GALE PACIFIC LIMITED — Management Reports 2006

Jun 29, 2006

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World Class Manufacturer of Advanced Polymer Fabrics & Value Added Fabric Products

• Strong, growing sales and market position in selected world markets
• Low cost manufacturing strategy implemented during FY '06
• A Company with a sound underlying strategy and business platform
• $\dot{\circ}$ Unique technologies and innovative products to drive future growth
• Product development opportunities with a tighter commercial focus

۰

Strong, growing sales and market position in selected world markets

• Continued strong sales growth in USA, Europe and Middle East
• Overall group sales increase of $14%$

Sales - Group

Asia / Pacific

• Market share maintained in mature market
• Additional costs absorbed in FY '06 due to delayed China plant commissioning and Australian plant closure

Sales - Asia / Pacific

• Europe / Middle East
• Sales revenue increase of approximately 14%
• Late start to European retail summer season due to cool weather
• Significant expenses absorbed in FY 206 relating to investment phase / start up marketing costs
• High inventory levels and additional warehouse costs incurred

Sales - Europe / Middle East

Sales - USA

Sales revenue increase of approximately 40%

Store expansion and strong sell through with major retail customers

Commercial / architectural fabric market penetration - sales increase of approximately 98%

USA

2007 Priorities

Focus on organic growth and operational efficiencies:

Growth

• Capitalise on further range expansion opportunities with blue chip customer base
• Continue to grow commercial and industrial fabric sales and distribution channels
• Tighter focus on product development projects and processes to deliver better commercial outcomes from R & D investment

2007 Priorities

Operational efficiencies

• Improved plant productivity, process controls and efficiency levels in China plant - New Head of Manufacturing, China appointed (Paul Ducray)
• Improved Supply Chain processes to better manage the sales and production interface - reduced inventory levels
• Review product development processes and priorities to get greater focus and improved commercial outcomes - better execution and use of resources
• Improve forecasting, inventory management and warehouse systems in European operation - improved customer service, reduced inventories and operating costs
• Increased accountability and "buy-in" through senior management team
• Very tight focus on cost throughout the whole organisation

Outlook

	F'06	$F^{\prime\prime}07$	F'08
	(post capital restructure)
Sales	\$167.0M	\$180.0M	\$200.0M
NPAT	\$1.0M	\$7.2M	\$10.3M
Net Debt	\$60.0M	\$55.0M	\$50.0M
Net Debt / Equity	0.60 (post capital restructure)	0.54	0.50
CAPEX	\$16.0M	\$6.0M	\$6.0M
Andrew Marketter State of

(Management Forecast)

Outlook Summary

• Reduced debt and stronger balance sheet position
• Return to profitability and positive cash flows
• Dramatically reduced capital expenditure
• Reduced inventories (\$4M \$5M) and improve supply chain management
• Improved R & D / Product Development process with a focus on fabric innovation and technical improvements
• Continued growth of organic sales base and expansion into new market channels
• New management team is highly motivated and committed to:
  • Delivering a solid profit performance in FY '07 and beyond
  • Continuing our strategy for growth and profits
  • Creating future value for all of our shareholders