SalMar ASA
OSE:SALM
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SalMar ASA
Earnings Call Analysis
Q3-2024 Analysis
SalMar ASA
SalMar reported an operational EBIT of NOK 1,041 million for Q3 2024, down from NOK 1,378 million in the previous quarter, largely due to biological challenges impacting fish growth and costs. Notably, even as the volume harvested increased, operational EBIT was negatively affected by a NOK 337 million drop in compared to the previous quarter. A notable point is that despite seasonal price reductions in Q3, SalMar's price achievement, aided by a high proportion of contract sales, fell less sharply than the spot price. This is a key factor for investors, demonstrating the strength of their contracted revenue model.
During the quarter, SalMar harvested a total of 60,300 tonnes including their operations in Iceland and SalMar Aker Ocean; however, significant biological challenges like high sea temperatures, sea lice pressures, and jellyfish incidents adversely impacted operational performance. For example, the company harvested 38,200 tonnes in Central Norway, achieving an EBIT per kilo of NOK 12.7, while Northern Norway saw an EBIT per kilo of NOK 10.4. These figures signify operational efficiency, yet they underscore the biological vulnerabilities faced by the firm.
Looking ahead, SalMar has adjusted its volume guidance for 2024 to 135,000 tonnes, revising it down due to anticipated ongoing biological challenges. Management expressed a cautious tone, reflecting uncertainty with the expected operational environments and aiming for a recovery with aspirations of growth into 2025. This anticipated outcome is critical for investors, as growth is a pivotal aspect of any investment thesis.
Despite the operational challenges faced in 2024, demand for salmon remains robust. SalMar's leadership conveyed optimism regarding their sales pipeline for 2025, highlighting forward pricing trends and ongoing customer engagement that reflect appetite for their product. They believe that global supply growth will remain limited, which, combined with strong demand, positions them well for potential price stabilization or increases moving forward. As an investor, understanding market dynamics and demand-supply scenarios will be crucial for evaluating future revenue prospects.
SalMar has laid out an ambitious strategy to enhance operational efficiencies and drive growth, including a plan to realize NOK 1.2 billion in yearly cost reductions across their operations by 2029. This strategy includes organic growth, optimizing their distribution, and investments in new technologies, which should all contribute to enhancing profitability. The emphasis on improving fish welfare and reducing costs showcases a proactive approach to sustainability and efficiency—which could resonate positively with investors focused on long-term value creation.
In Q3, SalMar invested NOK 1.785 billion, focusing on growth and value creation strategies while maintaining strict capital expenditure discipline. Notably, they have acquired additional shares in companies that strengthen their competitive position. These strategic moves effectively position SalMar to capitalize on market opportunities and mitigate risk moving forward, thus promising growth prospects that are always appealing from an investor’s viewpoint.
At the end of Q3 2024, SalMar reported a total capital of NOK 54.9 billion, with current liquidity of NOK 6.2 billion. The net interest-bearing debt stood at NOK 19.7 billion, with a leverage ratio of 2.5x EBITDA including leasing. Therefore, while the financial impacts of operational challenges weighed on short-term performance, the solid balance sheet coupled with optimistic growth strategies provide a reassuring picture for investors considering long-term commitments.
The leadership's outlook for Q4 2024 includes expectations for slightly lower costs compared to Q3, positioning SalMar for improved operational performance moving forward. They also remain vigilant in managing risks associated with biological threats such as lice pressure and environmental impacts, which have haunted production metrics in recent times. As these challenges continue to evolve, understanding SalMar’s adaptability becomes essential for investors looking at potential volatility.
SalMar's recent earnings call reflects a company navigating through difficult biological challenges while maintaining a robust financial outlook. With solid market demand, strategic efficiency initiatives, and commitments to growth, SalMar represents an intriguing investment opportunity even in a challenging environment. However, potential investors must consider the ongoing challenges facing biological production and monitor the implementation of their strategic initiatives closely.
