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ANNUAL REPORT 2007

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CORPORATE INFORMATION

Gale Pacific Limited

ABN 80 082 263 778

Directors

Mr Harry Boon (Chairman) Mr Peter McDonald (Managing Director and Chief Executive Officer) Mr George Richards (Non Executive Director) Mr John Murphy (Non Executive Director)

Company Secretary

Ms Sophie Karzis

Registered Office

145 Woodlands Drive, Braeside, Victoria, 3195 T + 613 9518 3333

Solicitors

Norton Gledhill Level 23, 459 Collins Street, Melbourne, Victoria, 3000 T + 613 9614 8933

Share Register

Computershare Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067 Local call 1300 850 505 International call + 613 9415 4000

Auditor

Pitcher Partners Level 19, 15 William Street, Melbourne, Victoria, 3000 T + 613 8610 5000

Website Address

www.galepacific.com

CORPORATE INFORMATION.......................................................2 REPORT FROM THE CHAIRMAN AND THE MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER................................3 BOARD OF DIRECTORS...............................................................7 SENIOR MANAGEMENT...............................................................8 CORPORATE GOVERNANCE ......................................................9 DIRECTORS’ REPORT ..............................................................15 AUDIT REPORT...........................................................................24 FINANCIAL RESULTS .................................................................25 INCOME STATEMENT ................................................................26 BALANCE SHEET........................................................................27 STATEMENT OF CHANGES IN EQUITY.....................................28 STATEMENT OF CASH FLOWS .................................................29 NOTES TO THE FINANCIAL STATEMENTS...............................30 ADDITIONAL STOCK EXCHANGE INFORMATION..................66

Gale Pacific Limited

Annual Report

REPORT FROM THE CHAIRMAN AND THE MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

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Gale Pacific Limited

Annual Report

REPORT FROM THE CHAIRMAN AND THE MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

Dear Shareholders,

Net proceeds from the equity placement were used to reduce longterm debt and provide working capital to assist in the growth of the Group.

The Year in Review

Revenue

In last year's Annual Report, we reported that the Gale Pacific Group was in the progress of a challenging review of its strategy designed to ensure that the Group had a strengthened and stable platform to fund its future growth plans and operations. It is pleasing to report that this review, and the restructuring that has occurred consequently, is now complete.

Sales revenues from continuing activities declined by 1.6% or $1.8 million to $110.4 million due mainly to foreign exchange differences year on year in consolidation of the accounts.

Operations

The restructuring initiatives that have been taken during the year have led to the improvement in our balance sheet, strengthening of our management team and systems, and improvements in many operational areas within the business. Debt levels have been substantially reduced, efficiency levels in our China operation have increased, improvements have been made to working capital management, there is a renewed focus on research and development activities, and our senior management team is now in place worldwide.

A concentrated effort was made to streamline the business and to ensure that the Group’s cost structure is better matched to projected revenue generation.

This resulted in writing off equipment and raw material remaining from the transfer of the knitting plant to China, writing down the carrying value of certain research and development activities, and taking up additional provisions for slow moving inventories. In addition, the German garden product distribution business, Jung, was sold in September 2006. After a detailed review, it was concluded that the New Zealand manufacturing operations should be transferred to the China manufacturing plant as this would assist the Group to operate more efficiently. The New Zealand plant is expected to be fully integrated into the China plant by early next calendar year.

Asia / Pacific

Australia

Sales revenue in our Australian business increased by approximately 5%, or $2.6 million highlighted by a 15% increase in sales to retail channels, double digit growth in all major retail product categories and increased sales with all of our major retail customers. Strong export sales to Japan were achieved resulting from a new product range we developed in conjunction with our Japanese distributor. The ongoing drought resulted in tough market conditions in the agricultural sector, causing a reduction of sales in the commercial and industrial fabrics segment of approximately 15% on the previous year. Most of these sales losses were in the coated fabrics product range and were a direct result of these market conditions.

During the year we implemented new supply chain initiatives to improve forecasting and production planning which resulted in inventory reductions year on year. Selective price increases were implemented to offset the impact of global raw material increases which continue to challenge our business.

New Zealand

In July 2006 the Group successfully completed a capital raising of $20 million via a combination of a private placement and a share purchase plan. In addition, $15.5 million of debt represented by unsecured convertible notes was converted to ordinary shares. Despite these initiatives, it became clear in November 2006, following discussions with the Group’s bankers, that revised long term financing arrangements needed to be put into place. The Group appointed advisors to assist in identifying and assessing long term refinancing options. After a comprehensive process to identify a sustainable long term capital structure, a recapitalisation proposal combining a $20 million equity placement and renewed Australian banking facilities was announced in June 2007. This proposal was approved by shareholders at an extraordinary general meeting held in August 2007 and resulted in the issue of 30,300,000 shares to our new cornerstone investor, Investec Wentworth Private Equity and its related entities at a price of $0.50 per share, and 9,700,000 shares to our long-standing major investor Thorney Holdings Pty Limited upon the same terms.

Sales in New Zealand remained flat compared with the previous year, with margin pressure continuing as a result of increased import competition, exacerbated by a strong New Zealand dollar. These factors, combined with the need to operate manufacturing plants at maximum efficiency levels all year round, led to the decision announced recently to relocate the New Zealand plant to the Group’s wholly owned facility in Beilun, China. The plant relocation project is now well underway with the first pieces of equipment shipped to China at the end of August 2007. Our plan is to complete the necessary stock build in New Zealand to service the market fully and then have the majority of the extrusion and knitting equipment relocated to China by the end of the 2007 calendar year. Our objective is to have the plant and machinery installed in China early in 2008. The equipment used in the manufacture of the extruded plastics products will be relocated to the Melbourne, Australia plant and will be operational in the New Year.

Gale Pacific Limited

Annual Report

China

The Americas

We have successfully completed the relocation and recommissioning of the Australian extrusion and knitting equipment to China which is now operating at increased output and efficiency levels. During the year we closed the Shanghai sales office and restructured the China production, R&D and engineering departments to reduce staff headcount and provide a leaner operation with a focus on efficient manufacture of high quality product. The clearing of the remaining bottlenecks earlier this year have enabled us to free up more available capacity in the plant enabling us to produce even more efficiently in the future. Improved production planning and inventory management processes have enabled us to significantly reduce the level of inventory held in the China plant. The China operation also achieved ISO9001:2000 quality accreditation.

Sourcing of colour master batches, one of our key raw materials has been moved to local Chinese manufacturers. These master batches will continue to be manufactured to our strict formulations and quality levels but at reduced costs and shortened lead times. Resin prices remained high throughout the financial year and, where possible, price increases have been passed on to the market.

USA

Sales in the USA have almost doubled since 2005, and grew by 29% in local currency over last year. During the year, we increased store coverage to 639 Home Depot stores, expanded retail fabric business into 1,327 Wal-Mart stores, and increased store coverage for Shade Sails at Costco.

