Avenor - a Company With a Record Year in 1995 and Shaping its Future.

HULL, Quebec--(BUSINESS WIRE)--April 23, 1996--AVENOR INC.(ME, TSE: AVR ) In his address to shareholders during Avenor's annual general meeting held today in Hull, Quebec, Paul E. Gagne, President and Chief Executive Officer, expressed great satisfaction that in 1995 Avenor generated record earnings of $343.9 million for the Company, which was the highest absolute profit in the Canadian pulp and paper industry. He also presented the key elements of Avenor's Transformation Strategy for the coming years.

1995 Results

Mr. Gagne attributed Avenor's strong financial performance in 1995 to rising prices in its key markets and improved operating efficiencies and performance.

"We have fulfilled our promise to keep competitiveness front and centre with our operating management and we have continued to make gains in health and safety, the environment and the development of human resources", noted Mr. Gagne.

As examples of this, he highlighted the fact that production records had been set at five of Avenor's six mills in 1995. The Newsprint Group achieved productivity gains of 4.6 percent while the Pulp and White Paper Groups improved their productivity by 3 percent and 3.1 percent respectively. As for safety, Mr. Gagne was proud to report a company-wide reduction of 33 percent in the incidence rate. In the area of environment, Mr. Gagne reported the completion of Avenor's effluent control program and that all its mills were in compliance with federal and provincial regulations. He also mentioned the beginning of the implementation in 1995 of a certification program under the ISO 14000 standards to provide Avenor with a comprehensive set of environmental management guidelines.

Turning to human resources, Mr. Gagne indicated that last year the Company had revamped its benefits system through a new Total Compensation Policy and introduced a performance management program that focuses on individual contributions and accountabilities and clearly links employee pay to performance. Priority will continue to be placed on training and development, he added, and a comprehensive leadership development process will be put in place this year to identify and develop business leaders within Avenor.

Financial discipline

On the financial side, Mr. Gagne insisted on the need for Avenor to maintain emphasis on financial discipline and continue to make efforts to reduce debt. In that area, Avenor has made significant progress by directing a large portion of its cash flow to debt reduction. The debt equity ratio improved during the year from 60 percent to 45 percent. A $500 million segregated account was established and $300 million in cash was allocated to this account in 1995. It will be fully funded by the end of 1996, and it is expected that some $200 million will be used during this year to repay debt.

Mr. Gagne also noted the recent approval by the Montreal and Toronto Stock Exchanges of Avenor's application to repurchase up to 4,000,000 or approximately 6 percent of its common shares.

He also stressed the importance of the Economic Value Added (EVA) system which was introduced in 1995. The purpose of this tool is to focus management not only on operating results but also on the cost of capital employed with the objective of generating increased economic value for the shareholders. Avenor is now in the process of implementing EVA and in 1997, every salaried employee will have their compensation directly linked to how much value to the shareholders they create.

Avenor's Transformation Strategy

In reviewing Avenor's past accomplishments, Paul Gagne pointed to three key areas of improvement: the focusing of Avenor on four core businesses, investing in technology that reduced operating costs, and restructuring of work practices. Initiatives in all these areas resulted in a Company whose 28 percent operating margins in 1995 established it as one of the top performers in its industry. "Today, we are a Company with a first rate asset base, an excellent environmental record, a leadership position in recycling, a high quality fibre supply and a highly productive work force", said Mr. Gagne.

Referring to Avenor's strategic planning process initiated in 1994, Mr. Gagne underlined the fact that the Transformation Strategy he presented for the next five years was based on some basic conclusions:

- northern softwood fibre is becoming increasingly valuable and Avenor can extract more economic value from its existing fibre base;

- by shifting to higher economic value added products, Avenor can reduce cyclicality in its revenues and earnings; - achieving operational excellence in commodity businesses like newsprint and pulp is the key to superior performance; and - flexibility is essential across the organization to capitalize on market and technological developments.

From these conclusions, Avenor has developed a strategy with four key elements, the first being the securing and expanding of Avenor's fibre resource to provide maximum long term growth potential for the Company. To meet this first objective, major initiatives have already been taken such as the creation of a Wood Products Business Unit responsible for all the Company's harvesting, fibre trading and solid wood products converting activities. Another initiative was the creation of a Strategic Fibre Management Function at the corporate level to monitor structural changes in worldwide fibre availability and to ensure that the long term fibre needs of Avenor's pulp and paper operations are provided on a competitive basis.

The second key element of the Strategy is the commitment to achieve operational excellence. As a first step to fulfil this commitment, Avenor has formed a special group which will benchmark top performers in the industry and other sectors, identify best-in-class practices and translate them into realistic targets and specific work plans for each of the operations.

The third key element is restricting capital spending to projects that truly deliver high rates of return. In this respect, Avenor will make investments that drive substantial cost reduction and add incremental capacity at costs well below that of greenfield projects. The last element is the intention to migrate to higher value products to serve markets that are increasingly driven by developing digital print technologies. A task force will be formed at Avenor to learn more about these potential markets in North America and overseas and the technology needed to serve them as a first rate competitor. "Matching our fibre base to these markets will provide a sustainable long-term source of value creation for Avenor's shareholders", said Paul Gagne.

A Company shaping its future

To ensure that Avenor's strategy will create value, the Company is introducing rules to establish decision-making discipline throughout the management team. It has established a target for debt/equity ratio of 40 percent across the business cycle and is presently working to establish risk related criteria for capital investment and revising the capital management process.

"We must be very selective with investments and we must be absolutely certain that our spending is aligned with our strategy and our ability to fund projects," explained Mr. Gagne. He added that building flexibility into Avenor's manufacturing and delivery processes, and in work practices, will ensure successful strategy implementation.

Looking to the future, Mr. Gagne noted that there are plenty of opportunities for Avenor which has clearly established itself as a strong competitor. In this regard, he described the overall objective pursued by Avenor as creating a company that rewards innovation and intelligent risk-taking and can compete with the best. "We want a Company that people want to work for because it values initiative and imagination, a Company that people want to buy from because of the high quality and fair price of its products, and a Company people want to invest in because it provides competitive returns."

NOTE: Avenor's results for the first quarter of 1996 are outlined in a separate news release issued today.

CONTACT: Avenor Inc.

Denis Aubin, 514/846-5129

or

Emmanuelle Collin, 514/846-5061

or

Dominique Dionne, 514/846-5061