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Good morning, everyone, and welcome to the presentation of SalMar's results for the third quarter of 2024. My name is Frode Arntsen, and I am the CEO of the company. And with me today, I have the CFO, Ulrik Steinvik. At SalMar, it's about producing salmon on the salmon's terms. It involves systematic work day in and day out, the right location, the right smolt, the right technology, the right feed and the right handling by people who care.
This is the core and guiding principle at SalMar, and it has allowed us to take good care of the salmon throughout a challenging quarter and deliver a relatively decent financial result. However, we have been through a challenging period, particularly related to ripple effects of jellyfish, high sea temperatures and high lice levels. This naturally affects the operational choices we have to make and the biological performance we need and the biological performances.
We need to continue and strengthen the work SalMar has been doing since 1991, ensuring good interaction with the environment we operate in to optimize for fish, people and profit. We have a fantastic starting point in Norway with the Gulf Stream and our coastline. We live and breathe every day in the home of the North Atlantic Salmon, and we have fantastic opportunities ahead of us. All these are things we will return to throughout this presentation.
And the presentation will follow the same order as before. I will take you through some highlights and the operational results before CFO, Ulrik will take you through the financial update. Finally, as mentioned, I will focus on how we are adapting and strengthening the value chain in Norway. This will lead us to the volume guidance for 2025 and the outlook.
In total, we harvested 56,400 tonnes in Norway at a margin of NOK 19.2 per kilo. For the Norwegian operations, we delivered an operational EBIT of NOK 1,082 million. Including Icelandic Salmon and SalMar Aker Ocean, we harvested 60,300 tonnes in the quarter with an operational EBIT of NOK 1,041 million at a margin of NOK 17.3 per kilo.
We have also taken steps to strengthen the value chain, including the purchase of a controlling stake in Knutshaugfisk in Central Norway. But as mentioned initially, the biological challenges have affected the volume for 2024, which we must reduce in Norway. However, we expect growth into '25 and have clear growth ambitions for the coming years, which I will return to.
In summary, the financial results is acceptable for the quarter, but biologically and operationally, the quarter has been challenging.
To give you a bit more details, I would like to go through the operational update, starting with Farming Central Norway, where we harvested 38,200 tonnes with an operational EBIT of NOK 483 million, resulting in an EBIT per kilo of NOK 12.7. The result is affected by biological challenges. When we were here on stage in August, we had just completed a record-breaking July in terms of growth. But as temperatures remained high for an extended period, we did not achieve the desired growth. At the same time, there was high lice pressure at the beginning of the period and with the introduction of an ISA zone outside Frøya, we had to harvest some fish earlier than planned, resulting in lower average weight. During the period, we mainly harvested from spring '23 generation and started harvesting from the autumn '23.
Looking ahead, we will continue harvesting from the autumn '23 in the fourth quarter. And as you may have noticed, we have had sporadic visits from jellyfish around [ Smyrna ] in production area 6. This will affect us somewhat in the fourth quarter. But so far, the attacks have not led to significant destruction of fish in the sea. However, we have harvested some individual pens at a lower average weight than desired to maintain the fish welfare. Despite the challenges, the biological status of the fish in the sea is, for the moment, satisfactory.
The cost level in the fourth quarter is expected to be at the same level as in the third quarter. As a result of the challenging -- challenges mentioned, we are lowering the volume guidance for 2024 to 135,000 tonnes.
In Northern Norway, we harvested 18,300 tonnes in the quarter with an operational EBIT of NOK 190 million and EBIT per kilo of NOK 10.4, compared to previous quarters, price achievement is better due to fewer challenges related to downgrades throughout the quarter. However, like in the Central region, the North is also affected by biological challenges.
The beginning of the quarter was marked by the aftermath of jellyfish attacks earlier this year and particularly in PO10, including [indiscernible]. There were record high temperatures during the quarter. This has affected growth. And in addition, it led to high lice pressure towards the end of the quarter. The lice pressure forced us to harvest fish with low average weight in September, which affected price achievement in the quarter. During the period, we completed the harvesting of the autumn '22 generation and started harvesting from the spring '23 generation.
