Change in market strategy penalised Bakkafrost in the fourth quarter

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The choice to have a lower contract share while being closed out of Russia became an unfortunate coincidence for the Faroese salmon farmer.

“We are very disappointed in this fourth quarter. Looking at the whole year, Bakkafrost is reasonably good compared to the sector otherwise, but the second half has been disappointing for us.”

This is what CEO Regin Jacobsen told SalmonBusiness during Bakkafrost’s quarterly presentation at Hotel Continental in Oslo on Tuesday.

Bakkafrost opened more than 10 per cent down on the Oslo Stock Exchange after the presentation of the quarterly figures.

Read more: “Difficult market conditions” dampen Bakkafrost results

A number of unfortunate coincidences
Difficult market conditions were the main reasons behind Bakkafrost’s dampened results.

“We had some market-related challenges in the fourth quarter, which reduced our flexibility in the market. This influenced the extra margins or the premium that Bakkafrost usually achieves in the market,” said Jacobsen.

He believes Bakkafrost was hit hard in the quarter by a number of unfortunate coincidences.

“First thing is that we deliberately chose not to be as exposed to contracts. When we at the same time opened the new processing plant in Sudurøy and did not get access to one half of the market, ie China and Russia, we got trouble. And on top of that we were completely excluded in Russia. So there are a number of unfortunate circumstances that occurred at the same time that meant that our flexibility in the market deteriorates significantly,” said Jacobsen.

Increases contract share
CEO Jacobsen said that they have been severely punished towards the end of the year because of the strategic choice to keep the contract share low.

“The price of salmon has indeed been exceptionally high and we have not been satisfied with the prices we have achieved in the contracts. Therefore, we made the choice to keep the contract share at a low level in 2018,” he said.

In 2018, Bakkafrost had a contract share of 14 per cent. It goes up again in 2019.

“We have now increased our contract share for 2019 up to 33 per cent, and it will probably be even higher,” added Jacobsen.