Strategy & Operations » Leadership & Management » Interview: Tesco’s FD, Andrew Higginson

Andrew Higginson, FD, Tesco

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
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
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.”

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

“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

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
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