Looking ahead, we will continue harvesting from the spring '23 generation and will also harvest some individual groups from autumn 2023. Despite the challenges, the biological status of the fish in the North is good compared to earlier this year. And given that we do not experience significant jellyfish pressure so far this year, the status looks much better heading into the winter season.
In the fourth quarter, we expect a slightly lower cost level than in the third quarter. We have locations that are performing very well. But at the beginning of Q4, we harvested some fish earlier than planned due to the mentioned sea lice challenges which means that the cost reduction will not be as significant as we had anticipated. However, 2024 has been a very challenging year for the North with jellyfish, high temperatures, high lice pressure and weak growth, which in some means that we are lowering the volume guidance for 2024 to 82,000 tonnes.
The Sales and Industry segment delivers an operational EBIT of NOK 464 million. This is a historically good result where we have achieved good capacity utilization of our facilities. I have said it before and to repeat, the structure we have with high capacity on harvesting and local processing capacity near where we operate farming clearly shows a strength in our value chain. The facilities assist farming in handling challenging by managing large volumes in a short time, while secondary processing ensures we utilize the fish in the best possible way.
Spot prices were expected to be lower in the third quarter and with a high contract share of 37%. This gave us a positive contribution on the contracts during the period. At the same time, the sales team managed to handle spot sales well, so the price we achieved for our fish in the market was good. In fourth quarter, we expect higher volumes through our facilities and the contract share will consequently decrease somewhat to around 28%.
We still see a strong market for salmon. Forward prices also indicate this and the dialogue we have with customers shows that they want even more fish for 2025.
Let's move on to SalMar Aker Ocean, which harvested 2,100 tonnes during the period with an operational EBIT of minus NOK 7 million and EBIT per kilo of minus NOK 3.2. The remaining harvest volume for '24 was harvested in the third quarter with the volume coming from a site operated by the Central Norway segment. This fish was harvested towards the end of the period, the period with the lowest spot price, which means that the result was not as good as expected.
The segment now has two semi-offshore units in operation. Arctic Offshore Farming stocked fish in August and Ocean Farm 1, as previously mentioned, stocked fish in May, June this year. Both units have had good development so far in their cycles, and it is expected to harvest from these units in the first half of 2025.
We have experienced good biological performance on the fish that have been harvested from our semi offshore units, low mortality, high growth and few lice treatments. This gives us increased confidence in the further potential of offshore farming. At the same time, the work on possible international establishment is also progressing according to plan.
Let's move to the harvest yards in Iceland where we harvested 1,800 tonnes in the quarter with an operational EBIT of minus NOK 35 million and EBIT per kilo of minus NOK 20. As expected, a weak result influenced by the low harvest volume and biological challenges we have had at sea, resulting in a high cost base for the fish we have harvested. Production at sea has been more stable in the quarter compared to previous quarters and the smolt that has been released has performed well.
Looking ahead, we expect a somewhat lower cost level in the fourth quarter, where we will harvest a higher volume, which will improve capacity utilization in the value chain. The expected volume for '24 remains unchanged at 13,000 tonnes.
As many of you have probably seen, the sterile licenses for 10,000 tonnes MAB were withdrawn in the fourth quarter due to an appeal related to the decision from the Food and Veterinary Authority on Iceland. We have good dialogue with the authorities and are working to have the licenses approved.
Our joint venture in Scotland, Scottish Sea Farms, continue its good development. In the quarter, we harvested 11,900 tonnes with an operational EBIT of NOK 90 million and EBIT per kilo of NOK 7.6. The trend of good results on harvested fish continues in the third quarter. High harvest volume in the period with a very good average weight of the fish over 5 kilos gutted weight has yielded good results, both in terms of cost level and price achievement. The company also reports continued good biological status in the sea, where the next generation of fish to be harvested are doing well in all regions. As a result of the good performance, the volume guidance for '24 is increased by 3,000 tonnes up to 40,000 tonnes.
