Capita to sell local government treasury service

Capita has announced it is to sell the division that provides local authority treasury advice in what could be a major shake-up of the market.

A statement issued by Capita said that Capita Asset Services (CAS) would be sold as part of a restructuring because it no longer fits the company’s “core business strategy”.

However, it remains unclear who the buyer will be or whether local government treasury services will remain part of the wider CAS business, or sold separately.

In addition to CAS, there are currently only two other local government treasury advisors: Arlingclose and newcomer TradeRisks, who entered the market in July after winning a contract with Derby City Council.

Capita chief executive Andy Parker announced the sale of CAS at the same time as warning that Capita was facing “near-term headwinds” that make 2016 a “challenging year”. He added that company performance in 2017 was likely to be the same as in 2016.

Parker said that the sale of CAS and a cost cutting programme would “create a leaner Capita, focused on its core strengths and with a much stronger balance sheet.”

CAS has its roots in the treasury advisors Butlers which was acquired by Capita in 2011 to become Sector Treasury Services. In 2013 Sector rebranded as CAS.

Further consolidation in the market took place in 2013 when the Office of Fair Trading cleared the merger between treasury consultancy firms Arlingclose and Sterling Consultancy Services. CAS offers a number of services to local government including an investment advisory service, investment benchmarking, debt and capital financing advisory and a creditworthiness service.

Capita’s 2015 annual report shows that CAS reported underlying revenues of £403.9m last year, up on £332.5m in 2014. Capita’s total revenue was £4.6bn. Revenues for the CAS division local government treasury are not broken down in the report. However, across all divisions, local government business accounts for 18% of Capita revenues, outstripping central government business at 10%.

The report sounded a bullish note on local government business. It said:  “As councils look to reconcile shrinking budgets and growing demand for services there is increased recognition of the value of commercialisation of council assets and services to develop revenue streams.

“This will lead to more joint activity and new delivery models with commercial organisations who can bring investment, specialist expertise, product, pricing, sales and marketing knowledge to bear.”