Elysium Healthcare Limited (RHC) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining our conference call and webcast at such short notice. On the call today, we have our Managing Director and CEO, Craig McNally; our U.K. CEO, Dr. Andrew Jones; and our CFO, Martyn Roberts. Slide 3 sets out the agenda for this morning. As always, following the presentation, there will be an opportunity to ask questions at the end. I will now hand the call over to Craig.

Thanks, Kelly. Good morning, everyone, and thanks for joining us today. I'm absolutely delighted that today we've announced that we've entered into an agreement to acquire Elysium Healthcare, which is a leading acute mental health care business in the U.K. The acquisition is expected to complete during the first quarter of calendar '22. The transaction offers a really attractive opportunity for us to expand into the U.K. mental health market and is compatible with our existing business in the U.K. and certainly aligned with our vision of being a leading provider of integrated health care services, delivering high-quality patient outcomes. The pre-IFRS 16 consideration of GBP 775 million represents an FY '21 EV to EBITDA multiple of 13.5x. The multiple does not fully reflect the benefit of the investment that has been made in the business over the last 12 months, which will see an estimated 9.5% expansion in bed capacity by the end of 2021, and also doesn't reflect the estimated annual synergies of at least GBP 5 million per annum. The acquisition includes post-IFRS 16 lease liabilities of approximately GBP 195 million (sic)[ GBP 185 million ]. The transaction will be fully funded from Ramsay's existing debt facilities and there is no need to raise capital for this transaction. The acquisition is expected to deliver mid-single digit EPS growth in FY '23 and meets Ramsay's internal investment hurdles, including earning a post-tax ROIC above 10% in year 5. The post-tax ROIC is not fundamentally different from our pre-tax ROCE of 15%, and it's changed really due to the change in the lease standard. I'd just like to take a moment now to talk at a high level about the benefits of the acquisition. As I've mentioned, the transaction enables Ramsay to expand into the mental health care market in the U.K. at scale with opportunities for both organic and inorganic growth. The mental health care market is an attractive market growing at rates above demand for other health care services and that's driven by increasing awareness and improving diagnostics of mental health and learning disability conditions. Both ourselves and Elysium have excellent relationships with the NHS and this transaction will further strengthen that partnership. It also further builds our platform of services in the U.K. health care market, aligning with our long-term vision to deliver outcome-focused integrated care pathways. As a leading mental health provider in Australia and France and with services in our other territories including Sweden, there is an opportunity to create value through cross collaboration and the sharing of global best practice across the Ramsay group, which will drive improved patient outcomes. And as I said, we will drive shareholder value with mid-single digit EPS accretion in our first full year of ownership. I'll now hand over to Andy, who will explain why we are keen to grow in the U.K. mental health market, and he'll talk in greater detail about the business and the strategic rationale for the acquisition.

