Response to ASX 27 September 1999 - Orica Year 2000 Business Readiness

27th September, 1999

INTRODUCTION

The Orica Limited response to the Australian Stock Exchange's (ASX) request for Year 2000 business readiness information covers businesses that comprise the Orica Group but excluding Incitec Ltd and its related entities. The businesses included are Explosives, Consumer Products (including Dulux and Selleys), Chemicals, as well as subsidiaries such as GBC Scientific Equipment Pty Ltd, SHE Pacific Pty Ltd, and joint ventures in which Orica holds a majority shareholding. The joint venture with Kemcor in which Orica holds a 50% interest, reports directly to the Kemcor Joint Venture Board, but will also be monitored by Orica.

Incitec Ltd, a publicly listed company in which Orica holds a majority shareholding, and Crop Care, a joint venture between Orica and Incitec, are covered in a separate response from Incitec. Similarly, Grow Force Australia Ltd, in which Orica has an indirect interest of 38% through its ownership of Incitec Ltd, is covered in a separate response.

Orica remains committed to its objective that its equipment and software will be Year 2000 ready and that business operations will not be significantly affected as a result of internal exposures. However, no company, Orica included, can control all aspects of achieving and maintaining Year 2000 business readiness. In particular no company can guarantee that critical suppliers, customers or essential services will not experience problems that might adversely affect its own ability to perform as normal.

The following specific information is provided in response to the ASX's enquiries.

POTENTIAL EXPOSURE TO YEAR 2000 ISSUE

1. "Has your Company's assessment of its overall potential exposure to the Year 2000 problem changed materially from what the market has previously been told ? If it has, your response should describe the change."

A number of additional Orica Joint Ventures are expected to be in operation prior to the end of 1999. As part of the due diligence in the establishment of these joint ventures, a full evaluation of the Year 2000 status will be completed. Where appropriate, remediation of areas of possible risk will be carried out and a suite of contingency plans prepared to cover the Year 2000 issues.

2. " Has the Company initiated any material action to address the Year 2000 problem beyond actions previously disclosed to the market, or does it propose to initiate any such action ? If it has, your response should describe the action."

No

3. Orica's Response to Year 2000 Issues

"Please provide details of your Company's progress in relation to its activities to address the Year 2000 problem, including the date by which your Company expects to have completed those activities"

(a) Overview of the Orica Year 2000 Program

As advised in the March 1999 Disclosure, Orica's Year 2000 Program is co-ordinated by the Orica Year 2000 Steering Committee, which is made up of senior managers and chaired by an Executive Director. Year 2000 progress is reported to the Board on a regular basis.

The investigation, risk assessment, testing and remediation activities are carried out by project teams within the individual businesses. A central team co-ordinates reporting from the businesses, distributes and communicates policies, and assists with the sharing of information and best practices.

All current Orica business units are included in the Orica Year 2000 program and all joint ventures and majority-owned subsidiaries are included in the internal reporting.

Since describing its Year 2000 status to the market in the March 1999 statement to the ASX, Orica has:

• completed Business Continuity Plans (BCP) for the key processes in each business, aimed at possible Year 2000 risks;
• completed independent reviews of both the Australian and International businesses;
• completed assessments of both Customers and Suppliers for Year 2000 readiness.

In addition execution of actions identified by the BCP’s is in progress and will continue until the Year 2000 program is complete.

(b) Definition of Business Readiness

Orica is using the British Standards Institution's definition DISC PD2000-1 as the standard for all of Orica's Year 2000 business readiness activities.

(c) Business Strategies

(i) Manufacturing Operations

This category covers all plant and equipment used to operate, monitor and control the manufacturing processes.

Inventories of affected equipment and the work required for Year 2000 business readiness have been prepared. The readiness of an item of technology is assessed for the safety, environmental, operational and commercial risks if that item fails or operates incorrectly. An experienced external company is assisting with the process. Site-based inspections are used to check the coverage and key site engineers are closely involved.

Status

100% of the assessments have been completed. Testing and remediation of systems is almost complete as at the end of September. There are a few minor exceptions for those items which are programmed for completion in the 4th Quarter as a result of logistical constraints on supplier testing and/or plant availability for final checks. The assessment and testing programme has only found the need for minimal remediation work across the company, all of which are included in the above statements. Processes are in place to check new equipment and/or modifications for Year 2000 compliance.

(ii) Information Technology

Four major categories of information technology which may be affected by the Year 2000 issues have been identified. These have been addressed as follows:

(1) Core Business Systems

In 1998, installation of the SAP application package was completed for all major businesses in Australia, with the exception of Dulux, who have made their existing core in-house systems business ready. Several smaller businesses use other vendor packages for their core processing. These have been upgraded as required. The SAP application systems in North America were combined in July 1999 and new systems tested and approved.

Status

All systems are expected to be Year 2000 ready by 30 September 1999 with the exception of some minor upgrades which will be carried out according to Supplier availability prior to 31 October 1999.

(2) Non Core Business Systems

There are many applications classed as non-critical which nonetheless would lead to inconvenience if they were not Year 2000 ready.

Status

All Orica Business units non core systems will be Year 2000 ready by 30 September 1999.

(3) IT Infrastructure

Orica completed a major upgrade to its local area networks and workstation infrastructure across the major Australian and New Zealand businesses in September 1998.

