Demant A/S (DEMANT) Earnings Call Transcript & Summary

Good afternoon, and welcome to our conference call following the pre-announcement of our interim management statement for Q3 that we released late yesterday evening. We'll run through the presentation, which is available on our website and then we'll switch over to Q&A afterwards. As usual, we plan for this call to last no more than 1 hour, including the Q&A session. With me today, I do have our President and CEO, Soren Nielsen; and also our CFO, Rene Schneider; and myself, Peter Pudselykke, from the IR team. And without further ado, I'll turn the microphone over to Soren for his initial remarks.

Yes. Thank you very much, Peter, and welcome, everybody. Today's agenda is, first of all, a high-level introduction to key events in third quarter and financial takeaway, then we dive a bit more into the Hearing Healthcare business, the communication business. I'll speak to the cost reduction initiatives that we have initiated and at the end, of course, speak about the outlook, which has obviously changed and get back to that. Key events: The big picture is that we have changed our position and our expectation to the development, most importantly in the Hearing Healthcare market for Hearing Aids, but also Communication. We anticipated a year-end growth element that would somewhat catch up for the softness we saw in the beginning of the second half that we no longer see happening. On the contrary, we see a slightly downward trends in some of the business areas, which I'll speak to. So despite of still strong market share gains in Diagnostics and present market share gains in Diagnostics and also in Hearing Aids than contrary to our previous expectations, we do see the U.S. private market increasingly negatively impacted by macroeconomic conditions, uncertainty, user -- consumer confidence and the actual money you have in your hand, which negatively impact our business, most profoundly the Hearing Care business. the wholesale business has better opportunities of leveraging the strong position to gain share across the entire market and channels. Hearing Care is more exposed to the private pay element, not the least in U.S. In Communication, we have seen further weakening of the market for gaming headsets, and we have not seen the normal seasonality and the turn we expect here in the first quarter for gaming headsets, leading up to the season end with Christmas and Black Friday, et cetera, whereas Enterprise Solutions do better. There is still, of course, some uncertainty on whether there could be a postponement or holding back on some projects -- large-scale projects, but so far, we see the business fair -- better and not far off our initial plans. So last change is the divestment process of hearing implants to Cochlear Limited that has -- was expected to close in the end of the year. We now expect it to close in Q2, and it is due to the Spanish authorities that have asked the EU Commission to take a look on their behalf. So key financial events. The main consequence of all this is a group organic growth in Q3 of 1%, and that is below expectations. In Hearing Healthcare, it is the same 1% and in Communication, flat, 0, on last year but was a weak comparison, and we do expect a negative organic growth for the second half, so a worsening in fourth quarter. Gross margin and OpEx in line with our plans despite some increased inflationary effects, but they are still within -- reasonably within expectations and manageable. EBIT below expectations in the quarter and due to weaker-than-expected performance in Hearing Aids, Hearing Care and Communication, whereas Diagnostics performed well and also slightly above expectations. Based on this, we adjust the outlook for the year. And again, most importantly, our expectation for the fourth quarter to a previously organic growth for the group of 6% -- 4% to 6%, now 2% to 4% and EBIT range lowered with DKK 350 million from DKK 3.5 billion to DKK 3.8 billion to now DKK 3.15 billion to DKK 3.45 billion. Hearing Health care, the hearing aid market in 2022 so far, I think that's, of course, the most interesting and important. And in reality, in line reasonably with our past commentary when it comes to the unit development, we have seen a third quarter delivering an estimated 1% growth to the global market in units, which year-to-date is 6%, which, on a CAGR back to '19 is 5%. So structurally okay, if you disregard potential for pent-up demand. But underneath that, we do see a negative and -- larger-than-expected negative ASP development in the period. Due to geography, channel mix and underneath that, also some element of product mix coming from that. So more sales to government or more growth in government business, more growth in geographies due to the comp figures with a lower ASP and is basically in North America, negative -- and more negative development than expected in what you could describe as the private pay market. Growth in Europe was flat in Q3. U.K. and Germany grew slightly, so did a number of smaller markets, whereas France in line with expectations, saw slightly negative to flattish unit growth. VA and NHS continue to grow, but are still only approaching a past -- pre-pandemic levels. Hearing Aids, performance was -- despite of the 6% organic growth, which is obviously more, in our opinion, significantly more than the underlying market growth, below expectations. And it is because we do also see the macroeconomic effects come in on the Hearing Aid wholesale side. There are, of course, more opportunities to gain share across channels and geographies as we are globally exposed and in all channels and parts of the market. We continue to see a strong position for Oticon More and Philips HearLink and also our new introductions in custom pick up nicely, but in a smaller market than anticipated. And again, ASP declined slightly. So the 5%, 6% growth was purely unit growth and that without a -- or proportional share of export, et cetera, that typically sometimes then drive down the ASP. So this is ASP in real market-by-market. And it is, of course, that trend again into fourth quarter that we also comment on today. Hearing Care significantly below expectations in the U.S. private pay market. We are very exposed for that in U.S. as we, at the same time, have taken the strategic choice