Thank you, Craig, and good morning, everybody. I'm also very excited about this opportunity and I appreciate everyone's support. So let's start by looking at the U.K. mental health market. In terms of size, the market is worth GBP 15.2 billion and is growing at around 4% per annum. Currently, 1 in 4 people in the U.K. have experienced mental health issues and I'll talk about demand in more detail in the next slide. The U.K. government has made a strong commitment in the NHS' long-term plan to transform mental health services in the U.K. and has indeed pledged to increase funding by GBP 2.3 billion per annum by 2023, 2024. There are capacity constraints across the sector, particularly in children and adolescent mental health services, and the NHS has committed to accelerating more support for these services. So as you can see, there is likely to be strong underlying demand driving growth opportunities for Elysium over the coming years. Mental health services are continuing to experience rising demand, but in many cases exceed the available capacity in adult, children and young people services. COVID has unfortunately also impacted the demand for mental health services. It is estimated that these services in England will need additional capacity for around 8.5 million adults and 1.5 million children and young people, a total of 10 million, who will need new or additional mental health support over the next 3 to 5 years as a direct consequence of the pandemic. The independent sector, which we are part of, comprises the private sector, charitable organizations and public local authorities, and these are expected to continue to meet the growing demand in the sector, backed by the continued outsourcing of NHS services. So moving to the Elysium business, it is a leading independent operator of long-term, medium, and low secure hospitals and complex care homes for individuals with mental health conditions. The company was formed through forced divestitures in December 2016 and since then has grown organically and through acquisition from 22 to 72 operational sites with approximately 2,000 beds and employing 6,000 people. Elysium maintains 78% good or outstanding Care Quality Commission, CQC, scores across its portfolio and it works collaboratively with commissioners to meet the U.K. government's objectives of treating patients as close to home as possible with the right level of security required. We recognize the significant skills and expertise of Elysium's management and employees. Elysium and Ramsay U.K. will run independently of each other, with the CEO of Elysium, Joy Chamberlain, remaining as CEO of the business following the completion of the acquisition. Moving to the introduction. In terms of service provision, Elysium operates across the acuity spectrum of the U.K. mental health market with a particular focus on high acuity care. The business is divided into 3 segments: Mental Health is the largest of these 3 segments, representing approximately 79% of revenue. Elysium operates both medium and low secure services; specialist services, treating conditions such as personality and eating disorders; acute or psychiatric intensive care units; and nonsecure rehab services for adults with mental illness or learning disability. The second segment is in Complex Care, which represents approximately 10% of revenue and offers both operating hospital and nonhospital based care. This includes residential rehab and recovery services for a wide range of conditions including learning disabilities, autism and other mental health issues. And finally, like Ramsay in the U.K., Elysium is a provider of neurological rehabilitation and acquired brain injury services, which represents approximately 11% of revenue. We have set out the key operational and financial metrics for both Elysium and Ramsay U.K. for 2021 on Slide 12. As you can see, the combination of Elysium and Ramsay significantly expands our services and our presence in the U.K. health care market and delivers combined revenues of just over GBP 900 million. As Craig mentioned earlier, Elysium offers an attractive opportunity for Ramsay to expand into the U.K. mental health market, complementing our existing position in the U.K. health care market, working closely with the NHS. It also offers opportunities for collaboration across the Ramsay global business, where we have leading positions in mental health in Australia and France in particular. So thank you. I'll now hand back to Craig, who will cover the key takeaways from the presentation.

Thanks, Andy. So in summary, we have been operating in the U.K. market for the best part of 15 years and this acquisition provides us with the opportunity to enter the mental health market, which is a segment of health care we know well and understand across the Ramsay network. And we believe our understanding of the sector, combined with the demonstrated expertise of the Elysium team, will enable us to continue to grow the business above underlying market growth, while driving improved outcomes for patients, clinicians and strengthening our relationships with payers, particularly the NHS. Our shared focus on high-quality patient outcomes, operational excellence and developing industry-leading talent will support exceptional patient care across the U.K.'s acute and mental health sectors. The acquisition is expected to create attractive value for Ramsay shareholders as Elysium's business plan and clear strategy position will enable significant growth over the next 5-plus years. The transaction is expected to be finalized early in 2022, when we look forward to welcoming Elysium's people, patients and partners to the global Ramsay team. Happy now to open for questions that you have for Andy, Martyn, or myself. Thank you.

[Operator Instructions] Your first question comes from Andrew Goodsall from MST Marquee.

Just on Slide 12, you've given us some of the earnings metrics for the company. Just trying to get a sense of how you see that, was there sort of a COVID tailwind there? Or would you say that's sort of normalized? Yes, just trying to contextualize how we should be thinking about that relative to sort of forward growth.

I'll start before I hand over to either Martyn or Andy. There's really no COVID impact. So there's no COVID tailwinds. It was pretty normalized through COVID. So I think those numbers reflect that. But Martyn, you might like to add to that?

Yes, nothing to add, to be honest, Craig. This business has been in growth and is forecasted to be in growth and a lot of activity they're doing is longer term kind of treatment. So yes, no real positive or negative, I would say.

Terrific. And then, I guess, just in terms of the pipeline. Obviously, you're providing some level of long-term complex care in psychiatric care. I'm just trying to understand what proportion of that care would you have some sort of forward visibility in terms of pipeline, just, you know, a waiting list.

Well, there's certainly, I'm going to say, supply constraints. So there's certainly demand that's outstripping the growth in supply at the moment. So look, you get a reasonable view about where that's going. I think Andy has pointed out the commitment of government to add funding to the sector that gives us a view on what that medium-term opportunity might look like. And added to that now that there is a bolt-on acquisition opportunity that Elysium, given its private equity ownership, coming to the end of its fund really hasn't been funding, so we're really confident about what that short to medium-term growth driver looks like.

And final one for me. Just some of these groups, particularly in mental health, had sort of, I guess, issues around governance and, I guess, just wondering what your due diligence found here, just the level of confidence you've got just around that governance and clinical risk.