With this, I have come to the end of the operational update, and I now want to give the word to Ulrik, who will take you through the financials.
Thank you, Frode, and good morning to all of you. At the last quarterly presentation, we communicated that the biggest uncertainty we saw for the third quarter was the uncertainty regarding the sea lice situation. This was especially due to the high sea temperature we had experienced so far at that time in the quarter. This financial update will show that both temperature and the sea lice situation have affected the numbers. But at the same time, the solid and efficient setup in SalMar demonstrates an ability to reduce the financial consequences of challenging situations. However, the impact on biology is present, which results in both increased cost per kilo and a reduction of volume for the rest of 2024.
The financial position is still robust and is a solid base to further develop the business in the coming period so that we can both increase volumes and strengthening the value chain. As communicated in a quarterly presentation earlier this year, we started with a new improvement and strategy program this year. I will return at the end of my presentation today with an update on the results from this process.
Let's first take a closer look at the profit and loss statement. At the top right, we see that the operational EBIT is reduced by NOK 337 million compared to the second quarter from NOK 1,378 million to NOK 1,041 million. Higher volume increases operational EBIT by NOK 510 million. As expected, the price level is seasonally lower in Q3, but it is worth noting that the drop in SalMar's price achievement is not as significant as the drop in the spot price during the period. This is due to the high contract share as well as less downgraded volume. However, lower average weight due to some earlier harvesting because of the sea lice situation reduces the price achievement.
Furthermore, we see from the graph that the reduction in operational EBIT is also affected by somewhat higher costs in the quarter, amounting to NOK 218 million. The lower average weight also leads to increased cost per kilo. Additionally, costs are affected by increased feed costs due to the harvested generation having the full effect of higher feed prices in recent years as well as somewhat higher costs related to sea lice treatment.
Iceland and SalMar Aker Ocean contribute a positive change of a total of NOK 51 million. The change is mainly explained by higher volume. Unfortunately, activity on Iceland is also weak this quarter, but we see signs of some improvement in the fourth quarter.
Moving to the profit and loss statement. To the right, I will comment on the main points for the third quarter 2024. EBITDA was NOK 1,462 million and operational EBIT was NOK 1,041 million. Production tax in Norway and resource tax on Iceland amount to NOK 60 million, an increase from the second quarter due to increased volume.
From third quarter, we have chosen to change the presentation of the profit and loss statement in line with other industry players. This means that nonrecurring items related to lawsuit, restructuring and decommissioning are presented on a separate line. This affects the result by minus NOK 76 million. In the period, it is mainly cost related to the decommissioning of the cleaner fish activity that caused this.
Due to higher biomass, net fair value adjustments are positive and increased the result by NOK 273 million. The higher biomass is positively influenced by higher number of fish in sea.
Result from associated companies was minus NOK 20 million. This is explained by negative fair value adjustment of the biomass as the underlying operations in the Scottish Sea Farms were good. The other material associated companies, Hellesund and Wilsgård Fiskeoppdrett also contribute negatively due to negative fair value adjustments of biomass.
Net financial items were minus NOK 319 million, higher than the previous quarter due to increased interest costs as a result of a higher debt level. In total, this gives a profit before tax of NOK 839 million. Ordinary corporate tax and resource rent tax for the third quarter amount to a total cost of NOK 579 million. And for further details, you can see the notes to the report, which provide a more detailed breakdown. The profit after tax is, therefore, NOK 260 million for the third quarter of 2024.
Now let's move on to the balance sheet, where financial key figures remain robust. Total capital has increased with NOK 2.1 billion from the previous quarter to NOK 54.9 billion. Fixed assets have increased with NOK 567 million and current assets increased with NOK 1,527 million. Fixed assets have increased due to investments in MAB through the traffic light system auction and planned investments in fixed assets across the value chain in the group.
