Financial Results for the Fiscal Year Ending March 2024
We hereby report our financial results for the fiscal year ended March 2024 (April 2023–March 2024) as follows. For details on the financial results (income statement), balance sheet, and cost of manufacturing report, please refer to the Financial Results Report for the fiscal year ended March 2024 on the Reltech website.
Overview
A comparison of operating results for the fiscal year ended March 2024 and the previous fiscal year (ended March 2023) shows, as presented in the table below, that shipment value (net sales) decreased significantly (by approximately 30%), and operating income turned to a loss. Note that the table below has been prepared for management purposes by restating the income statement from the financial statements for the fiscal year ended March 2024 into a format similar to that of direct costing.
Although we recently sought to reduce material costs by switching suppliers and cut labor costs through staff reductions, we were unable to offset the decline in sales and return to profitability.
The reason the marginal profit margin declined from 67.6% in the previous period to 65.3% is that the “MSD reltec”—which is less expensive than existing therapy devices and has a lower marginal profit margin—was launched in June 2023, and sales of this product were included in total revenue.
Challenges
The table below shows the breakdown of net sales for the fiscal year ending March 2024 and the previous fiscal year (ending March 2023). Please note that because the table below includes some figures that were tallied manually, the numbers do not match the previous table exactly.
The table below shows that shipments to distributors have declined both domestically and internationally, with shipments to overseas distributors showing a particularly sharp decline.
Reltec views the declining activity levels among its domestic distributors—due to their aging workforce—as a major issue. Of the total value of therapeutic devices shipped to domestic distributors during the fiscal year ending March 2024, 72% came from preferential sales to existing customers or trade-in sales; furthermore, one-third of that 72% consisted of the low-priced new product “MSD Reltec.” This suggests that the company is focusing on selling products that are easy to sell to customers who are easy to sell to.While maintaining relationships with existing customers is extremely important, sales will inevitably decline unless the company simultaneously pursues new customer acquisition—which requires greater effort—and Reltec’s business continuity will become difficult to sustain. At the same time, the lack of concrete initiatives by domestic distributors regarding management succession poses a risk of inconveniencing future customers and represents a management risk for Reltec.
To address this situation, Reltech has been working to develop a network of domestic distributors; however, these efforts have faced difficulties because customers primarily use Reltech products as alternative treatments for conditions where standard therapies are insufficient, and because obtaining sales licenses for its flagship medical devices—intended for healthcare professionals—has become more difficult than before.
Overseas, we believe the main reasons for the decline in shipment value are that sales leveraging the networks of individual distributors have run their course and that the high selling prices are a factor. Unlike the domestic market, the overseas market lacks an existing customer base, and sales are primarily focused on acquiring new customers; therefore, sales are generally more difficult than in Japan. Consequently, even if Reltech is able to acquire new customers for a while after signing contracts with overseas distributors by leveraging their networks and the unique features of Reltech products, we believe the difficulty of doing so will gradually increase.Furthermore, we believe that the fact that overseas sales prices are significantly higher than domestic prices is also an obstacle to sales; however, since Reltech must comply with the laws and regulations of each country, it cannot dictate the sales prices set by its distributors.
With regard to overseas distributors, deficiencies in Reltech’s distributor agreements are one of the factors that led to the current situation. Until now, Reltech has granted exclusive import and sales rights in each country to overseas distributors on the condition that they bear the costs of product import registration in that country. However, once an overseas distributor completes the import registration, that distributor becomes Reltech’s legal representative in that country. In such cases, because it is difficult to change the legal representative, it becomes difficult to reassess the distributor if its sales performance declines.
As noted above, Reltech recognizes that it will be difficult to achieve a recovery in sales and growth unless it develops and establishes new sales channels both domestically and internationally, and this has become Reltech’s most critical management issue at present.
Countermeasures
The specific measures we are currently implementing to address these issues are as follows:
New Product Launch
Reltech’s current flagship products are medical devices intended for healthcare professionals, and customers primarily use them as alternative treatments for conditions that cannot be adequately addressed by standard therapies. However, as mentioned earlier, efforts to develop sales channels for these medical devices intended for healthcare professionals have been challenging. On the other hand, given the nature of its products, Reltech believes that they are also suitable for maintaining and promoting health—that is, for general health care.
Based on the above, for health promotion purposes, we launched the “HD21/HD11” power supply units in April of this year—non-medical versions of the existing medical devices “Reltech MD21/MD11” intended for healthcare professionals. The conversion of the HD21/HD11 to non-medical devices was achieved by removing the insulated mat—an accessory to the Reltech MD21/MD11—and eliminating the negative potential therapy function.Consequently, the structure and components of the HD21/HD11 main units are identical to those of the Reltech MD21/MD11. Although measures such as reducing the output voltage have been implemented in the HD21/HD11 to optimize them for health promotion purposes, their electronic power supply performance is virtually equivalent to that of the MD21/MD11.
Since the HD21 and HD11 are not medical devices, they are subject to fewer legal restrictions regarding sales channel development and the provision of information to general consumers than medical devices intended for healthcare professionals. One of the purposes of the redesign of Reltech’s website this past April was to help general consumers better understand information about our products, and this initiative was also implemented in conjunction with the launch of the HD21 and HD11.
Following the launch of HD21 and HD11, we plan to release “HsD”—a non-medical device version of “MSD reltec”—in September of this year, and we will use this launch as a foundation for expanding into the healthcare sector and accelerating the development of our sales channels.
Review of Overseas Import Registration and Contracts with Overseas Distributors by Reltech
Reltech is currently reviewing its overseas distributor agreements from the following perspectives. The specifics of the review vary depending on the laws and regulations of each country.
(1) Change from exclusive import and sales rights to non-exclusive import and sales rights
By handling the product import registration and maintenance in the relevant country at Reltech’s expense, Reltech was able to enter into contracts with multiple non-exclusive importers and distributors in that country, and at the same time, changed the contract with the distributor that previously held exclusive rights to a non-exclusive one.
(2) Revision of the Minimum Purchase Quantity Requirement for Distributors with Exclusive Import and Sales Rights
Reltech imposes a minimum annual purchase quantity requirement on distributors with exclusive import and sales rights, and has revised this quantity upward.
Exhibiting at a Trade Show
With the launch of the non-medical devices HD21 and HD11, the number of trade shows we can participate in has increased significantly. This year, Reltech will be exhibiting at the following trade shows to develop new sales channels.
| (1) MEDICAL TAIWAN June 20–22, 2024 | https://www.medicaltaiwan.com.tw/en/index.html |
| (2) SPORTEC 2024—1st Recovery EXPO July 16–18, 2024 | https://sports-st.com/recovery/ |
| (3) Wellness Tokyo, November 27–29, 2024 | https://wellnesstokyo.com/ |
Launch of E-Commerce (EC: Electronic Commerce)
Since the aforementioned HD21 and HD11 are not medical devices intended for healthcare professionals, they can be sold online. Reltech plans to launch a domestic online sales site within this year and subsequently expand into overseas sales (cross-border e-commerce); preparations are currently underway. Reltech believes the advantages of e-commerce are as follows:
(1) This approach mitigates the risk of customers suffering disadvantages when an agency’s business is not successfully transferred, while also reducing Reltech’s business risks.
In the past, when an agency went out of business, the handover of customers did not always proceed smoothly. In such cases, customer service was disrupted. Furthermore, when an agency goes out of business, Reltech’s sales decline as a result.
(2) By having Reltech set appropriate retail prices for each country and selling at those prices, it is possible to correct the high retail prices in each country.
(3) It enables us to ensure consistent quality in the provision of information about Reltech products and in after-sales service.