GALE PACIFIC LIMITED — Earnings Release 2005

Sep 11, 2005

GALE PACIFIC LIMITED ACN 082 263 778

12 September 2005

NEWS RELEASE

RESULTS AND FINAL DIVIDEND FOR THE YEAR ENDED 30 JUNE 2005

The Directors of Gale Pacific Limited today announced net profit of \$4.7 million for the year ending 30 June 2005. The result is slightly ahead of the Company's previous guidance of \$4.5 million net profit released on 21 April 2005. Annual revenue was up 40% to \$149 million. The net profit result was 33% lower than the previous year's \$7 million although the second half year increased 15% to \$4.5 million.

In response to rapidly rising raw material costs and a slowing of economic activity in the Australian D.I.Y. market, the Company reduced its annual fixed operating expenses in its Australian operation, resulting in marginal savings in the second half, after taking redundancy costs into account. The Company also implemented price increases designed to progressively pass on raw material cost increases.

"The year past has been very challenging with the rapidly rising raw material costs and a slowing of economic activity in the Australian D.I.Y. market. The result does not reflect our strategic progress or our medium term potential," Gale Pacific Managing Director and CEO, Mr Gary Gale said.

"The full impact of both the price increases and the overhead reductions is expected to contribute significantly to an improved performance in 2005/06," Mr Gale said.

"In recent periods we have completed several acquisitions, a \$15 million capital expenditure program and a shift of manufacturing capacity to China. The Company is now well positioned to leverage the benefits from expected sustained growth over the next three years."

"The net profit in the latest year was achieved despite the very tight retail and agricultural trading conditions in both Australia and New Zealand and well published inventory tightening at Home Centres throughout Australia."

Asia Pacific

China

In November 2004, the Company opened its new facility in Ningbo, China. This purpose built facility of approximately 32,000m² is currently employing 776 full time employees. "The Ningbo Economic Trade & Development Authority cites Gale China as a role model of how to establish and retain excellent relations with local government and it recognised the Company by presenting it with the highly honoured Camellia award," said Mr. Gale.

The previously announced transfer of a significant portion of our Braeside, Melbourne production facility to China has progressed very well. The first wave of equipment has been shipped and installed in China, and appropriate redundancies have been completed in an orderly manner. The majority of the equipment will be transferred to China through October, while sufficient plant will remain available in Melbourne to run through December to act as a backup while China completes installation of the transferred plant.

"The equipment transfer complements the \$15 million capex program earlier this year, and our manufacturing now has sufficient capacity to satisfy the Company's planned northern hemisphere growth over the next two to three years", Mr Gary Gale said.

Australasia

Australian sales of \$55 million are approximately in line with the previous year despite the difficult retail trading conditions and the prolonged drought in the agricultural sector. Sales of industrial fabrics are slightly ahead, with retail sales down in a softening D.I.Y. market. Rapid increases in world polymer prices caused increased costs in both the Australian and New Zealand plants. These increases affected margins negatively, but were progressively passed on throughout the season.

The \$13.5 million acquisition of the industrial and knitted fabrics operations of Donaghys Industries Limited of New Zealand has been successfully integrated into the group, and we are very pleased with the experience and depth of the management team. Revenue of \$9.7 million was in line with expectations for the partial year of operation. The acquisition settled on 15 December 2004.

We have also integrated the Gale and Donaghys customer base and product ranges. This facilitated the recently announced 'direct to market' distribution strategy for the Australian market, improving margins and market penetration of the new "Synthesis" brand as well as the "Donaghys" brand for specialty products. We now have a focussed low cost industrial plant specialising in technical fabrics in New Zealand providing the Company with further manufacturing flexibility and enhanced productive capacity.

"Donaghys export customers in the Middle East, USA and Mexico will be offered innovative cross-over fabrics while other synergies are expected to flow as this operation takes advantage of our global manufacturing and distribution base." Mr Gale said.

"The acquisition has strengthened the Company's position in the commercial, horticultural and industrial markets in New Zealand and Australia."

Europe, Middle East & Africa

SPOGA

"The Company this week exhibited at the SPOGA show in Cologne Germany. This is our most important show of the year for the Company's European retail business. We introduced a significant range of new products and technologies recently developed by our new Chinese R&D team in Ningbo China. The uptake of these new products has been very encouraging with an expansion of our ranging with existing accounts and the introduction of new business with a variety of new DIY retail groups in 11 European countries. The impact of this expansion will start to be realised in the second half of 2005/06," said Mr Gale.