to leave a number of the large managed care contracts as that is not profitable for us. So you could say, put us in a little bit in a hotspot right now, as the market for private pay is under pressure. So organic growth for the Hearing Care Group in total is 5%. But if we disregard U.S., we are flattish. And that comes from positive development in many smaller European markets, U.K. and France, France for natural reasons and U.K. mostly due to local events of various kinds. Negative North America. Weak performance in U.S. and Canada saw growth, but that's back to corona comparisons, but a normalization and strong performance there. Also Australia coming back up, but still a way to go before we are fully up running there. Diagnostics, doing very well, continue to do well, continue to take share, organic growth of 12% and including FX and acquisition, impressive 31% growth. So very strong performance continues in Diagnostics. Communications. We estimate the market growth rate for Enterprise Solutions and gaming, it was mixed. Market for Enterprise saw growth in Q2, partly driven by some -- easing of some of the supply chain constraints that are consistent, which means you deliver to back orders. And also -- but more importantly, the gaming market being negative and continue to be negative, we have not seen the turn. We expected the normal seasonality have not kicked in and also not happened since Q3. So therefore, we must say, we have acquired pessimistic outlook on the gaming business and the enterprise still seem to grow nicely, but there is definitely also some uncertainty there. So no flat -- totally flat development and no indication of a recovery here towards the end of the year. So cost reduction initiatives, they come across all the 3 businesses that act in these market conditions, but with different elements. Hearing Care is primarily focused on U.S., where we, in a depressed market, have initiated a forward review of profitability per store, simply to see what is coming from that you might have been without staff for a while, what comes from a lack of demand, what comes from conversion to managed care, and it doesn't come equally across a big country like U.S. So we zoom in on each and every store. And we believe that at least 50 stores would -- we would be better off closing them and resizing the organization accordingly. In Hearing Aids, we -- in addition to an already initiated process of transferring the Bernafon brand headquarter in Switzerland to the group headquarter here in Denmark. We will be adjusting part of the central organization covering primarily R&D, a small adjustment to the organization. So then Communications is a bigger adjustment when you look at the size of the business, this is aligning the size of the organization, especially the central organization better to the size of the business we are having currently and the market conditions that we also see going forward. We have no line of sight to a significantly different development in that market. So until we see that, we will act cautiously. All in all, an assumed headcount reduction of between 150 and 200 people across the organization. And again, Hearing Aid centrally, Hearing Care U.S. and Communications also primarily centrally. So outlook assumptions. The changes are highlighted in bold. And I know there's a lot of details here, so I'll try to pick out the most important. And it is, of course, the value growth in Q3 was below our expectations, and we now see that macroeconomic uncertainties and lower consumer confidence impact growth also in the coming quarters. So we expect the total unit market for '22 to be in the low end of the structural level of 4% to 6%. And year-to-date, we are at 6%. So we do not expect a lot of growth in fourth quarter. And we expect the ASP growth to be more negative, impacted by channel and geography mix than we anticipated earlier. And this will be a drag to the value development on the Hearing Aid market here in second half. Development in France year-to-date, at least in line with expectations. So not much to report there. The weakening of the gaming market in Q3 was more profound than anticipated and expected, and we see no turn to it. And we also see still some supply chain challenges in some of the product families. It's not that they have not been redesigned and so on, but the ramp-up is still limited by access to enough components, also on some of the new designs, but we have -- we can see it coming, but not as fast as we would like. For Communications, we expect to see negative high single-digit organic growth in the second half, which means quite negative in fourth quarter. And that is because the last year, we did have a year-end effect, which we do not see this year. For Communications, we therefore now expect a negative EBIT of around DKK 225 million in opposition to the DKK 150 million we had at the last update, and that is driven by market conditions and continued supply chain changes. Mid to long term, we still firmly believe in the structural growth. There will be more gamers tomorrow than they were yesterday. There will be more people operating and working in a virtual work environment, whether it's working from home or traveling less, and also with a significant potential for adding more video facilities. So we are quite positive still there, that it will come back at some stage. But right now, it's difficult to predict. On this continued operation, we are now, as I said, initially expected to close in the second quarter of '23. We expect the negative effect this year or -- negative profit this year to be DKK 200 million to DKK 250 million. And of course, there's also a negative effect going into next year from that and also a delay of the assumed payment from Cochlear. So outlook for 2022. Organic growth 2% to 4%, previously 4% to 6%. And then EBIT guidance lowered with DKK 350 million. So now DKK 3.15 billion to DKK 3.45 billion. And then the gearing multiple, we will end the year slightly below 3.0, and we will work our way back to the 2.0 to 2.5. And to support that and also due to the lower EBIT and the delayed payment in connection with the planned divestment of implant business, we have chosen to pause our share buyback, which by end of October, amounts to DKK 1.84 billion. So I guess that was it from my side, and we go to Q&A.

