Is Dominic Cummings, the prime minister’s special adviser, someone you want to do business with? Engaging with someone who is exercising the prerogative of the harlot — wielding power without responsibility — is a tricky one for companies whose business models are dependent on a government not acting like it is run by misfits or weirdos.
Such companies — collectively known as government contractors or outsourcers, private companies delivering public services — generally have had a rotten decade. They have been assaulted by a double-headed club since the Treasury went down a road of austerity to repair the economy after the global financial crisis little more than ten years ago.
The government since then has done one of two things: it turned off the spending entirely; or, if it was spending, it was nailing down the outsourcers to barely economic returns or onerous transfers of risk.
The present administration was returned at the general election on the promise of an end to austerity. What this meant for the outsourcers is reflected in what happened to their stock prices after that: a spike.
What has happened since is a general ebbing away of any euphoria that may have been felt and the general puncturing of hope in a new era of stability when the chancellor decided that he could no longer work with the prime minister.
Which takes us back to Mr Cummings. Plainly, he is not a man any government contractor would ordinarily want to do deal with. Today, the outsourcers are likely to get a window into the caprice at the heart of government as they have been summoned to Whitehall by Sir John Manzoni, the soon-to-be-retired head of the civil service, to have their cards marked on what a Johnson-Cummings administration will demand of them.
A decade ago Sir Francis Maude, the Cabinet Office minister, told outsourcers that the days of fat profit margins were over. Today the contractors are expecting to hear from Sir John what the promised war on waste and the dismantlement of the civil service means for them.
Sir John, a former BP executive, has been applauded for instilling a new procurement “playbook” relationship. That can be distilled down to: “We, the government, promise not to stiff outsourcers with onerous contracts and risk, and you, the private sector contractors, promise not to run rings around incompetent civil servants and walk away with the booty.”
After today’s meeting the outsourcers will know what is coming their way — or not, if they decide that Mr Cummings’ way of doing things is not the sort of business they want to do. In reality, several of the outsourcers have been preparing for this for years. Serco is a business that over time has become much more interested in looking at overseas projects. Capita wants to be more private sector corporate-facing on better-paying digital transformation work. Mitie has cleaned its fair share of Whitehall offices but sees itself much more as a provider of corporate real estate services. Mears is getting out of domiciliary care because government and councils do not care about the sector. Babcock has tried to refashion itself as a higher-rated defence engineering company.
What has characterised the outsourcing sector in recent years is big blowouts and then recovery plans that are taking way too long to deliver. The thing that they have craved is stability and investment. What they don’t need is an ill-fitting and weird new relationship with Whitehall.
ADVICE Avoid
WHY The outsourcers haven’t managed to pull themselves together in the past ten years and uncertainty in Whitehall is the last thing they need
Tullow Oil
Once upon a time, oil was the commodity in demand and Tullow Oil was the bees’ knees at finding it (Emily Gosden writes). With the group riding high in the FTSE 100, Aidan Heavey, its founder, talked about becoming a £30 billion company within three to five years. “There is no reason why it shouldn’t be,” he said in 2010.
A decade on, it’s hard to know where to start with the long list of reasons why that forecast turned out quite so badly wrong and why Tullow Oil is now worth little more than £500 million. However, a lot of it boils down to two factors: oil is no longer the commodity that everyone wants; and Tullow is no longer the bee’s knees at finding or producing it.
Tullow, founded in Ireland in 1985, was propelled into the big time by big discoveries in Africa in the late noughties and early 2010s. Then came the oil price crash and high costs developing fields off the coast of Ghana, leading to high debts and an equity-raising that was supposed to get the company back on its feet and drilling again. Yet much-hyped discoveries off Guyana last year later turned out not to be commercial, while Tullow repeatedly had to cut production guidance from its African operations.
All that culminated in the ousting of the chief executive and the dividend’s suspension in December. Dorothy Thompson, Tullow’s chairman, is implementing a cost-cutting drive to try to improve cashflow so it can keep reducing paying off its debt, which stands at $2.8 billion. She is also reviewing investment plans. Tullow’s chief growth options are ambitious oil developments in Uganda and Kenya, complex and expensive projects that have faced difficulties. The company can’t afford to develop either, so wants to sell down. That will need brave buyers with big balance sheets — at a time when the price of crude is being hammered by the coronavirus outbreak and oil majors are under pressure to invest more in green stuff, not black.
If you’re nursing heavy losses on Tullow shares, you may as well hold: Mrs Thompson should be able to deliver some recovery, or Tullow could be bought. But for anyone looking at Tullow afresh, this is not the stock to be buying.
ADVICE Avoid
WHY Troubles run deep and oil is out of favour
