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 one hour, including the Q&A session. With me today, I do have our President and CEO, Søren Nielsen, and also our CFO, René Schneider, and myself, Peter Pudselykke, from the IR team. Without further ado, I'll turn the microphone over to Søren for his initial remarks.
Yeah, 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. 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 downwards trends in some of the business areas, which I'll speak to. Despite of still strong market share gains in diagnostic, impressive market share gains in Diagnostic and also in Hearing Aids, contrary to our previous expectations, we do see the U.S. private market increasingly negatively impacted by macroeconomic conditions, uncertainty, 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's 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 fare better and not far off our initial plans. Last change is the divestment process of Hearing Implants to Cochlear Limited that 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 European Commission to take a look on their behalf. 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 negative organic growth for the second half, 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 weaker due to weaker-than-expected performance in Hearing Aids, Hearing Care and Communication, whereas Diagnostic performed well and also slightly above our expectations. Based on this, we adjust the outlook for the year, and again, most importantly, our expectation for the fourth quarter, to a previous organic growth for the group of four to six percent, now two to four, and EBIT range lowered by DKK 350 million from DKK 3.5 billion-DKK 3.8 billion to now DKK 3.15 billion-DKK 3.45 billion. Hearing healthcare, the hearing aid market in 2022 so far, I think that's of course the most interesting and important.
In reality, in line reasonably with our past commentary when it comes to the unit development. We have seen a third quarter delivering estimated 1% growth to the global market in units, which year to date is 6%, which on a CAGR back to 2019 is 5%. Structurally, okay if you disregard potential for pent-up demand. 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.
More sales to government or more growth in government business, more growth in geographies due to the comp figures with a lower ASP, and especially in North America, a negative and more negative development than they 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 a slightly negative to flattish unit growth. VA and NHS continue to grow, but are still only approaching a past or a pre-pandemic levels.
Hearing Aids performance was, despite the 6% organic growth, which is obviously, in our opinion, significantly more than the underlying market growth, below expectations, and it is because we 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.
Again, ASP declined slightly, so the 5%-6% growth was purely unit growth and that without a over proportional share of export, et cetera, that typically sometimes then drive down the ASP. This is ASP in, you know, real market- by- market. 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.
You could say it put us in a little bit of a hot spot right now, as the market for private pay is under pressure. 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 for natural reasons, and U.K. mostly due to local events of various kinds. Negative. North America, weak performance. 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 and 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. Very strong performance continues in Diagnostics. Communication, we estimate the market growth rate for enterprise solutions and gaming, it was mixed. Market for enterprise saw a growth in Q2, partly driven by some easing of some of the supply chain constraints that existed, which means you deliver to back orders. 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.
Therefore we must say we have quite a 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. Cost reduction initiatives they come across all the three 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 thorough review of our net profitability per store, simply to see what is coming from that you might have been without staff for a while, what comes from lack of demand, what comes from conversion to managed care, and it doesn't come equally across a big country like U.S. We zoom in on each and every store, and we believe that at least 50 stores would be better off closing them and resizing the organization accordingly.
In Hearing Aids, in addition to an already initiated process of transferring the Bernafon brand headquarters in Switzerland to the group headquarters here in Denmark, we will be adjusting part of the central organization covering primarily and a small adjustment to the organization. Communication is a big 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.
Until we see that, we will act cautiously. All in all, an assumed headcount reduction of between 150 and 200 people across the organization. Again, Hearing Aid centrally, Hearing Care U.S., and Communication, also primarily, centrally. 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. 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. We expect the total unit market for 2022 to be in the low end of the structural level of 4%-6%.
Year- to- date, we're at 6%, so we do not expect a lot of growth in fourth quarter. We expect the ASP growth to be more negatively impacted by channel and geography mix than we anticipated earlier. 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. 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. We can see it coming, but not as fast as we would like. For Communication, we expect to see negative high single digit organic growth in the second half, which means quite negative in fourth quarter. That is because you know, last year, we did have a year-end effect, which we do not see this year. For Communication, we therefore now expect a negative EBIT of around DKK 225 million as opposed to the DKK 150 million we had at the last update.
That is driven by market conditions and continued supply chain challenges. Mid to long term, we still firmly believe in the structural growth. There will be more gamers tomorrow than there 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. We are quite positive still there that it will come back at some stage, but right now it's difficult to predict. On discontinued operation, we are now, as I said initially, expected to close in the second quarter of 2023.
