Specialty Materials -...
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Specialty Materials
Investor MeetingMarch 16, 2006
1 Specialty Materials Investor Meeting - March 16, 2006
This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.
Forward Looking Statements
2 Specialty Materials Investor Meeting - March 16, 2006
10:30 Welcome
10:30 Specialty Materials Overview Dicciani
10:45 UOP Cabrera
11:30 Fluorine Products Preziotti12:00 Lunch
1:15 Depart Hotel – Bus 1 or Bus 2
2:15 Geismar Plant/Industrial Automation Showcase
4:00 Depart Plant - Bus 1 to New Orleans- Bus 2 to Airport
6:00 Cocktails and Dinner – Nola’s
Agenda
Specialty MaterialsDr. Nance DiccianiMarch 16, 2006
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Automation & Control
Specialty Materials
Aerospace
Transportation
34%
15%
36%
15%
• 118,000 employees in nearly 100 countries
• A Fortune 75 company ~ $30 billion in sales in 2006
• One of 30 select companies in the DJIA
Honeywell Today
*Pie Chart – 2006E Sales
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Fluorines
UOP
Resins and Chemicals
SpecialtyProducts
A High-Performing, Truly Specialty Materials Business
2006E Sales ~$4.4BSegment Margin 11.5 – 12.0%
Specialty Materials• Portfolio transformation essentially complete
• Value-added business in growing markets
• Focus on technology and patents
• 2006 margins > 5x 2002 • UOP a terrific add at a great
time
The New Specialty Materials
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Resins And Chemicals
2006E Sales $1.1B
Ammonium Sulfate
Chemicals
Other
Caprolactam
Resins
• Nylon fibers and films• Agriculture• Specialty applications
• Wide variety of intermediate products
• Strong capacity utilization (93%)• Long-term customer
agreements• 2/3 of output shielded from raws
volatility• New markets: Hi-end turf and
resins for specialty films
Applications
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• High growth (>2x GDP) markets• On technology roadmaps for most
of the top 10 semiconductor manufacturers worldwide
• Uniquely positioned - expertise and patents in chemistry and metallurgy
• Pioneer of industry standard “spin-on glass” material
• Leveraging portfolio into adjacent marketplaces
Specialty Products 2006E Sales $1.1B
• Semiconductor• Electronics• Optoelectronics• Displays
Customers/Applications
SpecialtyProducts
Electronic Materials
SpecialtyChemicals
PerformanceProducts
Electronic Materials
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Performance Products
• Military and law enforcement• Pharmaceutical and food packaging• Coatings • Luminescent materials for safety and
security
Customers/Applications
SpecialtyProducts
Electronic Materials
SpecialtyChemicals
PerformanceProducts
• Strong demand for Spectra fiber and advanced composites for armor; adjacent markets in rope, cordage, cut protection
• Barrier films improve shelf life/safety of packaged food and drugs; alternative energy applications
• Growing market for luminescent materials for emergency egress and anti-counterfeiting
Specialty Products 2006E Sales $1.1B
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Specialty Chemicals
• High-purity solvents and DNA reagents for biotech research and drug discovery
• Strong branded product lines - Burdick and Jackson and Riedel-de Haën
• Ultracapacitor electrolytes for next generation energy storage devices
• Pharmaceutical and biotech• Healthcare• Semiconductor and Electronics• Coatings
Customers/Applications
SpecialtyProducts
Electronic Materials
SpecialtyChemicals
PerformanceProducts
Specialty Products 2006E Sales $1.1B
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Summary
• Portfolio transformation essentially complete
• Aligned with global trends
- Environmental regulation, energy efficiency
- Refining capacity utilization / expansion
- Electronics industry growth
- Growing global demand for safety and security
• Significantly reduced exposure to raw material volatility
• Well-positioned to expand globally
New Era For Specialty Materials
Carlos A. CabreraMarch 16, 2006
1 Specialty Materials Investor Meeting - March 16, 2006
