Tuesday, September 11, 2007

Dow Chemical's "White Paper": A Preview

At the last earnings call Dow (DOW) spent quite a bit of time on results from its "JV Strategy" and then promised a white paper on it to give more detail to investors. Well, the time for it is nearly here..

Currently Dow is involved in about 80 joint ventures (JV's) around the globe. A dozen of them account for 90% of the "equity earning" they produce. The upcoming paper that should be released electronically is expected to be ready by the end of September. It will be updated annually to reflect results for the prior year and give guidance for the upcoming one. I get the impression it will be release separately from the annual report but this may change. About a page will be dedicated to each of the dozen dominant JV's and will answer questions like:

1- Why enter the specific JV and who are the partners
2- Principle products produced, volumes, markets
3- Equity Earnings
4- Future guidance


1- The current JV strategy is "self funding" meaning that funds from operations fund startup costs and produce profits back to Dow.

2- The upcoming massive Kuwait 2 project is being funded by results from Kuwait 1 meaning there is no balance sheet impairment or current cash being used.

Neither myself nor does Dow expects the JV strategy to become the dominant earnings driver for Dow, but it will become very significant and it's growth over the next 3-5 years should be spectacular as many of the recently announced ventures come online. The performance chemical unit, which is helping Dow relinquish itself from the cyclical businesses that have dominated it's past will be the meat of Dow's earnings (at least for the foreseeable future). That is clearly by design and in accordance with Liveris's strategy to provide more predictability to Dow.

All in all I cannot wait to read it and will post on it very soon after it's release. One has to suspect that the reason Dow is doing this is that it sees value in the JV's that are not being fully realized by investors into Dow's valuation. By providing clarity and guidance in the JV's, they will enable large investor's to have more confidence on Dow's earnings profile.


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