Ladies and gentlemen, welcome to the hGears Full Year 2024 Results Conference Call. I am Yusuf, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and that this conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star followed by one on your telephone. For operator assistance, you may press star followed by zero. The conference will not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Christian Weiz, Head of Investor Relations. Please go ahead.
Yes, good morning everybody and welcome to hGears Fiscal Year 2024 Results Conference Call. Thank you for joining this morning. I am Christian Weiz, Head of Investor Relations. With me on the call today are Sven Arend, our CEO, and Daniel Basok, our CFO. They will present the full year 2024 results and will be available for the Q&A session after the presentation. If you have not yet received our relevant earnings documents, you can find them in the Investor Relations section on our website. Before we begin the presentation, I would like to draw your attention to the disclaimer on slide two, which sets out the legal framework under which we consider this presentation and which I will assume you have read. Now let me hand over the call to our CEO, Sven Arend.
Thanks, Christian. Good morning to everyone joining us today for this full year 2024 earnings call. As in the previous year, hGears was again able to navigate another tough year. As expected, market conditions did not improve and the economic weakness, paired with ongoing restocking in the e-Bike industry and structural problems in the automotive industry, continued to weigh on our sales and earnings during the year. E-Tools was able to stabilize and thereby a bit of a ray of light. Despite the tough environment, we were able to deliver sales slightly above the 2024 guidance while the Adjusted EBITDA and free cash flow were within the guided boundaries. The geopolitical situation remains a roller coaster with the situation in Ukraine and the Middle East. Since the new president in the U.S. took the Oval Office, the uncertainty with regards to global trade has increased.
While we have not seen any impact yet, we are currently evaluating potential consequences for our business. However, the new situation also served as a wake-up call for Europe. Germany has set a strong precedent by establishing a massive budget for infrastructure and defense in this context. Other countries may follow suit, potentially turning this into a stimulus program for Europe. Realistically, we do not yet anticipate any short-term positive or negative effects from this, but long-term infrastructure investments could drive increased consumer confidence and ultimately demand, which would also benefit our products and us. For the time being, the stocking in the bicycle industry continues and even big players in this market continue to struggle with the market conditions.
With a much more cautious approach, this year is expected to be the weakest of the last few years, but with significant upside potential once the stocks have finally been depleted. Meanwhile, we have no reason to doubt that e-Bike production will recover in the medium term, but unfortunately, nobody knows exactly when. According to the latest statistics, car sales in Europe continue to decline while European cars face growing competition both in and from China. Unfortunately, we must acknowledge that the European automotive industry is in crisis, something that is impossible to overlook when you open any newspaper. Naturally, this also impacts our e-mobility business area. The e-Tools business area experienced a strong second half and as a result declined only by a marginal 2% year- over- year. It is fair to say that e-Tools solidified its stabilization at low levels.
The positive sequential development of the first three quarters could not be sustained in the final quarter. Nonetheless, the business division saw an 8.5% increase year- over- year in the fourth quarter 2024. We remain cautious and continue to tailor our organization to withstand the storm. This means adapting capacities, cutting costs, and taking precautionary measures to preserve cash. In 2024, we reduced our workforce in China, implemented a short-time program in Italy, and introduced a 35-hour workweek in Germany to cut costs. Given the continued absence of significant signs of demand recovery and the ongoing automotive crisis, we will further adjust our workforce and introduce another round of short-time work in Germany in 2025. In a moment, Daniel will present numbers for the year, which demonstrate the success of already implemented measures.
However, we could not fully offset the volume shortfall, resulting in negative operational leverage and inefficiencies from start-stop costs, while the deteriorated mix also weighed on our results. Our guidance for 2025 must be seen in this context. I will provide more details at the end of our presentation after Daniel has walked you through the financials. This concludes my short summary of 2024 highlights and the guidance, and I would like to give you now some more details with regards to sales. On slide five, you see the quarterly evolution of our sales performance by quarters. The e-mobility business area declined- year over- year but recorded a sequential decrease in the fourth quarter. This is a solid outcome among ongoing crises in the automotive industry and further underscores our strategic focus on the more resilient premium sports and luxury segments.
