Beware the liquidity trap, Tesco FD tells counterparts

Andrew Higginson, Tesco's FD

Andrew Higginson, Tesco’s FD

Finance directors need to retain control of the corporate agenda and run
their businesses on a cash basis to avoid falling victim to a liquidity trap,
Tesco’s Andrew Higginson said during his keynote speech at the Financial

Higginson warned the UK was only at the beginning of the slowdown, with the
problems that have ‘messed up’ banks yet to impact fully on the wider economy.
‘We are almost certainly in recession at the moment and all the consequences of
that are yet to play out,’ he said.

Higginson, recently promoted to chief executive of retailing services but
continuing in the FD role until a replacement is found, urged delegates to
manage their businesses within their means.

‘If you haven’t got liquidity you are going to find it hard to get at the
moment,’ he said. ‘Keeping control of the agenda, avoiding the tender loving
care department of the banks, avoiding “something must be done” syndrome, is
really at the forefront of what you should be doing at the moment and in the
coming weeks and months.’

He warned ‘cash could kill’, with too many businesses ‘sleepwalking’ to their
collapse by focusing on earnings instead.

At the same time he said it was essential businesses continued to invest and
not assume growth was impossible in torrid market conditions. Despite tight
credit markets, Tesco purchased a South Korean hypermarket chain in May for
nearly £1bn ­ its biggest-ever deal.

He said FDs should manage their relationships carefully and make their
company important in the eyes of their bankers. ‘It’s better to owe a lot of
money to a few banks,’ he said, rather than a little to many.

Maslin urges mid-tier auditors to tackle ‘invisible barriers’

Mid-tier firms need to do more to persuade large listed clients they are a
viable auditor, but ‘invisible barriers’ need to be lifted to open up the
market, Grant Thornton partner Steve Maslin told delegates.

‘There are smoke and mirrors and invisible barriers but how do we clear some
of those barriers away?’ Maslin asked. ‘This is a long game and it’s partly down
to us. We know we have to do something ourselves.’

He saw a role for regulators ‘to clear away some of the disinfomation’,
citing banking covenants that stipulate companies must use a Big Four auditor,
which were drawn up as ‘boiler plate’ agreements by lawyers with little client
input. But he added: ‘We don’t believe anyone should do us a favour by imposing
an artificial business model.’

Speaking on the same panel, PricewaterhouseCoopers vice-chairman Glyn Barker
described Financial Reporting Council chief executive Paul Boyle’s comments
earlier this year that the merger that created the firm should never have been
allowed as ‘drivel’.

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