We expect the negative effect this year or the negative profit this year to be DKK 200 million-DKK 250 million. Of course, there's also a negative effect going into next year from that and also a delay of the assumed payment from Cochlear. Outlook for 2022 organic growth 2%-4%, previously 4%-6%. EBIT guidance lowered with DKK 350 million, so now DKK 3.15 billion-DKK 3.45 billion. The gearing multiple, we will end the year slightly below 3.0x, and we will work our way back to the 2.0x-2.5x.
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. I guess that was it from my side, and we go to Q&A.
At this time, if you would like to ask a question, please press the star and one on your touch-tone phone. You may remove yourself from the queue by pressing star and two. As a reminder, to ask a question, that is star and one. We'll take our first question from Maja Pataki. Your line is open.
Hi, this is Maja. Thanks for taking my question. Sorry, and 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, when looking at 2021, and therefore, you know, 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, you know, something, you know, whether the base effect didn't start to play in. Then on the second question. In your press release, you mentioned that it proves to be more difficult to, you know, substitute the managed care patients with private pay patients.
Just, 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. Or whether 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. Thank you.
Yeah. Thank you, Maja. No, we don't have a market statistic for U.S. in October. Still, interpreting 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. To your point of whether there's also a habit element, there's always a change.
I think it is a matter of training and so on. We say bad combination of going for more private pay and then at the same time have a declining market. There is an element of geography exposure as well. We have never, we would say, diligently chosen where to have our stores, and U.S. is a big country. There are significant differences across geographies in U.S. of how big the managed care element is, and how the sensitivity is to the private pay element. It's in that light that the store review is taking place.
Thank you for that.
Our next from Oliver Metzger with ODDO BHF, your line is open.
Oh, hi. Good afternoon. Thanks for taking my questions. 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 would be good to get some more color on that. Second question is on the gaming market. So, you still describe quite a tough development, and communication as a whole was flattish. So if you compare your gaming to the overall gaming market, do you still see a meaningful underperformance? Or what's your takeaway, you versus the market?
Yeah. Thank you very much, Oliver. We have applied price increases as previously announced. Yes, we have seen an effect of that. It is a positive effect of that. It is mixed development in its channels, in its geographies, and it's always difficult to see whether there is a mix effect or whether that's because you introduced mid-price products not long ago. You know, we do see mix effects. I'm just cautious to say whether it's market-driven or our own performance. Yes, there's also a mix effect. It's all coming from that, and that the growth is very uneven, or even opposite, in different channels. There is a movement from higher priced channels to lower priced channels.
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. That is part of ASP. The gaming market, we have no data that can tell us that precisely whether it's us. Everything we see from other people announcing and speaking to it, we seem to be in line with the general market. We don't have more details than that.
Thank you.
Our next question will come from Christian Ryom with Danske Bank. Your line is open.
Yes, good afternoon. This is Christian Ryom from Danske Bank. Thank you for taking my questions. I have two as well. 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. The second question is to the gross margin. 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.
Yeah. Thank you, Christian. Hearing care, you have a fine point on the comp. No, we expect more of a flattish development in Q4 on hearing care. I think I'll leave it to René. There's not a lot of moving parts.
No. Well, 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. i.e., the slight improvement over first half year, we estimate to be sustainable for the full second half year.
Great. Thank you.
Our next question will come from Hassan Al-Wakeel. Your line is open.
Thank you for taking my questions. I have two, 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?
Should we assume that the normal market growth rate is unlikely in 2023 should the macro not improve? Thank you.
Yeah, thank you very much. Well, there is a spread and an 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 communication 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. That is reflecting that. Macro headwind next year, you know, we cannot speak for the full year. We don't know how things are gonna develop on full year basis, but that is, of course, not a quick solution January first. We do anticipate that we will also see some of this dragging into next year.
So far we cannot say, and how long. I think very few people can predict that, and I'll not be one of them.
That's very helpful. If I could just follow up on what you're seeing currently. You obviously talked about mix and you know geographical and some product mix. How significant, if at all, is downtrading as a factor?
I mean, again, it's very difficult to talk about downtrading when we look at our own retail; it's not very profound. The mix changes are much bigger coming from geography, the U.S. not growing, other markets growing more, Asia growing because they still are coming out of corona comparisons, et cetera. These effects are much stronger. The product mix is also because, as I said, we ourselves have introduced new mid-price products and therefore maybe gain a bit more share there than we do in the high end, where we introduced longer ago. It is very difficult to talk about trade-down and measure that.
It's very helpful. Thank you.
Our next question will come from Chris Gretler with Credit Suisse. Your line is open.
Thank you, operator. Good afternoon, Søren and René. Two questions. First on this implant divestiture. Is there any risk that, you know, you will get stuck with this business? Could you indicate what kind of market share combined you and Cochlear would have in the Spanish market? That would be my first question. The second question, just on gaming, you know. Actually, you know, is this a problem of, you know, sell-in or sell-through? In other words, you know, is this substantial channel reset that takes place here, or is it basically kind of your assessment of the underlying market?