As previously highlighted and expected, there was no measurable relief in the global e-Bike industry. The prolonged and more severe than anticipated destocking process across all levels of the bicycle industry supply chain continues to weigh heavily on the e-Bike business area. We remain cautious and avoid extrapolating the recent positive sequential development. The e-Tools business continued to stabilize, offering a ray of light. If there's a caveat, it's that this stabilization remains at relatively low levels and the positive sequential streak came to an end after three consecutive quarterly improvements, which is, however, normal in any calendar year. Now let me hand over to Daniel, who will give you a deeper insight into the 2024 financials.
Thanks, Sven, and good morning to all of you also from my side.
Let's start with a review of the financials on slide six, and let's continue with the details on the sales performance before we have a closer look at the profitability. As Sven said earlier, on the group level, we experienced a further deceleration in 2024, and the results were below our expectations. Total revenue in 2024 were EUR 95.7 million, a decrease of 14.9% from EUR 112.5 million in the previous year. In the full year, the e-Bike business area sales declined by 36.1%, which, of course, also took its toll on profitability as being the more profitable business area. Our customers in the e-Bike industry are still working to access inventories. Nonetheless, we recorded an 8% sequential increase in the fourth quarter, but it was likely supported by the seasonal effects. On a year-over-year, the e-Bike business area faced a 54% quarterly sales decline.
In the full year comparison, e-mobility recorded 11% lower sales. However, we have shown resilience thanks to our focus on premium and luxury cars, as Sven mentioned earlier. The e-Tools business area experienced a rebound in the second half of the year, finishing the full year with only a 2% decline in sales. This recovery was also reflected in the final quarter, which saw a 23.9% year-over-year increase. However, at the same time, the business area ended its sequential growth streak after three consecutive quarters of improvement. Now moving to the gross profit and gross profit margin, as shown in the middle chart on slide six, hGears achieved an adjusted gross profit of EUR 43.6 million in 2024. As expected, the deteriorated mix and reduced production volumes further impacted operational leverage, while start-stop-related inefficiencies continued to weigh on performance.
The adjusted gross profit margin declined by 450 basis points to 45.5% for the full year, which we still consider a solid achievement given the challenging conditions. In absolute terms, the adjusted gross profit declined by EUR 12.6 million year-over-year in the full year. The decline was offset by successful cost optimization and ongoing savings programs, limiting the decrease in Adjusted EBITDA to just EUR 5.1 million. We achieved a EUR 3.5 million reduction in adjusted personnel expenses year-over-year and a 9.3% increase that reflects our disciplined cost management. As of the end of the year, we employed 644 people based on full-time equivalents, excluding ourselves, Sven and me, compared to 724 the year before. However, with no immediate market recovery in sight, we have had to make difficult but necessary decisions and to further reduce our workforce in January 2024.
We will again introduce short-time work in Germany and are carefully considering further personnel-related measures across other locations. These steps are part of a broader effort to align our cost structure with current market realities and safeguard the company's long-term competitiveness. In parallel, we succeeded in reducing adjusted net operating expenses, OpEx, by more than EUR 4 million, which is a significant improvement of nearly 30% year-over-year. The majority of these savings came from areas like cutting the maintenance costs, advisory fees, and other personnel costs such as recruiting. This reduction in OpEx exceeded the decline in revenues, which fell by 14.5% over the same period. This result reinforces that our determination to reevaluate every aspect of our operations has paid off. We are not stopping here. We will continue pushing forward with the same focus on cost savings.
Overall, we successfully mitigated the impact of a EUR 12.6 million decline in adjusted gross profit by implementing countermeasures that I mentioned now, totaling to more than EUR 7.5 million. As I said, Adjusted EBITDA for the year came in at EUR 0.5 million, down from EUR 5.6 million in the previous years, but clearly demonstrating the effect of our decisive actions to stabilize profitability in a challenging environment. Please turn to the next slide, which provides an overview of some balance sheet items. With total financial liability of EUR 26.5 million, our net debt stood at EUR 9.4 million at year-end. To support our cash flow, we continued to actively manage our balance sheet and successfully reduced working capital by 22.1%, bringing it down to EUR 7.2 million. This represents 7.5% of revenue at year-end 2024 compared to 8.2% the year before.
It's important to note that this reduction in working capital occurred against the backdrop of 14.9% revenues, further underlining the effectiveness of our management efforts. The balance sheet remained stable. We closed the year with an equity ratio of 49.4% and a cash position of EUR 17.1 million. This capital base gives us the resilience we need to navigate the current difficult market environment with a certain level of confidence. As I said, net debt stood at EUR 9.4 million at year-end, which includes EUR 7.8 million in lease liabilities for IFRS 16 and our total financial liabilities consisting of EUR 11.2 million in current and EUR 15.3 million in non-current liabilities. Looking at our overall financial position, we believe our debt structure remains manageable. While we have a portion of short-term obligations, the majority of our financial liabilities are non-current, which helps ease near-term pressure.