Investments are, as previously guided, at a lower level compared to previous periods and focused on selected investments related to fish welfare and processing capacity.
Current assets have increased mainly due to our focus on building biomass. The biomass is higher than at the end of the previous quarter, but lower than at the same time last year due to not achieving the planned and desired growth, affected by the previously mentioned sea live situation and the high temperatures. However, it is worth noting that the number of fish in the sea has increased significantly from the previous quarter and also increased from the same time last year. This gives us a good basis for further growth and thus increased volume in 2025.
During the period, we acquired rest of the outstanding shares in the Refsnes Laks. Accounting rules for such transactions resulted in equity now being 35%, a level that is still well above our financial covenants of 30%.
Net interest-bearing debt, including leasing, has increased to NOK 19.7 billion, with a key figure for leverage need, including leasing on EBITDA has increased to 2.5x. Without leasing, the leverage is 2.3x. At the end of Q3 2024, we have NOK 6.2 billion in available liquidity in the group.
Overall, the balance sheet, the financial key figures and the available liquidity show that we have -- still have a financial position that makes it possible to seize the growth and value creation opportunities that arise, opportunities we have always been able to seize in SalMar. I will also comment further on this later in the presentation.
I will briefly explain the change in net interest-bearing debt, including leasing in the quarter. We started with a net interest-bearing debt, including leasing of NOK 18,646 million. During the period, we had a cash flow from operations where EBITDA was NOK 1.5 billion. Payment of taxes amounted to NOK 12 million in the quarter, and the change in working capital was NOK 247 million, where working capital has increased as a result of building biomass and increasing inventory. Total investments amounted to NOK 1,785 million in the quarter. The majority of the investments of NOK 1,785 million in the quarter are NOK 1,362 million in investments related to growth and value creation. This consists of increased MAB, acquisition of noncontrolling interest in Refsnes Laks and changes related to SalMar Sea. Investments in fixed assets amounted to a total of NOK 423 million.
As mentioned in previous presentations, our other investments are lower in 2024 after that our expansions on the smolt side have been completed. We have always had and will continue to have strict CapEx discipline in SalMar. At the same time, we are able to focus on and facilitate investments related to increased efficiency in production or investments that contribute to growth.
The NOK 423 million in CapEx in the quarter, therefore, consists of both maintenance investments across the group's value chain as well as investments related to increased efficiency and investments aimed to improve fish welfare. When we take into account the amount spent on interest and leasing payments during the period, we end up with NOK 19,720 million in net interest-bearing debt, including leasing at the end of the third quarter of 2024. This is an increase of NOK 1,073 million in the quarter.
SalMar is a growth company, and we are always looking for good opportunities for profitable growth in the areas we operate in. We recently entered into an agreement with the owners of Knutshaugfisk, securing us controlling interest in the company. The settlement is 80% in shares and 20% in cash. Knutshaugfisk currently has 3,464 tonnes of MAB in licenses and four farming sites in production area 6 in Central Norway.
The transaction provides opportunities for further growth close to existing farming areas in Central Norway and sharing synergies and further development of existing activities. As mentioned, we will gain a controlling ownership interest, which means that the result will be consolidated into our results from January 2025, provided that the necessary regulatory approvals are obtained. We are pleased to see that several good farmers find it attractive and value adding to switch to shares in SalMar.
We have also recently entered into an agreement to sell our 66% stake in Osan Settefisk. Through the expansion we have made on the smolt side in recent years, we are self-sufficient with smolt and thus have significant overcapacity. Optimization of structure and capital is a continuous focus, and we concluded on the sale of our stake in Osan now in the fourth quarter. The sale will have a positive effect of NOK 660 million. As a part of the transaction, Flatanger Settefisk will be an associated company in SalMar.
