1. NTN's financial results for FY2019 showed a net loss of 44 billion yen, the worst in company history. This was largely due to an impairment loss of 29 billion yen related to unprofitable factories and businesses. 2. The impairment loss was significantly higher than initial estimates of under 2 billion yen due to the auditor requiring COVID-19's impact to be included in calculations. This led to more conservative business forecasts and higher impairment losses. 3. Several cost cutting measures were undertaken, leading to reductions in labor costs and expenses. However, declining sales volumes had a major negative scale effect on profits, and price competition in the automotive sector continued to be a challenge.

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----- Global Web Meeting -----
CFO Message to NTN Senior Managers
Regarding
Consolidated Financial Results for FY2019
July 15, 2020 Tetsuya Sogo
<Please look at P18>
 Key factors of Financial Results for 2019 are shown on this page.
 The most shocking number is Net Income, negative 44 billion yen, that is the worst
record in NTN history.

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<Please look at P19>
 This is consolidated P/L in comparison with the previous year.
 Estimated Sales for 2019 was 680 billion yen, Operating Income was 10 billion yen
at our final public announcement in February, before COVID-19.
 After that announcement, Sales decreased to 651.5 billion yen, so Operating Income
of 7.1 billion yen was not a big surprise to our investors and Japanese Stock Market,
however Net Income of negative 44 billion yen was a shocking number.
 This was caused by the huge number of Extraordinary Loss of 32.3 billion yen,
including Impairment Loss of 29 billion yen.
 So I had to focus on the explanation of Impairment Loss to our investors and security
analysts.

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<Please look at P20>
 First of all, I will briefly explain how to calculate Impairment Loss, just for your
reference.
1) Each unprofitable company or factory has to show a business plan that our auditor
(for example, E&Y in Japan) challenges and agrees for the terms of averaged
remaining years of depreciation period, usually 7 or 8 years.
2) After the agreement of the business plan with its auditor, then each company has
to calculate the Net Present Value of FCF during such period to determine the
value creation of each business including Sale Value of Land and Buildings at the
end of depreciation based on each Appraised Value.
3) Finally, the auditor compares such NPV with Book Value of Tangible Fixed Assets.
If NPV is less than the Book Value, that amount shall be recorded as Impairment
Loss.
 NTN recorded Impairment Loss of 17 billion yen in 2018, and 29 billion yen again in
2019. At the Financial Settlement Briefing Meeting for 2018, I explained that the
competitive advantage of manufacturing in NTN Japan has dropped significantly,

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and NTN will focus on drastic and fundamental measures, so that there should not
be any more Impairment Loss in 2019.
 Although I said there should not be Impairment Loss any more in 2019, we found
that only our Taper Roller Bearing Business in Okayama and Akaiwa cannot avoid
Impairment Loss, estimated amount of this Loss was less than 2 billion yen.
 We started discussion with E&Y on this estimation at the end of February to finalize
the Impairment Loss. NTN and E&Y, at that time, both thought that the impact of
COVID-19 should be excluded from the calculation of Impairment Loss.
 Then, as the impact of COVID-19 is getting more and more serious, E&Y together
with Japan CPA association strongly told us to include the impact of COVID-19, and
we agreed and decided to do so.
 We therefore revised each business plan, average 20% sales reduction in 2020, not
full recovery in 2021, no sales increase after 2021 during the remaining depreciation
period. Under such conservative assumption, Impairment Loss was calculated as 22
billion yen in Japan, instead of previous estimation of 2 billion yen without COVID-
19. As for Global Impairment Loss, we applied the same concept to overseas, Bower
5.5 billion yen and DMF 1.5 billion yen. Global Total 29 billion yen.
 At the Financial Settlement Briefing Meeting for 2019, I explained this story and
that our Impairment Loss of 29 billion yen will reduce the amount of Depreciation by
3.5 billion yen, which will speed up our Recovery in the future.
 In the meantime, I had discussed with our main bank Mitsubishi in March, and
received the Commitment of additional cash of 100 billion yen to prepare for COVID-
19. FCF of NTN Consolidated in 2020 is estimated around negative 50 billion yen,
so the Commitment Line of 100 billion shall be more than enough. So, Don’t worry!!
We have enough cash to survive in 2020.
 We also have to understand that NTN Japan cannot support the overseas activities
in various costs of such as Japanese Expats, Engineering Drawings and Testing
under the current situations, so we made radical changes that gave negative impact
to our overseas business in 2019.