Agenda
• UOP Overview
• Industry Environment
• UOP Segments
• Honeywell/UOP Technology Opportunities
• Summary
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• Leading supplier and licensor of processing technology, catalysts, adsorbents, process plants, and technical services to the petroleum refining, petrochemical, and gas processing industries
• $1.3 billion sales; mid-teens margins
• Strong relationships with leading refining and petrochemical customers worldwide
• 70+ processes in 6,000+ units in hydrocarbon processing industry
• 300+ catalysts, adsorbents - many processes
• ½ of world’s biodegradable detergents use UOP technology; 31 of 36 refining technologies in use today created by UOP
Present From Project Concept Through Project Life
UOP Overview
Products
Licensing &
Services
Equipment
2005 Sales
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Global Presence
Presence In 20 Countries
AsiaIndia
China
EuropeAmericas Sales / Service OfficesManufacturingResearch Alliances
2005 Sales by Region
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Refining Landscape
Alkylation
C4-C6Isomerization
Market Position: 1
Fluid CatalyticCracking
Market Position: 1
HydrocrackingMarket Position: 1
CatalyticReforming
Market Position: 1
Fractionation
Crude Oil
COKE
Residual Hydrotreating
Coking (Alliance)
Gasoline
Jet Fuel/Kerosene
Diesel
Fuel Oil
HydrogenMarket Position: 1
Impure H2
Processes End Products
Process & Catalyst/Adsorbent/ServicesProcess Technology and ServicesAlliance
HydrotreatingMarket Position: 1
Coking
Fractionation
Petrochemical Feedstocks
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Petrochemical And NG LandscapeProcesses
Aromatics Complex (Market Position 1)
Ethyl-Benzene
Styrene
Oleflex
Cumene PhenolPropylene
Propane
Ethylene
Naphtha
Kerosene
Synthesis Gas
Natural Gas Various Treating and ContaminantRemoval Technologies
Gas Processing (Market Position: 1)
End ProductsIntermediates
p-Xylene (Polyester)
Styrene (Polystyrene)
Phenol (Polycarbonate)
Propylene(Polypropylene)
Linear-Alkyl Benzene
Feedstock to Conversion Processes
(Building Blocks for Polymers)
Catalytic Reforming Parex Isomar
Tatoray
Molex Pacol Detal
Key: Process & Catalyst/Adsorbent/ServicesProcess Technology/Adsorbent/ServicesAlliance
On-Purpose Propylene (Market Position: 1)
Phenol Production (Market Position: 2)
LAB Production (Market Position: 1)
Styrene Production (Market Position: 2)
SyntheticDetergents
Plastics andChemicals
LNG
Pipeline Natural Gas
Methanol (MTO Feed)
GTL Liquids
Coal
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UOP Revenue Points
Multiple Technologies, Products, Services
Training
Equipment& Systems
ProjectManagement
Design
Royalty
ProcessLicense
ContinuingServices
Start-UpServices
Adsorbents/Desorbent
InitialCatalyst Fill Catalyst
Reloads
AdditionalPaid-Up Royalty
Services Licensing Products Equipment
Proj
ect
Con
cept
Proj
ect
Life
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70
75
80
85
90
95
2000 2002 2004 2006 2008 2010
Actuals
Oil Consumption
0
40
80
120
160
1980 1990 2002 2010 2015 2020 2025
Natural Gas Consumption
Million Barrels per Stream Day
Trillion Cubic Feet
Business Environment
• Demand for petroleum product remains strong worldwide
• Natural Gas - fastest growing energy source for next two decades
• Para-xylene demand expected to remain strong through 2008
• Demand for ethylene and propylene is forecast to grow at annual average rates of 4.6% and 5.1%, respectively, over the next 5 years
• Overall growth greater than 5% in every region
Long-Term Demand Benefits UOP
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Refining Trends
Refining Capacity Utilization
80
85
90
95
1999 2002 2005 2008
Util
izat
ion
%
1.08
1.12
1.16
1.2
1.24
1990 1994 1998 2002 2006 20101.08
1.12
1.16
1.2
1.24
1990 1994 1998 2002 2006 2010
• Strong growth in oil demand coupled with tight refinery utilization has created a strong driver for refinery investment
• Continuing trend toward sulfur-free fuels
• High level of residue conversion required
Capacity Needs = Strong Business Environment
Crude Sulfur Content
Sulfu
r %
U.S.