[Operator Instructions] We'll take our first question from Maja Pataki.

This is Maja. Just very quickly, there has been a lot of talk or a lot of hopes basically saying that the U.S. private pay market should have easier comparison. We're looking at 2021 and therefore, growth should be picking up. I was wondering whether you could give us some numbers for the month of October, if you have it? And whether something -- whether the base effect doesn't -- didn't start to play in? And then on the second question, in your press release, you mentioned that it proved to be more difficult to substitute to manage care patients with private pay patients. I was wondering whether you have the impression that this is only due to the fact that the private pay market is really so soft? So what do you think that there might need to be some reshuffling on the employee side as well because some of your audiologists were just getting used to having the managed care patients coming in?

Yes. Thank you, Maja. No, we don't have a market statistic for U.S. in October, but still interpretating a little bit on our own numbers, then we do expect that we will still see a negative development compared to last year on the commercial element. The private pay element is not a reported number. It is our own estimate, best estimate by estimating different channel developments. But yes, I would both expect a negative development to the commercial market, and I would also, underneath that, expect a continued negative development for private pay. And to your point of whether there's also a habit element, there's always change. But I think it is a matter of training and so on. It is -- it is I would say a bad combination of going for more private pay and then at the same time, have a declining market. And then there is an element of geography exposure as well. We have never, I would say, diligently chosen where to have our stores and U.S. is a big country. And there are significant differences across geographies in the U.S. of how big the managed care element is and how the sensitivity is to the private pay element and it's in that light that the store review is taking place.

Our next question is from Oliver Metzger with ODDO BHF.

First one is, where do we stand right now with the price increase at Hearing Aids. So you mentioned the negative ASP pressure. So to which extent did price increase already support you in the current situation. So I hope you could give some more color on that. Second question is on the gaming market. So you still describe quite tough development and Communications as a whole was flattish. So if you compare your gaming to the overall gaming market, do you still see meaningful underperformance? Or what's your takeaway versus the market?

Yes. Thank you very much, Oliver. We have applied price increases, as previously announced. And yes, we have seen an effect of that -- a positive effect of that. So it is mix development and it's channels, it's geographies, and it's always difficult to see whether there is a mix effect or whether that's because you introduced the mid-priced products not long ago. But we do see mix effects. I'm just cautious to say whether it's a market-driven or our own performance. But yes, there's also a mix effect. So it's all coming from that and that the growth is very uneven or opposite, even in different channels. So there is a movement from higher-priced channels to lower-priced channels. They are. We can see that in countries where there is alternatives, whether it's public or shifting to some kind of more reimbursed system paradigm, then there is a clear trend towards that, and that is part of DSP. The gaming market, we have no data that can tell us that precisely whether it's us, but everything we see from other people announcing and speaking to it, which seems to be in line with the general market. We don't have more details on that.

