February 26, 2020 / 2:23 AM / in a month

Dentsu's shares slide to seven year lows on Olympics cancellation fears

TOKYO (Reuters) - Dentsu Group Inc’s (4324.T) shares slid for a sixth day to seven year lows on Wednesday, with the spread of the coronavirus raising worries that the Olympic Games in Tokyo will be cancelled and bring pain for Japan’s largest ad agency.

The logo of Dentsu Co. is seen at the entrance of the company headquarters in Tokyo July 12, 2012. REUTERS/Issei Kato/Files

The virus epidemic has roiled global markets as investors worry about its economic impact. Japan's benchmark index .N225 declined 1% with Dentsu falling as much as 2.6% and down almost 20% year-to-date.

Dentsu is deeply involved in the planning and operation of the upcoming games and had been anticipating a big boost to its earnings as Japan Inc ramps up advertising spending ahead of the once-in-a-generation event.

Officials have denied the Olympics will be postponed or cancelled. But Tokyo has been forced to postpone training for volunteers, with large scale events impacted such as the Tokyo Marathon, which has been cancelled for entrants from the general public.

Dentsu plunged to an annual operating loss in the year ended December - the first in its more than 100 year history - hammered by poor performance at its Asia business and underscoring its dependence on the domestic market and its plump margins.

“The only saving grace for Dentsu was the Olympics. The industry is going through a seismic shift and can Dentsu pull it off?” said Amir Anvarzadeh, market strategist at Asymmetric Advisors.

Dentsu dominates both media buying and advertising in Japan but has been slow to embrace the shift to digital advertising and is struggling to extend its reach overseas following the 2013 acquisition of Aegis Group.

The ad agency pulled in record domestic sponsorship revenue of more than $3 billion for the 2020 games and has secured key contracts for milestones like the upcoming torch relay and opening and closing ceremonies.

The coronavirus threat to the games was underlined on Tuesday when Dentsu announced an employee at its Tokyo headquarters has been diagnosed with the virus.

The ad giant has ordered employees to work from home, part of a broader shift to teleworking by corporate Japan to try and halt the spreading virus.

Dentsu pledged to reform its work culture following the suicide of a young employee three years ago but in January a creative director involved in planning the Olympics ceremonies was punished for bullying.

Reporting by Sam Nussey; Editing by Muralikumar Anantharaman and Christopher Cushing

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