Ramsay Health Care’s Elysium mental health business continues to underperform

The health care company won’t grow profits this year, after a weaker than expected performance from its Elysium mental health business in the UK.

Ramsay Health Care has downgraded its profit outlook.

Ramsay Health Care’s UK mental health business Elysium, which it acquired three years ago for $1.4bn with high hopes for growth, is underperforming, driving a significant writedown for the private hospitals operator.

Ramsay said on Tuesday it no longer expected to grow its profits this financial year after deciding to write down the value of its UK business by $305m, for a post-tax impact of $291m.

Back in early 2022, the company spruiked the Elysium acquisition as a “unique opportunity to enter the growing UK mental health hospital market at scale’’, and was targeting a post-tax return on capital of more than 10 per cent by year five.

Ramsay said on Tuesday that at the end of 2024 it valued the goodwill of the Elysium business at £746m ($1.47bn at Tuesday’s exchange rate), however it had tested this more recently, and marked it down.

“Elysium’s valuation has declined, driven by continued occupancy challenges in mental health rehabilitation and neurological services, as well as a slower than planned ramp up in occupancy at new sites,’’ the company said.

“Margin recovery assumptions are challenged by the ongoing impacts of increasing UK living wages (minimum pay rates), rising over 30 per cent since the acquisition, and national insurance contributions, that to date have not been fully matched by funding, coupled with slower occupancy improvement.

“The impairment model results in Elysium’s value reducing by an amount broadly in line with the goodwill generated on the acquisition of the Elysium business.

“In the UK segment, this is partially offset by the increase in valuation for Ramsay UK Hospitals, resulting in the post-tax impairment of $291m/£144m.”

Despite the bleak trading update, Ramsay shares were 1.4 per cent higher at $34.73 in early trade on the ASX.

Ramsay said the board and management acknowledged the weak performance of the business since its acquisition, and the group had appointed a chief operating officer for Elysium, who started in January.

“All capital expenditure related to further site expansion has ceased, while management concentrates on improving current performance,’’ Ramsay said.

“The group will also complete a rapid strategic and performance diagnostic, supported by external consultants, to identify initiatives to improve profitability.’’

Ramsay said it expected net profit for the first half, excluding one-offs, to be in the range of $150-$160m, compared with $140.4m for the same period last year.

“As a result of the impairment, Ramsay no longer expects growth in net profit … from continuing operations in FY25,’’ the company said.

Ramsay reported an underlying net profit after tax of $300.1.m in 2024.

Ramsay will report its first half results on February 27.

Originally published as Ramsay Health Care’s Elysium mental health business continues to underperform