Research Update:

Ansell Ltd. Outlook Revised To Negative After BarrierSafe Acquisition; Rating Affirmed At 'BBB-'
Primary Credit Analyst: Brenda Wardlaw, Melbourne (61) 3-9631-2074; brenda.wardlaw@standardandpoors.com Secondary Contact: Paul Draffin, Melbourne (61) 3-9631-2122; paul.draffin@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Outlook Ratings Score Snapshot Related Criteria Ratings List

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Research Update:

Ansell Ltd. Outlook Revised To Negative After BarrierSafe Acquisition; Rating Affirmed At 'BBB-'
Overview
Standard & Poor's has reviewed its ratings on Ansell Ltd., which it labeled as "under criteria observation" (UCO) after the publishing of its revised corporate criteria on Nov. 19, 2013. Standard & Poor's expedited the review of its ratings on Ansell because the company has announced an acquisition. The rating is no longer under criteria observation. Following Ansell's announcement of its acquisition of BarrierSafe, we have revised the rating outlook to negative from stable on Ansell. At the same time, we have affirmed the 'BBB-' long-term credit rating on the company. The negative outlook reflects our opinion that there is a one-in-three chance that the rating could be lowered over the next two years because of greater financial leverage and potential integration risks following the acquisition.

Rating Action
On Nov. 26, 2013, Standard & Poor's Ratings Services revised its rating outlook on Ansell Ltd. to negative from stable. At the same time, we affirmed our 'BBB-' long-term corporate credit rating on the global manufacturer of personal protective equipment.

Rationale
The outlook revision follows Ansell's announcement today of its acquisition of BarrierSafe for US$615 million. BarrierSafe is a U.S.-based company focused on the production of single-use gloves and boots. The acquisition will be funded by a mix of equity via an underwritten institutional placement of A$338 million, debt, and a part of the proceeds from a share purchase plan of up to A$100 million. We consider that Ansell's "modest" financial risk profile will weaken because of the debt component used to fund the acquisition. Further, Ansell's financial metrics had minimal buffer at the current rating given weaker-than-expected metrics in 2013, following several recent debt-funded 'bolt-on' acquisitions. The negative outlook indicates our view that the rating could be lowered if the company fails to restore its key financial metrics to a level consistent with the 'BBB-' rating within the next two years. We have affirmed the rating

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Research Update: Ansell Ltd. Outlook Revised To Negative After BarrierSafe Acquisition; Rating Affirmed At 'BBB -'

based on our assumption that Ansell would not undertake any further material debt-funded acquisitions until the integration process is largely complete, and Ansell's financial risk profile returns to levels more consistent with the current rating. Standard & Poor's considers that Ansell's business risk remains "fair". Although BarrierSafe adds scale and diversity to Ansell's existing business in North America, the U.S. market is highly fragmented and there are large-scale competitors in some segments. We also view the size of the BarrierSafe acquisition as evidencing a more aggressive growth strategy, compared to the company's smaller, 'bolt on' acquisitions in recent years. In addition, the integration of a much larger acquisition may create additional operational risks to Ansell. Potential risks also exist relating to the sustainability of the recent margin improvements at BarrierSafe under its private-equity ownership. However, the level of production outsourcing and the distribution model currently used by BarrierSafe would temper the integration risks. Our base case assumes: The acquisition of BarrierSafe for US$615 million; A$338 million of underwritten equity issuance, plus expected take-up under the group's proposed share purchase program (capped at A$100 million); and No further acquisitions over the outlook period. Based on these assumptions, we arrive at the following fully adjusted credit measures: Debt/EBITDA at mid-2x in 2014, declining to about 2x in 2015 and less than 2x in 2016; Funds from operations (FFO)/debt at less than 35% in 2014, about 45% in 2015, and more than 50% in 2016; and Positive free operating cash flows across all forecast years.

Liquidity
We have revised our view of Ansell's liquidity to "adequate" from "strong", as a result of the acquisition. This assessment is based on our expectation that Ansell's liquidity sources will cover its uses by more than 1.2x over the next 12 months, even if EBITDA declines by 15%. Principal liquidity sources include: Institutional equity placement of about A$338 million (net of costs), FFO of more than A$200 million for 2014 through 2016, and Current cash holdings of around A$300 million. Principal liquidity uses include: Acquisition of BarrierSafe for US$615 million, Capital expenditure of more than A$45 million per year from 2014 through 2016, and Interest payments of more than A$20 million.

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Research Update: Ansell Ltd. Outlook Revised To Negative After BarrierSafe Acquisition; Rating Affirmed At 'BBB -'

The debt financing for the acquisition will initially be through a bridge finance facility, which in our view, poses additional short-term liquidity risk to Ansell. We have assumed the refinance of the bridge facility into longer term funding will occur early in 2014 to support our view of the company's adequate liquidity.

Outlook
The negative outlook reflects our opinion that the rating could be lowered if: Financial metrics do not improve toward our expectations for a "modest" financial profile, including adjusted FFO/debt of more than 45% and debt/EBITDA of less than 2x; The integration of BarrierSafe proves problematic and undermines the profitability of the acquisition or the group's existing operations; or Ansell makes further material debt-funded acquisitions.

Upside scenario
An outlook revision back to stable could occur if Ansell's financial metrics recovers to our expectations for the "modest" financial category, and the BarrierSafe integration is successfully completed without detriment to Ansell's existing business.

Ratings Score Snapshot

Corporate Credit Rating: BBB-/Negative Business risk: Fair Country risk: Low Industry risk: Intermediate Competitive position: Fair Financial risk: Modest Cash flow/Leverage: Modest Anchor: bbbModifiers Diversification/portfolio effect: Neutral Capital structure: Neutral Liquidity: Adequate Financial policy: Neutral Management and governance: Satisfactory Comparable rating analysis: Neutral Stand-alone credit profile: bbb-/Negative

Related Criteria
Corporate Methodology, Nov. 19, 2013

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Research Update: Ansell Ltd. Outlook Revised To Negative After BarrierSafe Acquisition; Rating Affirmed At 'BBB -' Methodology And Assumptions: Liquidity Descriptors for Global Corporate Issuers, Nov. 19, 2013 Corporate Methodology: Ratios and Adjustments, Nov. 19, 2013 Methodology: Industry Risk, Nov. 19, 2013 Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013 Key Credit Factors For The Branded Nondurables Industry, Nov. 19, 2013 Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012

Ratings List
Ratings Affirmed; CreditWatch/Outlook Action To Ansell Ltd. Corporate Credit Rating BBB-/Negative/NR From BBB-/Stable/NR

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services licence number 337565 under the Corporations Act 2001. Standard & Poor's credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

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