Risk Factors(Fiscal year ended March 31, 2023)

Business results and the financial position of the NTN Group are subject to the following risks.

1. Risks Related to External Business Environment

1) Economy

The NTN Group operates global production and sales networks, and supplies customers in various industrial sectors. The financial position, business results, and cash flows of the NTN Group may be affected by a change in economic conditions in a specific country or region or a change in conditions in industries to which our customers belong.

2) Foreign Exchange Fluctuations

Overseas sales of the NTN Group account for over 50% of consolidated sales. This percentage is expected to increase further due to continued acceleration in the global business development of the NTN Group.

Overseas subsidiaries' foreign currency-denominated business results and financial positions are converted to yen for the preparation of consolidated financial statements. Moreover, many export transactions of the Company with overseas customers are conducted in foreign currencies. Although the NTN Group hedges risks through forward foreign exchange contracts and the expansion of local procurement, the effects of fluctuations in foreign currency versus yen exchange rates on the financial positions, business results, and cash flows cannot be fully eliminated.

3) Decline in Market Prices

The competitive environment surrounding production and sales activities of the NTN Group is becoming harsher worldwide. As products from China and other emerging countries are gaining ground, bearings have been partially affected by falling market prices. At the same time, against a backdrop of global price competition, calls for price reductions are mounting in the automotive industry, which accounts for over half of the NTN Group's sales. Although the NTN Group works continuously to reduce costs while developing new products of high quality and high added value, the financial position, business results, and cash flows may be affected by downward pressure on market prices.

4) Rise in Raw Material Prices

The NTN Group procures a wide range of raw materials from outside sources. To deal with cost increases, especially of steel materials, which have a high weighting in material costs, we have taken measures such as mark-ups on selling prices to reflect higher material costs. In addition, the Group is targeting cost reductions through enhanced production yields and VA/VE methods. Nevertheless, the financial positions, business results, and cash flows may be affected by greater-than-expected increases in raw material costs.

5) Risk of Disasters and Spread of Infectious Diseases

The business sites of the NTN Group and our business partners may be affected by natural disasters such as earthquakes, flooding, fires, and the spread of infectious diseases. In preparation for large-scale disasters, the NTN Group has introduced a safety confirmation system and conducted emergency drills. In order to combat the spread of infectious diseases, we have taken various measures, such as stockpiling masks. We are prepared to minimize damage by taking immediate action in the event of a crisis. However, it is difficult to completely avoid risk, and as a result, the financial position, business results, and cash flows may be affected.

In response to new coronavirus infections, the NTN Group is striving to prevent infections by utilizing telework, staggered work, and prohibiting business trips and visits in principle. We also promote telecommuting overseas and take other measures in accordance with the circumstances of each country.

6) Climate Change Risk

The financial position, business results, and cash flows may be affected by extreme weather conditions (due, for example, to the shutting down of operations due to heavy rains, floods, or storms) associated with climate change (temperature increases) in the countries and regions in which we operate, and by increased environmental regulations (leading, for example, to increased procurement costs for raw materials and energy due to the introduction of carbon taxes).

2. Risks Related to Business Operations

1) Dependence on Specific Industries

The NTN Group's bearing division derives approximately half of its sales revenues from the automotive industry, which also accounts for more than half of the sales of components that the CVJ (constant velocity joint) division produces for automotive power transmission to the drive axle. Dependence on the automotive industry is therefore high. Although the NTN Group works to expand sales of bearings and precision equipment parts to the industrial machinery sector and implements measures to achieve a balanced sales structure, a rapid shift in demand in the automotive industry could potentially affect the NTN Group's financial position, business results, and cash flows.

2) Product Defects

To ensure product quality, the NTN Group works to satisfy customers' requirements concerning product functions and specifications and strives to provide appropriate quality and product safety by enforcing quality assurance globally. However, a substantial product defect leading to a serious accident, claim for damages, or product recall could entail huge product warranty costs and potentially affect the financial position, business results, and cash flows of the NTN Group. Although the NTN Group has taken out global product liability insurance, complete coverage for loss (including compensation for damages) is not possible.

3) Intellectual Property

The NTN Group generates a substantial portion of its new technologies and expertise through new product development, utilizing these as management resources. However, there is a possibility that a third party might violate our intellectual property rights, or that we might unexpectedly violate a third party's intellectual property rights. We are striving to thoroughly implement intellectual property rights management, such as protecting rights through patent applications. However, the infringement of intellectual property rights as described above could have an impact on the Group's financial position, business results, and cash flows.

4) Global Operations

The NTN Group develops its business operations worldwide with overseas sales accounting for more than 50% of consolidated sales. Overseas business development is associated with the following risks:

1. Risks from an unforeseen change in tax systems of or between individual countries
2. Risks from an unforeseen change in laws of individual countries
3. Difficulty in hiring and retaining appropriate personnel
4. Evolving technology levels and unstable labor relations in emerging economies
5. Political instability in emerging economies

The NTN Group collects information on these risks within the Group and strives to prevent and avoid them. However, if these risks materialize, they may affect the Group's financial position, business results, and cash flows.

5) Information Security

The NTN Group is taking action to ensure that our employees are thoroughly aware of appropriate methods of managing information through conducting training for our employees as well as establishing internal regulations. However, in the event of information leakage, the destruction or alteration of important data, or system shutdown of important data, etc., occurring due to a cyber-attack, unauthorized access, or computer virus intrusion, this may lead to a deterioration in the NTN Group's credibility, and disruptions to production and sales activities, thereby affecting the Group's financial position, business results, and cash flows.

6) Statutory Regulations

The NTN Group is subject to the various laws and regulations (tax laws, environmental laws, occupational safety and health laws, economic statutes such as anti-monopoly laws, anti-dumping laws and bribery-related laws, trade and exchange laws, and stock exchange listing regulations) of the countries and regions where it does business.

The NTN Group strives to abide by these laws and regulations and conduct fair business activities. However, if the NTN Group is ever subject to litigation or involved in legal proceedings because of a violation of a law or regulation, and if the decision of such litigation or legal proceedings goes against the Group, this may have an effect on the business performance or the financial position of the Group. Furthermore, if these laws or regulations change, or if new unforeseen laws or regulations are enacted, these also may have an effect on the financial position, business performance, and cash flows of the Group. NTN Group is currently subject to the following actions.

1. A lawsuit has been filed against the Company and its two consolidated subsidiaries in Europe before the France Tribunal de Commerce de Lyon by Renault S.A. and its group companies, which are 15 in total (hereafter, “Renault”), seeking compensation of 66.7 million euros (provisional amount) in damages. In December 2020, Renault changed the amount for damages claimed to 32.5 million euros (provisional amount). In April 2022, Renault changed the amount for damages claimed to 58.3 million euros (provisional amount). This lawsuit was filed by Renault alleging that they suffered damages in connection with the infringement of European competition laws, subject to the decision adopted by the European Commission dated March 19, 2014.
2. The NTN Group may be subject to claims for compensation for damages in connection with the violation of competition laws and continues to address these claims. However, it is currently difficult to make reasonable estimates of the future possible effects on the results of operations and financial position of the NTN Group.