The 126th Ordinary General Meeting of Shareholders Q & A

Q1. What are your responses to business risks in China?

A1. In expanding its businesses, TDK comprehensively considers the three perspectives of regional marketability, technological capabilities, and geopolitical risks to make judgements and decide whether to expand overseas. As for our response to China risk, our regional headquarters in Shanghai collects information on changes in political and economic trends in a timely manner and analyzes the risks at each site in China. In response to emerging risks, the regional headquarters in China is taking measures in cooperation with the respective headquarters functions. Specific measures include the shift of operations from China to other Asian sites, obtaining customers’ approval for multiple production sites, and promoting production automation. These measures are being pursued on an ongoing basis.

Q2. Please tell us about the background of the amendments to the description of Purpose of Business in the proposed amendments to the Articles of Incorporation, especially regarding construction work.

A2. Article 2, Item 4 of the proposed amendments, "Designing and contracting of construction work, flooring and interior finish work and electric work," relates to our anechoic chamber business. The proposed amendment is aimed at ensuring that this business will continue to be carried out appropriately in the future.
An anechoic chamber is a special laboratory with no reflection of radio waves. TDK may be contracted to construct an anechoic chamber or to measure and test equipment in an anechoic chamber owned by TDK and provide the results to customers. With regard to the proposed amendments to the description of Purpose of Business, we proposed the amendments by reorganizing our purpose of business into a larger framework from the viewpoint of facilitating business expansion, in light of the fact that the scope of the electronics field, including medical equipment and automobiles, is expanding significantly and the trend toward digital transformation (DX) and energy transformation (EX) is expected to expand further in the future.

Q3. What is the impact of exchange rate fluctuations on business performance?

A3. TDK has a high overseas sales ratio and a high overseas production ratio and is therefore somewhat affected by currency exchange rate fluctuations. In the 125th Fiscal Year (fiscal year ended March 2021), the annual average exchange rate was 106 yen to the dollar, while in the 126th Fiscal Year (fiscal year ended March 2022), the annual average exchange rate was 112 yen to the dollar. In the 126th Fiscal Year, the yen depreciated by 6 yen on average from the previous year. As a result of exchange rate fluctuations overall, net sales increased by approximately 130 billion yen and operating income increased by approximately 7 billion yen. As for foreign exchange sensitivity (annual effect of exchange rate fluctuation by 1 yen), we estimate that net sales will fluctuate by approximately 10 billion yen and operating income will fluctuate by approximately 1.2 billion yen when the yen fluctuates by 1 yen against the U.S. dollar. As for the 127th Fiscal Year (fiscal year ending March 2023), our plan is based on the exchange rate assumption of 120 yen to the dollar as described in the material on “Pressing Issues to be Addressed by the TDK Group.”

Q4. How are TDK’s plants in Japan preparing for a tight power supply?

A4. Although power shortages are becoming a concern in Japan, most of our production bases are located in rural areas, including many in the Tohoku region, including Akita and Yamagata Prefectures. Leveraging the lessons learned from the 2011 Great East Japan Earthquake that disrupted our power supply, we have established a system that allows us to continue to supply power mainly to high-priority production processes and facilities by preparing our own power generation facilities. In addition, we recognize that the tightness of power supply in rural areas is lower than that in the Tokyo metropolitan area. We will continue to monitor the power supply situation and respond appropriately.
At the time of the Great East Japan Earthquake, in order to respond to requests for peak shaving, we rented generators and made other efforts so as not to disrupt product supply. Some of our plants have subsequently installed solar panels on their roofs, but it is practically difficult to cover all production with in-house power generation such as solar power generation. We are preparing for the future by formulating a business continuity plan (BCP) and building a system for how to cope with tight power supply.