Yes. We spent a lot of time on that, Andrew. Elysium are the outstanding provider in the market. And as you pointed out, the sector has had some issues over recent years. Elysium isn't immune to that. It's got a couple of things that needs to get right in a couple of facilities, but we did some extensive diligence on that, and obviously, putting our reputation on the line in terms of quality, it was a significant issue for us. But we're certainly confident that they've got the people and systems and the focus on clinical outcomes. They've certainly improved the ratings of each of the hospitals as we have done in our U.K. business. But it's not something you rest on your laurels for and I think what we bring to that is that increased focus in the systems to support that. Andy, can you give any other comments you'd like to add to that?

No, I think that's well covered, Craig. We take great pride on the quality delivery of services in the U.K. and that will certainly continue working with the Elysium team.

Your next question comes from Saul Hadassin from Barrenjoey Capital.

First one, Craig, maybe just talk about the -- on the basis that majority of funding comes from the NHS, I'm assuming this is tariff-based in terms of how that funding is determined. And if so, can you give us a sense of what's been happening with tariff in this space for the last year and what the outlook is?

Yes, it's not actually tariff-based. They are negotiated prices mostly, and Andy can talk about it in more detail, but what you do in this sector is you assess the needs of patients and the needs of patients vary individually, and then you negotiate the price for that patient effectively, and so that makes up the larger proportion of revenue. And what we've been seeing is -- one of the beauties about that is that in that negotiation you are picking up whatever the current estimates of cost base are going forward. It is a negotiation. So Elysium has done well. We've seen growth in that average price. But yes, you get down to local market conditions and competitive environments, et cetera, that come into that. Andy, do you have anything you'd like to add?

Yes, those are the 2 main points, Craig, the baseline price and then the negotiated increment. There's 2 other opportunities. Through COVID, the NHS has booked some facilities where it's become worried about capacity constraints, so that's an opportunity for the business. And then unfortunately, some patients are very special and high acuity needs and the business has been able to negotiate special prices for patients with particularly acute needs.

And just to follow up on that. So in terms of those negotiations, can you give us a sense of how frequently they come up? And are these long-term contracts that are then entered into?

Typically, the annual reviews building on past practices is the way that it works in the U.K. The NHS works on an April financial year and it's usually based on the funding rents that are announced by the government in the preceding period. So it's a layer on each annual conversation in reality.

And just a final one for me. Just cognizant of the expansion of facilities that's occurred in the last couple of years, just the access to mental health nurses, the supply, is there any issue in terms of being able to continue to expand services?

Yes. I mean mental health is similar to the rest of the industry in terms of pressure on workforce. So that is an issue. So we need to position Elysium as they've positioned themselves up till now as the preferred employer, but it doesn't mean that there isn't pressure on workforce.

Your next question comes from Chris Cooper from Goldman Sachs.

The revenue has grown in the high teens, the margins over the last 3 years have been flat. Could I just ask where you haven't seen the leverage? Is this lease cost? Is this starting cost? Can you just talk to that dynamic in a little bit more detail, please?

So the business has certainly experienced additional costs through COVID, like all of us, for staffing-related issues, having to bring an agency staff and to pay for the clinical component, the infection prevention standards and the like. I think they're probably the 2 main factors. They've also continued to expand and obviously opening new facilities that are at full capacity. I don't have this figure to hand about how many beds they've put on over the last 2 years, but they have continued to expand and open new units and obviously, that's a temporary depressant on margin.

And so looking forward, should we assume this business has a forward margin profile which is sort of flattish as well? Or is there scope to improve or perhaps go the other way over the coming years ahead?

I think it's probably fair to look at it as flattish because they tend to be small units. And when we establish new businesses that will be smaller units, so you're not getting so much opportunity as you're doing for the larger acute services, to drop additional volume and incremental revenue down as a higher margin. So our view is it's more flattish.

Okay. And just a bit more detail on the synergies would be helpful. So GBP 5 million. Could you confirm when we're going to expect to see that? And what the sort of upside and downside drivers are towards that number?

Sure. Martyn or Andy?

Andy is at probably a better place to talk about that.

Yes, happy to take that one. So the 2 main drivers that we see when you set the 2 businesses, so Elysium and Ramsay U.K. side by side and obviously, within the context that the U.K. business enjoys the benefit of being part of the global group in terms of procurement. So it is the procurement of major items that we see part of the benefit, and then the other component is obviously in digital and IT, where we enjoy economies of scale in the way where we go about things. So those are the 2 things. Obviously, the priority in the first 6 months is hearts and minds and culture and bring the brand alignment between the 2 businesses and understand best practices, but we expect to be well underway with driving out the synergies between years 1 and 2.

