is a newly-created one heading up a newly-created business unit, so there is no in-tray awaiting inheritance. And despite announcing his move to the role in July, the board has only just briefed headhunters in the search for a successor to the FD throne (there are a handful of internal hopefuls, too). But he’s itching to get stuck in.

“I’m trying to do both my old job and the new job at the moment, which is not ideal and, of course, the FD job is pretty busy right now with everything that’s going on in the financial markets,” says Higginson. “But from my point of view the sooner they sort it the better, because I am quite enthusiastic about the new job.”

Up the stakes
At any rate, the job can’t really be gotten on with in earnest until Tesco receives the Financial Services Authority’s approval for its £950m buyout of Royal Bank of Scotland’s 50% stake in TPF, which encompasses its internet business and its telecoms activities, as well as a platter of loans, insurance offerings, savings accounts and a credit card. Higginson wants to add mortgages and a current account to that arsenal.

The FSA verdict should be in shortly, Higginson hopes. This deal will form the backbone of the retailing services strategy ­ broadly, to be as strong in non-food as the group is in food, the former deemed the key driver of Tesco’s future growth.

The timing of the RBS buyout compared to the subsequent near-collapse of most of the UK’s retail banks raises an eyebrow. Time needed to set up the relevant processes and systems notwithstanding, the current environment could hardly be better for the launch of Tesco Bank: not only have consumers lost faith in the incumbent system, many of Tesco’s would-be high street rivals are now at their weakest. There could be a lot of valuable debris for Andy to sweep up over the coming months and years from the mess the UK banking system is in, and Tesco has the brand recognition, geographical coverage and trusting consumer relationship to turn that into profit.

Good fortune
Was it serendipity or insider knowledge that precipitated the deal? “We certainly weren’t suspecting the market conditions we’re seeing now when we decided on the purchase,” rebuffs Andy. “With the benefit of hindsight, I can see now that RBS was thinking about the need to raise some cash, and their price aspirations were quite different to ours. But the original idea [CEO] Terry [Leahy] and I had was just to grow the business in the way it had not done for about three years. The conversation we had in early 2007 was how to kick-start it. We thought TPF had to become more important to either RBS or us ­ but as it had our name over the door it probably had to be us because we weren’t willing to give our brand to anyone else.

“Now the consumer’s situation has got worse and we’re probably going to see more bad debts in the industry. But, on the other hand, I see a better environment for margins and a chance to become more of a challenger brand in that marketplace.”