Our next question will come from Christian Ryom with Danske Bank.

I have 2 as well. So the first is on Hearing Care and whether we should expect organic growth rates to remain in negative territory here in Q4 despite somewhat easier comparisons. Whether you can help clarify that? And the second question is to the gross margin. So in the release from last night, you say that the gross margin has improved relative to the levels seen in first half. Should we expect that improvement to remain through the second half? Or is there anything to consider, say, indicating that the gross margin should deteriorate towards the end?

Thank you, Christian. And here and there, you all have a fine point on the comps. So no, we expect more of a flattish development in Q4 on Hearing Care. And then I think I'll leave it to Rene to [indiscernible].

No. Well, but the broad takeaway on the gross margin is that I think the level that we have seen so far in second half year is also what we estimate for the full year. So -- i.e., the slight improvement over first half year, we estimate to be sustainable for the full second half year.

Our next question will come from Hassan Al-Wakeel.

I have 2, please. Firstly, following up on current trading. The new guidance implies quite a large range around Q4, spanning down low-single digit to up mid-single digit. So how are you thinking about the key scenarios driving the top and the bottom end of organic growth guidance for the fourth quarter? And is this clearly a function of U.S. commercial? Or are there any other factors that we should be aware of? And secondly, given your commentary around macro headwinds no longer being temporary, and your firm assertion that it was previously in stark comparison with some of the peers, even very recently. Do you now see a protracted impact well into next year? And should we assume that the normal market growth rate is unlikely in '23 should the macro not improve?

Yes. Thank you very much. Well, there is a spread and uncertainty and it reflects an uncertain world. I think the uncertainty comes with the businesses where you have seen the biggest uncertainty so far, meaning it is the Enterprise business, it's our Communications business. It is Hearing Care, most importantly, in U.S., it is both the most uncertain market development, and it's also our biggest exposure in Hearing Care and therefore -- so that is reflecting that. And a macro headwind next year, we cannot speak for the full year. We don't know how things are going to develop on a full year basis, but there is, of course, not a quick solution January 1. So we do anticipate that we will also see some of this dragging into next year. But so far, we cannot say and how long, I think very few people can predict that, and I would not be one of them.

That's very helpful. And if I could just follow up on what you're seeing currently. You obviously talked about mix geographical and some product mix. How significant, if at all, is down trading as a factor?

Again, it's very difficult to talk about down trading. When we look in our own retail, it's not a very profound. So the mix changes are much bigger coming from geography being -- U.S. being not growing, other markets growing more. Asia growing because they still are coming out of corona comparisons, et cetera. So these effects are much stronger. The product mix is also because, as I said, we ourselves have introduced new mid-priced products and therefore, maybe gain a bit more share there than we do in the high end where we introduced longer ago. So it is very difficult to talk about the trade down and measure that.

Our next question will come from Chris Gretler with Credit Suisse.

Good afternoon, Mr. Soren and Rene. Two questions. First on this implant divestiture. Is there any risk that you will get stuck with this business? And is -- could you indicate was kind of market share combined you and Cochlear would have in the Spanish market? That would be my first question. And then the second question, just on gaming. Actually, is this a problem of sell-in or sell-through? In other words, is this a substantial channel reset that takes place here? Or is it basically kind of your assessment of the underlying market?

Thank you, Chris. No, we don't see any change to the risk profile. This is a delay in process, and we cannot speak to market shares. It's very difficult because if it's all implants, it's 1 number. If you zoom in a given product segment, it can be higher. And that's exactly the discussions and mapping that goes on with the approval authorities to educate and explain how this market is composed and that's why it also takes time. And I think maybe the Spanish authorities have founded complicated and therefore asked EU to step in and take over. Secondly, it is, of course, an important part of our -- reality is that it is a decision to discontinue our business and then finding a partner that can take over the service obligation more than it is a classical divestment and that is, of course, also something that can be a little more complicated than normal for the authorities to get their head around, but that is in reality, what's happening. So we don't see a change to the risk of the outcome, but we do see a significant delay in the process by this now being on EU level instead of local level. And the sell-in, sell-out, it's, I would say, both. There is, right now, more sell-out than there is sell-in. You can witness it maybe, I don't know, in Switzerland, but if you go to some of these outlets, you will find empty shelves of products that we have on stock. But as there is another product next to that they have not sold yet and they might have stuck off, they try to sell that. So there is a bigger sell-out in the market than there is a sell-in. So eventually, it will come. But the sell-out is also at a lower level than it was in the past and that you would assume normally. So consumer electronics is no doubt impacted including gaming, headsets, and I don't know, equipment, but at least headsets.