As mentioned earlier, we have also increased ownership in both Refsnes Laks, Hitramat Farming, and Øylaks. This provides a better basis for further optimizing operations and thus increasing value creation. Overall, this shows that we have a clear approach to how we structure our business with a purpose to create the best results. At the same time, we demonstrate the ability to carry out acquisitions that give us opportunities for profitable growth in the value chain.
Integration and synergy realization have been important and prioritized work in SalMar throughout 2023. This work was completed early 2024, and we started the work to further optimize and develop the new SalMar at all levels throughout the value chain. Through this work, we aim to create shareholder value by being best in operations, achieving profitable growth and maintaining appropriate financial capacity.
We have done such work earlier, both in the last strategy period and then realizing synergies after the NTS, NRS transaction with results we believe are not coincidental. We are, therefore, confident that this process will further strengthen an already strong improvement culture and that it will contribute to achieve measurable results. Through this year's work, we have identified a potential of NOK 1.2 billion in yearly cost reductions in the value chain. As you can see from the graph on the right, 77% is related to the operational structure.
One concrete example is the decommissioning of the cleaner fish activity. After using this for several years, we clearly saw that we did not achieve the desired effects in terms of both fish welfare or cost. Therefore, we decided to phase it out. Over time, we will phase in other forms of preventive sea lice measures that will give us better results in terms of both fish welfare and reduced costs.
Additionally, we challenge ourselves to find more efficient ways to solve tasks than we do today. This includes strengthening robotics and automation in the future to relieve manual tasks in the value chain. This work started in 2024, and we expect to realize these effects by 2029.
In addition to the identified potential for cost reductions, further value creation will occur through scale effects from both organic and strategic growth, better price achievement through optimization of the distribution of the fish, changes in the raw material use and impact on the raw material price, and biological effects from investments and measures throughout the value chain from genetics to feed and production in sea. Over time, both salmon prices and the raw material prices will vary.
Our focus is, therefore, on the things we can control. We aim to be the most cost-effective farmer, providing the highest total return to shareholders through profitable growth, operational efficiency, a robust balance sheet and a strong corporate culture.
And with these words, I have come to the end of my part and would like to hand the floor back to Frode.
Thank you for the update, Ulrik. The challenges we have experienced the last year affects us. Jellyfish, environmental conditions, disease and lice pressure impact a number of factors that have negative consequences on both biological and financial results. And not least, it affects fish welfare and our employees who have to solve all situations every day. And to handle this, SalMar must ensure optimal interaction between environment, fish and people. And this is not new to us in SalMar. There is ongoing work every single day throughout the value chain to do things better than we did yesterday.
Everyone at SalMar wants to develop this fantastic industry we are a part of. It is about having knowledge and building a value chain that precisely takes into account and ensures further sustainable growth in the aquaculture industry. It requires a knowledge-based approach and not just ad hoc reactions to individual events. SalMar may have been a bit unlucky in the past year where jellyfish first hit the more exposed locations in Northern Norway. But over time, we are confident that being more exposed at the best locations and producing on the salmon terms is where we want to be.
We must not let a snapshot destroy the fundamentals of salmon farming, namely using our natural advantages with clean oxygen-rich sea and a Gulf stream that constantly brings us new clean and free sea water. For it is there that the best conditions of farming should be on the salmon terms in an eternal perspective.
To give you better insight in how we systematically facilitate the salmon terms at SalMar, I would like to go through the steps we take to strengthen the value chain to give our salmon the best opportunities to succeed, ensure good quality and realize the harvest volume potential in our licenses. This may be a repeat to some of you, but still it is a very important message from SalMar.
We are taking both short-term and long-term measures to ensure our production is on the salmon terms. In the long term, we are working to ensure that we have the best genetics through our own breeding program, focusing on robust qualities, resistance to lice, disease resistance and growth. To succeed at sea, we depend on robust smolt adapted to the areas where they will be transferred.