Okay. So between years 1 and 2, assuming completion in first quarter '22 calendar, we're talking by the back end of fiscal '23 you should be running at GBP 5 million per year minimum.

That's probably fair.

Your next question comes from John Deakin-Bell from Citigroup.

I'm just trying to understand a little bit more on the financials. And I note in the presentation you've got different metrics and different slides. On Slide 10, you've got that revenue and EBITDAR for pre-rent, and then you're talking about the business made GBP 57 million EBITDA in June '21. And then you've got 61% of the estate is freehold. So can you just give us a little more color on what the rent is and perhaps what the D&A is and what the CapEx is likely to be, and perhaps reference that to the fact that they've grown the beds going to 10% in the 12 months to December '21. Perhaps you can give us a sense of how much that cost in relation to what you're paying for the overall business, just some more color would be very helpful.

I can have a go at that if you like. John, it's Martyn. Look, I mean obviously, we've given you the EBITDAR for the historical numbers. Just to make sure that you understand the GBP 57 million of EBITDA in FY '21, that does, as we footnoted it, excludes some one-off costs, many of that we don't think will reoccur going forward. So just to give you that. When we've disclosed what we've disclosed in terms of profit numbers, well obviously we will, when it comes to reporting, provide separate information for this business certainly for the first couple of years and then we'll review whether that becomes a segment or not. In terms of CapEx, sort of what I would say the ongoing sort of maintenance CapEx, et cetera, about GBP 15 million in the year, something like that. But on top of that, obviously, you've got all the growth CapEx. And we need to get inside the business and understand the business cases around all those things. But suffice to say, there is quite a significant pipeline there available. And you're right, just to clarify the leases there, you've got 28 sites on 125-year ground leases, and then the special purpose probably drawn that. The other 1 is a freehold. So I don't know whether that gives you the color you're after, but just to give you some extra information.

So that GBP 15 million maintenance CapEx, is that kind of similar to what the D&A would be?

It's probably a little bit below the current rate D&A because you've got growth CapEx that's been invested as well.

Okay.

So the D&A is closer to GBP 20 million, something like that.

Closer to GBP 20 million, okay. That's helpful. So I guess, I mean, the key question really is to understand if you -- because the organic growth is 4% for the industry, and obviously, you probably have some facilities that are still maturing, so perhaps you can grow more than that. But to grow 10% of the beds in 1 year is like massive. In your business, you've never done like that. so I'm just trying to understand what order of magnitude of CapEx has been spent to get there. I mean, I know they're not particularly capital intensive, but they've gone from 22 sites to 72 sites in 5 years. So I'm assuming there's a lot of capital being spent. If you can just give us any color around that?

I'll make a comment before Martyn can jump in. I think your observation that they're capital light or less capital intensive than acute is absolutely right. They're significantly less capital intensive as we would see in our mental health businesses in other markets as well. Martyn?

Yes. I don't think we really want to go deeper to the historic CapEx. Suffice to say that, yes, we have to spend CapEx to grow this kind of business. There's also been acquisitions as well over the years. So there has been a bit of a buildup from acquisitions as well.

Your next question comes from David Stanton from Jefferies.

I note that the NHS and other parts of the business are 87%, leaving independent local authority to 12%. Is there an opportunity, I guess, over the near to medium term to increase the other funding sources like from private or anything else? If you can give us some color in that regard, that would be great.

Yes. Look, absolutely, David. I think as we've talked about sort of in general terms across many markets, we see an opportunity in mental health and broadening the range of mental health services. So what this gives us is a platform to be able to continue to grow from and part of that will be diversification of revenue sources and diversification of types of services that we provide. So it was really important for us to get that platform and we've been looking at mental health in the U.K. for some time and have been linked with a number of transactions over the years, but we've been sort of focused on what culturally will align, what are the service types that we feel comfortable with and that we can add value to and then use that to continue to expand the range of mental health services.

And as I understand, private pay is better reimbursed in the U.K. in nonmental health. Is that the same in the U.K. in mental health? Is the private pay is paid better is the general statement?

No, not necessarily. Yes, so when you look at margin, I mean, it may well be for some of the services. But when you look at margin across mental health, it's not a great sort of volatility or range, depending on which services and which payer group you're looking for.