We have expanded our manufacturers representative network to 17 who now service independent retail customers across all major markets in North America, and have also established a new warehouse facility in Georgia to provide shorter lead times and improved customer service to our east coast customers.

Sales of commercial / architectural fabrics grew during the year but not at the levels anticipated. We still see this as a strong growth area for the business and are currently exploring ways to expand our market penetration more rapidly.

Results

Europe / Middle East / Africa

Europe

Gale Europe completed its first season after the sale of the Jung business. As trading in the European market had been done previously through the Jung entity we had to establish all new customer listings and trading terms with all major customers. This process has been completed. During the year we processed, sorted and re-worked the previous season’s returned inventory which resulted in us carrying high levels of inventory in Europe and reducing our ordering on the China plant as a result.

With European inventory being at very high levels following the seasonal returns, particularly of products not core to our product range or ongoing strategy, the decision was made in June 2007 to write down our European assets by $4.9 million to allow management to liquidate this inventory and focus on the opportunities for sustainable business growth in Europe.

We have now exited the Jung warehouse where all inventory had been held previously and are in the process of consolidating our European warehouse locations as we reduce our inventory holdings. Staffing levels in Europe have been reduced as we establish a base in this market.

A full review of our product range and distribution channels has been completed, and we are currently implementing a more focused strategy, including our commercial fabric range. Range review and customer presentations are well underway for the following season with existing and new customers.

Middle East / Africa

Sales in the Middle East / Africa were down 7.6% on last year as a result of earlier bottlenecks in the production process in China, which have now been cleared. Management of the Middle East / Africa business has now been merged with the European operation to reduce costs and increase the senior management focus of this business.

The Group reported a loss after tax of $16.36 million, which includes a trading loss of $2.7 million, write downs and provisions in relation to the European and New Zealand assets of $9.9 million, and the additional write-off of the deferred tax asset relating to Gale Europe GmbH of $3.75 million.

Research and Development (R & D)

We have now completed a full review of our R & D activities, structure and project list and have aligned our R & D strategy with that of the business. The R & D group now has a much clearer focus and is working on a number of projects under the direction of Dr Paul Cacioli, our new head of Research & Development appointed during the year. Our plan is to start to commercialise some of these projects within the FY08 financial year. Continuous product improvement and innovation will be a key factor to ensure the Group’s future growth.

Information Technology

A new Group wide, global information system is currently being implemented in Australia with the other regions to follow shortly. We have also invested in improved demand forecasting and production planning systems, which are expected to provide further improvements to working capital management and customer service levels.

Cash Flow and Balance Sheet

The Group has reduced borrowings by $58 million during the last twelve months through a combination of a capital raising, conversion of unsecured notes to equity, sale of the Jung business, and positive cash flow from operations. The Group also generated $9 million in operating cash flow for the year primarily through working capital reductions. Capital expenditure reduced to approximately $4 million, down from $19.4 million in the previous financial year, as the investment phase of the Group’s relocation and expansion plan was completed.

Gale Pacific Limited

Annual Report

Tax

During Gale’s start up and entry into Europe over the past three years, our German subsidiary has accumulated tax losses that are available for offset against future profit in Europe, and would have been classified in the accounts as a “deferred tax asset”. However, until such time that the European business demonstrates consistent profitability, it has been decided to write off the carrying value of this deferred tax asset. As the European operations generate profits, the ability to recover these tax losses will be an upside to the after tax profit of the Group.

Dividends

There will be no dividend paid for the 2006 / 2007 financial year, and Directors expect the payment of dividends will resume when the improved financial performance of the business has been demonstrated.

Corporate Governance

The Group is committed to the principles of good corporate governance. A full discussion on the Group’s progress in creating strong and transparent corporate governance and in meeting all of the ‘Principles and Best Practice Recommendations’ published by the Corporate Governance Council of the Australian Stock Exchange is contained in the Directors’ Report section of this Annual Report.

As part of this commentary, the Directors' Report contains the Remuneration Report. This report shows how the Group seeks to align employee remuneration with Group performance, putting a significant portion of executive remuneration at risk. It details both variable short term cash incentives and longer term performance hurdles. The Board believes such short and long term incentive programs are vital to improving organisational performance. At this year's Annual General Meeting shareholders will be asked to provide a non binding vote on the Remuneration Report.

Management and Staff

Annual General Meeting

A notice of the Company’s Annual General Meeting to be held on 26 November 2007 and a proxy form for voting is enclosed with this report.

Directors

One of the items of business at the Annual General Meeting is the reelection of Mr George Richards who retires as a Director by rotation in accordance with the constitution of the Company and, being eligible, offers himself for re-election. The Board endorses Mr Richards’ reelection.

We also welcome Mr John Murphy to the board of directors of the Company. Mr Murphy’s appointment was approved by shareholders at the Company’s extraordinary general meeting on 24 August 2007. Mr Murphy is the Managing Director of Investec Wentworth Private Equity Limited. Mr Murphy’s qualifications which include Bachelors and Masters degrees in Commerce, and his experience in a number of public and private companies, strengthens the Board and we look forward to his contribution.

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Mr Harry Boon Chairman 28 September 2007

The Group has made a number of senior management appointments during the last twelve months. We are confident that this team will deliver improved performance for the business in the future.

We would like to thank the whole team at Gale for their hard work and dedication to the business in what have been extremely challenging times. With the restructuring work that has been completed and a more positive outlook for the business we look forward to providing a more secure and rewarding environment for all of our employees.

Outlook

With the recently announced $20 million capital raising now complete, the Group will have a stronger Balance Sheet, significantly reduced borrowings and long term banking facilities in place.

Driven by improved operating efficiencies and sales growth from our northern hemisphere operations, improved agricultural market conditions in Australia and traction being gained from our refocused R & D activities, we remain confident about the future prospects of the business.

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Mr Peter McDonald Managing Director and Chief Executive Officer 28 September 2007

Gale Pacific Limited

Annual Report

BOARD OF DIRECTORS

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HARRY BOON, PETER MCDONALD, LLB (HONS), B. Com Bachelor of Business (Marketing)

Harry Boon

Chairman & Non Executive Director since August 2005

Mr Boon joined the Company in August 2005 and brings to the role his experience as a senior executive in one of Australia’s leading listed companies, Ansell Limited. Mr Boon’s executive career culminated with the position of Chief Executive Officer of Ansell Limited from April 2002 to June 2004, having previously been President, Chief Executive Officer and Managing Director of Ansell Healthcare since February 1989. Mr Boon is also Chairman of Tattersalls Limited, a Non Executive Director of Hastie Group Limited and Non Executive Director of Toll Group Limited.

Mr Boon has lived and worked in Australia, Europe, UK and Canada, and has broad based experience in global marketing and sales, large scale manufacturing operations, and product development. He is multi-lingual, has a strong track record of delivering business results through setting ambitious goals, building the appropriate organisation structures, and pursuing achievement.

