Pareto announces year-end financial results



    TORONTO, March 30 /CNW/ - Pareto Corporation (TSX: PTO), a leading
marketing services company, today announced its financial results for the
fourth quarter and the year ended December 31, 2006.

    Fiscal 2006 Highlights

    
    -   Revenue was $51.1 million in fiscal 2006, compared to $53.0 million
        the previous year.
    -   EBITDA was $2.7 million, compared to $5.5 million a year earlier.
    -   Net earnings were $1.5 million, or $0.04 per share, compared to
        $3.0 million or $0.08 per share in 2005.
    -   Pareto's 2006 pro forma revenues would have been $65.0 million had
        the full year revenues of the companies acquired in 2006 been
        included. Pareto completed two major acquisitions during 2006, adding
        the direct marketing capabilities of SourceLink Canada and the retail
        merchandising capabilities of Secom Plus.
    -   Pareto added over 40 customers to its roster, including Aliant,
        Bayer, BMW, Chrysler, Essilor, L'Oreal, Loyalty Group, McDonald's,
        Metro, Molson, National Bank Financial, PC Financial, Sun Life, TD
        Bank Financial, and XM Radio.
    -   Pareto completed an integration and reorganization exercise in the
        fourth quarter designed to integrate the acquisitions, reduce costs,
        strengthen the leadership team and better position the Company to
        deliver future growth.
    

    "The fourth quarter was one of integrating and reorganizing our business
to take advantage of acquisitions completed in 2006 and reinvigorate our
organic growth efforts," said Kerry Shapansky, Pareto's President and Chief
Executive Officer. "These organizational changes negatively impacted fourth
quarter revenue and profitability. They resulted in one-time costs of
$1.2 million, but we expect the changes to lead to a $2.5 million reduction in
costs in 2007 versus 2006."

    Financial Review

    Pareto's revenues for the fourth quarter of fiscal 2006 were
$18.2 million, an increase of $0.3 million over the same period in 2005, and
consistent with expectations. The $1.9 million revenue decrease for the fiscal
year was a result of factors described in previous quarters, including a
reduction in Ford business, the non-recurrence of several biennial corporate
events, and the Company's shift away from lower margin, non-Elevate incentive
revenues. These revenue decreases were partially offset by growth in the
Elevate Incentives and print management and fulfillment businesses, and by
approximately $7.6 million of revenues attributable to the acquisitions
completed during the year.
    Operating and administrative expenses were $48.3 million in 2006, an
increase of 2% from $47.4 million in 2005. The 2006 total includes the
expenses of the acquired businesses for the final portion of the year, as well
as $1.2 million of one-time costs incurred in the fourth quarter to reduce
ongoing infrastructure costs.
    EBITDA was $2.7 million in 2006, representing 5.4% of revenue, compared
to $5.5 million or 10.4% of revenue the previous year. EBITDA margin was
negatively impacted by increased infrastructure and changes in business mix,
and by the one-time charges incurred in the fourth quarter. The Company
expects to achieve fiscal 2007 EBITDA margins consistent with 2005 levels on
the basis of more efficient infrastructure costs, and a more favourable
business mix driven by the full year inclusion of SourceLink and Secom Plus.
    Pareto presents pro forma revenue and EBITDA information as supplemental
figures because management believes they provide useful information regarding
operating performance. Pro forma revenue is calculated based on the inclusion
of the actual revenues of the acquired businesses from the beginning of the
calendar year. Pro forma revenue and EBITDA (earnings before amortization, net
interest and finance charges, share based compensation, income taxes, gain on
acquisition and non-controlling interest) are not recognized measures under
Canadian generally accepted accounting principles (GAAP), do not have
standardized meaning, and are unlikely to be comparable to similar measures
used by other companies. Accordingly, investors are cautioned that pro forma
revenue and EBITDA should not be construed as an alternative to revenue, net
earnings or loss determined in accordance with GAAP as an indicator of the
financial performance of the Company or as a measure of the Company's
liquidity and cash flows.
    Net earnings were $1.5 million in 2006, compared to $3.0 million the
previous year. On a fully diluted basis, earnings per share declined from
$0.08 to $0.04. The weighted average number of diluted shares outstanding
increased from 38.9 million in 2005 to 44.1 million in 2006.
    Pareto maintained a strong financial position with a cash balance of
$5.0 million at December 31, 2006, compared to $5.1 million at December 31,
2005. The Company generated net proceeds of $8.1 million through share
issuances during the year. Significant uses of cash included $4.9 million for
acquisitions, $1.1 million to fund operating activities, $0.9 million to add
capital assets, $0.8 million to repurchase shares of the Company pursuant to
its normal course issuer bid, and $0.7 million to repay debt. Total debt
increased during the year as a result of capital lease obligations and
acquisition notes payable arising from the acquisitions completed in 2006, but
remains relatively low at $3.4 million, representing 1.2 times EBITDA.
    Pareto also invested approximately $500,000 to implement a suite of
software in 2006 that automates retail production and fulfillment processes.
The technology is expected to improve the Company's customer service
capabilities, capacity utilization and margins.
    "The most notable accomplishments for Pareto in 2006 were on the
acquisition front," said Mr. Shapansky. "We took on a very ambitious corporate
development agenda and executed it very successfully. I am disappointed that
we were not able to extend our track record of organic growth at the same
time, but I believe the changes we made have transformed us into a much better
and stronger company. We significantly advanced Pareto's capabilities, client
roster, operational efficiency and executive talent. And we have taken the
steps to ensure we will be able to effectively leverage these strengths in
2007."
    As a result of the acquisitions and several years of compound growth,
Pareto's management recognized that the Company had some duplicate
infrastructure and a cumbersome organizational structure that was serving as
an impediment to growth. During the fourth quarter Pareto undertook a range of
initiatives that saw the elimination of three of seven facilities, the
elimination of several executive roles, and the reorganization of the Retail
and Channel operations into a single business unit.