Understood. And one for Martyn, I wouldn't want him to feel left out. Look, John has done a great thing and asked about rent and D&A and CapEx. I'm going to ask about all-in cost of funds for F '22. Should we be assuming that if this closes in your F '22, the all-in cost of funds will go up for '22 into '23, please?

What are you meaning, sorry, David?

Your percentage of interest rate, will that go up.

The percentage, it shouldn't go up because this is being funded from existing debt facilities where we've already got those interest rates locked in. And as Craig said earlier, we don't need to raise any equity to fund this.

Your next question comes from David Low from JPMorgan.

Just on this, I mean Craig, you've talked about the fact that you've been looking at mental health for a number of years in the U.K. Are there other opportunities? I mean, is this something where you can see further M&A being a strong driver of the platform?

More for bolt-on, David, not a substantial portfolio, but more bolt-ons and there's still a reasonable amount of bolt-on opportunity. It's not a really consolidated market. So we'll look at that, but not in terms of material portfolio.

Okay. And just with the NHS funding, I mean, I think we've been waiting to hear news on additional funding to clear waiting lists. This increase of 15-odd percent increase in the budget that's in your presentation, how clearly confirmed is that? And when does it start to come into effect?

Andy?

Yes. Thanks. So due to the demand for mental health services and the supply constraints, the NHS is further ahead and has been slightly more generous in its planning and allocation of funds for mental health. So some that are in our presentation have been confirmed and are now out there in what are being called the provider collaborative. So that growth and the opportunity that we've got in terms of developing the business is pretty much out there. But I need to put my answer in context with the acute side of the business, so the surgical side of hospitals, whereby that funding, that plan seems to be less developed. So we've got less certainty around what the NHS plan is to deal with the backlog in surgical patients, if that makes sense.

Yes, I think that's what I was getting at. So you're more confident that this mental health additional funding is going to be there. And maybe just a little bit more context, that uplift in funding, I presume it's not going to come through in the form of price. This would be in the form of an opportunity to offer greater volumes. If that's going to happen, how much capacity does the group have to take advantage of that with the existing facilities?

Yes. It certainly does come in the form of volume. But putting on additional capacity in this sector isn't difficult. Well, I say it's not difficult in terms of the capital cost involved. You've got to find the right sites, et cetera, and then brownfield additions to existing facilities are pretty straightforward. And I think it will be the ability for us to create the capacity that will be the constraint for us.

Okay. So just the last one for me. I mean this is a private equity sell-down. So I presume that it was a competitive process and Ramsay is going ahead because it's offering a higher price than the other bidders.

I can't tell you that because I don't know what the other peers were offering, obviously. But we...

But it was a competitive process.

Yes, but we didn't run until the end of the process.

Your next question comes from Steven Wheen from Jarden.

I just had a question with regards to the earnings of the group, the CAGR growth of 18%. I assume that's being supplemented by the level of acquisitions that have taken place during those years. Is there a way we can understand the sort of like-for-like growth of what this industry is looking like?

I think, as we mentioned, the underlying growth in the industry was 4% across the industry, but that isn't the case for Elysium and you are correct in that the 18% is a result of acquisition growth as well.

Okay. So you're clearly doing better than that. Well Elysium is clearly doing better than that. Is that something you can quote?

That we can quote.

Then tell us what the underlying growth is.

In Elysium, we'll have a look at that. We'll see what we can tell you.

Okay. And then secondly for me, just picking up on the agency nursing costs. What proportion of the nursing staff currently is agency staff? And is there an expectation that you will be able to reduce that given you gave a comment that you're not expecting much upside to margins from here?

Andy?

Yes, let me take that one. Thank you. So the agency rates are running in the mid-20s at the moment and that's due to many factors, COVID being one, and is probably slightly higher than historic norm due to the availability of clinical staff. But again just to set the answer in context, Elysium has high acuity patients and some of these patients will have particular staffing needs. So the business will typically contract to deliver care for particular patients, but the additional staffing costs will be paid through as part of a special pricing mechanics. So in effect, they're agreeing to take particular patients knowing that the premium to staffing cost has been covered for that particular patient.

Yes. Okay. But ultimately, there is an opportunity here that you could reduce agency staff over time?