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JOHN MURPHY, CA, FCPA, B.Comm, M.Comm

GEORGE RICHARDS, CPA, AAICD

John Murphy

Non Executive Director since August 2007

Mr Murphy is the Managing Director of Investec Wentworth Private Equity Limited and in this capacity is a board member of the fund’s investments, including the following listed companies: Ariadne Australia Limited, Staging Connections Group Limited and Gale Pacific Limited.

Mr Murphy is also a non executive director of First Opportunity Fund Limited and Investec Bank (Australia) Limited.

During the last 3 years, Mr Murphy was a non executive director of the following listed companies: Kids Campus Limited (2004-2006), Southcorp Limited (2003-2005), Invocare Limited (2001-2005) , SMS Management and Technology Limited (2001-2004), Fone Zone Group Limited (2005 -2006) and Australian Pharmaceutical Industries Limited (2004-2007).

Mr Murphy is the Chairman of the Company’s Remuneration Committee and is a member of the Audit & Risk and Nomination Committees.

Mr Boon is Chairman of the Company’s Nomination Committee and is a member of the Audit & Risk and Remuneration Committees.

George Richards

Peter McDonald

Non Executive Director since May 2004

Managing Director & Chief Executive Officer

Mr McDonald is the Company Managing Director and Chief Executive Officer since April 2006 and Executive Director since 1998.

Mr McDonald joined Gale in 1988 and was appointed as an Executive Director of the Company in 1998. Mr McDonald has held the positions of Product Manager, National Marketing Manager, National Sales and Marketing Manager and most recently the Company’s Chief Operating Officer and Managing Director of the Company’s U.S. operations.

Mr Richards joined the Board in 2004. Mr Richards was the Chief Executive of Mitre 10 South West Ltd from 1990 to 2000 and was previously the Managing Director of Cooper Tools, a market leader in hand tools manufacture and distribution. Mr Richards has had over 45 years experience in retail, marketing, manufacturing and distribution. He is a Board member of The Alfred Foundation, a Director of Magnet Mart Pty Ltd, Bowen & Pomeroy Pty Ltd, Chairman of Carpet Court Australia Limited, Associate Member of the Australian Institute of Company Directors and Australian Society of Accountants.

Mr Richards is Chairman of the Company’s Audit & Risk Committee and is a member of the Nomination and Remuneration Committee.

Gale Pacific Limited

Annual Report

SENIOR MANAGEMENT

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JEFF COX

STEPHEN MARTIN CARROLL DENNEY

DR PAUL CACIOLI

Jeff Cox

Chief Financial Officer (“CFO”)

Jeff Cox is an experienced CFO and has held senior finance positions for over 20 years. He has been the CFO of major divisions within the Pacific Dunlop Group including the Battery Group, Food Group and at Ansell. All these businesses had revenues in excess of $1 billion and significant international sales, distribution and manufacturing operations. Jeff’s experience at Ansell included residing in the USA for 5 years while playing a significant part of a successful and global company.

Dr Paul Cacioli

General Manager, Research & Development and Technical Services

Dr Paul Cacioli joined Gale in late March 2007 and is responsible for planning and managing the Company’s research and development activities. Paul spent 19 years with Ansell, 14 of which were spent overseas in Malaysia, Sri Lanka and the USA, rising to the position of Senior Vice President of Science and Technology and Regulatory Affairs. Paul brings to Gale a broad range of technical skills and a world class knowledge of polymers and research and development processes.

Stephen Carroll

Managing Director, Australia

In November 2005 Steve was appointed to the role of Managing Director for the Australian operation. Steve has been involved in helping manage the successful integration of numerous acquisitions into the Gale model whilst helping the brands, people and the Australian business strategy maintain its market leading position. Prior to this appointment, Steve held the positions of National Sales and Marketing Manager Consumer Products. As the business grew and acquired a larger industrial product portfolio, he was appointed Group Sales and Marketing Manager for Australia.

Martin Denney

Managing Director, USA

Martin has strong commercial and strategic planning skills gained over 20 years across a range of industries including food and beverage, distribution, manufacturing, technology and property development. He has held senior management roles including General Manager of Socomin, a branded food import and distribution division of Pacific Dunlop Group (turnover A$40 million). Other roles include National Sales and Marketing Manager at Dennis Family Corporation (turnover

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FRANK EMMA XU PAUL ALBERTSMEIER DUCRAY

A$250 million), a leading Australian property developer, and Business Development Manager at Adacel Technologies, a global simulation and systems company based in Australia.

Frank Albertsmeier

Managing Director, Europe / Middle East / Africa

Frank has had extensive experience in managing sales, marketing and business development in the consumer and professional goods industry in various countries in Europe. Prior to joining Gale, Frank was the Director of Sales for ICI paints Europe for four years, responsible for a turnover of €85 million. He played a leading role in the strategic process to develop the future direction for ICI in Europe. Frank also managed more than 100 sales and marketing people within this division while doubling the bottom line. Frank has held many sales and management positions for Black and Decker Europe through his 18 year tenure, reaching the level of Commercial Director.

Emma Xu

Managing Director, China

Prior to joining Gale, Emma worked as an attorney in China with extensive experience in law and international business management. Emma’s responsibilities initially included government relationships, finance, internal control and communication with the Board. Emma was promoted to Managing Director of Gale Pacific Special Textiles (Ningbo) Limited (“GPST”) in September 2003 as GPST became a wholly owned overseas enterprise of Gale. Emma was responsible for managing the construction of the Gale facility in Ningbo and the relocation of the manufacturing equipment from Braeside, Australia to Ningbo, the installation of new machines purchased from Europe, the set up of aluminium extrusion and powder coating lines in-house, and selecting and leading the Chinese management team.

Paul Ducray

Chief Manufacturing Officer

Paul joined Gale in December 2004 and relocated to China in June 2006 and took on his current position of Chief Manufacturing Officer responsible for all manufacturing and logistics functions at GPST. Paul previously worked at BTR Dunlop in South Africa. In 2001 Paul migrated to New Zealand and joined Donaghy’s NZ in the role of Manufacturing Manager. A successful turnaround of the company started with a management buyout, new management team and restructuring of the business. This led to the purchase of the Industrial Textiles division of Donaghys by Gale Pacific Limited in December 2004.

Gale Pacific Limited

Annual Report

CORPORATE GOVERNANCE

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Gale Pacific Limited

Annual Report

CORPORATE GOVERNANCE STATEMENT

This statement sets out the corporate governance practices that were in operation throughout the financial year for Gale Pacific Limited (“the Company”) and its controlled entities (“the Group”). Gale Pacific’s Directors and management are committed to conducting the Company’s business in an ethical manner and in accordance with the highest standards of corporate governance. The Board has continued its strategy of strengthening its Corporate Governance practices and believes that Gale Pacific now complies with the Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendation. A summary of how the Group complies with the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations is included below. The various charters and policies are all available on the Gale Pacific web site: www.galepacific.com.