Europe

"Gale has established a high quality management team responsible for the development of the "Coolaroo" brand of products throughout greater Europe. Our acquisition of Jung Garten & Freizeit Vertriebsgesellschaft mbH ('Jung') has helped establish the "Coolaroo" brand on a very solid basis with orders from approximately 750 stores in across Europe.

A selection of our current existing customers includes Praktiker, Leroy Merlin, Gamma, Hella, Globus and Bauhaus, all leading and well respected European chains.

Middle East

Regional growth doubled to \$4 million as our plans to expand our high margin markets outside the United Arab Emirates were implemented successfully. Sales outside the UAE now account for almost 70% of regional revenues and continue to expand. The recent expansion of our marketing into Saudi Arabia has contributed significantly to these excellent results, and the Company's architectural fabric range is now specified widely throughout the region.

Americas

Sales revenue in the USA increased marginally in US dollar terms on the previous year to US \$11.6 million.

"Late in the year, we succeeded in expanding the number of major retail stores stocking our standard window shades, in addition to a significant increase in stores carrying the custom shade program. Custom shades provide higher than average margins," Mr Gale said.

We finalised the consolidation of our Cal Shades acquisition and "Coolaroo" logistics into one location in Rancho Cucamonga, California with significant operational and transportation savings expected to follow. Custom shade production within the combined West Coast facility will be expanded to supply a larger variety of window furnishings, including horizontal shades. We expanded the ranging of pet beds with Wal Mart and Petco this season and initial sell through is very encouraging.

"The Company intends this year to expand its reach into Central and South America in both retail and commercial fabrics following up on areas already developed by Donaghys," said Mr. Gale.

Research and Development

The Company continues to invest significant resources into the development of new business and product extensions within our range of existing products. During the year China has continued to increase its staffing in this area to compliment our Australian development team. China has delivered a large and unique expansion of our window furnishing range successfully launched for our new European retailers.

"We have completed, tested and received initial orders for our new horizontal European awnings that will be fully manufactured in our Chinese plant using our new aluminium extrusion and powder coating lines," said Mr Gale.

"In the agricultural sector, we have fully commercialised the Bioclip biological shearing nylon nets, a new development that has expanded the potential volume of this technology. These nets are now in full production in our Chinese plant. These nets allow for biological shearing while being made of a compatible material to the wool harvested," said Mr Gale.

"These predominantly nylon nets have subsequently been commercialised with over 500,000 units ordered to date and contractual requirements to purchase over 2.5 million units by September 2006."

The development and commercialisation of ventilation ducting for underground mines: working in conjunction with a long time customer, three products have been developed and the first has been commercialised.

In addition to the above, we have successfully commercialised a new Aguaspan chlorine resistant fabric for covering water storage basins that eliminate algae blooms, retain concentrations of chemical added to treat water, reduce airborne contamination and water loss due to evaporation. At present our materials have been utilised to cover several dams with three to five new dams proposed in the future.

Water management projects are now entering commercialisation. A family of fluming and lay flat pipe products for irrigation operating under pressure are continuing to be developed for on farm and water authority use.

Management and Staff

On 25 August 2005, the Company announced two significant management changes. Mr. Peter McDonald, Chief Operating Officer is to assume the position of Managing Director, U.S. Operations, and will relocate to our Orlando, Florida, U.S. headquarters later this year. Peter will remain responsible for both our Australasian and U.S. operations, and will have responsibility for leveraging the Company's new lower cost manufacturing platform, shorter lead times, and expanded capabilities to drive Gale's market expansion throughout the Americas. He will focus on building on the existing diversified base of retail and commercial customers, and will also seek additional growth opportunities in those markets. Peter remains an Executive Director of Gale Pacific Limited.

Mr. Stephen Carroll, Australian Sales and Marketing Manager, will be promoted to the position of Managing Director, Australian Operations. Mr. Carroll has successfully overseen the integration of the distribution and sales operation of the Donaghys and Gale commercial and industrial fabric organisation, including the successful launch of our Synthesis branded range of commercial fabrics, and the introduction of direct containerised sales from our Chinese operations through our Australian retail network of customers.

Board of Directors

Mr. Harry Boon joined the Board as Chairman on 25 August 2005 upon the retirement of Mr Theo Eversteyn.

Harry recently retired as Chief Executive Officer and Managing Director of the ASX listed company Ansell Limited, after a career spanning some 28 years with Ansell. Harry has lived and worked in senior positions in Australia, Europe, USA and Canada, and has broad-based experience in global marketing and sales, manufacturing, and product development. He is multi-lingual, and has a strong track record of achieving business results through setting ambitious goals, building the appropriate organisation and relationships, and relentlessly pursuing delivery of commitments.