Combined with our solid cash position and a strong equity ratio, we consider ourselves well-positioned to weather the current environment. Preserving liquidity remains a top priority, and we will continue to take discipline and caution as we move forward. Before I hand back to Sven and the outlook and closing remarks, let me repeat what I said during our last webcast during 2024. Cash is king, and our focus is and will remain firmly on cash preservation. Now, Sven, I would like to hand over back to you for outlook and closing remarks.
Thank you, Daniel. No doubt, 2024 was a tough one, but once again, we are navigating the storm and will continue to do so. Let me summarize. Throughout the year, customers continued to reduce volumes, cancel or postpone orders, which have impacted our performance. However, we are seeing stabilization in the e-Tools, and we see stocks decline in the bicycle industry and small signs that indicate that the point of turnaround will be reached this year. The structural changes, cost-saving efforts, and personnel measures we implemented throughout the year are paying off, and that is clearly reflected in our numbers. This by no means implies that we're stopping here. We will continue to reassess our structures and cost base, and we are prepared to implement further, even tougher measures if necessary. Finally, we still have a stable balance sheet, which will help us to weather the storm.
We need to remain patient, stay on our stringent, diligent, and disciplined course. We continue to see substantial growth potential once our business areas recover, which reinforces our confidence in our business model. With that, however, nevertheless, we remain realistic. Given the highly volatile economic and political environment, we stay cautious and anticipate anything but a steep recovery. This is clearly reflected in our 2025 guidance, which forecasts group revenues of EUR 80 million-EUR 90 million and Adjusted EBITDA of EUR -4 million-EUR -1 million and free cash flow between EUR -6 million and EUR -2 million. Ladies and gentlemen, thanks for attending our full year 2024 results and 2025 outlook. With that, let me hand the line back to the operator to open the call for the Q&A session.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from this question queue, you may press star followed by two. Participants are requested to only use handsets when asking a question. Anyone who has a question may press star and one at this time. The first question comes from Martijn den Drijver from ABN AMRO. Please go ahead.
Yes, thank you, Operator. Good morning, gentlemen. Can you hear me correctly?
Yes, we can. Thanks.
Good morning, Martin.
Good morning. I'll take my questions one by one, and there will be a part about the business and the outlook, and then we'll do some financial elements as well. On the e-Bike segment, can you tell me, as far as you are able to do so, what are your clients saying in terms of your share of wallets? Has that changed? What is going on in terms of pricing? Are there any contracts that need to be renegotiated in 2025? Just a bit more color on these three elements, please.
Okay. No, I mean, to start with, our share has not changed. I mean, that's been confirmed. I think, honestly, the surprise that everybody had in this industry was that everybody expected 2025 to see a slight recovery. We sort of ran a model internally last year where we realized, look, if you look at all the numbers in detail, what we see is that in 2022 and 2023, significant stocks were generated that, again, are throughout the whole pipeline. So from the drive manufacturers through the bicycle manufacturers, wholesalers, retailers, and that is something that obviously needs to be cleaned out. In 2024, we basically reached production levels that were equal to the retail sales.
What is happening now, also due to, as far as we are concerned, due to the significant financial restrictions that that whole industry is seeing from a financing side, people are really, really cautious. I mean, also, I think we have discussed that several times in the past. Typically, the industry committed to volumes in September, October for the complete following year. That is something that has just gone away. The companies now give a relatively short forecast and really just buy on spot, also knowing that the capacity in the supply base is available. That is why 2025 is even lower than 2024, but that also means that once that is cleaned out, and that is where we get signals from everybody saying, look, we are starting to see people reorder.
We also have quite a significant number of players that in the last few years have taken nothing from us because they were not able to enter the market. These companies are all now basically starting to schedule small volumes for 2026, but they are scheduling. That is really suggesting that the clean-out will take throughout this year. We would expect that we see bike sales go back at least to 2024 levels in 2026, which would be a doubling of what we have today for 2025, and also start increasing again. That is where we really see that we are finally through that cycle. In terms of share, again, we have maintained share with all the companies that we work with.