ASX	Principle			Status	Reference / Comment
Principle 1: Lay solid foundation for management oversight
1.1	Formalise and disclose the	functions		Complying	The Board has adopted a charter which establishes the role of the Board and its
	reserved to the board and those				relationship with management. The primary role of the Board is the protection and
	delegated to management.				enhancement of long-term shareholder value. Its responsibilities include the overall
					strategic direction of the Group, establishing goals for management and monitoring
					the achievement of these goals. The functions and responsibilities of the Board and
					management are consistent with ASX Principle 1. A copy of the Board Charter is
					posted on the Group’s website.
Principle 2: Structure the Board		to add value
2.1	A majority of the board members			Complying	The Board comprises four directors, three of whom are non executive and
	should be independent.				independent. The Directors considered by the Board to constitute independent
					directors are Mr H Boon, Mr G Richards and Mr J Murphy. The test to determine
					independence which is used by the Company is whether a Director is independent of
					management and any business or other relationship with the Group that could
					materially interfere with – or could reasonably be perceived to materially interfere
					with – the exercise of their unfettered and independent judgement.
2.2	The chairman should	be	an	Complying	The Chairman, Mr H Boon has been chairman of the Company since August 2005
	independent director.				and was, at the date of his appointment and continues to be, independent. The
					Chairman leads the Board and is responsible for the efficient organisation and
					conduct of the Board’s functions.
2.3	The roles of the chairman	and	the	Complying	The positions of Chairman and Chief Executive Officer are held by separate
	chief executive officer should not be				persons.
	exercised by the same individual.
2.4	The board should establish		a	Complying	The Board has a formal Nomination Committee comprising of the non executive
	nomination committee.				independent Directors. The Nomination Committee’s functions and powers are
					formalised in a Charter. Mr H Boon is Chairman of the Nominations Committee.

Gale Pacific Limited

Annual Report

ASX	Principle	Status	Reference / Comment	Reference / Comment
2.5	Provide the information indicated in	Complying	The	following information is set out in the Group’s annual report:
	the Guide to reporting on Principle 2.
			•	The skills and experience of Directors.
			•	The Directors considered by the Board to constitute independent Directors
				and the Group’s materiality thresholds.
			•	A statement regarding Directors’ ability to take independent professional
				advice at the expense of the Company.
			•	The term of office held by each Director in office at the date of the report.
			•	The names of members of the Company’s committees and their attendance
				at committee meetings.

Principle 3: Promote ethical and responsible decision making

3.1	Establish a code of conduct to guide	Complying	The Group has formulated a Code of Conduct which can be viewed on its website.
	the directors, the chief executive
	officer, the chief financial officer and
	any other key executives as to the
	practices necessary to maintain
	confidence in the company’s integrity
	and the responsibility and
	accountability of individuals for
	reporting and investigating reports of
	unethical practices.
3.2	Disclose the policy concerning trading	Complying	The Group has adopted a Securities Trading Policy which can be viewed on its
	in company securities by directors,		website.
	officers and employees.
3.3	Provide the information indicated the	Complying	The Group’s policy documents are posted on its website.
	Guide to Reporting on Principle 3.
Principle 4: Safeguard integrity in financial reporting
4.1	Require the chief executive officer	Complying	The Directors are committed to the preparation of financial statements that present a
	and the chief financial officer to state		balanced and clear assessment of the Group’s financial position and prospects. The
	in writing to the board that the		Audit & Risk Committee reviews the Group’s half yearly and annual financial
	company’s financial reports present a		statements and makes recommendations to the Board. The Board requires the
	true and fair view, in all material		Managing Director and Chief Executive Officer and the Chief Financial Officer to
	respects, of the company’s financial		state in writing to the Board that the Group’s financial reports present a true and fair
	condition and operational results and		view, in all material respects, of the Group’s financial condition and operational
	are in accordance with relevant		results and are in accordance with relevant accounting standards.
	accounting standards.
4.2	The board should establish an audit	Complying	The Company has an Audit & Risk Committee. The primary role of the Audit & Risk
	committee.		Committee is to assist the Board in fulfilling its responsibilities relating to the
			accounting, internal control and reporting practices of the Company and its
			subsidiaries.

Gale Pacific Limited

Annual Report

ASX	Principle			Status	Reference / Comment
4.3	The audit	committee should	be	Complying	The Audit & Risk Committee consists of only non executive, independent Directors
	structured so that it consists of only				and it has an independent Chairman who is not the Chairman of the Board. Mr G
	non executive directors; a majority of				Richards is the Chairman of the Audit & Risk Committee.
	independent	directors, and have an
	independent	chairperson who is	not
	chairman of	the board and have at
	least three members.
4.4	The audit committee should have a			Complying	The Audit & Risk Committee has a formal charter which sets out the Audit
	formal charter.				Committee’s role and responsibilities, composition, structure and membership
					requirements. The Audit Committee is given the necessary power and resources to
					meet its charter.
4.5	Provide the	information indicated in		Complying	Details of the names and qualifications of the members of the Audit & Risk
	Guide to Reporting on Principle 4.				Committee and the number of meetings held and attended by each member are
					contained in the Directors’ Report of the Annual Report.
Principle 5: Make timely and balanced disclosure
5.1	Establish	written policies	and	Complying	The Group has a documented policy which has established procedures designed to
	procedures	designed to ensure			ensure compliance with Australian Stock Exchange Listing Rule disclosure
	compliance	with ASX Listing Rule			requirements and to ensure accountability at a senior management level for that
	disclosure	requirements and	to		compliance. The Managing Director and Chief Executive Officer, the Chief Financial
	ensure accountability at a senior				Officer and the Company Secretary are responsible for interpreting the Group’s
	management level for		that		policy and where necessary informing the Board. The Company Secretary is
	compliance.				responsible for all communications with the Australian Stock Exchange. The purpose
					of the procedures for identifying information for disclosure is to ensure timely and
					accurate information is provided equally to all shareholders and market participants.
5.2	Provide the	information indicated in		Complying	A copy of the Group’s Disclosure Policy is posted on its website.
	Guide to Reporting on Principle 5.
Principle 6: Respect the rights of shareholders
6.1	Design	and disclose	a	Complying	The Board informs shareholders of all major developments affecting the Group’s
	communications strategy to promote				state of affairs as follows:
	effective	communication	with
	shareholders and encourage effective				1. The annual report is distributed to all shareholders, including relevant
	participation	at general meetings.			information about the operations of the Group during the year and changes in
					the state of affairs.
					2. The half-yearly report to the Australian Stock Exchange contains summarised
					financial information and a review of the operations of the Group during the
					period.
					3. All major announcements are lodged with the Australian Stock Exchange, and
					posted on the Group’s website.
					4. Proposed major changes in the Group which may impact on share ownership
					rights are submitted to a vote of shareholders.
					5. The Board encourages full participation of shareholders at the Annual General
					Meeting to ensure a high level of accountability and identification with the
					Group’s strategy and goals.

