Generation change. Jürgen Heindl turned Progroup into a champion in the packaging industry with 900 million euros in sales in just 30 years. Now he wants to convert the company to a post-patriarchal structure and hand over the reins to his son Maximilian.

29 January 2019 was a special day in Progroup's company history. All right, it was Jürgen Heindl's birthday. But that's not why he was standing with a microphone in his hand in the corrugated sheet feeder plant in Ellesmere Port, England. It was about saying goodbye - to a plant with the unspectacular name PW08.

It had been in service here, near Liverpool, for ten years. Before that, it had been producing corrugated board in Offenbach as PW01 since 1992. "A total of 3.5 billion square metres," says Heindl. "That would be, converted, a strip of corrugated board one metre wide nine times from the earth to the moon." It was the first machine owned by Heindl himself, marking - so to speak - the start of the dynamic success story of his then just-founded Progroup.

Jürgen Heindl, who grew up on a farm and milked cows before going to school, is a born tackler. And a bright head. He proved this early on when he made a career in the packaging industry and was appointed to the board of directors of the industry heavyweight Zewawell GmbH. At the beginning of the 90s, however, he is no longer satisfied with that. He feels that he understands the industry better, "reads" it better than his colleagues. Where they sit back, he sees mistakes, gaps, omissions, potential for improvement. What would it be like if he himself were to take advantage of the opportunities that arise?

Only: such a factory producing corrugated board is not a start-up with a good idea, a website and a bit of money from a development bank. "These are major projects, also in financial terms," Heindl explains. "You need huge halls, packed with highly automated conveyor technology and machines that weigh tons."

With the help of a bank, Heindl convinces three investors, all private investors. He tells the trio, "My knowledge is worth 51 percent, your money 49 percent." The investors accept this and trust him. He packs everything together - his severance pay, savings bank loans, subsidies from the state of Rhineland-Palatinate, the investors' money - and builds the first plant in Offenbach an der Queich near Landau. He cannot and does not want to compete with companies that produce finished packaging for multinationals such as Procter & Gamble or Unilever. He does not want to offer ready-made packaging at all. He wants to be the specialist who supplies the right raw material, tailor-made in small runs and just in time. Let others offer the whole car. He just builds the engine and transmission.

"We started supplying medium-sized packaging manufacturers whose annual sales were between five and 50 million euros with exactly the corrugated board and paper they needed. We entered into long-term partnerships with them, but without being packaging manufacturers ourselves." Heindl found his niche. Today he says, "The industry has long underestimated our business model, our development and ourselves."

The company is growing rapidly and exclusively organically. In response to the rapid pace, Heindl turns the GmbH into an AG. Heindl and his two sons now hold 91 percent of the shares. In 2008 he prepares the company for a decisive step. With an investment volume of 750 million euros, a paper mill and an RDF power plant are to be built in Eisenhüttenstadt, and two new corrugated board plants in Poland and Great Britain. The mill in Eisenhüttenstadt will even be one of the largest and most efficient for corrugated base paper worldwide. "We have always been solidly financed. But of course we couldn't simply handle such a significant expansion within two years."

Progroup AG needs capital. The entry of a financial investor is an obvious solution. "Relying exclusively on bank loans would have been difficult or even impossible in view of the onset of the financial crisis." The Stuttgart-based BWK Unternehmensbeteiligungsgesellschaft comes on board as a partner, a specialist for minority shareholdings who sees himself as an "institutional family shareholder" and brings 40 million euros with him. BWK, unlike most investment companies, prefers a long-term business relationship. "This investment model was the right decision for us," confirms Heindl. "Thanks to the capital increase, we were able to significantly increase our equity ratio and open up considerable financing scope with regard to our ambitious expansion strategy."

In 2015, BWK will exit again. Progroup then issues a bond on the capital market for the first time, which is graced by ratings from S&P and Moody's. Heindl says: "We have had good experience with bonds. You just have to accept that you have to drop your pants and become more transparent."

Jürgen Heindl has no problem with that. He talks just as openly about how he has managed to be successful in such a competitive market. "Fast, modern and flexible" is what his progroup should be, and it should also be able to implement mini-runs highly productively and reliably. "50, 60 orders per day are actually typical for a corrugated plant. We produce 1,000 on some days. With the competition, delivery times of between four and five days are common. For 80 percent of the orders, we only need 48 hours from receipt of the order to the arrival of the goods at the customer." The end result, he says, is that Progroup's per capita productivity is up to four times that of its competitors.

For this to work, many wheels must mesh. First of all, Heindl's paper machines are only ten years old on average. At the competition, it is often 40 to 50 years. He relies on technological leadership, innovative strength, a high degree of automation, the greatest possible standardization of processes, and close partnerships with the machine manufacturers.

If a plant is getting on in years, it is upgraded. For example, Heindl had the two-decade-old PM1 paper mill in Burg near Magdeburg equipped with a pilot plant called "HardNip". "This is a unit that applies starch to the paper web and thus influences the strength of the paper. The pioneering spirit of installing a unit that had never been used in any other paper machine in the world before has paid off. Since then, we have not only been producing there more energy-efficiently, but also with higher quality."

The second important aspect is networking and digitalization - a home game for the electronics engineer, who wrote his thesis on a software topic. "We are developing an

intelligent, higher-level networking of all processes and locations and use large amounts of data along our entire value chain. Artificial intelligence and the Internet of Things are integrative components of manufacturing for us." With the start of the new PM3 paper mill, which has been in operation in Sandersdorf-Brehna, Saxony-Anhalt, since August 2020 and is considered one of the most modern and efficient paper mills in the world, for example, new services in paper production have already gone live, he said. "Virtual sensors help here to reduce resource consumption while maintaining quality."