And would you mind giving us a number of gaming sales down in Q3. I think as a point of reference, we have Logitech down 10%. And would that be worse or better than such a number, for example?

It's worse. I think it's always a little difficult to take a part when people describe it. Some of it is keyboards and all. If you -- our best estimate, market-wise, if we look at actual headsets, then we are at a much higher number than 10% whether it is between 30% and 50% down, I cannot tell, but we're at least in that range for the market, for gaming headset is our best estimate.

And our next question will come from David Adlington with JPMorgan.

So firstly, just wondered how confident you are that this weakness is [indiscernible] entirely down to the market. Obviously, there are some competitors out there with new launches. I'm just wondering if you see any impact from those. And then secondly, just moving on from that. I know it's still quite early days, but it was great to get your latest thoughts on any impact from OTC?

Yes, David, I think I got your question, your line was not too good, but I heard your first one, whether the weakening we see in our own performance could be related to competitive launches. And all the statistics we can relate to and compare to only indicate that we are taking share in the market. Again, unit growth, 5% to 6%, and market with 1%. And it's not just in remote markets that don't sell any premium. So I feel confident that we are in a good, strong competitive situation still. And OTC, as this is much more mix effects than it is in reality, back to the structural element, a unit decline also in U.S. but a shift away from private pay to other opportunities, I don't put this to OTC. That being said, there is, of course, as you can see, continue to come many, many almost daily new shots at that potential market. So it is, of course, going to be part of the equation, but I still am skeptical that, that will -- that really will raise volume significantly. But there will be many players to ask.

Our next question will come from Robert Davies with Morgan Stanley.

There are 2. One was just on the headcount reductions, sort of 150, 200 that you announced. Where do those sort of headcounts come from? Which functions? Is it sales and marketing, research, development, et cetera? Just give us a sense of where they are? And then the second one was just around the store closures. I know you announced starting with 50. Can you just give us a sense of where that is as a percentage of either the U.S. or group footprint? How big that is?

Yes. Thank you very much. The headcount, it varies across the 3 business areas. In Hearing Care, it is primarily front-end people because it's people working in the stores that we close and, of course, some support around that. In Hearing Aids, it's central -- selective central functions, primarily within R&D marketing, quality, stuff like that, that works on central -- classical central functions. And also on Communications EPOS, it is primarily these central functions that are part of the cost you do to service both current business, but also investment in the future road maps, et cetera, where we lower the ambition level a bit to better be in line with the market we see.

I'm sorry, on the store closures, as a percentage of the overall group?

Yes, in the overall group, it's 50 out of several thousands, 2,500. So it's a smaller proportion in U.S. It's out of 600, 700 stores. So it is an adjustment, and I don't take it as an indication that we don't want to have stores in the future in U.S. either. We have built the U.S. business from many years of small acquisitions. And this is a decision to really carefully review whether they are all located in the right place. So again, there will also be a day where there will still be greenfields and so on in areas where we assure it makes sense. But now we are focused on the profitability and getting that up. So we will look for low margin or negative contribution stores, and we will shut them down now. And then we will, sometime in the future, see how we can grow at other places.

Maybe just as one follow-up. Could I just ask about the Communications business. How are you thinking about your investment plans there given where margins or consumer demand is obviously getting worse? Is there any appetite to put some of those spending plans on hold for a while to sort of see how that shapes up into '23 or things continue as you would originally sort of -- originally had planned?

This is, you could say, lowering the run rate on the cost base. And even though for the group, it's -- you could say it's a smaller part. Then for the Communications business, it is quite a significant change in size of the central functions, especially some of the areas. So it is a readjustment of the size of the business to the current business and also how we see it right now.

And our next question will come from Hugo Solvet.