Well, we hope as we look at the 2 businesses, because we're going to be major recruiters in health care based on the acute surgical business and on the mental health side to bring best practices in recruitment across both businesses, onboarding, training, working with the global employee proposition, training that we do in France and Australia and bringing some improvement. So we need to understand that over the initial period as I outlined earlier. But yes, we think that we can bring some expertise by bringing these 2 businesses together.

Right. One last question from me for Martyn. Just on the funding, the response from, I guess, your consortium, or even your ability to maintain your credit rating I assume is possible. But going forward, would you contemplate using the freehold properties within this group to do some sort of sale or leaseback to sort of take further acquisitions?

Possibly. But as we've said before, certain leasebacks don't give us any equity credit with Fitch. So it doesn't help from that perspective. And as we said, we've got plenty of headroom in our existing debt facilities. So never say never, but it's not something that we've factored into our plans currently.

Your next question comes from David Bailey from Macquarie.

Just following up on Steve's question actually, Martyn. Just where the FFO adjusted leverage gets to post this transaction? You sort of commented there that you're looking to maintain it within its target.

Yes. Well obviously, we haven't given you what it looks like after, because that would involve kind of giving you a forecast for our core earnings for FY '22, which unfortunately, we're not in a position to be able to provide you with. But all our forecasts and assessments would say that it will be closed, but we'll be managing within our current credit rating.

Okay. So no additional measures required in order to stick within that with some portance.

Based on our current forecast? No.

Yes. Okay. And then just on Slide 9, there's the split independent versus NHS providers. I mean, looking forward, is there expectation that capacity coming through on the NHS side is going to be fairly modest and the incremental growth is going to be funded or provided by the independent sector?

Yes, I think that's generally the case.

Yes. Okay. And then just one quick one. Just EBITDA post IFRS 16, I haven't done it, but just the number, if you could put it on hand.

I don't think we've disclosed that. Kelly, I'm not sure we've disclosed. Yes.

Your next question comes from Lyanne Harrison from Bank of America.

Can I just talk about the rapid rate of growth. Obviously, they've grown to 72 sites. Can you talk or comment on the systems and integration across those sites? Is there anything or any work that Ramsay needs to do for that? And if so, is that included in the GBP 15 million CapEx expectation?

I'll start with that. Then Andy, you can jump in. They're reasonably well integrated. A lot of the businesses are stand-alone, independent businesses that are supported from central office functions and so as they've been able to scale up, they've been able to add those new facilities in using the infrastructure that they have and supplementing that where necessary. That will continue to be the case. There's no significant issue for us in needing to ramp up the integration within that portfolio. As Andy pointed out in his presentation, we'll look at opportunities where we can share resources and create value across the 2 businesses and we will take some time to work through that. Anything you'd like to add, Andy?

Yes. Just to build, Craig, so the Elysium business has 2 care record platforms, which it uses appropriately. So it has one for the mental health business and one for neuro rehab. And we think the neuro rehab platform may be of benefit to our existing Ramsay U.K. We have 3 sites and we've been thinking about what we're going to do in that space. So that's a benefit. They're all on a single finance and procurement system. They're on a single HR system, although they are due to upgrade that shortly. So we've been working to understand that. We have made some allowances in our model because we think that there's some continued opportunity. When system develops, we run a very high standard of cyber security and obviously, the continual upgrade of licensing on the big enterprise platforms that we use globally as well. So the IT landscape is pretty well understood.

Okay. And just one follow-up question around the services that Elysium provides. Can you talk about, obviously, capacity and what Ramsay's thoughts about perhaps expanding capacity in terms of perhaps on the day patient side, if possible?

Andy? You want to go?

Yes, happy to take things. So yes, the 2 main drivers for success in this transaction in our view is to obviously maintain occupancy and the management team have been very successful over the years and then to expand beds. And I think that they've done that both organically with brownfield developments that they've opened new sites. And then obviously, there's been some big acquisitions over the years as they've bolted on and scaled up. So we're looking at this through kind of 2 lenses, if you like, both the existing business and the kind of the opportunities that are going on with mental health facilities in the U.K. So making sure that patients are looked after close to home. Adding beds to existing facilities is something that we've been doing some thinking about and D&A has been testing out what is being called provider collaborative. So we're very keen that we're part of those given the NHS contracting that will go on in the acute surgical and the mental health side of the businesses. Elysium does have a particular skill set in higher acuity services and so obviously that's very specialized. And then the other side of the lens is obviously good practice in Ramsay in terms of greenfield and we will take a view on what the greenfield expansions can look like in terms of the adding beds, which Craig gave in the previous answer.