Gale Pacific Limited

Annual Report

ASX	Principle	Status	Reference / Comment
6.2	Request the external auditor to attend	Complying	The Company’s auditor attends the Annual General Meeting.
	the Annual General Meeting and be
	available to answer shareholder
	questions about the conduct of the
	audit and the preparation and content
	of the Auditor’s Report.
Principle 7: Recognise and manage risk
7.1	The board or appropriate board	Complying	The Board has responsibility for monitoring risk oversight and ensures that the
	committee should establish policies		Managing Director and Chief Executive Officer and the Chief Financial Officer report
	on risk oversight and management.		on the status of business risks through risk management programs aimed at
			ensuring risks are identified, assessed and appropriately managed. In addition to its
			financial reporting obligations, the Audit & Risk Committee is responsible for
			reviewing the risk management framework and policies of the Group. The structure
			of the Audit & Risk Committee and its responsibilities reflect the requirements of
			ASX Principle 7. In performing this function, the Committee receives periodic reports
			from the auditor, senior management and, in some instances, external consultants.
7.2	The chief executive officer and the	Complying	The Managing Director and Chief Executive Officer and the Chief Financial Officer
	chief financial officer should state to		are required to state to the Board in writing that the integrity of the financial
	the Board in writing that the		statements is founded on a sound system of risk management and internal
	statement given regarding the		compliance and control and that the Group’s risk management and internal
	integrity of financial statements is		compliance and control system is operating efficiently and effectively in all material
	founded on a sound system of risk		respects.
	management and internal compliance
	and control.
7.3	Provide the information indicated in	Part	Management has completed a review of the Group’s major business units,
	Guide to Reporting on Principle 7.	Complying	organisational structure and accounting controls and processes. As a result of this
			review a number of risk management recommendations have been made and will be
			implemented. A description of the Group’s risk management policy and internal
			compliance and control systems has been documented and is posted on the Group’s
			web site.
Principle 8: Encourage enhanced performance
8.1	Disclose the process for performance	Complying	The Group has in place systems designed to fairly review and actively encourage
	evaluation of the board, its		enhanced Board and management effectiveness. The Nomination Committee takes
	committees and individual directors,		responsibility for evaluating the Board’s performance and the Group’s key
	and key executives.		executives.
8.2	Provide the information indicated in	Complying	A performance evaluation for the Board and its members has been completed. No
	Guide to Reporting on Principle 8.		material internal deficiencies or issues were identified through this process.

Gale Pacific Limited

Annual Report

ASX Principle Status Reference / Comment

Principle 9: Remunerate fairly and responsibly

9.1	Provide disclosure in relation to the	Provide disclosure in relation to the	Complying	Details of the Directors and key senior executives remuneration are set out in the
	company’s remuneration policies	to		Remuneration Report of the Annual Report.
	enable investors to understand (i) the
	costs and benefits of those policies
	and (ii) the link between remuneration
	paid to directors and key executives
	and corporate performance.
9.2	The board should establish	a	Complying	The Board has in place a Remuneration Committee. The structure of this Committee
	remuneration committee.			and its responsibilities reflect the requirements of ASX Principle 9. All three
				members of the Committee are independent Directors. In addition to the members,
				the Managing Director and Chief Executive Officer is invited to the meetings at the
				discretion of the Committee. This Committee is responsible for ensuring that the
				recruitment and remuneration policies and practices of the Group are consistent with
				its strategic goals and are designed to enhance corporate and individual
				performance as well as meet the appropriate recruitment and succession planning
				needs. The Chairman of the Remuneration Committee is Mr J Murphy.
9.3	Clearly distinguish the structure	of	Complying	The structure of non executive Directors’ remuneration is distinct from that of
	non executive directors’ remuneration			executives and is further detailed in the Remuneration Report of the Annual Report.
	from that of executives.
9.5	Provide the information indicated	in	Complying	The charter setting out the responsibilities of the Remuneration Committee has been
	Guide to reporting on Principle 9.			adopted and a copy of this charter is posted on the Group’s website.
9.4	Ensure that payment of equity-based		Complying	The Remuneration Committee is responsible for reviewing and monitoring executive
	executive remuneration is made	in		performance, remuneration and incentive policies and the manner in which they
	accordance with thresholds set	in		should operate, the introduction and operation of share plans, executive succession
	plans approved by shareholders.			planning and development programs to ensure that they are appropriate to the
				Group’s needs and the remuneration framework for Directors (as approved by
				shareholders). The Committee may consult with remuneration advisors to assist in
				its role.

Principle 10: Recognise the legitimate interests of stakeholders

10.1 Establish and disclose a code of Complying The Group has in place a Code of Conduct which sets standards for the Board and conduct to guide compliance with employees in dealing with the Group’s customers, suppliers, shareholders and other legal and other obligations to stakeholders. A copy of this Code of Conduct has been posted on the Group’s legitimate stakeholders. website.

Gale Pacific Limited

Annual Report

DIRECTORS’ REPORT

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Gale Pacific Limited

Annual Report

DIRECTORS’ REPORT

John Murphy, CA, FCPA, B.Comm, M.Comm

The Directors of Gale Pacific Limited (“the Company”) present their annual financial report of the consolidated entity, being the Company and its subsidiaries (“the Group”) for the financial year ended 30 June 2007.

The Directors in office at any time during or since the end of the year to the date of this report are:

Non Executive Director since August 2007

Mr Murphy is the Managing Director of Investec Wentworth Private Equity Limited and in this capacity is a board member of the fund’s investments, including the following listed companies Ariadne Australia Limited and Staging Connections Group Limited. Mr Murphy is also a non executive director of First Opportunity Fund Limited and Investec Bank (Australia) Limited.

During the last 3 years, Mr Murphy was a non executive director of the following listed companies Kids Campus Limited (2004-2006), Southcorp Limited (2003-2005), Invocare Limited (2001-2005), SMS Management and Technology Limited (2001-2004), Fone Zone Group Limited (2005 -2006) and Australian Pharmaceutical Industries Limited (2004-2007).

Harry Boon, LLB (HONS), B. Com

Chairman and Non Executive Director since August 2005

Mr Murphy is Chairman of the Company’s Remuneration Committee and is also a member of the Audit and Risk and Nomination Committees.

George Richards, CPA, AAICD

Non Executive Director since May 2004

During the last three years, Mr Boon has also served as a Director of Tattersall’s Limited, Hastie Group Limited, Toll Holdings Limited, Funtastic Limited.

Mr Boon is a member of the Company’s Audit & Risk, Nomination and Remuneration Committees.