    Addition of Michael Lang to Senior Sales Team

    Pareto recently hired Michael Lang as Senior Vice President, Business
Development. Mr. Lang's three decades of marketing experience include more
than 20 years as president of his own sports marketing firm, and most
recently, Chief Operating Officer at Young and Rubicam Canada. He will be part
of a team of five seasoned sales executives who have been designated to lead
the Company's organic growth efforts. The other individuals are:

    
    -   Sue Britton, Elevate incentive programs
    -   Louis Demers, field merchandising and sales representation
    -   Kim Naylor, corporate events and strategic accounts
    -   Kim Roseborough-Darling, direct marketing and in-store marketing
    

    Outlook

    Pareto enters fiscal 2007 having assembled a continuum of marketing
execution services that is unique in Canada. The SourceLink acquisition was a
vertical integration that provides the Company with key direct marketing
capabilities that it previously had to outsource. Secom Plus, in addition to a
Quebec presence and a nationwide field force, adds an adjacent service
capability that had been a missing ingredient in Pareto's retail mix. The
Company also obtained a front line enablement boutique with its earlier
Trajectory purchase. The end result is a marketing execution supply chain
uniquely capable of designing and producing marketing materials that will
drive traffic to the point of sale, making sure those materials are
effectively displayed, and providing the tools to train, motivate and reward
the key members of the sales channel.
    Pareto has initiated a comprehensive operational improvement program
designed to enhance the efficiency of the Company's service delivery, and
improve its processes and work flow. The Company plans to make continued
investments in its business in 2007, which will include additional technology
and the relocation of its direct marketing and retail production facility to a
new building with expanded capacity and higher efficiency in Richmond Hill.
    "Our strong financial position allows us to continue to evaluate
acquisition opportunities, with our top priority in 2007 being organic
growth," said Mr. Shapansky. "We anticipate revenue growth being driven by our
Elevate, event and Secom Plus businesses. We are very pleased with the
performance of our 2006 acquisitions, and we are already seeing operational
synergies as a result of the recent integration and reorganization exercise.
With the return of several major event projects, we expect to continue our
pattern of posting the highest revenue totals in the second and fourth
quarters of 2007."
    For a complete discussion of Pareto's results, please see the Company's
audited financial statements, notes thereto, and management's discussion and
analysis, all filed on SEDAR.

    Conference Call

    Pareto will host an investor conference call to discuss these results at
9:00 a.m. EDT, March 30, 2007. The call may be accessed as follows:

    
    DIAL-IN NUMBER:    416-644-3418 or 1-800-731-5774

    TAPED REPLAY:      416-640-1917 or 1-877-289-8525
                       Reference Number: 21223661
                       Available until April 6, 2007

    LIVE WEBCAST:      www.pareto.ca ("Investor Relations" section)
                       To be archived for one year
    

    About Pareto Corporation

    Pareto Corporation is a marketing services company that offers retail
marketing and channel marketing solutions to leading companies in a broad
range of industry sectors. Pareto provides measurable, quantifiable services
that complement our clients' marketing and sales departments. For more
information, please visit our website at www.pareto.ca.

    This press release contains forward-looking statements related to
expected future events and financial operating results of Pareto that involve
risks and uncertainties. Actual results may differ materially from management
expectations as projected in such forward-looking statements for a variety of
reasons, including market and general economic conditions and the risks and
uncertainties detailed from time to time in Pareto's SEDAR filings.

    The Toronto Stock Exchange has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this press release.

    
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                                                          Pareto Corporation
                                                 Consolidated Balance Sheets

    For the years ended December 31                     2006            2005
    -------------------------------------------------------------------------

    Assets
    Current assets
    Cash                                       $   5,020,127   $   5,078,927
    Accounts receivable                           12,399,746      10,760,008
    Inventory and work in progress                 2,457,361       2,236,432
    Other current assets                             540,698         231,876
    Current future income tax assets               2,903,293          97,854
                                               ------------------------------
                                                  23,321,225      18,405,097