I think one of the projections in the past, of course, was with having six, eight new players on board that would buy from us that would have positively impacted our share in the overall market. Now, with these guys not getting a foothold in the market yet, that may have overall impacted a little bit our total market share. With these now coming on board, that will change again in 2026, 2027, 2028.
Got it.
I think maybe to give you, I mean, also to give you an overall perspective, maybe that's something that we did not touch that much in the presentation here. I mean, of course, the focus of the company, despite from all the focus on cutting costs and having a leaner organization, has been on developing new business. I think we've discussed that with quite a few of you that also the automotive industry has delayed some projects. Things have not ramped up as planned. Some things have even been canceled. If we look at the overall statistics in the last two years since we've gone into this, we've managed to gain six new customers that going forward will provide double-digit millions in revenues. The issue is, again, it will only start in 2026 rather than earlier because of the delays we've seen with some of these projects.
Understood. Just one small follow-up. You mentioned sports sales. Do these sports sales have an impact on the pricing of your overall product portfolio?
No. In the end, no. I mean, we've not made any price adjustments. I think in the end, let's be fair, we've at least maintained pricing stable simply because with the low volumes, the inefficiencies that we have, we did not even do contractual savings to customers. In the end, we've maintained pricing levels as they were.
Got it. Got it. Moving on then. On e-Tools, you mentioned yourself that Q4 was slightly weaker again than Q3 and that it was sort of normal, meaning that it can be lumpy. Understood. How should we think of 2025 then? What do you see in terms of competitive pressure? Again, the same question on share, market share. If there is something like a stabilization, perhaps even a slightly positive outlook, what is the driver of that? That would be question two.
To be fair, I think the sales volumes will be relatively flat in 2025 versus 2024 because 2024 did see some slight recovery. In the end, I think the one thing we need to watch, of course, is the issue again on the trade discussions, especially with the U.S. I mean, a portion goes into the United States, and we have to see how is this going to be impacted with any tariffs or not. Although we have gone through an exercise in the past, major customers of ours that were anticipating this kind of situation, and they finally concluded even with tariffs being put on imports, for example, out of Far East or out of Mexico into the U.S., it would still be cheaper to keep that route than to try and localize.
We've gone through that exercise, and of course, it may impact the final demand in some way, but I don't think it's going to significantly impact the setup of how this is going to be produced.
That's clear. On e-mobility, you mentioned automotive struggling, projects delayed, some even canceled. Could the relaxation of the European CO2 emission targets have a positive effect, if any, on those moving parts within automotive and conventional automotive particularly?
I mean, to be fair, what we see at the moment, for example, is some components out of conventional, so combustion engine, are actually running relatively well, especially on the lower segment. I mean, we've got a product that goes into a 1.5-liter diesel engine. They have the numbers. They've done a consolidation of the supply base, expecting numbers to decline, and in the end, that's actually running well. I think the biggest impact we have at the moment is things that new developments and new projects for all kinds of reasons have been delayed. I think we mentioned that we are working on a brake-by-wire project that was significantly impacted by the fact that Continental had a quality issue in the U.S., and this kind of product is currently banned on the U.S. market. That focus of that manufacturer has now been moved more into Europe and into China.
We are continuing to work on projects, but the launch date has been changed and the volume. Of course, also things like if you take example, Mercedes, that we are not working with, but that went out and said, "Look, we are going to stop the pure electric platform and the combustion platform like the EQE, EQS." That meant that changing that strategy, all platforms will be now launched another year, year and a half, two years later. That is just impacting our ability to increase sales in that segment with new projects because of the delays that in some cases we see.
Okay. No real impact for any possible relaxation. It's just the industry going through this phase currently, nothing that could change that.
I mean, let's face it, I think in the end, last year, we even had the opposite effect that a lot of countries took away the incentive for EV goals. That meant that the sales of electric vehicles significantly declined in most countries last year. Whether that's going to be picked up again with any new incentives, let's wait and see. I think there's a general hesitation in the market right now to say, "Okay, what do I finally buy?" At some point, buyers have to make a choice. As far as I'm concerned, a lot of the product, again, that we make is relatively independent also now on e-hybrid or combustion. If you take, again, brake-by-wire, steer-by-wire components, that mid-long term will not be affected in any way.
My final question on the business and market then. Is there any chance of you benefiting from increased defense spending, production ramping up, new plants, new projects? Is that something that is realistic, or is that too far out or too far out of your comfort zone?