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<Please look at P21>
 This chart shows Sales by Region. Sales dropped significantly in all regions by total
64.9 billion yen excluding the impact of foreign exchange ratio.

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<Please look at P22>
 This chart shows Sales and Operating Income by Business Sector. As Sales dropped
in all Business Sectors, Operating Income dropped significantly especially in
Industrial OEM and Automotive OEM, and only Aftermarket Business remained
profitable.

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<Please look at P23>
 This chart shows Quarterly Trend of Sales and Operating Income by Business Sector
for 2018 and 2019. As Sales is decreasing, Operating Income is decreasing, however
Operating Income increased in the last 4th Quarter by 1.5 billion yen. This is because
of our global efforts for Fixed Costs Reduction by 6 billion yen in Labor Costs and
Expenses.

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<Please look at P24>
 This chart shows Analysis of Operating Income for 2019, in comparison with that for
2018.
 Positive Factors are Decrease in Labor Costs, Variable Costs and Expenses.
 As for Variable Costs, we have achieved Cost Reduction of 3.6 billion yen, but together
with other external factors such as the impact of US-China Tariff Change, total
Decrease in Variable Costs was 3.1 billion yen. I remember this number used to be
much larger, and I am afraid to say that the amount of Variable Cost Reduction is
getting smaller and smaller recently.
 As for Labor Costs and Expenses, we have made a big reduction in 2019, and I respect
the great efforts in all areas in NTN group, however we should clearly understand
that our EBIT Margin especially for OEM Business has been constantly decreasing.
Only Fixed Cost Reduction cannot solve this problem, and we need fundamental
Structural Reform to generate much higher level of FCF toward our Value Creation.
 Regarding Negative Factors, I would like to explain Scale Effects that was the biggest
factor, as shown in this chart.

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 Sales dropped by 64.9 billion yen excluding the impact of foreign exchange ratio, as
shown on P21. Considering the additional impact of Price Decrease by 2.5 billion yen,
pure Sales Volume Decrease was 62.4 billion yen
 On the other hand, as a total NTN group, our Variable Cost Percentage to Sales is
about 55%, so that our consolidated Marginal Profit Ratio is 45%. Therefore Scale
Effects to Operating Income shall be 62.4 times 45% equal 28.1 billion yen that is
much less than 33.9 by 5.8 billion yen. --- What is this difference ?
 This formula of Marginal Profit Calculation is correct when Sales Volume and
Production Volume are same. We have reduced our Inventories drastically in 2019,
so that our Production Volume dropped by 87 billion yen that was a much larger
number than Sales Volume Decrease of 62.4 billion yen. This additional Production
Volume Decrease caused the additional Scale Effects of 5.8 billion yen. As a result of
Inventory Reduction, our Profit decreased, but it helped our CF situation a lot.
 Another Negative Factor is Sales Price Discount. Sales Price Discount of
Automotive OEM was 5.8 billion yen, and Sales Price Increase of Automotive OEM
was 2.7 billion yen, so that Net Sales Price Level of Automotive OEM was Negative
3.1 billion yen. Net Sales Level of each Industrial OEM and Aftermarket was
Positive 0.3 and 0.4 billion yen respectively, which made total Sales Level of Negative
2.5 billion yen as shown on this chart.
 The Impact of Price Discount of Automotive OEM has been significant every year,
and it is our big problem that is killing our profitability. We do need Differentiation
in Engineering or Service to avoid such Price Competition as much as possible.

