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Introduction & Market Context
hGears AG (XTRA:ETR:HGEA) released its first quarter 2025 results on May 13, highlighting a challenging operating environment with mixed performance across its business segments. The precision components manufacturer described the quarter as "solid" while acknowledging that the market trough has not yet been reached.
The company continues to face headwinds from ongoing destocking in its e-Bike segment, while implementing cost-cutting measures to improve profitability and strengthen its financial resilience. hGears shares are currently trading at €1.95, down 2.05% in today’s session.
Quarterly Performance Highlights
hGears reported total revenue of €25.1 million for Q1 2025, representing a slight decline from €26.0 million in the same period last year. However, the company managed to improve its profitability metrics despite the lower sales volume.
As shown in the following quarterly sales development chart, performance varied significantly across the company’s three business segments:
The e-Tools segment showed the strongest performance with sales of €8.7 million, increasing 20.4% year-over-year from €7.3 million in Q1 2024. This recovery, albeit at relatively low levels, represents a positive trend after several quarters of weakness.
Meanwhile, the [e]-Mobility segment remained relatively stable with sales of €12.2 million, down 3.8% compared to €12.6 million in Q1 2024. This segment continues to be the largest contributor to the company’s overall revenue.
The e-Bike segment faced the most significant challenges, with sales declining 32.1% to €4.0 million from €6.0 million in Q1 2024. This marked the fifth consecutive quarter of year-over-year declines for the segment, which continues to be impacted by inventory destocking across the industry.
Detailed Financial Analysis
Despite the overall revenue decline, hGears demonstrated improved profitability metrics in Q1 2025, suggesting that its cost discipline measures are yielding positive results.
The following chart details the company’s sales, adjusted gross profit, and adjusted EBITDA performance:
Adjusted gross profit increased slightly to €11.7 million in Q1 2025 from €11.6 million in Q1 2024, while the gross profit margin improved to 46.7% from 44.8%. This margin expansion reflects the company’s efforts to streamline operations and implement disciplined cost measures.
Similarly, adjusted EBITDA rose to €0.7 million (2.6% margin) from €0.5 million (2.0% margin) in the prior-year period, representing a 40% increase despite lower sales. This improvement underscores management’s focus on operational efficiency and cost control.
However, the company’s debt metrics present a more concerning picture, as illustrated in the following chart:
Net debt increased to €12.4 million in Q1 2025, up from €9.4 million at the end of 2024 and significantly higher than the €4.7 million reported in Q1 2024. More worryingly, the company’s leverage ratio (net debt to EBITDA) has risen dramatically to 21.8x, compared to 18.8x at the end of 2024 and just 1.1x in Q1 2024.
Free cash flow remained negative at €-2.2 million, deteriorating from €-0.9 million in Q1 2024. The company reported cash and cash equivalents of €14.3 million and maintained an equity ratio of 47.2%, providing some financial flexibility despite the rising debt levels.
Forward-Looking Statements
Despite the mixed Q1 results and challenging market conditions, hGears reconfirmed its guidance for the full year 2025:
The company expects annual revenue between €80-90 million, which would represent a modest improvement from the previous year. However, adjusted EBITDA is projected to remain negative in the range of €-4 million to €-1 million, reflecting continued challenges in the operating environment.
Free cash flow is also expected to remain negative between €-6 million and €-2 million, suggesting that the company’s debt metrics may continue to deteriorate before improving.
Management emphasized that the temporarily elevated net debt to EBITDA multiple is expected to normalize as profitability improves. The company’s focus remains on cash preservation while implementing structural changes to enhance operational resilience in the face of ongoing market challenges.
While the e-Tools segment shows signs of recovery and [e]-Mobility remains stable, the continued weakness in the e-Bike segment suggests that hGears still faces significant headwinds in achieving its full-year targets. Investors will be watching closely for signs of improvement in the coming quarters, particularly regarding the company’s ability to generate positive cash flow and reduce its leverage ratio.
Full presentation:
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