Profile: Andrew Higginson, CEO of Tesco Personal Finance

Andrew Higginson, Tesco Personal Finance

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 only 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 we meet him at
Tesco’s Cheshunt headquarters.

Must have been a good bash: Tesco’s interim results 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.’

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 Higginson 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.

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 Higginson.

‘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.’

Double whammy

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; he expects 2008-09 full-year profits of
‘anything up to £3bn’.

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.’

It’s no surprise to hear Higginson 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. It was also a key element in winning
the Accountancy Age outstanding industry contribution award in 2006.
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 – and who seems distinctly turned off by the whole idea
of being an accountant.

Aspirations fulfilled

‘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.

‘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.’

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?’

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.’

Past its sell-by date

Tesco’s Andrew 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.

Check out the award

Higginson scooped the Accountancy Age 2006 award for outstanding
industry contribution.
Asked at the time how Tesco and its FD stay ahead of the competition, he said:
‘We stay paranoid! We have to assume that they’re all out to get us, so we try
to do a bit better than all of them. I don’t mean to sound glib, but I think our
motto, “every little helps”, is the best way to explain it.

‘There’s no eureka factor. We work on much the same economics as everyone
else in this business in terms of land, labour and logistics costs, and we’re
all selling the same gear. What we do is add a little bit extra: things such as
making parking a bit simpler, making sure that our prices are a bit lower and
the queues are a bit shorter.

All these things combine to create the right kind of shopping experience.
This is how we will continue to differentiate ourselves from the competition.’

Curriculum vitae

Name: Andrew Higginson
Age: 50
Qualification: FCMA

Chairmanships: Tesco Personal Finance
Non-executive, independent directorships: BskyB
Member of The Hundred Group of Finance Directors

Career
1997- Group finance and strategy director, Tesco plc
1994-97 Group finance director, The Burton Group plc
1990-94 Finance director, Laura Ashley Holdings plc
1987-90 Finance director, Guinness Brewing International
1986-87 Controller, Guinness Overseas (Brewing) Ltd
1984-86 Commercial manager, Lever Brothers China Ltd
1980-84 Internal Auditor, UCMDS Graduate Entry Scheme,
Unilever plc