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<Please look at P25>
 This chart shows Sales and Operating Income in Japan and Americas.
 Operating Income was Negative 1.3 billion yen in Japan, but there was Royalty
Income of 3.5 billion yen, as Non-Operating Income, and Operating Income Plus
Royalty equal Positive 2.2 billion yen. I strongly believe that Royalty Income should
be classified as Operating Income, and we are going to change the classification in
2020 Financial Statements.
 As NTN Japan cannot support the overseas activities in various costs of such as
Expats, Engineering Drawings and Testing under the current situations, we made
radical changes that gave negative impact to our overseas profitability in 2019
especially in Americas Region, which caused a Big Drop of Operating Income of
Americas in addition to the impact of Sales Decrease in 2019.
 Since the Cost Burden of NTN Japan has been reduced, Operating Income of NTN
Stand Alone including Royalty Income was Positive 2.2 billion yen. If this number
was Negative, our Impairment Loss would have been over 40 billion yen instead of
29 billion yen in 2019.

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<Please look at P26>
 This chart shows Sales and Operating Income in Europe and Asia.
 In Europe, Operating Income was barely Positive 0.3% in 2019.
 In Asia, Operating Income decreased a lot, but still Positive 8.5% in 2019.

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<Please look at P27>
 This chart shows Inventories.
 Estimated Inventories for 2019 was 184 billion yen at our final public announcement
in February, before COVID-19, so we have achieved the target number of Inventories.
 Since Sales Volume dropped a lot, Inventory Turnover Ratio also dropped to 3.6. We
are now expecting further Sales Decrease by around 20% in 2020, however we will
keep 3.6 as our global target of Inventory Turnover Ratio in 2020 to improve CF as
much as possible.
 We will however increase Strategic Inventories for Aftermarket to further expand
Aftermarket Business.

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<Please look at P28>
 This chart shows Capex and Depreciation.
 Our budget of Capex in 2019 was 50 billion yen, but we could not control Capex under
this level, and we spent 57.7 billion yen.
 Depreciation was 37.3 billion yen.
 Considering our CF situation in 2020 estimated under COVID-19, Investment
Budget is reduced to 18.5 billion yen in 2020.
 We will focus on the Maximum Utilization of current production capacity with
indispensable Investment to do so, improving the Total Through-put and Flexibility
to reduce our Break Even Point and increase Return on Invested Capital.
 Each Investment shall be studied carefully to decide the priority under the budget,
and Investments for additional capacity with negative NPV especially in current
OEM business shall be eliminated.

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<Please look at P29>
 This chart shows Interest-Bearing Debt & Net D/E Ratio.
 Interest-Bearing Debt increased by 12.1 billion yen, and Net D/E Ratio increased
rapidly from 1.2 to 1.9 in 2019.
 The reason of this rapid increase of Net D/E Ratio was the rapid decrease of Equity.
Equity decreased rapidly in 2019 by such as Negative Income of 44 billion yen,
Dividend of 6.6 billion yen and the Impact of Foreign Exchange Ratio and Holding
Stock Price Decline of 23.4 billion yen.
 Equity decreased from 230 billion yen to 156 billion yen. It dropped by 74 billion yen
in 2019. We have to increase our Equity.
 NTN’s current Rating in Japanese Market by the Rating Organization “R&I”, Rating
& Investment Information, Inc. is still A Minus Flat. I will keep communicating and
explaining our Recovery Scenario as practical as possible to keep our A Minus Status.
 There is a Risk of Rating Down to such as BBB Plus temporally, but we don’t have to
worry about immediate cash or Corporate Bond for a while.

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<Please look at P30>
 This chart shows Cash Flows.
 In 2019, CF from Operating Activities was 43.7 billion yen.
 Estimated CF from Operating Activities for 2019 was 41 billion yen at our final public
announcement in February before COVID-19, so we have achieved the target number
of CF from Operating Activities.
 This is because we have successfully made the rapid reduction of Inventories in 4th
Quarter, as shown on P27.
 On the other hand, CF from Investing Activities was Negative 61.8 billion yen in
2019.
 Estimated CF from Investing Activities for 2019 was 53 billion yen at our final public
announcement in February before COVID-19, so we did not achieve the target
number. We need better control of CF from Investing Activities.
 At the Financial Settlement Briefing Meeting for 2019, I explained to our investors
and security analysts that our Budget of Investment is less than 20 billion yen in
2020.