On the cost saving initiatives, given you've done already [indiscernible] in terms of store closures, [indiscernible]. Can you maybe give us a number on what the benefit from that should be in 2023? And what do you mean by [indiscernible] H1, is it more Q1, Q2, more indication on that, if you can. On the managed care contracts, can you maybe remind us or any more managed care contracts you think you will or could exit? How long will it take? And when should we expect that to annualize? And on the divestment of the CI business, once the matter is taken at the European Commission level, we are often seeing process and transaction being delayed over and over again. So just wondering what's your level of confidence of closing that transaction in 2023?

Yes. Sorry, the line was really not too good, but I think we got it. The first question was centered around the impact next year on cost reduction. So Rene will comment on that, but I can take the last 2 first. The managed care contracts, it is a number of the bigger ones that we have exited. We also gained some smaller ones ourselves here and there, but we have no further plans of exiting other significant contracts. On the uncertainty in time, there is uncertainty. And yes, it's still there. Q2 is our best estimate at the current time.

Yes, on the profitability, impact of the cost reductions, it is a program that is being executed and defined in detail over the coming weeks and months with regards to the exact employees and the exact stores and therefore, you can say, we don't have a specific number in mind. But looking at the headcount of 150 to 200 and 50 stores would give at least DKK 100 million profit tailwind next year. That's at least what we estimate currently. And you should say it would have an impact already in the first half year, but we cannot be more specific on the actual quarters.

But it will be a kind of roll-off type. It is jobs that we eliminate or make redundant now and then people will roll off as either their contract expire or they get jobs elsewhere. And then for a few, for instance, in the footprint, we are probably more right out of the box because you can do so in U.S.

Our next question will come from Niels Leth with Carnegie.

My first question would be on the staff reduction. So are you planning to take all costs related to those staff reductions in '22? Or will there be an effect of these staff reductions going into next year in terms of cost? My second question would be if you could provide an update on the FX effects and by that, I mean, not the revenue effect, which you stated in your press release. But the anticipated effect on your profitability for the second half of this year given the current FX rates?

So on the staff reduction part. So overall, we don't foresee any significant one-offs related to this restructuring. And for a number of the staff, we -- they will not be released immediately and thus will work into '22 -- '23, sorry, and therefore, the roll-off of these costs will be, you can say, sequential from Q4 and into Q1, Q2 next year. So I hope that answers your question. When it comes to the FX effect, we saw a tailwind of just CI of DKK 100 million in the first half year, and we anticipate to see something similar in the second half year, which would also imply, since we do still have a negative hedging effects both in first and second half year, which will, of course, also imply that we will have an additional hedging tailwind going into '23.

Sure. And can you just update us on your cash flow performance in quarter 3? If I remember correctly, you generated a free cash flow of DKK 300 million and something in the first half. How did it look like in quarter 3?

Yes, it was up for that, and it was a solid cash flow.

Our next question will come from Veronika Dubajova with Citi.

I'll keep it to 2, please. One, I just want to circle back on to how you thinking at this stage about what 2023 from a market perspective looks like? Do you think -- I know it's a crystal ball kind of a question. But I mean, presumably, given that you're taking some actions on the cost footprint, why would you reduce that you're not expecting 2023 to go fully back to normal? Correct me if I'm mistaken on that. And then just maybe outline what you think volume and ASPs might look like under different scenarios, just so that we can get your thoughts on that. And then my second question is assuming that the market environment does remain subdued to the same extent that we're seeing at the moment, would you reconsider or revisit any potential plans to launch a new platform in light of that market environment? Or you think the market environment doesn't really matter and whenever we're ready, we're going to launch?

Yes. Thank you very much, Veronika. It's obvious that we are applying a more cautious approach to 2023, and I would say we could see recovery in units and start to see market growth. I think the big uncertainty relies to swing bag effects on, that cause the ASP decline this year, where we then start to see an ASP uplift because people will again swift back to channels with better ASPs, et cetera. I don't want to sit here and guess too much on that. But yes, we go into the year more cautious as the current effects, at least short term, we expect also with grow into the new year. And launches, et cetera, we will not change our plans to this. It still makes a lot of sense to steal market share from competition, if you can, and the market is big enough that there is a big upside. So no, I don't want to hold back things. I think it's just full steam ahead.

[Operator Instructions] We'll take our next question from [indiscernible] with Bank of America.