Yeah. 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, you know, if it's all implants, it's one number. If you zoom in on a given product segment, it can be higher. That's exactly the discussions and mapping that goes on with the approval authorities. It's to educate and explain how this market is composed, and that's why it also takes time. I think maybe the Spanish authorities have found it complicated and therefore asked E.U. 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 a business and then finding a partner that can take over the service obligation more than it is a classical divestment. That is, of course, also something that can be, you know, a little more complicated than normal for the authorities to get their head around, that is in reality what's happening. 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 E.U. Level instead of local level. 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 in stock. As there is another product next to it that they have not sold yet, and they might have stock of, they try to sell that. 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. Consumer electronics is no doubt impacted, including gaming headsets and I don't know equipment, but at least headsets.
Would you mind giving us, you know, a number on, you know, just, you know, gaming sales down in Q3? I think, you know, we as a point of reference, we have, you know, Logitech down 10%. You know, 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 apart when people describe it. Some of it is keyboards and mouse. Our best estimate market-wise, if we look at actual headsets, then we are at a much higher number than 10%. Whether, you know, where it is between 30%-50% down, I cannot tell, but we are at least in that range for the market for gaming headset is our best estimate.
Thank you. I appreciate it.
Our next question will come from David Adlington with JPMorgan. Your line is open.
Hey, guys. Two questions. Firstly, just wondering how confident you are that this weakness is 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. Secondly, just moving on from that, I know it's still quite early days, but are you still [audio distortion]. Can I get your latest thoughts on any impact from OTC? Thank you.
Yeah, 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. All the statistics we can relate to and compare to only indicate that we are taking share in the market again. Unit growth 5%-6%, and market with 1%. It's not just in remote markets that don't sell any premium. I feel confident that we are in a good, strong, competitive situation still.
OTC, no, as this is much more mixed 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 almost daily new shots at that potential market. It is of course gonna be part of the equation, but I still am skeptical that really will raise our volume significantly. There will be many players to ask.
Great. Thanks. Thanks very much.
Our next question will come from Robert Davies with Morgan Stanley. Your line is open.
Yes, thanks for taking my questions. There are two. 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. The second one was just around the store closures. I know you announced, I think it was 50. Could 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? Thank you.
Yeah. Thank you very much. The headcounts, it varies across the three 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 is central, selected central functions, primarily within R&D, marketing, quality, stuff like that works on you know, central, classical central functions. Also on Communication EPOS, it is primarily these central functions that are part of you know, the cost you do to service both current business, but also investment in the you know, future roadmaps, 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?
Yeah. In the overall group, you know, 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. Don't take it as an indication that we don't wanna 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. There will also be a day where there will still be greenfields and so on in areas where we're sure it makes sense. Now we focus on the profitability and getting that up.
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 other places.
Thank you. 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 are? 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 2023, or things continue as you'd originally had planned? Thank you.
Yeah. This is, you could say, lowering the run rate on the cost base. And even though for the group, it's a smaller part, then for the Communication business, it is quite a significant change in size of the central functions, especially some of the areas. It is a readjustment of the size of the business to the current business and also how we see it right now.
That's great. Thank you.
Our next question will come from Hugo Solvet. Your line is open.
Hi. Hello. Thanks for taking the question. On the cost savings initiatives, given you've done already extensive work on that in terms of store closures, at conclusion, can you maybe give us a number on what the benefits from that should be in 2023, and what do you mean by impact us in that H1 with more Q1, Q2, more indication on that, if you can. On the managed care contracts, can you maybe remind us how many more managed care contracts you think you will or could exit, how long will it take, and when should we expect that to analyze?
On the divestment of CI business, once the matter is being taken at the European Commission level, we are often seeing process and transaction being delayed over and over again. Just wondering what's your level of confidence of closing that transaction next week. Thanks.
Yeah. 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 reductions. René will comment on that, but I can take the last two first. The managed care contracts, it is a number of the bigger ones that we have exited. We also gained some smaller ones ourself here and there. We have no further plans of exiting other significant contracts. On the uncertainty on time, there is uncertainty, and yes, it's still there. Q2 is our best estimate at the current time.
Yeah. 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. Therefore, you can say we don't have a specific number in mind, but looking at the head count of 150 to 250 stores would give at least a DKK 100 million profit tailwind next year. That's at least what we estimated currently. You should say it would have an impact already in the first half year, but we cannot be more specific on the actual quarters.
