Picture the scene: a warehouse on the edge of Los Angeles. Inside is a small Tesco convenience store, and each day it offers a different layout and contents. Customers wander around deciding what to buy ­- watched keenly by note-takers.

A scene from a Kubrick film, perhaps, or some kind of dystopian future? No, it’s how Tesco is doing its homework before venturing into a new territory. Global expansion is no mere lucky accident. Everything is analysed, considered, pondered and planned.

To date, Tesco operates 2,000 stores across the globe, and enjoys sales figures that continue to confound the analysts. Full-year results for February 2006 rocketed to £39bn -­ up 16.5% on the previous year’s figures.

Net profit margins for the group run at 4% -­ much higher than its rivals -­ while market share in the UK has increased to more than 30%. Only Sainsbury’s increased its share significantly, following a healthy 18 months.

Such attention to detail, as with the Los Angeles test stores, goes part-way to explaining the retail giant’s run of success in the UK market. Yet analysts believe UK competition could finally be regaining its strength.

So Tesco finance and strategy director Andrew Higginson sets to work again. Or he would. First he dropped into the Accountancy Age offices to talk and accept our 2006 award for Outstanding Industry Contribution. Since joining the company in 1997 his strategic flair has been a huge influence on the decision-making of chief executive Sir Terry Leahy, and the two men are essentially treated as a pair in terms of the brains behind Tesco’s incredible expansion, which includes successful moves into non-food, financial services and its international reach.

It goes almost without say that Higginson was put in charge of leading the team that is leading Tesco’s efforts to crack the US. ‘Everywhere you turn over there, there is retail. We’ve had an idea based around our Express stores, and the board decided to give it a go. We lived with US customers, looked in their fridges and examined how they shopped, it was a ten-month project to test behaviours.’ And so begins a new chapter in the Tesco story. This particular chapter is going to cost the company some £250m in investment, a considerable sum even for Tesco.

Because it’s such a big gamble to go up against businesses such as Wal-Mart in its own territory, Tesco has invested huge amounts of resources in the effort. ‘We’ve sent a top team out there. Tim Mason is a hugely experienced regional director and buyer,’ says Higginson.

Nothing to fear
Higginson, one of the UK’s leading FDs, is no fool to the risk, though, and isn’t afraid to admit defeat if necessary. ‘Of course, there is a balance of risk to reward. If it’s a roaring success you throw more at it; if it’s a complete disaster, we’ll retrench quickly.’

Still, Higginson expects something in between those two scenarios. But he has a timescale if it goes wrong. ‘Three or four years, which could cost us up to £1bn. That’s a lot of money, but we can sustain that.’

With funding coming from head office, Higginson remains vital to the project, and will be an important board member in laying US strategy. Developing strategies is something Higginson could well claim to excel in.

He became Tesco group FD in 1997 when he left the Burton Group. Higginson has been instrumental in developing the company, alongside Sir Terry. Higginson epitomises the modern day FD and is a perfect representation of how the role has evolved to embrace the commercial side of business as well as the numbers.

‘Starting from my Unilever days, this commercial approach to being an FD was crucial. You need to be able to do the basics, but the more senior you get, you have to develop the management skills to delegate, how to ask the right questions and dive into the detail every now and again.’

Growing pains
Higginson says that as Tesco has grown, it has had to deal increasingly with commercial issues such as reputational risk. The supermarket was found to have paid only 67% of small suppliers within agreed terms, on invoices under £5,000. The issue is particularly relevant with the Competition Commission undertaking an ongoing review into the behaviour and power of the UK’s biggest retailers.

Higginson is upfront about the issue, but nevertheless dismisses the findings, albeit with a qualification. ‘It is the last thing that should be happening, but I don’t believe it is anyway. I am happy that is not the case with Tesco,’ he says.

‘We have electronic payments to suppliers, so I don’t see that as the case. Big companies have an obligation to pay small suppliers to make sure their cashflow is OK.’

The FD is keen to tackle all the pressing issues of the day. An example of this is the company’s pension scheme. While many large companies have ended their final salary schemes, Tesco has set up an attractive benefits pension scheme. Higginson was instrumental in setting it up and is based on member’s average earnings rather than final earnings, with no plans to change its pension policy to a contributory option.

Indeed, pensions accounting is a subject on which Higginson is vocal. Accounting for pensions, he argues, is a sign of rules being incorporated to replace the UK’s cherished principles-based approach.

Tesco’s scheme is young, explains Higginson, and has plenty of time to match its assets and liabilities where, for example, the Coal Board literally has no staff, but is full of pensioners requiring a totally different investment strategy.

Under pensions accounting rule IAS 19, both businesses must present the figures under the same rules. So Tesco has introduced an underlying profit figure, which takes the effect of IAS19, IAS32 and IAS39 out of the equation. Current pensions deficit for August 2006 is a cool £1.2bn.

‘That’s the problem with rules-based approaches­ the one-size-fits-all mentality isn’t always appropriate. So I hope there’ll always be a sensible interpretation when it comes to accounting. Taking a sensible view has always been an important part of the UK profession.’

The prescriptive requirements of Sarbanes-Oxley and US Securities and Exchange Commission filings seems to be one of the reasons why Tesco will not seek a US listing for its new business. Higginson says this won’t put off US investors. They simply invest in the company as part of their international portfolio, so there’s no need for a US listing ‘at the moment’.

Where rules have been implemented to put the onus on non-executive directors to spot mistakes or problems, Higginson has issues. As a non-executive for BSkyB (he is rushing to the company’s board meeting after the interview), and as a potential serial non-executive in the future, he views the idea of non-executives as policemen of the board as ‘flawed’.

‘They can do a lot to ask the right questions and reassure themselves that the proper controls are in place, but they have to look the management in the eye and judge the character of the executives and if they’re really running the business properly. But if Robert Maxwell were around today, he’d probably still nick the pension money because he was a crook. It’s difficult to legislate for.’

For the moment Higginson continues to focus on his day job. He is happy to have ‘survived’ for nine years and continues to thrive. He is responsible for Tesco.com, which posted interim profits up 43%, while personal finance profits hit £50m. As well as responsibility for its telecoms business, there’s no sign of a chief executive role or half a dozen non-executive positions ­ not yet anyway.

Off you go
Tesco, one of the biggest retailers in the world, is not your usual business. And for its finance director, Andrew Higginson, managing the group’s accounts is a massive task, so the structure of the company’s finance function is vital. Tesco is divided up by business line and each operation has its own FD.

One of the most important links between Higginson and the countries in which Tesco operates is international FD Liz Doherty, touted by executive recruitment experts as a future FTSE 100 FD. ‘She’s first-rate,’ says Higginson.

Dealing with credit control, invoice payables, and everything else expected of a finance function involves 2,000 people, including IT. This is a team based in Bangalore. The function was moved from Cardiff, where call centre operations are now based. The shift abroad began two years ago.

However, Tesco has not followed the typical offshore route and the staff remain direct employees. ‘We look for synergies where we can,’ Higginson says of the decision. ‘We have to consider these strategies, but it doesn’t leave a lot of room if you get things wrong.’