Asia
Europe
Refining Capacity Regional Forecast
90% Utilization
Million barrels/day
8.5%83.476.9Totals
5%2.22.1Africa
20%97.5Middle East
4%54.8FSU
12%7.46.6L. America
9%16.615.2Other AP/India
56%74.5China
-3%15.415.8Europe
2%20.820.4N. America
%20102004
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Process Technology & Equipment (PT&E)
70+ different processes in 6,000+ units in petroleum refining and petrochemical industries• Engineered products
• Packaged process units and systems
• Proprietary equipment
• Control systems and instrumentation
• Consulting services
• Technical support alliances
• Technical personnel training & development
• Knowledge sharing systems
Product Line Breadth And Depth
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• Refining • BTX• Petrochemicals
PT&E – Industry ParticipantsCompany Segment
• BTX• Methanol-to-Olefin • HC
• PC• Refining• HC w/Chevron
• Refining
• Natural Gas Treatingwith Membranes
• H2/PSA, Gas
All
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• Catalysts to support UOP’s licensed technologies as well as other refining and petrochemical technologies
• 300+ catalysts supplied around the world • Catalyst manufacturing in U.S., UK and Japan• Reloads represent 80% of catalyst sales
Catalysts, Adsorbents & Specialties (CA&S) Catalysts
Molecular Sieves & Adsorbents
• Diverse applications including drying & purification; natural gas, refrigerants, insulated windows, mercury removal, pollution abatement and deodorization; separations
• Portfolio of 150+ products• Manufacturer in U.S. Italy, Japan and China
Leading Catalyst And Adsorbent Supplier
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• Refining • BTX• Petrochemicals
CA&S – Industry ParticipantsCompany Segment
• Refining• Petrochem
• FCC HC• Resid HT• Molecular Sieves
• BTX• Petrochem
• Molecular Sieves• Adsorbents
• Refining • BTX• Petrochemicals
• Molecular Sieves• Adsorbents
All
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Technology Development
“For more than 85 years of sustained technical leadership and innovation
for the petroleum refining and petrochemical industries; and for the invention and commercialization of
adsorbents, catalysts, process plants, and process technology.”
2003 National Medal of Technology Recipient
• UOP developed every major step change in refining technology since 1914
• Widely recognized as a global leader in technology development
• R&D expertise in materials science, catalysis, process development
• Capabilities in – New materials synthesis– Advanced characterization– Multi-scale modeling from molecular
to process scale– Nanotechnology– Advanced sensing and process
control
Track Record Of Technology Innovation
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HON/UOP Opportunities
SM/UOP
ACS Aerospace
TS
Process Knowledge
WirelessSensors
Catalysts and
Adsorbents
Catalysts and
Adsorbents
Process Control& Simulations
Clean AirProducts
AirHandling
Cross-Portfolio Technology Opportunities
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Summary
• Recognized leader in technology and products for refining and petrochemicals
• Strategy closely aligned with favorable global trends
• Global presence and close customer relationships
• UOP a great addition at a great time
Great Position In An Expanding Market
Fluorine ProductsRichard PreziottiMarch 16, 2006
1 Specialty Materials Investor Meeting - March 16, 2006
Agenda
• Industry and Business Overview
• Fluorocarbon Regulatory Environment
• Fluorine Products Position/Strategy
• Business Growth Story
• Geismar Plant Profile
• Technology Strategy
• Summary
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Fluorine Industry And Value Chain
• $10B Space Growing 4-5%/year- IP intensive – application and process- Capital intensive- “F” properties – increasing applications
• Honeywell a beneficiary of:- Increasing regulation- Demand for energy efficiency- Urbanization- Higher standards of living
FluoropolymerFilms
CAF2(Fluorspar)
HydrogenFluoride
(HF)Fluorocarbons
FluorinatedGases
UraniumHexafluoride
Growing Space; New Applications Increasing
$3B
$4B $3B
Overview
Fluorocarbons,HF & Gases(Honeywell
Focus)SpecialtyFluorines
Fluoropolymers
Honeywell Value Chain
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Headquarters: Morristown, NJ
2006E Sales: $0.9B
• Geismar, La.• Baton Rouge, La.• QingPu, China• Metropolis, Ill.• Danville, Ill.• Amherstburg, ON• Denver, Col. (JV)• Monterey, Mexico (JV)
Business Overview
• Hydrofluoric Acid• Fluorinated Gases• Uranium Hexafluoride• Fluorocarbons for:
– Refrigeration & A/C– Foam Insulation – Aerosols and Solvents– Medical Applications
Facilities
Major ProductsStatistics