Peter McDonald, Bachelor of Business (Marketing)

Managing Director and Chief Executive Officer since April 2006 and Executive Director since 1998

Mr McDonald was appointed Managing Director and Chief Executive Officer of Gale in April 2006. Mr McDonald joined Gale in 1988 and was appointed as an Executive Director of the Company in 1998. Mr. McDonald has held the positions of Product Manager, National Marketing Manager, National Sales and Marketing Manager and most recently the Company’s Chief Operating Officer and Managing Director of the Company’s U.S. Operations.

Mr Richards was the Chief Executive of Mitre 10 South West Ltd from 1990 to 2000 and was previously the Managing Director of Cooper Tools, a market leader in hand tools manufacture and distribution. Mr Richards has had over 45 years experience in retail, marketing, manufacturing and distribution. He is a Board member of The Alfred Foundation, a Director of Magnet Mart Pty Ltd, Bowen & Pomeroy Pty Ltd, Chairman of Carpet Court Australia Limited, Associate Member of the Australian Institute of Company Directors and Australian Society of Accountants.

No other directorships of listed companies were held by Mr Richards at any time during the three years prior to 30 June 2007.

Mr Richards is Chairman of the Company’s Audit and Risk and Nomination Committees and is also a member of the Remuneration Committee.

No other directorships of listed companies were held by Mr McDonald at any time during the three years prior to 30 June 2007.

Gale Pacific Limited

Annual Report

Gary Gale

Executive Director since 1998, Non Executive Director since April 2006, retired 21 November 2006

Mr Gale studied textile engineering in Germany, and is the son of the founder of the Gale business. Mr Gale was responsible for the restructuring of the Gale Group both in Australia and the USA in 1996/97 and was appointed as Managing Director of the Company in 1998. He was responsible for the Company entering the advanced polymer fabric industry as a manufacturer in 1977, taking the former Gale family business public in late 2000, expansion into world markets, and the establishment of a world-class manufacturing facility in China. Mr Gale resigned as Managing Director in April 2006 but remained on the Board as a Non Executive Director until his retirement at the 2006 Annual General Meeting.

No other directorships of listed companies were held by Mr Gale at any time during the three years prior to his retirement.

Daryl Reilly, Graduate Diploma Of Business (Accounting), CPA, ACIS, FTMA, AICD

Non Executive Director since 1998, retired 21 November 2006

Mr Reilly was previously an Executive Director and principal of Advent Private Capital Pty Ltd (“APC”) and was APC’s Chief Financial Officer and Company Secretary between 1984 and 2004. During his twenty year career in private equity, he has been a Director on the Boards of numerous companies involved in a diverse range of areas including manufacturing, business to business, information technology, tourism, leisure and hospitality and communications, in addition to his funds management role within APC. He was a significant former shareholder of APC. He is a Director of 8T8 Corporation Pty Ltd, the holding company of Sleepmaster Pty Ltd and is a Director of its Chinese subsidiary. No other directorships of listed companies were held by Mr Reilly at any time during the three years prior to his retirement at the 2006 Annual General Meeting.

Review & Results of Operations

The consolidated loss of the Group for the financial year attributable to the members of Gale Pacific Limited was $16.4 million. Refer to the Chairman and Managing Director’s & Chief Executive Officer’s Report for further details on the Group’s result.

State of Affairs

In the opinion of the Directors there were no significant changes in the state of affairs of the Company and its controlled entities that occurred during the financial year under review not otherwise disclosed in this report or the accompanying financial report.

Events Subsequent to Balance Date

On 30 August 2007, the Company completed a $20 million capital raising via the private placement of 40,000,000 ordinary fully paid shares at a price of 50 cents per share.

Other than the matters discussed above, nothing has arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

Likely Developments

Disclosure of information regarding likely developments in the operations of the Group in future financial years has been made in part in the Chairman and Managing Director’s and Chief Executive Officer’s Report of this Annual Report. Any further such disclosure and the expected results of those operations is likely to result in unreasonable prejudice to the Group and has accordingly not been disclosed in this report.

Ms Sophie Karzis, B JURIS LLB

Company Secretary

Ms Karzis was appointed as Company Secretary in June 2004. Ms Karzis is a practising lawyer who holds roles at a number of public and private companies.

Environmental Regulation and Performance

The Group’s operations are not subject to any significant environmental regulations under the Commonwealth or State legislation. However, the Directors believe that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Group.

Nature of Operations and Principal Activities

The Group’s principal activities in the course of the financial year were the marketing, sales, manufacture and distribution of advanced polymer fabrics and related products to global markets.

Dividends

In respect of the financial year ended 30 June 2007, no interim dividend was paid and the Directors have determined not to pay a final dividend.

Gale Pacific Limited

Annual Report

Share Based Payments

Options

The Company maintains an option scheme for certain staff and executives, including Executive Directors, as approved by shareholders at an Annual General Meeting. The number of unissued ordinary shares under option as at the date of this report is 750,000. The issue price of each option is zero. Each option entitles the option holder to one (1) ordinary share in Gale Pacific Limited in the event that the option is exercised.

Of the 750,000 options on issue, 180,000 options were issued under the Company’s executive share plan to the Managing Director and Chief Executive Officer, Mr Peter McDonald, as approved by the Company’s shareholders at the Company’s Annual General Meeting held on 15 November 2004. 450,000 options were issued on 16 November 2005 and 120,000 options were issued on 24 October 2006 to executives and staff of Gale. Included in these issues are options issued to senior executives; 40,000 options issued to Mr Stephen Carroll Managing Director Australia, 40,000 issued options to Mr Zafar Fakroddin Business Unit Manager Gale Europe GmbH, and 20,000 options issued to Mr Paul Ducray Chief Manufacturing Officer. The exercise price of the 180,000 issued options is $3.00, the exercise price of the 450,000 issued options and the 120,000 issued options is $1.52. The vesting of options is determined in accordance with specific share price and/or performance hurdles. In the case of the 180,000 options their vesting is determined in accordance with the achievement of certain levels of adjusted weighted average earnings per share and the vesting of the 450,000 options and 120,000 options is determined in accordance with the achievement of certain levels of adjusted weighted average earnings per share. The 180,000 options and the 450,000 options are not exercisable after 1 December 2008. The 120,000 options are not exercisable after 31 December 2008. Options carry no rights to dividends and no voting rights.

During the financial year no options vested. As set out in the accounting standard AASB 2 and the revised ASIC guidelines, the Company has valued the issued options. A Binomial or a Black – Scholes option pricing model was used and these models take into account the following inputs:

Current price of the underlying shares as at the grant date.
Exercise price.
Expected volatility of the share price over the expected life of the options.
First exercisable date.
Expected life.