    Loans receivable                                 616,667         433,333
    Long-term future income tax assets               850,590               -
    Deferred costs                                   513,708         609,791
    Capital assets                                 1,722,298         990,622
    Goodwill and intangible assets                17,782,873      11,479,110
                                               ------------------------------
                                               $  44,807,361   $  31,917,953
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities
    Accounts payable and accrued liabilities   $  14,059,056   $  10,841,641
    Current portion of deferred revenue            2,607,264       4,151,498
    Income taxes payable                             275,091         927,065
    Current future income tax liabilities            131,225          90,551
    Current portion of acquisition notes payable   1,350,000         335,000
    Current portion of long-term debt                500,000         500,000
    Current portion of capital lease obligations     264,295               -
                                               ------------------------------
                                                  19,186,931      16,845,755
                                               ------------------------------

    Long-term deferred revenue                             -         474,144
    Long-term future income tax liabilities          625,772         398,141
    Long-term debt                                   165,992         832,996
    Long-term capital lease obligations              992,060               -
    Long-term acquisition notes payable              100,000               -
                                               ------------------------------
    Total liabilities                             21,070,755      18,551,036
                                               ------------------------------

    Shareholders' equity
    Share capital                                 17,176,172       7,576,707
    Contributed surplus                              268,895         254,192
    Common share purchase warrants                         -         126,454
    Retained earnings                              6,291,539       5,409,564
                                               ------------------------------
    Total shareholders' equity                    23,736,606      13,366,917
                                               ------------------------------
                                               $  44,807,361   $  31,917,953
    -------------------------------------------------------------------------
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    -------------------------------------------------------------------------
                                                          Pareto Corporation
                 Consolidated Statements of Operations and Retained Earnings

    For the years ended December 31                     2006            2005
    -------------------------------------------------------------------------

    Revenue                                    $  51,080,008   $  52,950,769

    Operating and administrative expenses         48,330,272      47,444,182
                                               ------------------------------

                                                   2,749,736       5,506,587
                                               ------------------------------

    Amortization of capital assets                   361,174         337,214
    Amortization of intangible assets and
     deferred costs                                  268,350         225,643
    Interest and finance charges, net                 82,617         277,116
    Gain on acquisition                             (192,042)              -
    Share-based compensation                         134,210         101,867
                                               ------------------------------
                                                     654,309         941,840
                                               ------------------------------

    Earnings before income taxes and
     non-controlling interest                      2,095,427       4,564,747
    Income taxes                                     545,632       1,660,348
    Non-controlling interest                               -         (70,633)
                                               ------------------------------

    Net earnings for the year                      1,549,795       2,975,032

    Retained earnings, beginning of year           5,409,564       2,434,532

    Excess price paid over carrying value
     on repurchase of common shares                 (667,820)              -
                                               ------------------------------

    Retained earnings, end of year             $   6,291,539   $   5,409,564
                                               ------------------------------

    Basic and diluted earnings per share       $        0.04   $        0.08
                                               ------------------------------

    Average number of common shares
     outstanding:
    Basic                                         42,554,794      36,570,640
    Diluted                                       44,130,278      38,912,305

    -------------------------------------------------------------------------
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    -------------------------------------------------------------------------
                                                          Pareto Corporation
                                       Consolidated Statements of Cash Flows

    For the years ended December 31                     2006            2005
    -------------------------------------------------------------------------

    Operating activities
    Net earnings for the period                $   1,549,795   $   2,975,032
    Items not involving cash:
    Amortization of capital assets                   361,174         337,214
    Amortization of intangible assets
     and deferred costs                              268,350         225,643
    Non-cash interest and finance charges             13,124          45,353
    Share-based compensation                         134,210         101,867
    Non-controlling interest                               -         (70,633)
    Gain on acquisition                             (192,042)              -
    Future income tax provision                      435,970         219,010
                                               ------------------------------
                                                   2,570,581       3,833,486
    Changes in non cash operating accounts        (3,670,423)        473,260
                                               ------------------------------
                                                  (1,099,842)      4,306,746
    Investing activities
    Capital asset additions                         (927,724)       (168,937)
    Other asset additions                            (66,792)       (110,614)
    Acquisitions, net of cash acquired            (4,861,098)       (202,227)
                                               ------------------------------
                                                  (5,855,614)       (481,178)
                                               ------------------------------
    Financing activities
    Proceeds from loans receivable                   683,333         200,000
    Repayment of acquisition notes payable          (335,000)       (435,000)
    Repayment of long-term debt                     (667,004)       (667,004)
    Repayment of capital lease obligations          (103,690)              -
    Issuance of shares                             8,724,405       1,196,396
    Share issue costs                               (652,097)         (5,089)
    Repurchase of common shares                     (753,291)              -
                                               ------------------------------
                                                   6,896,656         289,303
                                               ------------------------------

    Increase (decrease) in cash for the period       (58,800)      4,114,871

    Cash and cash equivalents, beginning
     of period                                     5,078,927         964,056
                                               ------------------------------

    Cash and cash equivalents, end of period   $   5,020,127   $   5,078,927
    -------------------------------------------------------------------------
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For further information:

For further information: Kerry Shapansky, President and Chief Executive
Officer, Pareto Corporation, (416) 790-2350; Clint Becker, Chief Financial
Officer, Pareto Corporation, (416) 790-2360; Jeff Codispodi, Investor
Relations, Equicom Group, (416) 815-0700 ext.261

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