Status

As previously reported to the ASX, the Company's Standard Operating Environment (SOE) desktop infrastructure testing was completed in mid January 1999. A number of minor upgrades were completed in the first half of 1999, with a further minor upgrade planned for October 1999. Businesses which were not included in the upgrade have updated their key infrastructure with the view to meet the Company's plans of attaining Year 2000 Readiness.

(4) Electronic Communication

The wide area data network was upgraded during 1998 to be based on a managed service from AT&T, utilising Telstra Frame Relay facilities and Cisco routers. A Year 2000 compliance warranty has been provided by both AT&T and Telstra. Voice equipment has been risk assessed and appropriate measures will be taken where needed to cover base call functionality.

External telecommunications service providers are being monitored closely as they continue their compliance activities, and contingency plans are in preparation. Orica is upgrading non compliant business significant PABX systems to the latest release of software and will be completed by 31 October 1999.

(iii) Suppliers

Year 2000 business readiness is now part of the standard purchasing terms and conditions in all businesses although subject to contractual modification in particular instances.

Status

All of Orica's key critical Suppliers have been assessed and critical suppliers are also being covered with Business Continuity Plans.

(iv) Customers

Standard communication packs have been prepared and are being issued to all customers in response to requests for information. The content of this communication is continually being reviewed and updated as appropriate. Orica's potential exposure to customers who may face compliance difficulties is also being analysed.

Status

Critical Customers have been assessed and are covered within the Business Continuity Plans.

(v) Legal

Orica is involved in producing appropriate Year 2000 policies such as contracts, communication and document retention.

(vi) Financial

Financial risks may arise from Year 2000 issues. While the main elements of the Year 2000 project reduce the likelihood of major long term financial impact, the continuity plans will address potential cash flow impacts of consumer behaviour, our customers' contingency plans, and any abnormal production scheduling that might be needed. The legal measures are also partly addressed at reducing the financial risk from litigation. Testing of all key financial elements has been completed with no problems encountered.

(d) Audit and Review Activities

Reviews by external consultants have been completed and all identified gaps in the Year 2000 program have been rectified.

(e) Estimated Cost

Orica has either completed or has scheduled for completion a number of large system replacement projects, all of which have Year 2000 readiness as one of their key objectives. In addition to these projects, which in total cost in excess of $100M, projects specifically targeted towards the Year 2000 business readiness are estimated to cost approximately $20M.

4. RESIDUAL RISKS AFTER ORICA'S ACTIVITIES TO ADDRESS THE YEAR 2000 PROBLEM ARE COMPLETED

"Are there areas of your Company's activities where, in your Company's assessment, material Year 2000 risks will remain after the Company's activities to address the Year 2000 problem are completed? Examples might include dependencies on third parties such as Utilities. If there will be remaining risks, your response should describe them"

As stated in our earlier response to the ASX, all critical systems have been tested and Orica considers the probability of failure is low. However, like any other company, there is some risk that not every potential problem is detected. In addition, despite Orica's programme to assure itself of the readiness of its suppliers and major customers, their ability to continue to do business is not directly under our control. In particular, the real exposures to business operations are assessed to be at a higher level in a number of developing economies where International Explosives operate, compared to North America and Australia. The Business Continuity Plans have factored in these higher exposures.

The Orica businesses' Business Continuity Plans address both these types of residual risk by defining alternate strategies to continue to supply our customers, and maintain personal and environmental safety.

Even after the one-off activities are completed, Orica will continue to review vendor supplied information and take appropriate action in response and make adjustments to continuity plans as circumstances change. Processes are also in place to address any new equipment, systems and suppliers for Year 2000 readiness.

Orica is aware of the legal risks of contractual non-performance, and the obligations for open and accurate representation of our year 2000 readiness position. Actions to reduce the risk and impact of future legal action include :-

• a Communications Policy on Year 2000 issues that ensures that customer and investor Year 2000 readiness enquiries are answered in a planned, factual and open manner by authorised and knowledgeable people;
• a review of existing contracts to identify any significant exposures;
• the Year 2000 compliance requirement within the standard purchasing terms and conditions has been updated and relevant Suppliers have been notified of the changes to the Terms and Conditions.

5. BUSINESS CONTINUITY PLANNING

"Please describe your Company's contingency plan in relation to Year 2000 issues"

Each business has appointed a Business Continuity Planning Manager accountable for addressing the ability of the businesses to continue performing key business processes across and beyond the Year 2000 period. They report through the Year 2000 Steering Committee, as well as to their business management.

Status

Development of the plans is complete in all businesses. Workshop exercises have been held to ensure that these Plans are workable. Completion of actions arising from each plan are being monitored by the Year 2000 Steering Committee. Corporate and Business teams have been put in place to monitor status across all Orica businesses over the year end period.

Based on the outcomes to date of the Year 2000 project and the ongoing program, the directors believe the consolidated entity's internal systems will be year 2000 ready. The directors, however, cannot give an unqualified assurance that the year 2000 issue will not affect the consolidated entity's operations in some way.

This statement is a Year 2000 disclosure statement for the purposes of the Year 2000 Information Disclosure Act 1999. A person may be protected by that Act from liability for this statement in certain circumstances. This statement is authorised by Orica Limited.