Performance Rights

On 2 February 2007, the Company issued 150,000 performance rights to the Managing Director and Chief Executive Officer, Mr Peter McDonald. Each performance right entitles the holder to one (1) ordinary share in Gale Pacific Limited when exercised and is subject to the satisfying of relevant performance hurdles based on improvements in the Company’s diluted earnings per share against the base year of the 2007 financial year. Performance rights are not exercisable until after 30 September 2009 and expire on 2 February 2017. No amount is payable on the vesting of a performance right. Performance rights carry no rights to dividends and no voting rights.

Further details of the options and performance rights are disclosed in Note 16 to the Financial Statements.

Indemnification of Officers and Auditors

During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and all executive officers of the Company and of any related body corporate against a liability incurred as a Director, Secretary or executive officer to the extent permitted by the Corporations Act 2001 . The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as an officer or auditor.

Directors’ Shareholdings

The following table sets out each Director’s relevant interest in shares and options in shares of the Company as at the date of this report.

Directors	Fully Paid	Shares Options	Performance
	Ordinary Shares		Rights
H Boon	73,000	-	-
G Richards	78,851	-	-
J Murphy	-	-	-
P McDonald	334,714	180,000	150,000

Expected dividend yield.
Risk free interest rate for the expected life of the options.

Gale Pacific Limited

Annual Report

Directors’ Meetings

The following table sets out the number of Directors’ meetings (including meetings of committees of Directors) held during the financial year and the number of meetings attended by each Director while they were a Director or committee member.

Directors’ Meetings Audit & Risk Committee Meetings	Remuneration Committee Meetings Nomination Committee Meetings
Directors No of meetings eligible to attend Attended No of meetings eligible to attend Attended	No of meetings eligible to attend Attended No of meetings eligible to attend Attended
H Boon 14 13 4 4	1 1 1 1
P McDonald 14 14 0 0	0 0 0 0
G Richards 14 13 4 4	1 1 1 1
G Gale 7 6 0 0	0 0 0 0
D Reilly 7 6 3 3	1 1 1 1

Remuneration Report

Non Executive Director Remuneration

This report contains the remuneration arrangements in place for Directors and executives of the Group.

The Remuneration Committee reviews the remuneration packages of all Directors and executive officers on an annual basis and makes recommendations to the Board. Remuneration packages are reviewed with due regard to performance and other relevant factors, and advice is sought from external advisors in relation to their structure.

Objective

The Board seeks to set remuneration at a level which provides the Company with the ability to attract and retain directors of relevant experience and skill, whilst incurring costs which are acceptable to shareholders.

Structure

The Group’s remuneration policy is based on the following principles:

Provide competitive rewards to attract high quality executives;
Provide an equity incentive for senior executives that will provide an incentive to executives to align their interests with those of the Group and its shareholders; and
Ensure that rewards are referenced to relevant employment market conditions.

Remuneration packages contain the following key elements:

Primary benefits – salary / fees; and
Benefits, including the provision of motor vehicles and Incentive schemes, including share options under the executive share option plan as disclosed in Note 16 and Note 22 to the financial statements.

The Company’s Constitution and the Australian Stock Exchange Listing Rules specify that the aggregate remuneration of Non Executive Directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The last determination was at the Annual General Meeting held on 14 December 2000 when shareholders’ approved the Company’s constitution which provides for an aggregate remuneration of $300,000 per annum. The amount of the aggregate remuneration and the manner in which it is apportioned is reviewed periodically. The Board considers fees paid to Non Executive Directors of comparable companies when undertaking this review process.

Each Non Executive Director receives a fee for being a Director of the Company and does not participate in performance based remuneration. Non Executive Directors are encouraged to hold shares in the Company (purchased by the Director on-market). It is considered good governance for Directors to have a stake in the Company.

The remuneration of Non Executive Directors for the period ended 30 June 2007 is detailed below.

Remuneration Structure

In accordance with best practice corporate governance, the structure of Non Executive Directors and senior manager remuneration is separate and distinct.

Gale Pacific Limited

Annual Report

Senior Manager & Executive Director Remuneration

Structure

Objective

The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group. The objective of the remuneration policy is:

In determining the level and make-up of executive remuneration, the Remuneration Committee reviews reports detailing market levels of remuneration for comparable roles. Remuneration consists of fixed and variable elements.

Options issued to executives as a form of compensation are dependant upon the performance conditions outlined in Note 16 of the financial statements.

Reward executives for Group and individual performance;
Align the interests of the executives with those of the shareholders; and

Cash bonuses granted to executives are based on the respective performance of their regional business unit. Bonuses are paid out at various times during the year and are determined at the discretion of the Remuneration Committee.

Ensure that total remuneration is competitive by market standards.

The following table discloses the remuneration of the Directors of the Company:

2006 / 2007	Short term benefits	Short term benefits	Post	Share based payments	Share based payments	Termin-	Total	Performance related	Performance related
			employ-			ation
			ment			benefits
Directors	Salary & Bonus	Non-	Super	Options	Perform-			Total	Options
	fees	monetary			ance
					rights
	($) ($)	($)	($)	($)	($)	($)	($)	%	%
Executive Directors
P McDonald	354,215 32,000	44,609	27,929	47,138	19,930	-	525,821	18.8%	12.8%
Non Executive Directors
H Boon	150,000 -	-	-	-	-	-	150,000	-	-
G Richards	71,667 -	-	-	-	-	-	71,667	-	-
D Reilly (i)	31,250 -	-	-	-	-	-	31,250	-	-
G Gale (ii)	- -	-	-	-	-	-	-	-	-
Total	607,132 32,000	44,609	27,929	47,138	19,930	-	778,738	-	-

2005 / 2006	Short term benefits	Short term benefits	Short term benefits	Post	Share based payments	Share based payments	Termin-	Total	Performance related	Performance related
				employ-			ation
				ment			benefits
Directors	Salary &	Bonus	Non-	Super	Options	Perform-			Total	Options
	fees		monetary			ance
						rights
	($)	($)	($)	($)	($)	($)	($)	($)	%	%
Executive Directors
P McDonald	359,942	-	62,401	5,171	72,580	-	-	500,094	14.5%	14.5%
G Gale (ii)	371,635	-	61,964	12,139	51,658	-	617,096	1,114,492	4.6%	4.6%
Non Executive Directors
H Boon (iii)	137,500	-	-	-	-	-	-	137,500	-	-
G Richards	65,000	-	-	-	-	-	-	65,000	-	-
D Reilly (i)	75,000	-	-	-	-	-	-	75,000	-	-
T Eversteyn (iv)	14,166	-	-	-	-	-	-	14,166	-	-
Total	1,023,243	-	124,365	17,310	124,238	-	617,096	1,906,252

Gale Pacific Limited

Annual Report

The following table discloses the remuneration of the five highest remunerated executives of the Group.