I mean, honestly, of course, it's something that everybody asks us. We ask ourselves as well. I think the potential would be extremely limited due to the volumes that typically are behind defense industry products. There are one or two things that we may look at when it comes to, like, ammunition. I think what will be more important for us is the trickle-down effect, of course, with the boost in the European economy, consumer confidence going up, spending ability going up, and very clearly the infrastructure programs that hopefully will be boosted, that especially with urban concepts will boost bicycle traffic in the cities. That in the next two to three years will hopefully push this market a little bit further.
Got it. My next few questions are for Daniel. Daniel, in Q4, you had higher e-Bike sales than in Q3, but your gross margin was actually lower. Can you help me understand that development, please?
Yeah. It is mainly due to two factors. One factor is that we tried to cut costs in December, and therefore there were a lot of sales that were generated in December, but basically went out of the finished goods and pre-produced goods. That somehow had a negative impact on the gross profit. At year-end, we also needed to devaluate some of our inventory in the size of EUR 500,000 for basically business for which we see a lower demand in 2025 than what we have already in stock.
Got it. Got it. You mentioned that on the OpEx front, you've done a good job in terms of reducing that. You mentioned that there were some other developments ongoing. Can you elaborate a little bit? What have you done in the latter part of 2024 that could still have a positive effect on OpEx in 2025? If you need to do more, which was suggested if necessary, what should we be thinking of? Is that in terms of size? What are we talking about? Can you provide a little bit of color on that?
Yeah, sure. I mean, the majority of the savings that came in 2024 came basically from the savings on positions that are semi-fixed, semi-variable, right? We are talking about maintenance costs for sometimes that were just postponed towards 2025 or just canceled due to the fact that the volumes are lower and therefore we needed to spend less. On the other side, advisory fees in which were basically in sort some of the activities that are related to PR, some activities in which Christian also overtook to himself, which we had maybe in the previous years slightly with other advisories. Recruiting, of course, we are not recruiting any people, so there were significantly less recruiting costs in 2024.
Also on restricting the traveling expenses, I mean, even for, I would say, small things like when we know that there are groups of two people traveling between the German plant and the Italian plant, they usually take the car and not flying, right? We are saving the parking costs and the flying ticket costs and so on and so on.
Sorry?
No, that's really detailed. There wasn't a specific program, let's say, in Q4 whereby you reduced FTEs by 10, 20, 30, which would still have a positive effect in 2025. All of the savings have already.
We will have on the you asked about the OpEx, that's why I didn't touch the personal expenses. On the personal expenses, as I said, we already introduced the program in 2025. We basically laid off more than 30 employees in the German plant for which we will see a positive impact on the personal expenses also in 2025. As of today, we are around 600 employees in comparison to 644 that we had at year-end. It's another 7.5% or 6.6% less than what we had year-end. We expect to see the positive impact also in 2025. Plus, on top, we are going to implement short-time work in the German plant in the following months. We are currently considering what can be additionally done in the plant in Italy.
In China, I think we are running in a very efficient way, and we will stay around 200 employees. We are still seeing some positive development on it in 2025. I would say that in terms of money, if we need really to break it down, we will see around EUR 1 million-EUR 1.5 million less personal expenses in 2025 in comparison to 2024.
That's perfect. That was the answer I was looking for. Two final questions. On the working capital, what should we assume for 2025? Is still a slight improvement as net working capital of sales? The same question for CapEx, what should we expect for 2025?
No, really, in terms of working capital, I think we pretty much dried it out. I mean, we're talking about 7.5%, which basically reflects one month of working capital. I think it is already very sporty, and I don't think we will be able to get anything that is really material out of it going forward. Of course, considering also that our mix changed slightly towards more assembly, this reduction in the working capital is even more significant, yeah, because assembly usually requires higher working capital than the loose components business.
On the CapEx side, we expect 2025 to be more or less like 2024. We are currently really at the maintenance CapEx level. We always said that we are around 2%-3% CapEx per year that we need only for the maintenance, and that is also our expectation for 2025.
That's clear. Thank you very much, gentlemen. These were my questions.
Thank you, Martin.
Thank you, Martin.
As a reminder, if you wish to ask a question, please press star followed by one. Ladies and gentlemen, there are no further questions. I would now like to turn the conference back over to Sven Arend, CEO, for any closing remarks.
Okay. Thanks everyone again for joining the call. Yeah, we'll probably catch up with you in the meantime, and then we'll see you all again in the next call in a few months. All the best. Thanks again.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Good.