Harry holds the degrees of Bachelor of Laws (Hons) and Bachelor of Commerce from the University of Melbourne. He is currently a non-executive director of the ASX listed companies Tattersall's Limited, Funtastic Limited and Hastie Group Limited. "I look forward to working with Harry during the next phase of the Company's development," Mr. Gale said.

"On behalf of the Board, I would like to acknowledge and recognise the contribution of Mr. Theo Eversteyn for his 30 years of support to the Company, as both a professional advisor, and more recently as a Director and Chairman of the Board. Mr. Eversteyn contributed significantly to the opportunities that are now ahead of the Group, and he was particularly active in the establishment of our Chinese and European activities," Mr. Gale said.

Cash Flow and Balance Sheet

The Company substantially increased its inventory base on the establishment of its Gale Europe operations and a precautionary increase in Australian inventory to support any potential supply shortfall during the transfer of our Braeside plant to China. Inventory also increased as a result of the previously described inventory tightening of the D.I.Y. market within Australia.

The Company purchased capital equipment of some US \$15 million for our new plant in China. China will continue to modestly impact the Group's cash flow until December 2005, as the final deliveries of the equipment are received. At that point, the capital investment base is anticipated to be sufficient to support the Company's growth plans for the next two to three years.

Due to these factors, the Company's net debt to equity increased to 1.45:1 at year end. The Directors anticipate that working capital and net debt will reduce significantly over the next 12 to 18 months.

Tax

The effective tax rate on earnings was 19.8% compared with 27.2% for the year ended 30 June 2004. This was due to increased profits in offshore operations with lower effective tax rates.

Convertible Note Issue

On 25 August 2005, the Company announced the underwritten issue of \$9 million of convertible notes to augment our working capital and to allow the Company to capitalise on the positive response and commitments we are receiving from our northern hemisphere markets. The notes were issued on September 9 2005, with a term of 5 years and a conversion right into fully paid ordinary shares at \$1.85 per share. This pricing minimises the dilution effect to existing shareholders.

Adoption of Australian equivalents to IFRS

From 1 July 2005, the unconsolidated entity is required to comply with the Australian equivalents to International Financial Reporting Standards (AIFRS) issued by the Australian Accounting Standards Board. Entities complying with AIFRS for the first time are required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Notes explaining the impact of the application of AIFRS on the statements of financial performance and position are set out in the Appendix 4E statement lodged with the ASX today.

The new AIFRS standards should not materially impact on the Company's operating results into the future.

Recognition

Gale Pacific Limited was presented with the "Sustainable Small Company of the Year Award" at the 4th Annual Ethical Investor Corporate Sustainability Awards held on 1 December 2004 in Sydney. This Award is given for leading the way on corporate social responsibility as judged by Australia's experts in the area. Gale Pacific Limited is committed to striving for excellence in its business without impacting negatively on the environment or the community, while manufacturing products that help to preserve the environment.

Dividends

The Directors have declared a fully franked final dividend of 1.5 cents per share payable on 17 October 2005 with a record date of 23 September 2005, making a full year dividend of 5 cents per share, and a payout of 55% of profit attributable to shareholders. This is in accordance with the policy previously announced of paying out 50% - 55% of after tax profits, subject to the performance of the business, including acquisitions.

The Company operates a dividend reinvestment plan ("DRP"). Election notices will be forwarded to shareholders along with a copy of this announcement. Shareholders who have not previously participated in the DRP, or who wish to change their level of participation, must lodge the form with the Company's share registry by 23 September 2005 in order for the notice to take effect in respect of this final dividend.

Outlook & Earnings Guidance

"The Directors anticipate a substantial uplift in earnings for the coming year. In the first half, underlying net profit is anticipated to be significantly ahead of the same period last year. However, this underlying profit will

be more than offset in the half by the previously announced plant relocation costs of approximately \$2.3 million. Given the seasonal bias to the Company's trading, the Directors anticipate a strong financial performance in the second half. A further update will be provided at the Annual General Meeting on 22 November 2005," said Mr. Gale.

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GARY S GALE Managing Director & CEO

Gale Pacific is Australia's leading manufacturer and exporter of advanced polymer fabrics and related products, with subsidiaries in the United States of America, Germany, United Arab Emirates, the People's Republic of China and New Zealand.

For further information, please contact the Managing Director & CEO, Mr Gary Gale on (03) 9518 3312.