Here, we use new vaccines like the new winter wound vaccine, along with other vaccines in more and more advanced vaccine programs. Additionally, our large smolt capacity allows us to adapt our production strategy to test different strategies for producing the optimal smolt. Through close collaboration with our feed suppliers, we develop our own feed recipes tailored to the nutritional needs of the salmon. At the same time, there is rapid development in technology for monitoring the feeding, which over time can yield existing results.
We have all the different production technologies in operation along the coast, where we have spent a lot of time analyzing what is the right technology for each and every location and for which stage of the production cycle from post-smolt to full production cycle. Until now, we have focused on testing different technologies. But going forward, we will have more zone focus where we will deploy production forms in entire areas to reduce the overall lice pressure.
We plan, among other things, to submerge entire areas with locations adapted to this technology. We also use preventive methods to reduce lice pressure. Ulrik mentioned that we are ending cleaner fish production, and we will now have entire areas with lice lasers as we have seen good results with this so far. At the same time, we ensure treatment capacity and strengthen violence so that we can take corrective measures earlier when necessary.
We also streamline and strengthen our harvesting and processing capacity so that we can handle the fish optimally when it's ready for harvest and maximize value creation.
And last but not least, we are a contributor to R&D development, where we will find new insights, close knowledge gaps, improve fish welfare and feed factor and thereby contribute to ensuring production even more on the salmon's terms, both through Salmon Living Lab, but also by contributing to several research projects in the industry.
All these are concrete examples of what we do and how we work at SalMar. We already see that several areas have given us good answers, but we want to scale this up going forward and ensure that we use the right tool at the right time in the right area.
As we have said before, biological production is not an Excel sheet. We must have good interaction with the environment we operate. And in and be at the forefront with new knowledge and technology that will improve our most important input factor, namely the salmon. This is how we continue to stay in pole position, ensure the best fish welfare, the best quality, the lowest production cost, realize our ambitions for volume and ensure the best profitability.
As Ulrik also mentioned, we have more number of fish in the sea at the end of third quarter compared to last year, which give us a good basis for increased volume in 2025. And together with the measures we are taking and have taken in the value chain, this gives us a good foundation for 2025.
In Norway, we expect 254,000 tonnes, an increase of 37 tonnes from a reduced '24 volume. Offshore, we expect 9,000 tonnes, an increase of 2,100 tonnes, where we ramp up volume to realize the potential. In Iceland, we expect 15,000 tonnes for next year, an increase of 2,000 tonnes. Modest growth influenced by the challenges in '24 and the focus will be on building biomass. For Scotland Sea Farms, we expect 32,000 tonnes for next year, a reduction of 8,000 tonnes. The reduction is a result of optimizing smelter release in autumn '24 into 2025. In total, we therefore expect to harvest 294,000 tonnes considering our relative share in the U.K. This represents a 14% increase from 2024. And we have untapped potential that we will realize by 2028. Through the purchase of a stake in Knutshaugfisk and Traffic Lights earlier this year, we also increased the total potential to 370,000 tonnes, where the increase comes from Norway.
And then let's move towards the end of the presentation. The guidance is summarized on the right side of the slide. For '24, global supply growth is expected to be very limited. And for 2025, global supply growth is still expected to be low. As mentioned, we continue to see strong demand for our products in the market, underlined in ongoing contract processes. And we at SalMar are optimistic about the future.
We still believe that we are just at the beginning of an industrial adventure within aquaculture that can help feed the growing world population.
We will ensure that we do our part of the job so that we can utilize the strong platform we have at SalMar. I know that we have an organization that is passionate about the work they do and the salmon in our value chain. And every single day, they work hard to ensure that our salmon have the best conditions to succeed. At the same time, the improvement and strategy program that Ulrik mentioned will ensure that we strengthen our competitiveness in the years to come and maintain SalMar's position as a leading farmer. All SalMar employees are truly motivated for this job.
With this, we have come to the end of the presentation. Our next presentation is in February. And I hope everyone has a nice Christmas and a New Year celebration with lots of good salmon on the menu together with your loved ones. Thank you very much for your attention.