Okay. So just to confirm that the intention is to maintain the services around providing support to inpatients rather than trying to offer a day patient offering.

Well, that's the basis of the plan. The opportunity is to look at what goes on in Australia and France and think about how health care is changing. But the basis of our plan is very much the basis of what's currently being done and make sure that we make a continued success of that. Day placements into the future is something that we'll need to give some thought to.

I'll just add to that so there's no confusion. The acuity level of the provision of mental health services in Elysium is very high. So the low and medium secure units are involuntary units and so locked units and so your ability to have day patients in those doesn't exist. But as we move into the answer before about diversifying revenue and looking at broadening the service profile that will then allow to look at initiatives like more day patients for private pay, et cetera. But that isn't what the bulk of this business is.

[Operator Instructions] We have a follow-up question from Andrew Goodsall from MST Marquee.

Sorry, just circling back on, just for modeling purposes, just wondering whether you've given us any kind of idea of what the right of use value is, so we can get from EBITDA to EBIT.

I don't think we did, Andrew. We said what the balance sheet item looks like. But I don't think we have given you that. We'll come back around on that maybe.

Would that be broadly consistent with perhaps... Actually, it's not going to help us. No, that would be great. It would be great.

Your next question comes from Sean Laaman from Morgan Stanley.

Good morning, Craig, Martyn and Andy. Just stepping back for a minute and looking at the business, it seems to have grown quite nicely. It hasn't really been impacted by COVID. It seems maybe even a COVID beneficiary. And you've given us enough bits and pieces I guess to somewhat get a reasonable forecast for fiscal '23-ish. And then you talked to sort of mid-single digit EPS accretion in fiscal '23. It kind of implies that you might have a bit of a degree of confidence on what the base business fiscal '23 outlook might be. I'm not going to get you to give us guidance of course for that year. But is there anything in the base business in terms of the COVID clouds clearing that gives you some confidence in providing that mid-single digit EPS accretion for fiscal '23?

I think what we see in the business is a number of the initiatives that have been put in place that once you get to the run rate for those, it gives us confidence about what FY '23 looks like. And we don't see that as a COVID tailwind necessarily, so...

Right. But simplistically, we could back out an EPS contribution from this implied fiscal '23 number, sort of mid-single digit below whatever that addition is from Elysium.

I guess you can, yes.

You have a follow-up question from John Deakin-Bell from Citigroup.

I was just trying to put in context the last 6 months within the overall business. So I just want to be clear, Craig, you mentioned that you came in late in this process. So on the 20th of July...

No, no. I didn't say we came in late in this process, we didn't run until the end of the process is what I said. So...

Didn't run. Does that mean you didn't...

We preempted the end of the process. We didn't wait till the end of the process to...

All right. So you've made a knockout speed, okay. Because what's -- I'm just trying to understand, on the 20th of July, Spire files; at the end of August, you surprised us by spending GBP 400 million extra CapEx in Australia, which may or may not have happened had you been successful in Spire. And then, the 10th of December, 12th of December, whatever it is, you've spent GBP 800 million for another business. So I'm just trying to understand the thinking through the -- obviously, if you'd been successful for Spire, it would have been unlikely that you would have thought this business unless I'm crazy.

No, no. I mean, we've been looking at this particular business for a couple of years probably. So the investment in the brownfield in Australia is independent and would have happened regardless of what position we took on Spire or otherwise. But in terms of where we were on assessing Elysium and Spire, we prioritized Spire and we put on hold the work we were doing on Elysium over the previous 18 months. Spire didn't transpire. There were a couple of investors, as we know, that saw much greater value in that and so we don't see that short-term opportunity for Spire is there right at the moment. But Elysium -- as we always say, we've always got a number of targets that we're assessing across many markets, and so we don't go one by one in terms of, okay, we get that one, let's launch on to the next one. And I think we've been pretty clear that mental health has been an opportunity that we've been very confident about across all the markets in which we operate. So it was just circumstances. The process for Elysium came up. And so we're in a position to be able to move quickly on that given all the work that we've done on previously.

There are no further questions at this time. I'll now hand back to Mr. McNally for closing remarks.

Okay. Thank you. Thanks, everyone, for joining today. It is an acquisition that we are really excited about. We're very positive about mental health. It's great for us to get that platform in the U.K. So we look forward to the transaction completing early in the new year and then getting on with the business. So thank you.