Business risks and other risks(Fiscal year ended March 31, 2025)

The following are potential risks that could have an impact on the business performance and financial position of the NTN Group.

1. Risks Related to the External Business Environment

1) Economic Conditions

The NTN Group operates production and sales sites in countries and regions across the globe, and our customers span across various industrial sectors. Therefore, our financial position, business performance, and cash flows may be affected by fluctuations in the economic conditions of specific countries or regions or business cycle changes of industries to which our business partners belong.

2) Exchange Rate Fluctuations

Overseas sales account for over 50% of the NTN Group's consolidated sales. This percentage is expected to increase as we continue to accelerate our global business development. When preparing our consolidated financial statements, the business performance and financial position of our overseas subsidiaries denominated in foreign currencies are converted into Japanese yen. Moreover, many of our export transactions with overseas customers are conducted in foreign currencies. Although the NTN Group implements risk hedging through forward exchange contracts and local procurement expansion, we cannot completely avoid the impact of fluctuations in exchange rates between foreign currencies and the Japanese yen on our financial position, business performance, and cash flows.

3) Decline in Market Prices

The competitive environment in which the NTN Group conducts its manufacturing and sales activities is becoming increasingly severe on a global scale. Market prices for some bearings have declined due to the rise of products from emerging countries, including China. Moreover, in the automotive industry, which accounts for more than half of the NTN Group's sales, there are growing requests for price reductions against the background of global price competition. While the NTN Group is continuously working to reduce costs and develop new high-quality, high-value-added products, downward pressure on market prices may affect our financial position, business performance, and cash flows.

4) Rising Raw Material Prices, Logistics Costs, and Tariff Rates

The NTN Group procures a wide range of raw materials from external sources. In particular, to address steel price increases, which account for a large portion of material costs, we have implemented measures to reflect these in product prices, improve yields, and reduce material costs through VA/VE activities.

The NTN Group exports products and semi-finished products overseas by sea transport. When logistics costs such as ocean freight rates increase or tariff rates fluctuate, we try to minimize the impact on profits through reflections in product price and supply chain reviews. If raw material prices, logistics costs, or tariff rates rise beyond expectations, they may affect our financial position, business performance, and cash flows.

5) Risks of Disasters and Infectious Disease Outbreaks

The business sites of the NTN Group and our business partners may suffer damage from natural disasters such as earthquakes and floods, fires, or infectious disease outbreaks. In preparation for large-scale disasters, the NTN Group has implemented safety confirmation systems and disaster prevention training. We have taken various measures to combat the spread of infectious diseases including stockpiling masks and other supplies. While we are prepared to take immediate initial measures when crises occur to minimize damage, complete risk avoidance is difficult, and as a result, this may affect the NTN Group's financial position, business performance, and cash flows.

6) Climate Change Risks

Impacts from extreme weather events (such as suspension of operations and sales due to heavy rain, floods, and storms) associated with climate change (rising temperatures) in countries and regions where the NTN Group operates, and tighter environmental regulations (which may lead to increased procurement costs for raw materials and energy due to the introduction of carbon taxes, for example) may affect our financial position, business performance, and cash flows.

2. Risks Related to Business Operations

1) Dependence on Specific Industries

The NTN Group's bearing division derives approximately half of its sales from the automotive industry, while the Constant Velocity Joint (CVJ) division sells the majority of its components (which transmit power to the driving wheels of automobiles) to the automotive industry. We are working to expand sales of bearings and precision equipment to the industrial machinery sector, alongside consistently promoting measures to balance the sales composition. However, if demand in the automotive industry suddenly changes, it may affect the NTN Group's financial position, business performance, and cash flows.

2) Product Defects

To ensure high quality products, the NTN Group pursues appropriate quality that satisfies customer requirements for product functions and specifications while considering safety, and maintains thorough quality control globally. However, if substantial defects exist in products and cause serious accidents, claims, recalls, etc., the occurrence of substantial product compensation costs may affect the NTN Group's financial position, business performance, and cash flows. While the NTN Group has global product liability insurance, it does not cover all losses including damage compensation.

3) Intellectual Property Rights

The NTN Group creates many new technologies and builds expertise through new product development and utilizes them as management resources. However, there is a possibility that third parties may infringe on the NTN Group's intellectual property rights, or that we may unexpectedly infringe on third parties' intellectual property rights. While we maintain thorough intellectual property rights management including rights protection through patent applications, if the above-mentioned intellectual property rights infringement occurs, it may affect our financial position, business performance, and cash flows.

4) Global Business Development

The NTN Group conducts business globally with overseas sales accounting for more than 50% of consolidated net sales. The following risks are associated with overseas business development:

1. Risks associated with unforeseen changes in taxation systems between or within countries
2. Risks associated with unforeseen changes in international trade policies, such as U.S. trade policies
3. Risks associated with unforeseen changes in laws and regulations in various countries
4. Difficulties in securing human resources
5. Immature technical standards and unstable labor relations in emerging countries
6. Political instability in various countries

The NTN Group collects information on these risks and strives to prevent and avoid them. However, occurrence of these events may affect the Group's financial position, business performance, and cash flows.

5) Information Security

The NTN Group works to ensure full awareness of appropriate information management methods through the development of internal regulations and employee education. However, in the unlikely event that cyberattacks, unauthorized access, or computer virus intrusions cause information leakage, destruction or alteration of data, or system shutdown, it may damage the NTN Group's credibility and disrupt production and sales activities, potentially affecting our financial position, business performance, and cash flows.

6) Legal Regulations and Others

The NTN Group is subject to various laws and regulations (tax laws, environmental laws, labor and safety laws, economic laws such as anti-monopoly laws, anti-dumping laws, and anti-bribery laws, trade and foreign exchange laws, stock exchange listing regulations, etc.) in the countries and regions where we conduct business activities.

The NTN Group strives to abide by these laws and regulations and conduct fair business activities. However, in the unlikely event that litigation or legal procedures against the NTN Group due to violations of laws and regulations result in unfavorable outcomes for the Group, it may affect our financial position and business performance. Furthermore, changes to these laws and regulations or establishment of new unforeseeable laws and regulations may affect our financial position, business performance, and cash flows.