It will be a kind of roll-off type. It is jobs that we, you know, eliminate or make redundant over time now and then. People will roll off as either their contract expire or they get jobs elsewhere. For a few, for instance, in the footprints, we are probably more right out of the box because you can do so in U.S.
Thank you very much.
Our next question will come from Niels Leth with Carnegie. Your line is open.
Thank you, and good afternoon. My first question would be on the staff reductions. Are you planning to take all costs related to those staff reductions in 2022, 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 state in your press release, but the anticipated effect on your profitability for the second half of this year given the current FX rates. Thank you.
On the staff reduction part, overall, we, you know, we don't foresee any significant one-offs related to this restructuring. For a number of the staff, we, you know, they will not be released immediately and thus will work into 2022 or 2023, sorry. Therefore, the roll-off of these costs will be, you can say, sequential from Q4 and into Q1, Q2 next year. I hope that answers your question.
When it comes to the FX effect, we saw a tailwind of just G&I 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 2023.
Sure. Can you just update us on your cash flow performance in quarter three? If I remember correctly, you generated a free cash flow of DKK 300 and something in the first half. How did it look like in quarter three?
Yeah. It was up for that, and it was a solid cash flow.
Okay, great. Thank you.
Our next question will come from Veronika Dubajova with Citi. Your line is open.
Hi, guys. Good afternoon. Thank you for taking my questions. I'll keep it to two, please. One, I just wanna circle back, Søren, to how you're 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, one could deduce 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, you know, volume and ASPs might look like under different scenarios, just so that we can get your thoughts on that.
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 gonna launch? Thank you.
Yeah, thank you very much, Veronika. It's obvious that we are applying a more cautious approach to 2023. I would say we could see a recovery in units and start to see market growth. I think the big uncertainty relies on swing back effects that caused the ASP decline this year, where we then start to see an ASP uplift because people again shift back to channels with better ASPs, et cetera. I don't want to sit here and guess too much on that. Yes, we go into the year more cautious as the current effects, at least short term, we expect also will cross into the new year.
No, 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. No, I don't wanna hold back things. I think it's just full steam ahead.
Got it. Thank you very much.
As a reminder, that is star and one to join the question queue. We'll take our next question from Julien Ouaddour with Bank of America. Your line is open.
Hi, thank you very much for taking my questions. I have two, please. 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? 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%-8% organic growth, and especially given softer 2022, probably, as you said, light 2023.
Also same questions, but more specifically on the Communication business, where you expect slightly positive EBIT next year, which is also very challenging to achieve given the current market environment. Thank you very much.
Yeah, 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. For the same reason, the number of people that already today buy the most expensive is significantly different in the U.S. That's why you could say the risk profile in the U.S. market fundamentally is higher, and also the vulnerability and the sensitivity to 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, for instance, in Germany, the world's second-biggest market, is fundamentally different because when there is a free to client, same seen now in France, then there is much more people that just start there. The exposure is simply fundamentally different. 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%-8% is, of course, high when we do as we do currently.
The market is, as we are doing currently, that's based on a 2%-4% value growth in the market, and we are pretty far away from that, right now. Therefore, the other element is also under pressure. Then your semi-third question on the EBIT in Communication. No, we don't expect any more to deliver a breakeven in 2023. I think we can say that, even though we're not yet guiding for 2023, I see that as not an option.
Thank you. Thank you very much.
As a reminder, that is star and one to join the question queue. We'll take our next question from Graham Doyle with UBS.
Hi, and thanks for taking my questions. Just a couple. Firstly, just on price increases. We've obviously seen, certainly in the survey data, we're seeing record levels on breadth of price increases into the retail channel. Obviously now we're seeing slowing volumes. 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. 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'd be great. Thank you very much.
Yeah. 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. Yes, my prediction is that the whole mix will also normalize. There's plenty of options to just buy a cheaper model. People don't know when they come in that I shop premium. I always shop premium or, you know, the awareness is not there. That's trading down is not what you do to the pricing.
Short term, it might be turned into a slight effect on a trading down, but long term, it is the right thing to get prices up when salaries and 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 could say have already happened. There's no doubt that in certain areas already last year and the first half of this year, the job market was very heated, and therefore people changed job for a salary increase. To my best estimates, 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. Still, that is a relatively smaller part of our cost base. The majority of our staff is, you know, white-collar workers.
Okay. Just a real quick follow-up. On the pricing side of things, you know, what can you do that you haven't already done, I suppose, to take more share next year? 'Cause it sort of sounds like you're saying there is no ability to use price to take share. 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. Then, of course, a good sales and marketing job efficiency. They are the three core components, and we will also next year focus on all three of them. 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 Diagnostic. We expect that formula also to work next year.
Great. Thank you very much.
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.