I have 2, please. So the first one. Weakness so far seems to be more towards the U.S. market rather than really on the European one. Do you fear that the high energy prices in Europe this winter could reverse this trend over the coming weeks. So basically, have you just started to see any change in the European customers' behavior yet? Second question on the midterm guidance. Should we see some risk to your midterm guidance? I think it's 6% to 8% organic growth and especially given softer 2022, probably, I would just say, life 2023? And also same question, but more specifically on the Communications business where you expect slightly positive EBIT next year, which is also very challenging to achieve given the current market environment?

Yes. Thank you very much. We do have a totally different structure of the Hearing Aid market in most European markets. There are reimbursement in various kinds and public channels and so on, that makes it much more robust. And for the same reason, the number of people that already today buy the most expensive is significantly different in the U.S. And that's why the -- you could say, the risk profile in the U.S. market fundamentally is higher and also the vulnerability and the sensitivity these effects much bigger in the U.S. than they are in Europe. It's a very significant percentage of U.S. consumers that end up buying the most expensive model, which in, for instance, Germany, the world's second biggest market, is fundamentally different because when there is a free to client, it's the same thing now in France, then there is much more people that just start there. So the exposure is simply fundamentally different. And therefore, even though there were some of the same effects there for the same reasons that you highlight, then it will never come out as profoundly as we have seen in U.S. The organic growth of 6% to 8% is, of course, high when we do as we do currently and the market is, as we are doing currently, that's based on a 2% to 4% value growth in the market, and we are pretty far away from that right now. And therefore, the other element is also under pressure. And then your semi-third question on the EBIT in Communications. No, we don't expect any more to deliver a breakeven in '23. I think we can say that even though we are not yet guiding for '23, I see that as not an option.

[Operator Instructions] We'll take our next question from Graham Doyle with UBS.

Just a couple. So firstly, just on price increases. So we've obviously seen certainly the survey data we're seeing at record levels on breadth of price increases into the retail channel. And obviously, now we're seeing slowing volumes. So is there potentially room to actually cut price as we move into next year to try and take share in what might be a slower market, particularly in the U.S. And then just a question with regard to your retail footprint in Europe. Are you seeing any changes in terms of wage pressure within those units? That would be great.

Yes. Thank you. No, the price increase is simply to constantly work against the inflation pressure. There will be a day where things normalize when it comes to consumer sentiment, et cetera. And then, yes, my prediction is that the whole mix will also normalize. There's plenty of options to just buy a cheaper model, and people don't know when they come in, that I shop a premium, I always shop premium or the awareness is not there. So that trading down is not what you do to the pricing. Short term, it might be turned into a slight effect on trading down. But long term, it is the right thing to get prices up when salaries in production go up, when components go up, when freight costs go up, et cetera, et cetera. We, of course, see that there is areas where wages go up, but not as we have said before, beyond our expectations. Some of it, you can say, have already happened. There's no doubt that in certain areas already last year, in the first half of this year, the job market was very heated. And therefore, people changed job for a salary increase. And to my best estimate, that's a bigger effect than in reality, the current potential wage inflation. They are, of course, different whether you talk about unionized workers, which on the latter is more coming now, but still that is a relatively smaller part of our cost base. The majority of our staff is people with white-collar workers.

Okay. So just a real quick follow-up. On the pricing side of things. So what can you do that you haven't already done, I supposed to take more share next year because it sort of sounds like you're saying there is no ability to use price to take share. So is it just sort of more of the same basically for 2023?

Yes, it is, the starting point for gaining share in our business is R&D innovation. It is a very seamless and well-functioning high service supply chain. There is a lot of daily deliveries and taking things back and so on, service repair. And then, of course, a good sales and marketing job efficiently. They are the 3 core components, and we will also, next year, focus on all 3 of them. And yes, expect to be able to continue to drive share gain as we have done so far this year, both in Hearing Aids and in Diagnostics, and we expect that formula also towards next year.

And it appears we have no further questions in the queue. I'll turn the program back over to the speakers.

All right. Thank you, operator, and thank you so much to everybody for joining us. If you do have any further questions, you guys know how to reach us, and we look forward to seeing many of you over the coming weeks. Have a good rest of the day. Thanks.