Last but not least, sustainability plays an important role. Conventional paper machines in this industry consume vast amounts of water and energy. "However, this topic is more than just a cost factor for us. We invest intensively in CO2 neutrality and the principle of a circular economy. Without constant investment in new technologies and processes, we would eventually have to bear the ecological and economic consequences."

Of the €465 million total investment in Sandersdorf-Brehna, more than €100 million has therefore gone into resource-saving technologies alone. For example, a new type of closed-loop water treatment plant has been integrated there, which uses state-of-the-art technologies to enable a completely closed water cycle. It treats the process water used in order to return it to production. "This saves the environment around 3.75 million cubic meters of fresh water per year. At the same time, the plant generates biogas, which we use to run the mill." As a result, he says, the paper machine consumes ten percent less fossil fuel than comparable plants. And while competitors need five to seven cubic metres of water to produce one tonne of paper, at Progroup it is barely more than one. "So it pays off twice over."

It is also important to Heindl to make his company as independent as possible. Three of its own paper mills now supply eleven corrugated sheet feeder plants with corrugated base paper. Fluctuations in the paper market now have much less influence. "After all, we have an integrated system of value creation: our paper mills should supply our sheet feeder plants with the base paper they need. The production system should always be in balance, if possible."

Today, Progroup operates production sites in six countries in Central Europe. These currently include three paper mills, eleven sheet feeder plants, a logistics company and an RDF power plant. Heindl's company is thus Europe's largest independent producer of corrugated board and turned over a proud 881 million euros in 2020.

Last year in particular, he was of course helped by the trend towards more and more e-commerce. Even before the pandemic, however, the founder was already convinced that online trade would become the big thing. And for that, packaging is needed. Corrugated cardboard, light and yet stable. "The Corona crisis was a catalyst for our business. But it would have moved in that direction either way - just not so rapidly."

Taking a company from zero to 900 million in sales in less than 30 years as the sole owner is quite a success story. The next big entrepreneurial challenge for 66-year-old Jürgen Heindl is therefore to prepare the company for the time after the founder's era. The first step: he expanded the first management level to include the position of a CFO and a COO to ensure a certain continuity in case something should happen to him. The second step was to arrange the succession.

It was not always clear that 37-year-old Maximilian Heindl would play a leading role in this. Asked about his two sons' career plans, Heindl long routinely said, "If my sons want to be pianists, they'll be pianists."

One of them, Vincent, 31, graduated with degrees in psychology and philosophy and now handles, among other things, the development of the holding company and services supporting the core business.

Maximilian, on the other hand, has decided to pursue a career at Progroup. Before joining the family business, he gained four years of experience in paper machine construction at Voith before joining his father's company in the Operations department. He is currently responsible for the areas of Strategic Development and Digital Transformation on the Executive Board. In mid-2021, Maximilian will then take over as Vice Chairman of the Board of Management, and at the end of 2022 he is expected to finally inherit the post of CEO.

His task will be to fulfill the current ten-year plan, which runs until 2025. After all, it calls for investing 1.35 billion in growth projects: eight new corrugated sheet feeder plants, a new paper mill and 500 new employees. "Because our industry is so capital-intensive, we inevitably have to think long-term," the senior explains. "We have to decide very far in advance when we want to grow, how and where, and how we're going to finance it."

Around two-thirds of the tasks in the 2025 specifications have already been completed. Currently, Progroup is number five in Europe in the corrugated base paper market and number three in the corrugated board market. For Heindl, the goal from the very beginning was to be one of the top players on the continent: "Corrugated board is a raw material, a commodity. Size is crucial here because the margins are small."

Expansion beyond Europe, however, is not an issue at the moment. He once negotiated a joint venture in China and pulled the ripcord when it threatened to go in the wrong direction. "As long as we can grow in Europe, we want to fully exploit that potential. We need mature markets for our business model."

The current structure of the AG with its 1455 employees is designed for an annual turnover of up to 1.5 billion euros, he said. After that, Maximilian Heindl will have to think about how to proceed. Father and son have long agreed on the basic direction: "We don't want to remain in the grey area between a larger family business and a small large company."®

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// This is how Progroup AG manages the generation change.

As early as seven years ago, the Heindl family drew up a family constitution. In it, they stipulated that the AG shares would one day pass to the two sons Maximilian and Vinzenz in equal shares. However, the father would retain three quarters of the voting rights, i.e. he would be able to decide on disputes during his lifetime. Should the sons ever disagree after Jürgen Heindl's death, the holding company's advisory board would have the final say.

Jürgen Heindl, who owned 91 percent of the shares, is already successively reducing them. When he retires from operations at the end of 2022 and hands over the chairmanship to Maximilian, the transfer of ownership should also be completed. An IPO to finance further growth is currently not an issue: "We want to remain an independent family business," says Jürgen Heindl, "as are 95 percent of our customers. We know how family businesses think and understand their challenges. We don't want to gamble away this advantage lightly." The holding company therefore even plans to set up a customer academy where they can exchange ideas on important topics such as succession, market developments and financing, among others, without seeing themselves as competitors. Vinzenz Heindl is soon to head this institution for the optimisation of "network intelligence".

And what will his father, the patriarch, do then? On the one hand, he will continue to be available as an advisor and controller on the supervisory board. On the other hand, new tasks await him. Firstly, there is the management of the holding company with a family office that will look after the family's assets. And secondly, there is a foundation, with whose deposits and returns he intends to initiate philanthropic projects.

In addition, there is a business office with the client academy, a venture capital division to support the growth of client companies and an evergreen fund whose task is to help family businesses that cannot find a successor - among other things with a trustee model.

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Author: Dr. Günter Kast