Al Rai newspaper
On the verge of folding?
In Ernest Hemingway's novel The Sun Also Rises, a character named Mike is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.”
Where do I begin … to tell the story … of how one of Jordan’s biggest institutions is now facing its final moments. What was one of the market leaders in terms of market share, opinion makers and shakers, has become just a shadow of itself in less of a decade.
Like with all stories, let us start at the beginning:
Al-Rai newspaper, founded as the Jordan Press Foundation, started circulating as a daily Arabic newspaper in 1971. It was founded by no other than Jordanian Prime Minister Wasfi Al-Tal1.
In 1975, the Jordan Press Foundation issued the first English daily newspaper, the Jordan Times.
In 1986, the company became a publicly traded firm.
The company owns and operates the two mentioned dailies as well as a printing press, a training facility and a study & research center.
It was smooth sailing even during the dot com era and early 2000s with the arrival of Al Ghad newspaper. It was hard competing with such a giant. The rise of internet news couldn’t eat up its revenue.
But in 2011, the board took a unanimous decision to build a new printing facility and that was the blow that kept the company bleeding for the next decade.
First let us look at the share price:
Source: Amman Stock Exchange
In March of 2005, the price of Al Rai (ticker: PRES) reached 23.73 JODs. Today it is trading on average at 0.25 JODs, 1/100th of what it was 15 years ago. A quarter of a dinar, 25 piasters, or the price of one print of the daily paper itself. Its market cap has dropped to 2.5 million JODs. To the average person, this looks like the chart of a company that went bankrupt or a penny stock.
And who are the poor bag-holders left holding this company: well the largest at 54.92% is none other than Jordan’s retirement fund, the investor of last resort, the sleepy passive investor who sends its useless board members to meetings to have lunch: the Social Security Corporation.
Source: Security Depository Center
Let us look at what happened in detail: is the fall in share price justified? Or is there hidden value and opportunity to be seized? What happened in the past decade???
All information gathered will be from Jordan Press Foundation’s Annual reports that are available here.
The beginning of the end: in 2011, the board decided to invest and upgrade its printing facilities at a cost of 33 million JODs. Why wouldn’t they? The company was comfortable with the performance of the company with the group having made 25 million in revenue and 5.6 million in profits. They literally had the cash for it and knew that it was a solid idea: upgrading its printers is a sure way to keep up. It’s old machines were costing more in terms of ink and paper as well as maintenance. The investment made sense.
With an investment of that size, any investor would expect some good returns.
How did the newly refurbished printer perform?
As seen in these charts, the printing division did very poorly: it reached a maximum of 3.4 million in 2017, dropping to 800k in 2020. This was an abysmal performance.
But one would guess that the other divisions of the company, mainly the backbone of the company (Al Rai), would still remain stable and make up for the losses of the other divisions. Unfortunately, from 2015 until 2019, the revenue of ad sales in the newspapers dropped 50%. Subscriptions remained relatively stable.
But what was the cause of the massive drop in ad revenue? There are many exaplanations/speculations: mainly that the country was facing economic hardships due from the Syrian Civil War (this is literally the introduction to every publicly traded company during this decade) and the lack of faith in print media in reaching a target audience of advertisers.
However, Al Rai did remain operationally profitable. It wasn’t until you add the cost of depreciation of the investment that everything starts to make sense. Unlike buildings that depreciate “balance sheetly” at 2%, Machinery & equipment have a depreciate rate of 8-9%.
The newspaper couldn’t play catch up with the cost of depreciation. Now the toll of the printing investment is weighing heavily on the P&L statement.
Losses started to accumulate, wiping out half of the original equity.
KPMG came into the picture halfway through the decade and suggested a turnaround plan. The freshly appointed Chairman of the Board, Ayman Al-Majali, has tried to branch off or find alternative ways to spin off the printing division or find new revenue streams. 2 years after his appointment in 2020, he submits his resignation and investors are still waiting to see any fruits of his so-called achievements. What happens next is even more pathetic: the company had to sell the land and buildings of its own headquarters to the Social Security Corporation.2
It seems that the company is still scrambling as until now, they have not released their quarterly earnings nor their audited yearly financials. The public only hears press releases that the government intends to help the news print sector (Al Rai and Al Dustoor mainly). With the rise of paper prices and ink, the impact of COVID-19 on the economy, shareholders and investors are looking for a sign (other than its daily print) from the company that it has things under control.
Something strange is going on … This company will need either a big bailout from investors or the government. Or a Lazarus miracle and good management to get it back on track.
It would be such a shame! The company had (and still has) great potential to become a big media player in the country and the region. And it all went to waste because of bad circumstances and board member short sightedness.