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Regulatory Environment – Ozone Depletion
• 1996 - Montreal Protocol phases out CFC production in developed countries
• 2003 - U.S. HCFC allocation rule- U.S. phaseout of HCFCs for foam
and aerosols
• 2004 - HCFC new A/C equipment phaseout in Europe and Japan
- Europe HCFC foam phaseout
• 2010 - U.S. A/C new equipment HCFC phaseout
Regulation Drives HFC Growth
Global Fluorocarbon DemandKey Milestones
0
200
400
600
800
1,000
1,200
2002 2004 2006 2008 2010
HFCsHCFCsCFCs
‘000
Met
ric T
ons
2002 Ozone Protection Award• Developed HFC-245fa• Screened hundreds of potential
foam blowing agents• Significant investments made in:
- Research- Toxicity testing- Applications development- Manufacturing processes- Plant construction
11% HFC CAGR
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Fluorine Products Position/Strategy
• Vertically integrated in HF – largest global manufacturer
• Extensive IP portfolio• Strong process manufacturing
capability• Fluorine technology and
applications expertise• Sole U.S. supplier of nuclear
conversion services
Position
• Capture global regulatory-driven HFC growth
• Category expansion for foam applications
• Develop new applications/next-generation F-products
Strategy
Diverse Integrated Fluorine Business
$0.9B
Refrigerants
HF
Foam
Nuclear Services
Fluorinated Gases
2006E Sales
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00.20.40.60.8
1
2002 2006
Fluorine Products Growth
2002 - 2006• Global Refrigerant/HCFC A/C new
equipment phaseout in Europe and Japan
• Foam conversion from HCFCs to HFCs in U.S., Europe and Japan
• Value Pricing
Future• Continued global expansion• 13 SEER drives increased refrigerant
charge• U.S. A/C new equipment HCFC
phaseout• Foam category expansion driven by
demand for energy efficiency• Renewed interest in nuclear energy• Next-generation products (LGWP)
Strong Growth Track Record
Sales GrowthGrowth Drivers
14.5% CAGR
($B
) $0.5
$0.9
2002 2006
North America
Europe
LARAsia
North America
Europe
LAR Asia
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0
200
400
600
800
'03 '04 '05 '06 '07 '8 '09 '10 '11 '12 '13 '14
Genetron® RefrigerantsPosition
• Energy efficiency- 13 SEER in U.S. increases refrigerant charge
• U.S. A/C conversion to HFCs• Production shift to China and Southeast Asia• Lower price to consumers
- Increased A/C penetration globally- Increased HFC units for Europe and Japan
Growth Drivers
• Global strength in HFC blend IP• Leading asset position for HFC blend
components- Largest HFC-125, 143a manufacturer
• Strong U.S. HCFC position in regulated market
• Strong OEM relationships and aftermarket positions in U.S., Europe, Japan
• Co-producer HFC-125 supply agreements• Unique U.S. auto A/C aftermarket
distribution through Honeywell Consumer Products Group
Auto A/C: 1%
Refrigeration: 6%
A/C: 12% CAGR
*HON Internal Estimate
Leading Global Refrigerants Franchise
RefrigerationHFC507HFC404a
Air ConditioningHFC410aHFC407c
HFC-125
M lb
s.
Global Demand
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Enovate® Blowing Agents
• Energy efficiency requires better insulation materials
• HFC-245fa blown rigid closed-cell foam has superior insulation properties vs. other materials
• HFC-245fa value proposition– Liquid blowing agent– Higher R-value– Non-flammable
Growth Drivers
Position• Exclusive NA IP position for HFC-245fa in foam
applications• Only world scale HFC-245fa manufacturing
facility – Geismar, La.• Extensive foam applications and formulation
expertise• Major U.S. appliance manufacturers under long-
term contracts• Strong relationships with foam systems suppliers
Appliance 40%Construction 60%
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Growing Category For HFC-245fa – Residential SPF
Insulation Share
Foam
Fiberglass
Other
100% = $4B
1%
88%
11%
1% 245fa blown foam = $8M sales
SPF Blown to 19 R-Value
Insulation Value Chain
Creating Demand Pull Through
Homeowner• Less energy use for
heating and cooling• Structural integrity• Indoor air quality• Noise reduction
Builder• Reduction in call-
backs/warranty reserves• Up-sell opportunity
Tremendous Opportunity For Growth
R-Value Fiberglass19
17.4
13.7
Label Perfect Real
HON Blowing Agents Formulators Spray
ContractorsBuilders New Home
Buyers
Value Proposition
Public Relations, Branding
“One Honeywell” Approach• ACS builder program
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Nuclear Conversion Services
• Rising oil and natural gas prices• Concerns over global warming gases
– byproducts of fossil fuel-generated electricity
• Newer generation of nuclear reactor technology
• New power plants planned in China, India, Russia and eventually U.S.