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<Please look at P31>
 This is the final page of my explanation, and I believe this is the most important page.
 This chart shows the Basic Concept and Target of our Recovery Scenario that is the
Precondition for the Commitment Line of 100 billion yen.
 First of all, I would like to make a clear definition of Recovery. What is Recovery?
 Definition of Recovery is the Capability for NTN to Create Corporate Value, which
has to be achieved in 2023, at the end of our next Mid-Term Management Plan.
 Assuming that the Expected Return of our Shareholders in Japanese Stock Market
is 8%, as you know, we designed that our Consolidated WACC, Cost of Capital is 5%,
so our commitment of Consolidated ROIC, Return on Invested Capital is 5% in 2023.
Our Main Bank, Mitsubishi agreed to this target, as the minimum requirement.
 Our final target of Net D/E Ratio is less than 1.0, however it will be almost impossible
to achieve that level in 2023 without the major Equity Finace that may cause the
Dilution and Risk of Stock Price Decline. So our Main Bank agreed to 1.5, as the
target of Net D/E Ratio in 2023. Separately, we will keep paying attention to our

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Stock Price, and Finance HQ will keep studying the Possibility and Pratical Scheme
of Equity Finance.
 In order to achieve ROIC 5%, we do not rely on the Volume. We basically do not need
Investments to increase our Production Capacity. The target of Sales in 2023
therefore is 700 billion yen, and Operating Income is 42 billion yen, EBIT Margin is
6%.
 We are going to develop the detail action plans, and we need Structural Reform to
proceed this Recovery Plan.
 By the way, What are the current major problems at Global NTN Group excluding
the impact of COVID-19? From my financial point of view, the biggest problem is that
NTN is not creating the Corporate Value, but destroying the Value a lot recently
especially in Japan, Americas region and European region.
 Consolidated ROIC is barely positive, but way below Consolidated WACC that is 5%.
Our negative FCF is causing a very high level of D/E ratio, and our financial structure
is too much leveraged and very risky.
 There are 3 major factors that are causing our negative FCF situations
1) Decreasing EBIT Margin
2) Low level of Asset Turnover Ratio, especially for Inventory Turnover
3) High level of Investment in comparison with the level of Depreciation
 People say that “The major cause of Company Failure is Company Success.” I am
afraid that NTN still cannot forget the success experience in the past before Lehman
Shock, and cannot change the basic Corporate Attitude yet. It is “Boiling Frog
Theory”. I would like to explain these 3 major factors one by one.
1) Decreasing EBIT Margin
(Solution=Structural Reform①: Fundamental review of marketing and pricing
strategy)
I think this is closely related to the traditional Japanese Monozukuri Culture.
Monozukuri means manufacturing.
NTN always aimed to achieve the highest level of productivity and quality at the
same time with continuous cost reduction.
NTN was very successful company by making all OEM customers happy by such
competitive advantage in manufacturing with KAIZEN spirit.

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But now, NTN cannot make profit by this kind of traditional overall cost
leadership strategy, because Korean or Chinese competitors are getting stronger
and gaining big presence in the markets of our core businesses such as Constant
Velocity Joints and HUB bearings.
Professor Philip Kotler, Father of Marketing at Kellogg, said;
“There is no golden rule in marketing to win, but there is only one clear rule, -- If
you try to make all of your customers happy, your company will fail. -- ”
We have to focus on our marketing and pricing strategies toward the future
profitable “Product Portfolio” and “Business Portfolio”.
We have to stop selling negative profit product to strengthen our Product
Portfolio, and increase the ratio of Aftermarket business to strengthen our
Business Portfolio.
We have to keep improving our manufacturing capabilities, however we have to
clearly understand that we cannot make all customers happy.
We do need strong Marketing and Pricing strategies to improve our EBIT
Margin as soon as possible.
For your reference, I would like to introduce some other words of Philip Kotler;
“The sales department is not a whole company, but the whole company better be
a sales department”
“There is no such thing as a commodity. It is simply a product waiting to be
differentiated.”
“You don’t sell to distributors. You sell through them and with them.”
2) Low level of Asset Turnover Ratio, especially for Inventory Turnover
(Solution=Structural Reform②: Strengthen production control and inventory
control)
Asset Turnover Ratio especially for Inventory Turnover Ratio is our big weak point
in comparison with our competitors.
We did not focus on this subject effectively for a long time, while focusing on such
as Machine Running Ratio (MRR) and Cycle Time.