2006 / 2007	Short Term Benefits	Short Term Benefits	Short Term Benefits	Post	Share Based	Total	Performance Related	Performance Related
				Employ	Payments
Executives	Salary &	Bonus (xii)	Non-	Super	Options		Total	Options
	Fees		monetary
	($)	($)	($)	($)	($)	($)	%	%
F Albertsmeier(v)	320,090	77,506	33,479	-	-	431,075	18.0%	-
Z Fakroddin(vi)	189,459	-	105,064	-	6,408	300,931	2.1%	2.1%
S Carroll	214,472	15,000	30,873	19,143	6,408	285,896	7.5%	2.2%
J Cox	229,358	25,000	-	20,642	-	275,000	9.1%	-
P Ducray (vii)	169,477	-	28,771	-	3,204	201,452	1.6%	1.6%
Total	1,122,856	117,506	198,187	39,785	16,020	1,494,354

2005 / 2006	Short Term Benefits	Short Term Benefits	Short Term Benefits	Post	Share Based	Total	Performance Related	Performance Related
				Employ	Payments
Executives	Salary &	Bonus	Non-	Super	Options		Total	Options
	Fees		monetary
	($)	($)	($)	($)	($)	($)	%	%
Z Fakroddin(viii)	148,610	129,111	60,031	-	3,950	341,702	38.9%	1.2%
E Jung (ix)	255,940	38,538	15,784	4,171	-	314,433	12.3%	-
S Carroll	208,900	-	27,070	20,527	3,950	260,447	1.5%	1.5%
C McCallum(x)	198,825	36,357	15,558	-	4,938	255,678	16.2%	1.9%
E Xu(xi)	150,013	24,318	18,919	-	48,600	241,850	30.2%	20.1%
Total	962,288	228,324	137,362	24,698	61,438	1,414,110

(i) Mr Reilly retired from his role as a Non Executive Director on 21 November 2006 and therefore the details of his remuneration for the reporting period are to that date.
(ii) Mr Gale resigned from his role as an Executive Director on 26 April 2006 and retired as a Non Executive Director on 21 November 2006. The details of his remuneration for the 2006 reporting period are to 26 April 2006. Mr Gale did not receive any remuneration in his role as a Non Executive Director.
(iii) Mr Boon was appointed a Non Executive Director on 25 August 2005 and therefore the details of his remuneration for the reporting period are from that date.
(iv) Mr Eversteyn retired from his role as a Non Executive Director on 25 August 2005 and therefore the details of his remuneration for the reporting period are to that date.
(v) Mr Albertsmeier is based in Germany and is remunerated in Euro converted to Australian dollars in the table above.
(vi) Mr Fakroddin is based in Europe and is remunerated in Euro converted to Australian dollars in the table above.
(vii) Mr Ducray is based in China and is remunerated in United States dollars converted to Australian dollars in the table above. Mr Ducray was appointed Chief Manufacturing Officer on 1 July 2006. Prior to this appointment Mr Ducray was Manufacturing Manager Gale Pacific (New Zealand) Limited.
(viii) Mr Fakroddin was based in the Middle East and was remunerated in United States dollars converted to Australian dollars in the table above. The bonus payments related to the period ended 30 June 2005 and 30 June 2006 and were paid in Unites States dollars converted to Australian dollars in the table above.
(ix) Mr Jung is based in Germany and was remunerated in Euro converted to Australian dollars in the table above.
(x) Mr McCallum is based in New Zealand and was remunerated in New Zealand dollars converted to Australian dollars in the table above.
(xi) Ms Xu is based in China and was remunerated in US dollars converted to Australian dollars in the table above.
(xii) Incentive bonuses are granted annually. The grant date is tied to the performance review, which for the current year was completed by 30 June 2007. The service and performance criteria are set out in this report.

Gale Pacific Limited

Annual Report

Auditor Independence and Non-Audit Services

A copy of the auditor’s independence declaration in relation to the audit for the financial year is provided with this report.

Non-Audit Services

The following non-audit services were provided by the Company’s auditor, Pitcher Partners. Non-audit services have been ratified by the Audit Committee and reported to the Board. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each non-audit service provided means that auditor independence was not compromised.

Amounts paid or payable to an auditor for non-audit services provided during the year by the auditors to any entity that is part of the Group for:

	Consolidated		Company
	2006 / 2007	2005 / 2006	2006 / 2007	2005 / 2006
	($000)	($000)	($000)	($000)
Taxation services	84	99	36	74
Corporate secretarial services	46	-	-	-
Systems review	25	-	25	-
Capital raising related services	13	-	13	-
Jung divestment	5	-	5	-
Government grant review	3	-	3	-
General assistance	2	-	2	-
Total	178	99	84	74

Proceedings on Behalf of the Company

No person has applied for leave of a Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year.

Rounding Off of Amounts

The Company is a Company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in accordance with that Class Order amounts in the financial report are rounded off to the nearest thousand dollars.

Signed in accordance with a resolution of Directors made pursuant to section 298(2) of the Corporations Act 2001 .

On behalf of the Directors;

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Mr Harry Boon Chairman 28 September 2007

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Mr Peter McDonald Managing Director and Chief Executive Officer 28 September 2007

Gale Pacific Limited

Annual Report

Auditor’s Independence Declaration

To the Directors of Gale Pacific Limited and its controlled entities.

In relation the independent audit for the year ended 30 June 2007, to the best of my knowledge and belief there have been:

(i) No contraventions of the auditor independence requirements of the Corporations Act 2001 ;

(ii) No contraventions of any applicable code of professional conduct.

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S Schonberg PITCHER PARTNERS Partner MELBOURNE 28 September 2007

Directors’ Declaration

The Directors of the Company declare that:

The financial statements and notes, as set out on pages 26 to 65 are in accordance with the Corporations Act 2001 including:

compliance with Accounting Standards in Australia and the Corporations Regulations 2001 ;
providing a true and fair view of the financial position as at 30 June 2007 and of the performance, as represented by the results of the operations and the cash flows, of the Company and the Group for the year ended on that date; and
that the Directors have been given the declaration required under section 295A of the Corporations Act 2001 .

In the Directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

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Mr Harry Boon Chairman 28 September 2007

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Mr Peter McDonald Managing Director and Chief Executive Officer 28 September 2007

Gale Pacific Limited

Annual Report

Independent Auditor’s Report

We have audited the accompanying financial report of Gale Pacific Limited and its controlled entities. The financial report comprises the Balance Sheet as at 30 June 2007, and the Income Statement, Statement of Changes in Equity and Cash Flow Statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year.

Directors' Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.

Auditor's Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement in the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 .

Auditor’s Opinion

In our opinion,

(a) the financial report of Gale Pacific Limited is in accordance with the Corporations Act 2001 , including:
(i) giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2007 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 ; and
(b) the consolidated financial report also complies with International Financial Reporting Standards as disclosed in Note 1.

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S Schonberg Partner 28 September 2007

PITCHER PARTNERS MELBOURNE

Gale Pacific Limited

Annual Report