• Fuel demand outstripping supply
Growth Drivers
• Only U.S. supplier of conversion services
• Facility licensed by Nuclear Regulatory Commission
• High purity process• Recognized player with more than 50
years in conversion services
Position
Future Market Dynamics Are Favorable
Uranium mining/
processingEnrichmentConversion
U308
HoneywellMetropolis, Ill
FuelRodsFuel
FabricationUF6 LEU
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Hydrofluoric Acid
• World’s largest producer • Leader in safe transport and delivery• ISO-certified manufacturing facilities in
Geismar, La., Amherstburg, Ontario, Canada and Seelze, Germany
• Unmatched technical expertise for every phase of HF life cycle
• Innovative solutions to improve utilization, safety and performance for customers worldwide
Position
• Feedstock for fluorochemical manufacturing• Petroleum Alkylation• Quartz processing• Glass etching• Semiconductor manufacturing
Key Applications
FluoropolymerFilms
CAF2(Fluorspar)
HydrogenFluoride
(HF)Fluorocarbons
FluorinatedGases
UraniumHexafluoride
Honeywell Value Chain
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Geismar Plant Profile
• World’s largest HF plant• HFC multi-products plant
– 134a, 245fa, 124 and 125• Aclon fluoropolymer resin
Production Assets
Industrial Controls/Security Showcase
World Class Fluorine Manufacturing Facility
• Fully integrated controls and security systems• Advanced process control• Valve process performance management• Alarm system management• Upward capability to advanced statistical process
analysis• Perimeter and interior card access/biometrics• Integrated radar system monitors vital waterway and
approach to dock
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Fluorine Products Technology Capability/Strategy
Capability
• More than 50 years of experience with fluorine chemistry– Fluorocarbon and fluorochemical applications development– Process development to support world-class manufacturing– Lab to pilot plant scale equipment
• 459 global “F” patents granted• 440 global “F” patent applications pending
Issues that DriveOur Technology Development Strategy
• Climate change• Energy efficiency• Globalization
• Focus on environmentally improved “F” materials
• New applications for existing “F” molecules
• New “F” molecules for existing and new applications
World Class Fluorine Chemistry Capability
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HFCs And Climate Change
• Signatories required to meet GHG reductions –average of 5.2% below 1990 levels
• Dependence on emissions trading to meet caps
• US did not sign, but state & regional plus voluntary industry initiatives underway
• EU F-Gas Regulation entry into force in 2007• Emphasis on responsible use of HFCs
• HFCs expected to contribute ~4% of expectedglobal warming
• HFCs “visible” - high global warming potential/kg• CO2 is the main contributor - but difficult to
regulate
Atmospheric Model Calculations Kyoto Protocol Update
EU F-Gas Regulation
• Mobile A/C Directive- 1/1/2008 40 g/yr maximum leakage requirement- 1/1/2011 ban on gases with GWP>150 for new
vehicle types/platforms- 1/1/2017 ban on gases with GWP>150 for all new
vehicles
CO2 Is The Problem – But HFCs Now Targeted In Europe
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H 134a CO2
Boiling Point, Tb -30oC -26oC -79oC
Flammable No* No* No
GWP100 < 10 1300 1
*ASHRAE Std. 34 & SAE J1657
Fluid “H”: Potential LGW Alternative to HFC-134a In Auto A/C
Vapor Pressure
Pres
sure
, bar
Temperature, oC
Physical Properties
CO2
• Natural refrigerant – leading 134a replacement candidate
• High pressure means higher A/C system costs per car, plant retooling and in-field servicing issues
CO2
• Near drop-in for 134a- Lower per vehicle cost- Minimizes system redesign and capital costs
• Next Steps- Manufacturing process development- Full toxicology screen- Customer fleet testing
Fluid “H” Value Proposition
Initial Unoptimized Customer Testing … Performance Close To 134a!
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Summary
Great Position In Expanding Market
• Integrated industry leader with scale
– Largest global HF, HFC-125, HFC-143a, HFC-245fa producer
– Sole U.S. producer of nuclear conversion services
• Extensive applications and manufacturing process IP portfolio
• Strong customer relationships – OEM and aftermarket
• Favorable global dynamics driving demand
– Increasing regulation – need for environmental products
– High cost of energy – need for energy-efficient products
– Urbanization
– LCR A/C production reduces prices and increases unit demand