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Our level of productivity such as MRR or Quality standard has been very high, but
our level of Inventory turnover has not been improved.
We have to focus on Total Lead time and Total Throughput, and improve our speed
to generate profit and improve our ROIC.
We are now trying to introduce TPS, Toyota Production System and TOC, Theory
of Constraints to our functions of Production, Production Control, and Logistics in
Japan. We have to improve our Cash Generating Speed.
We also expect this challenge will make it possible to flexibly utilize our OEM
production lines for Aftermarket production to expand our Aftermarket Business
without another big investment
Our manufacturing people should also be getting more sensitive to prioritize the
production of profitable products for Aftermarket, rather than Machine Running
Ratio or Cycle Time.
3) High level of Investment in comparison with the level of Depreciation
(Solution=Structural Reform③: Break out of self-sufficiency)
It has been another NTN Culture that “Do it by yourself to get know-hows and
profit”.
We therefore have invested a lot for all processes such as Forging, Turning, Heat
Treatment, Grinding and Assembly, and we enjoyed high level of EBIT Margin
before Lehman Shock.
But such a situation has changed under the globalization, and we are not making
enough profit, and a large amount of Investment much more than the amount of
Depreciation is causing our negative FCF.
It has become more and more difficult for NTN to be equipped with adequate
financial resources to respond effectively to higher and wider requests for global
complicated markets, and get enough return from our investment.
To reduce the level of investment, NTN should build cooperative relationship with
outside organizations such as suppliers and customers so that NTN can expect
complementary resources and synergies.
This kind of Strategic Partnership should be a relationship of win-win founded on

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mutual trust and respect.
 These 3 factors are the Fundamental Changes for NTN to create Corporate Value in
2023. We have to motivate all NTN people globally toward this direction, by
learning as an individual, as a team, as an organization to Measure, Manage and
Maximize the Total Value of NTN Group.
 This Recovery Scenario is nothing without sharing, communicating, exchanging
ideas and experiences in Global NTN Group. I am expecting each of you to discuss
this Recovery Scenario with your Middle Management People. Strong Networking
of middle management all over NTN is very important to establish the Learning
Organization toward our Value Creation, because it is only Middle Management who
can solve the contradiction between the ideal concepts of Top Management and the
Reality of each working place.
 Please review the current systems, rules and ways to do your business to change the
behavior of your people toward the direction of Value Creation with Challenging
Culture of Learning Organization, that is the most important transformation for
global NTN Corporation.
 I am expecting each of you to be always a growth minded leader, who can inspire the
people, organization and market.
No Guts, No Glory!!
Thank you very much.
--- For Your Additional Information ---
As I talked to you at the Web Meeting, I explained our “Recovery Scenario” to the Japanese Rating
Organization "R&I (Rating & Investment Information, Inc.)” on July 1, 2020, following our Financial
Settlement Briefing Meeting for 2019 held on June 19, 2020.
After the detail study and discussion in R&I regarding the Rating of NTN, I have received a message
from R&I and found that our new Rating is still in the range of A- (A Minus). Our new Rating has been
officially announced on July 21, 2020 as attached.
Our "Rating" did not change, however our "Rating Outlook" changed to "Negative" from "Stable", so we
have to show the immediate and steady progress based on our Recovery Scenario to keep the current A-
Status. Let's keep challenging and concentrating on our Value Creation Activities and Networking all
over NTN Group.

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